Chevron Witch Trial Yields Bizarre $27 Billion 'Environmental' Claim

Chevron oil company is being sued in Ecuador for $27 billion. It’s a big number. The gross domestic product (GDP) of Ecuador in 2008 was $54 billion. So $27 billion is 50% of the GDP of the entire country. And the $27 billion claim is sheer fantasy. The damage claim against Chevron is based on a gigantic scam.

It goes back a while. Between 1965 and 1990, the old Texaco company developed oil concessions in Ecuador. (Texaco merged with Chevron in 2001, hence Chevron is now in the dock.) Between 1977 and 1990, Ecuador progressively nationalized Texaco assets, and transferred them to the state oil firm, Petroecuador.

In the early 1990s, Texaco and Petroecuador agreed to clean up a number of oil sites. Texaco kept its side of the bargain, and in 1998 the government of Ecuador certified that Texaco successfully cleaned up its share of the operations.

Nonetheless, in 1994 a group of U.S. attorneys sued Texaco in the U.S. They made novel legal claims for “environmental justice.” Eventually, the case was dismissed in the United States and a new case was filed against Chevron in Ecuador.

The Ecuadorean court appointed an “expert witness” to make factual findings and to calculate damages. Turns out that the “expert” is a mining engineer named Richard Cabrera, who has direct financial ties to the plaintiffs and as we learned this week, hidden ties to Petroecuador.

Cabrera’s mandate from the Ecuadorean court was to assess environmental damages. To do this, Cabrera hired assistants recommended by the plaintiffs. He transcribed entire passages from plaintiffs’ pleadings into his “reports” And where evidence was lacking, Cabrera made up entire categories of damage out of thin air. Here’s a summary.

Cleaning Up Old Oil Pits

The Ecuadorean court asked Cabrera to calculate the cost to clean up old oilfield pits. Cabrera’s number was $2.7 billion, to be assessed against Chevron.

Problems abound. Cabrera ignored the fact that Texaco previously cleaned up dozens of pits under its agreement with Petroecuador. Cabrera ignored the release of liability from the government of Ecuador. Cabrera overlooked the fact that Petroecuador is under contract with Texaco to remediate the remainder of the pits.

Indeed, according to Cabrera, Chevron should pay to clean up problems that occurred after 1990, caused by Petroecuador’s post-nationalization operations.

Even if Texaco (now Chevron) ought to act as some sort of environmental sugar daddy and pay to clean up more pits, can it possibly cost $2.7 billion?

Cabrera’s damage estimate is over 150 times the amount Petroecuador estimated for cleanup work. Cabrera counts over 4 times as many pits needing cleanup as does Petroecuador. And his cost estimate per pit is over 30 times the Petroecuador number. In short, Cabrera’s $2.7 billion number for cleaning the pits is sheer fantasy.

Groundwater Cleanup

Cabrera’s report assesses $3.2 billion in damages against Chevron for groundwater remediation. Yet there’s no evidence for the claim. Cabrera’s report includes no samples from streams, wells or other water sources.

Cabrera’s only basis for the water claim is a small number of samples that come from oil pits currently operated by Petroecuador. The claim for groundwater remediation is entirely specious.

Surface Damages

Cabrera included a damage claim for $1.7 billion for “deforestation.” That is, Cabrera slams Chevron because Texaco built roads, drill pads, pipelines and other facilities within the Amazon jungle.

It’s Catch-22. In the 1960s and 1970s, Texaco wanted to develop the oil concession without building an extensive road network. Texaco wanted to use helicopters for logistics. However, from the outset, the Ecuadorean government insisted that Texaco build roads. Now Cabrera’s report recommends assessing damages for the roads.

The entire footprint of former Texaco operations in Ecuador totals under 44 square kilometers — including 37 square kilometers of government-mandated roads. The total disturbed area is about 1% of the total 4,400 square kilometer oil concession.

Cabrera’s damage calculation comes to over $38 million per square kilometer. It’s just astronomical. Cabrera has turned these roads and oil pits into some of the most valuable real estate in all of South America.

Cancer Deaths

Going far beyond his court-ordered mandate, Cabrera included a rogue claim in his report by assessing Chevron over $9.5 billion for something called “excess cancer deaths.” The idea is that somehow, Texaco’s operations in the 1970s and 1980s caused untold cancer deaths to local people.

However over 16 years of litigation, the plaintiffs have never provided the name of even one cancer “victim.” Nor are there medical records, death certificates, pathology reports, or any other evidence of cancer deaths caused by former Texaco operations.

According to Ecuadorean government mortality statistics, the cancer death rate in the area of former Texaco operations is lower than the national average. This statistic doesn’t even scratch the surface of why people get cancer, such as genetics, smoking, diet, and other factors. The point is that Cabrera’s report doesn’t demonstrate any “liability” by Chevron for illness to local Ecuadoreans, now or in decades past.

Unjust Enrichment

The Cabrera report makes a hyperbolic claim of over $8.4 billion against Chevron, for something called the “unjust enrichment” of Texaco in years past.

Unjust enrichment? Texaco operated in Ecuador for about 25 years (1965 to 1990), with the last 13 years under progressive nationalization. Texaco’s Ecuadorean profits, over the 25 years, totaled $490 million, according to government tax records. Meanwhile, the government of Ecuador received over $25 billion in oil income and royalties.

Yet somehow, according to Cabrera’s bizarre logic, Chevron is liable for an unjust enrichment claim in Ecuador. It’s perverse.

Other Damage Claims

Cabrera includes a slew of other assessments against Chevron, none of which have any legal basis.

There’s a “health” claim for $480 million against Chevron, because much of the drinking water in the area is contaminated by human waste. Then he adds a $430 million charge against Chevron to construct a “potable water system.” But these are current problems with no relation to past Texaco operations.

Then there’s a $430 million claim for something called “impacts on indigenous populations.” Cabrera wants to slam Chevron today because, in the past, the Ecuadorean government encouraged outsiders to move into the oil concession region — using roads that the government told Texaco to build.

Finally, Cabrera includes a $375 million claim against Chevron to rebuild oil infrastructure that Petroecuador uses today. This is despite the fact that Petroecuador started nationalizing Texaco operations in 1977, and completed the process in 1990. So Petroecuador has controlled all oil operations for the past 20 years, generating over $50 billion in oil sales. But Cabrera recommends that Chevron buy Petroecuador an entirely new set of infrastructure.

Bizarre, Groundless Claims

There’s an Alice in Wonderland nature to the Cabrera report. Yet most news accounts of the Chevron trial in Ecuador pay no attention to the fantastical, groundless basis for the $27 billion “damage” claim.

With just a quick review, the “expertise” of the Cabrera report simply disintegrates. The report has no basis in fact, except that Cabrera spells Chevron’s name correctly.

The Cabrera report is a travesty, displaying unvarnished bias against Chevron. It’s a model of outrageous prejudice, if not a template for legal incompetence. Clearly, Cabrera is deep in the tank with the plaintiffs.

Cabrera’s sordid report is playing out within a legal proceeding in a foreign jurisdiction. For as bad as the Cabrera report is, there’s something worse. It’s the blind acceptance, within many elements of the mainstream news media, of the farcical Witch Trial going on against Chevron in Ecuador.