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What’s behind the $27 billion figure?

Date: Dec 17, 2009

U.S. trial lawyers representing 48 Ecuadorian plaintiffs (not 30,000) are attempting to hold Chevron liable for more than $27 billion. Amazingly, this astronomical number mostly goes unquestioned. So what goes into creating a figure that is 10 times the cost to remediate the nation of Kuwait post Gulf War?

First, one must consider its origin.  The $27 billion was presented by Richard Cabrera, a mining engineer with no oilfield remediation experience.  Cabrera was named by the court to assess possible environmental damage in the former concession area and, if any, determine the cause and work needed to fix it. In addition to being unqualified, Cabrera ignored court instructions and improperly expanded his work scope to invent categories of damages unrelated to the issues raised by the lawsuit or with environmental remediation. Not surprisingly, his appointment was fully supported by the plaintiffs’ representatives who ultimately paid Cabrera more than $200,000 for his work.  Perhaps most egregious, however, is the fact that Cabrera staffed his technical team with plaintiffs’ representatives and portions of his “independent” report were developed by organizations affiliated with the plaintiffs [click here] and [here].

Following is a breakdown of Cabrera’s fraud:

Pit remediation: Proposed damages ($2.743B)

Petroecuador has publicly acknowledged responsibility for remediation of all existing oilfield pits associated with their nearly 40 years of operations in the Oriente region of Ecuador, including all of the remaining pits in the former Petroecuador-Texaco concession.  In 2005, Petroecuador initiated a $121-million remediation program, termed the “Pit Remediation Project of the Amazon District” (PEPDA), with the goal of completing the closure of all pits, spills, and other affected areas in accordance with applicable Ecuadorian regulatory standards by 2010.  As of December 2007, the PEPDA program had initiated and/or completed remediation of more than 40% of the 370 open pits identified in the former concession area, with formal inspection and approval by the government regulatory agency, DINAPA (Dirección Nacional de Protección Ambiental).  Under a new program, designated UMR (Unidad de Mitigación y Remediación), a successor program to PEPDA, Petroecuador remains committed to completing the remediation of all remaining pits and oil spill areas in the Oriente within the next few years.

In the Chevron case, the plaintiffs have charged that the oilfield pits in the Oriente pose a grave danger to local residents and the environment, and they have demanded that Chevron, whose subsidiary Texaco Petroleum served as a minority partner of Petroecuador nearly 20 years ago, pay the plaintiffs for the cost of remediation – regardless of the fact that these same pits have already been or will soon be remediated by Petroecuador.  Indeed, the lead attorney for the plaintiffs, Pablo Fajardo, has even protested the Petroecuador cleanup program, complaining that it is “changing the lawsuit” and “hiding” evidence.  In October 2007, he submitted a formal letter to the court demanding that the remediation be stopped.

Coincidentally, Cabrera’s $2.743 billion estimate for pit remediation, over 150 times the Petroecuador budget of $18 million for this work, is based upon a highly inflated unit cost (over 36 times the actual per pit cost reported by Petroecuador) as well as a highly inflated estimate of the number of pits (over 4 times the actual number of oilfield pits remaining in the former concession).

Groundwater remediation: Proposed damages ($3.236B)

Cabrera arrives at this figure with no evidence to substantiate a damage claim. He took NO samples from rivers, streams, wells or potable water sources.  His handful of “groundwater samples” in the former concession area, actually come from borings taken from within pit areas and are in no way representative of what geologists or hydrologists would consider groundwater.

Healthcare system: Proposed damages ($480 MM)

While health is a serious concern in the region due to widespread fecal contamination of drinking water, the construction of a health care system is clearly not Chevron’s responsibility, nor has it ever been part of the litigation. Plaintiffs’ attorney Julio Prieto underscored this in a recent Radio Majestad interview when he said, “in the claim we have not requested any health issue in particular.”

It’s the sole responsibility of Ecuador’s government, which encouraged massive migration to the region and failed to provide the most basic sanitation services like sewage treatment.

Impacts on indigenous populations: Proposed damages ($430 MM)

Populations of all indigenous groups in the region have grown markedly throughout the period since oil was discovered in Ecuador’s Amazon. Meanwhile, deforestation and encroachment on indigenous lands by settlers was a direct result of the Ecuadorian state’s colonization policy, not oil development. When oil exploration began in the 1960’s, the population of the region was approximately 25,000 – largely native peoples and missionaries. Today, the region is among the fastest growing in Ecuador, home to more than 300,000 citizens who have converted jungle to agricultural lands at the government’s behest.

Potable water system construction: Proposed damages ($428 MM)

Numerous potable water systems exist in the region, but Cabrera failed to take samples from them. Likewise, Cabrera failed to sample rivers, streams, or wells.  So, how does he know more potable water systems are needed? And how does he justify holding Chevron liable for creating a potable water system for the entire region when the main problem with drinking water is bacterial – not hydrocarbon – contamination?

Petroecuador’s infrastructure: Proposed damages ($375 MM)

Ecuador’s government and state took in approximately $25 billion over the 20-year life of the consortium. Texaco Petroleum earned $490 million, its contract expired in 1992 and it left Ecuador after successfully conducting remediation, carrying out social programs and upgrading equipment under an agreement with the state. For two decades, Petroecuador has been exclusive operator of the former consortium oilfields, earning 100 percent of an estimated $50 billion in additional revenue. So, having earned some $75 billion, shouldn’t Petroecuador maintain, replace and build out its own infrastructure?

Excess cancer deaths: Proposed damages ($9.527B)

Neither Cabrera, nor the plaintiffs’ lawyers, have ever presented to the Lago Agrio court the name of a single cancer victim, a single medical report or a single death certificate to substantiate this claim. What’s more, official cancer mortality statistics in Ecuador reveal that, not only are Cabrera’s assertions false, but the cancer rate in the oil-producing region is actually lower than in non-oil producing regions of the country. Finally, the only time a lawyer for the plaintiffs presented specific cancer claims before a court (in U.S. federal court in San Francisco), the claims were thrown out after Chevron showed them to be false.  The lawyer, the originator of the Lago Agrio case, was fined $45,000 and sanctioned for the fabrications.

Deforestation of stations, wells and roads: Proposed damages ($875MM-$1.697B)

Ecuador’s government required that the consortium construct roads throughout the region to facilitate the state’s colonization program. Moreover, the total footprint of actual oil operations in the former concession area amounts to roughly 6.8 square kilometers. If roads are included, the footprint grows to just over 44 square kilometers. This is an important fact to consider in a concession area of 4,429 square kilometers that produced approximately $25 billion for the Republic of Ecuador.

Unjust enrichment: Proposed damages ($8.421B)

Central Bank figures show that Texaco Petroleum earned $490 million while the Republic of Ecuador received, through taxes, royalties, internal market subsidies, dividends from Petroecuador’s majority stake and other revenue, approximately $25 billion during the 20-year consortium.

Problems with Cabrera’s work are not limited to his absurd damage recommendations. The reports themselves are filled with mathematical and scientific errors. On a number of occasions he simply fabricates evidence. He gathered much of his “evidence” with the help of the plaintiffs’ technical team. He copied into his reports whole blocks of text from the plaintiffs’ court filings to justify some of his most outlandish assertions, such as his cancer claims and the remediation estimates. He fails to mention Petroecuador’s responsibility for environmental problems in the region despite its 62.5-percent majority stake in the consortium and its status of exclusive operator in the former concession area for almost 20 years.

Cabrera also fails to acknowledge Texaco Petroleum’s $40 million remediation related to its approximate one-third stake in the consortium, or the 1998 release from future claims granted to the company by the government and Petroecuador. Finally, the court’s appointee is unconstrained by the fact that the plaintiffs are suing Chevron strictly for environmental remediation costs. “So,” you may ask, “with all of the above in mind, how could a law-abiding, fair-minded, and independent court allow such absurd damage claims stand as the basis for a verdict?” The answer is, “a law-abiding, fair-minded, and independent court couldn’t.”