War Profiteer of the Month: Chevron
Chevron, once part of the Standard Oil empire, has grown over the past quarter century into the world’s fourth largest petroleum company, thanks to a series of ambitious acquisitions: Gulf Oil in 1984, Texaco in 2001 and Unocal in 2005. The purchase of Texaco brought with it a massive environmental lawsuit that has dragged on for more than a decade. This is only one of a host of controversies surrounding Chevron’s environmental and human rights record around the world.
Chevron traditionally traces its roots to an oil discovery in Pico Canyon (now the Pico Canyon Oilfield) north of Los Angeles. The discovery led to the formation, in 1879, of the Pacific Coast Oil Company, the oldest predecessor of Chevron Corporation.
Chevron Corporation was originally known as Standard Oil Co. (California) and was formed amid the antitrust breakup of John D. Rockefeller's Standard Oil company in 1911. It was one of the "Seven Sisters" that dominated the world oil industry in the early 20th century. In 1926, the company was renamed Standard Oil Co. of California or SoCal. In 1933, Saudi Arabia granted SoCal a concession to find oil, and oil was found in 1938. In 1948, SoCal discovered the world's largest oil field (Ghawar) in Saudi Arabia. SoCal's subsidiary, California-Arabian Standard Oil Company, developed over years, to become the Arabian American Oil Company (ARAMCO) in 1944. In 1973, the Saudi government began buying into ARAMCO. By 1980, the company was entirely owned by the Saudis, and in 1988, the name was changed to Saudi Arabian Oil Company (Saudi Aramco).
Standard Oil of California and Gulf Oil merged in 1984, the largest merger in history at that time.
In January 1996, NGC (formerly NYSE: NGL) and Chevron announced plans to merge Chevron’s natural gas and natural gas liquids business with NGC. On May 23, 1996, the companies reached an agreement in principle to merge their business. Under the agreement, Chevron transferred its natural gas gathering, operating and marketing operation to NGC in exchange for a roughly 25 percent equity stake in NGC. On August 30, shareholders approved the deal creating North America’s largest natural gas and gas liquids wholesaler. In 1998, NGC Corporation was renamed Dynegy (NYSE: DYN).
In a merger completed February 1, 2000, Illinova Corp. (formerly NYSE: ILN) became a wholly owned subsidiary of Dynegy Inc., in which Chevron also took a 28% stake. However, Chevron in May 2007 sold its roughly 12 percent (at the time) Class A common stock in the company for approximately $985 million, resulting in a gain of $680 million.
On October 15, 2000 Chevron announced it would acquire Texaco (NYSE: TX) creating the second largest oil company in the United States and the world’s fourth-largest publicly traded oil company with a combined market value of approximately $95 billion. On October 9, 2001, the shareholders of Chevron and Texaco voted to approve the merger creating ChevronTexaco. The deal was valued at $45 billion.
On May 9, 2005, ChevronTexaco announced it would drop the Texaco moniker and return to the Chevron name. Texaco remains as a brand under the Chevron Corporation.
On April 4, 2005, Chevron announced it planned to purchase Unocal Corporation (NYSE: UCL) for $18.4 billion increasing the company’s petroleum and natural gas reserves by about 15 percent. On August 10, 2005, Unocal Corporation shareholders approved Chevron’s acquisition of the company. The deal was valued at $18 billion.
On November 9, 2010, Chevron announced it would acquire Pennsylvania based Atlas Energy Inc. (NASDAQ: ATLS) for $3.2 billion in cash and an additional $1.1 billion in existing debt owed by Atlas. On February 18, 2011, the shareholders of Atlas energy voted to approve the merger. The deal was valued at $4.3 billion.
Chevron is a frequent target of criticism by environmental groups and human rights organizations for its practices in the United States and countries such as Ecuador, Nigeria, Burma, Chad and Angola. Each year many of these organizations get together to publish an alternative annual report called The True Cost of Chevron that documents in great deal the company’s record.
Ecuador. When Chevron took over Texaco it also acquired a long-standing controversy over the company’s operations in Ecuador. For nearly a decade, Texaco had been fighting a lawsuit charging that it had engaged in a massive amount of toxic dumping over the course of two decades. After their case was blocked in U.S. federal court, the plaintiffs in 2003 filed a $1 billion action against ChevronTexaco in Ecuador. Critics confronted the company over the issue at events such as its annual meeting. At the 2005 meeting then-CEO David O’Reilly shut down the floor microphone before a prominent Ecuadorian rainforest leader had a chance to speak about the environmental impact of the company’s operations.
Chevron lobbied the Bush Administration to use trade sanctions to get Ecuador to drop the case, but the suit continued. As it was reaching its conclusion in 2009 there were reports that the company could face damages as high as $27 billion, making it the world’s largest environmental lawsuit. The Amazon Defense Coalition criticized the company for not disclosing the full extent of the potential liability to its shareholders.
In August 2009 the case took an unexpected turn when Chevron claimed it had video evidence that the judge in the case was being bribed by Ecuadoran government officials. The judge withdrew from the case, but Chevron kept up the pressure. It filed an arbitration action through a United Nations trade commission and demanded that the government pay the company’s legal fees and “moral damages” because of its alleged interference in the lawsuit. Later, questions were raised about the integrity of the evidence and of the two businessmen who had secretly taped the judge. In March 2010 a U.S. federal judge ruled against an effort by the government of Ecuador to bar Chevron from proceeding with the UN arbitration action.
Nigeria. Like Royal Dutch Shell, Chevron was a target of criticism during the 1990s for its ties to the repressive government in Nigeria. In 1998 journalist Amy Goodman reported that Chevron officials helped facilitate an assault by Nigerian troops on protesters who were occupying an offshore oil platform in the Niger Delta. Two protestors were killed and others were taken into custody and allegedly tortured by Nigerian authorities. It later came out that Nigerian soldiers billed Chevron for their services.
In 1999 a group of Nigerian citizens filed a lawsuit against Chevron in U.S. federal court under the Alien Tort Claims Act. The case finally came to trial in 2008. After weeks of testimony, a jury found that Chevron was not legally responsible for what happened to the protestors. The plaintiffs have appealed.
Chad and Cameroon. In 2005 Amnesty International published a report warning that an oil pipeline project in Chad and Cameroon led by Exxon Mobil and Chevron threatened human rights in the two African countries because the agreement signed by the companies and the two governments (which have a poor track record in respecting rights) put such a high premium on maintaining the financial stability of the project.
Burma. In 2008 EarthRights International accused Chevron of complicity in human rights abuses in the areas around the natural gas pipeline it co-owns in Burma.
Chevron began marketing Iraqi oil under contracts with the regime of Saddam Hussein in the 1980s and then under the United Nation's Oil for Food Program in the 1990s. Chevron paid $30 million to state and federal regulators to settle charges brought by the Securities and Exchange Commission that it had paid illegal kickbacks to the Hussein regime to win contracts.
Nonetheless, Chevron was one of the first companies to receive marketing contracts following the 2003 invasion of Iraq and continues to market significant quantities of Iraqi oil today. According to the U.S. Department of Energy, Chevron has been refining oil from Iraq at its Richmond refinery since the war began. Rather than use its new profit bounty to upgrade this heavily polluting 106-year-old refinery, Chevron is using its financial and political prowess to try to force Richmond to accept a "retooling" of the refinery to burn dirtier, more polluting, sulfur-rich crude.
While Chevron's marketing contracts with Iraq yield the company vast profits, the big money -- and the company's big hopes for the future -- lies in controlling Iraqi oil under the ground, not just selling it overseas. As then Chevron CEO Kenneth Derr told a San Francisco audience in 1998, "Iraq possesses huge reserves of oil and gas -- reserves I'd love Chevron to have access to." Chevron has found many ways to pursue this goal, particularly following the opening provided by the 2003 U.S. invasion of Iraq.
In October 2003, Chevron Vice President Norm Szydlowski followed in a line of U.S. oil company executives to serve as liaison in Iraq between the U.S. occupation government and the Iraqi Oil Ministry. Chevron regularly co-sponsored conferences, such as "Iraq Procurement 2004 -- Meet the Buyers," at which Iraqi ministers met with corporate executives. Chevron even trained Iraqi oil engineers free of charge in four-week training courses.
In 2004, Chevron co-sponsored a special project of the International Tax and Investment Centre on restructuring Iraq's economy following the invasion.
In 2007, Chevron paid $30 million to settle charges brought by the U.S. Securities and Exchange Commission that it had paid illegal kickbacks to the Hussein regime to win its Iraqi marketing contracts, after it was revealed that Hussein had established a worldwide network of oil companies and countries that secretly helped Iraq generate about $11 billion in illegal income from oil sales.
Chevron has lobbied the U.S. federal government on Iraq every year since at least 2006 (when public lobbying disclosures begin), including specifically on the Iraq Oil Law in both 2007 and 2008. In 2007 Chevron (with France’s Total) signed service contracts for the super giant Majnoon field and the Nahr Bin Omar field. But the contracts were never enforced, as they were dependent upon passage of the Iraq Oil Law.
The Iraq Oil Law would cede as much as 86% of Iraq’s oil to foreign control at contract terms of up to 35 years. Foreign companies would not have to invest in the Iraqi economy, partner with Iraqi companies, hire Iraqi workers, or share new technologies. All the oil produced from Iraq’s fields could be exported. The companies would also have control over production decisions on their fields.
As a public education campaign about the law spread cross Iraq and around the world, opposition, particularly among Iraqis, grew. By October 2009, Iraq’s parliament announced that it would not even consider the law until after its own 2010 elections. With passage increasingly unlikely, and with the uncertainty of Iraq’s elections looming, in November 2009 Big Oil agreed, for the first time, to negotiate contracts without the Oil Law.
Only BP (with China’s CNPC) signed a contract in Iraq’s first bidding round in June 2009. Chevron was expected to bid on the West Qurna field with Total. It had been discussing the field with Iraqi officials for more than a year. But Chevron, like the other companies, balked at the terms and chose not to bid. By October, Iraq sweetened the terms, and the oil companies jumped in to the second round. Chevron reportedly (with Total) submitted a bid for the West Qurna field, was invited to bid on the Nahr bin Umar oil field, and was expected to bid on Majoon. But in November, Chevron came up empty handed while ExxonMobil, Occidental and ConocoPhillips became the first U.S. companies to receive production contracts in Iraq in 35 years. In response, public outrage at U.S. oil companies receiving what were considered extremely generous contracts rose in Iraq, such that, by the third negotiating round in December, not a single U.S. company was awarded a contract.
Political influence (national and international)
In 2010 Oxfam America launched a campaign to get Chevron to make full disclosure of its payments to governments around the world. The goal is to make sure "citizens can use the information to track how revenues are being used to promote health, education, and other measures to fight poverty."
Environment and product safety
Chevron spends heavily on an advertising campaign with the theme “Will You Join Us,” which is apparently meant to give the impression that it is in the vanguard of environmental reform and all-around socially responsible behaviour. It presumably is also meant to deflect attention away from the fact that for more than two decades Chevron has had a far-from-unblemished track environmental track record of its own.
Some of the company's worst sins have taken place in Richmond, California, where it has a petroleum refinery and other facilities. A local group called Citizens for a Better Environment published a report in 1989 that acknowledged that Chevron had reduced waste-water discharges at the facility but said that toxic air emissions were still at unacceptably high levels. In 1988 the company paid $550,000 to settle a state lawsuit brought in connection with toxic emissions at the plant.
That same year the company paid a fine of $1.5 million to the EPA for waste-water discharges at its El Segundo refinery near Los Angeles. The federal agency said that there had been some 880 violations of pollution laws at the facility since 1981.
In 1992 Chevron pleaded guilty to criminal and civil charges in connection with violations of the Clean Water Act at an offshore drilling platform in the Santa Barbara Channel and paid $8 million in fines. That same year it paid $1 million in penalties for Clean Air Act violations at its refinery in Philadelphia.
In 1993 Chevron paid $500,000 in fines after pleading no contest to charges of misdemeanor criminal violations of California law in connection with a 1991 oil spill off El Segundo.
Also in 1993 the EPA proposed a fine of $17 million against Chevron for violations of the Toxic Substances Control Act. The dispute was later settled, with Chevron paying only $375,000.
In 1996 Chevron agreed to pay $700,000 to settle charges that its refinery in Perth Amboy, New Jersey violated the Clean Air Act through sulfur dioxide emissions.
In 1997 Chevron agreed to pay $1.1 million to settle U.S. Interior Department civil charges that the company violated critical safety regulations at an offshore drilling platform near Ventura, California.
In 1998 Chevron agreed to pay $540,000 to settle charges brought by EPA that the company bypassed a wastewater treatment system at its Richmond refinery, resulting in toxic releases into the San Pablo Bay over a period of five years.
In 2000 the company paid $7 million to settle charges of Clean Air Act violations at an offshore loading terminal near El Segundo.
In 2001 Chevron agreed to pay $750,000 to settle charges that its oil production facilities in Rangely, Colorado violated the Clean Water Act during a spill in 1995. The company also agreed to make improvements at the site.
In 2001 a group of companies including Chevron settled a lawsuit that had been brought by Communities for a Better Environment over the contamination of ground water in California by the carcinogenic gasoline additive MTBE. In the wake of that agreement Chevron faced a series of other MTBE cases in California and other states. In 2008 Chevron and several other oil majors agreed to pay $422 million to settle suits that had been brought by public water systems in 20 states and consolidated in federal court.
In 2002 Chevron was fined $2 million by the government of Angola for environmental damage caused by leaks in pipes used to transport oil from offshore drilling platforms. A government investigation had found that the pipes were not properly maintained.
In 2003 Chevron reached a settlement with the U.S. Justice Department and the Environmental Protection Agency in which it agreed to spend about $275 million to reduce airborne emissions from five of its U.S. refineries in California, Hawaii, Mississippi and Utah.
In 2004 Chevron Phillips Chemical agreed to pay a $1.8 million civil penalty for Clean Air Act violations that led to two explosions and releases of toxic chemicals at a manufacturing facility in Pasadena, Texas in 1999 and 2000.
In 2007 Chevron agreed to pay $1 million to settle civil charges that had been brought against it by the state of New Jersey in connection with a spill of more than 100,000 gallons of crude oil into Arthur Kill off Perth Amboy in 2006.
In 2009 Chevron was ordered by the United Kingdom Environment Agency to pay a fine of £11,500 in connection with a diesel spill at the company’s Poole Harbor oil terminal three years earlier.
In January 2010 the EPA’s criminal investigation division seized computers and records at Chevron’s oil facilities at Cook Inlet in Alaska. According to the Anchorage Daily News, the agency is investigating whether the company knowingly violated its air pollution permits at the locations.
In April 2010 at least 18,000 gallons of oil were spilled into the waters of the Delta National Wildlife Refuge in Louisiana as a result of an accident involving a pipeline owned by a joint venture of Chevron and British Petroleum.
Chevron reports that as of the end of 2009 it had been identified as a potentially responsible party at about 250 Superfund toxic waste sites in the United States.
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