Netherlands-based Permanent Court of Arbitration (PCA) has passed a verdict, under which the Latin-American country, Ecuador, will have to pay a penalty of $96 million to U.S. energy firm Chevron Corporation (CVX) in relation to oil-export dispute cases filed in the early 1990s.
Chevron approached the international arbitration with the lawsuits in December 2006 under the Rules of the United Nations Commission on International Trade Law (UNCITRAL).
The Hague-based international tribunal supervised seven commercial cases filed by Texaco – that was acquired by Chevron in 2001 – in Ecuador between 1991 and 1993. The PCA stated that the court of Ecuador violated international law by causing delay in passing an impartial judgment on the claims.
The cases revolve around Chevron’s claim that Texaco was cheated in revenue-sharing agreements with Petroecuador, an oil company owned by the country.
The attorney general of Ecuador has, however, elucidated that the government has rejected the final decision by the global court and would try to nullify the judgment. The country plans to approach the district court in the Netherlands within 90 days to invalidate the arbitration ruling.
Legal disputes between Chevron and Ecuador are not new. Earlier this year, an Ecuador court passed an $18 billion payment judgment to Chevron in an environmental pollution case. Chevron has also applied for international arbitration in this case, but is awaiting decree.
San Ramon, California-based Chevron is a leading global oil and gas company engaged in exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.
We maintain a long-term Neutral recommendation on the stock, reflecting the company’s impressive business model, robust financial flexibility and strategic restructuring moves. However, these positives are somewhat dampened by volatile oil and gas fundamentals, operational hindrances and the company’s high level of capital spending.
Chevron, which competes with peers such as BP plc (BP) and Exxon Mobil Corporation (XOM), currently retains a Zacks #3 Rank (short-term Hold rating).
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