U.S. energy behemoth Chevron Corporation (CVX) received good news from the U.S. District Court for the Southern District of New York regarding its Ecuador allegation. The judge declared that the multi-billion dollar Ecuador judgment is unenforceable in the U.S. on grounds of fraudulent activities by the Ecuadorian legal team.
The U.S. court stated that the Ecuadorian legal team had violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO) and found Chevron’s testimony convincing. The legal team, along with the lead lawyer, Steven Donziger, has been accused of fabricating environmental evidence, forcing scientific experts to manipulate reports, bribing the judge and other court-appointed experts and ghostwriting court reports. The judgment stated that such fraudulent measures were taken to make up for the lack of evidence against Chevron.
This long-drawn court battle dates back to Feb 2011, when a judge in Ecuador issued an $18 billion verdict against Chevron for the contamination of an oil field, Lago Agrio, by one of its affiliates, Texaco Petroleum. This charge was later reduced to $9.5 billion.
The Chevron affiliate was a minority partner in an oil-production consortium in Ecuador, along with state-controlled Petroecuador. Chevron clarified that after the affiliate sold its stake to Petroecuador in 1992 and completed the $40 million remediation of the agreed properties, the government of Ecuador released Texaco Petroleum from all liabilities. As such, Chevron too was relieved of all liabilities associated with Lago Agrio.
The Ecuadoreans have sued Chevron in Brazil, Argentina and Canada as well. This ruling, in favor of the company, removes at least some overhang from Chevron’s future and could be a harbinger of more good news.
San Ramon, CA-based Chevron currently has a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked players from the energy sector such as Range Resources Corp. (RRC), Patterson-UTI Energy Inc. (PTEN) and Helmerich & Payne, Inc. (HP). All these stocks sport a Zacks Rank #1 (Strong Buy).
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