Friday, May 08, 2009

A Very Incomplete Story

I've watched CBS's "60 Minutes" periodically since I was a teenager. Over the decades they've aired fascinating character studies and uncovered dirt in high and low places. But there's one style of reporting that I'd be surprised if they haven't patented by now, because it's so effective at getting viewers riled at their chosen targets. You know the setup: innocent victims wronged by a Bad Company, camera angles and backdrops carefully chosen to reinforce the reactions they seek to evoke, and the reasonable-sounding correspondent getting evasive-seeming answers from some corporate official. They're very good at this, and I confess I have no more immunity to such manipulation than most viewers, except in the case of the lead segment of last Sunday's program, which I finally caught up with on TiVo. I got mad all right, but this time at "60 Minutes", because the story in question, concerning a lawsuit against Chevron for alleged environmental damage in Ecuador, is one that I know well enough to spot just how skewed the coverage was. In its eagerness to pillory Big Oil, the segment's bias let the real culprit, the national oil company of Ecuador, off the hook.

I want to be very clear about my inherent conflict of interest here, which also provides the basis for my knowledge about the facts of this case. For more than 20 years I was employed by Texaco, Inc., a subsidiary of which was the partner of the Ecuadoran state oil company, Petroecuador, in the Oriente oil fields of Ecuador from 1964 to 1992. I am also a shareholder of Chevron Corporation, which acquired Texaco in 2001--thus inheriting a lawsuit that had already been dismissed by courts in multiple US jurisdictions. I never traveled to Ecuador or worked in the divisions of the company that were directly involved with the producing operations there, but I had colleagues that did. So although I have no first-hand knowledge concerning the evidence put forward by either the plaintiffs or the defendants, I picked up enough information around the water cooler to have a good sense for what was missing from Mr. Pelley's reporting of this story.

The first questions that anyone digging into this story should have been asking concern the history and structure of the agreement governing the oil producing consortium in Ecuador. It started as a 50/50 arrangement between Texaco and a unit of Gulf Oil, one of the other "seven sisters". During the global wave of resource nationalism of the early 1970s, the state oil company of Ecuador acquired first a 25% share of the Consortium and then Gulf's entire remaining share, giving them 62.5% of the operation. (I am sure there were many times that my former employer wished that the government had simply nationalized the whole thing, back then.) This means that while Texaco collected 37.5% of the profits from the Oriente fields, Petroecuador and the government that owned it received not only the bulk of the profits, but also 100% of the royalties and taxes paid throughout the term of the concession. Even in those days, that amounted to many billions of dollars by the time Texaco's interest terminated in 1992, two years after Petroecuador became the operator, not just the majority owner of the field. The company's estimate is that Ecuador received nearly $25 billion over the life of the contract. That's consistent with production of roughly 200,000 barrels per day in that period, at an average price somewhere around $20/barrel. Out of that, Texaco earned about $0.5 billion in total, a figure that wouldn't surprise anyone familiar with oil concession contracts of that era. That equates to less than a penny per gallon of oil produced.

Now, if Texaco were responsible for all the damage alleged in Ecuador, it might not matter so much that it only earned a fraction of what it is being sued for in an Ecuadoran court. However, the allocation of revenue is extremely relevant to attempting to understand who would have benefited from cutting the corners that the plaintiffs claim were cut in the operations there. Cui bono? The answer is glaringly simple, and not just for the period after Texaco ceased acting as operator: Petroecuador--which by all rights should have been sitting in Mr. Pelley's hotseat last Sunday. Petroecuador, a company with a less than sterling reputation for operational excellence, even now. The reason they are not there is that Ecuador refused to waive its sovereign immunity in the case, and thus could not be sued even though it controlled the ongoing operation of the field since 1990, has been the main beneficiary of the region's oil wealth, and bears all responsibility for the poor state of the sanitary and healthcare infrastructure that contributed greatly to whatever ills the indigenous people have experienced. The logic of suing Texaco was inescapable: sue the party you can reach, whatever their share of the responsibility, and go for the deep pockets.

If you've read this far and still have an open mind about the case, then you might be interested in looking at Chevron's side of the story. My purpose here is not to make their case or to suggest that Texaco operated the Ecuadoran fields in the 1960s, '70s and '80s to the standards that prevail today, decades later. But I do feel the need to point out that there is another side to this story that you didn't see last Sunday, and it is not remotely the black and white tale of a big corporation behaving badly that "60 Minutes" portrayed. I am disappointed that CBS allowed itself to be used to paint such a one-sided picture, sullying the reputation of a company I knew inside and out, and of the tens of thousands of fine, responsible people who worked there--not a gang of environmental criminals. I know "60 Minutes" can do better.

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