Chevron Seeks $750 Million from Ecuador Government for Contract Breach

NEW YORK, May 26, 2006 (Dow Jones Commodities News Select via Comtex)

Chevron Corp. (CVX) has asked the Ecuadorean government for approximately $750 million in damages related to breaches of oil operating contracts, the company said Thursday in a statement.

"A total of seven claims filed by Texaco Petroleum Company (Texpet) before Ecuadorean courts argue that (state-owned oil company) Petroecuador (PCD.YY) and the government violated the concession agreement between the government, Petroecuador and Texpet, denying Texpet approximately $750 million or greater depending on the price of crude oil at the time of final determination," Chevron said in a statement.

"The seven claims were filed by Texpet between 1991 and 1993, and while the government of Ecuador does not dispute the violation of the concession agreement, the Ecuadorean courts have failed to consider them."

Chevron claims Petroecuador broke contract terms by selling crude oil produced by Texpet, a Chevron unit, on international markets, and not using it for domestic needs as stipulated, the statement said.

Chevron said it has notified Ecuador that it "intends to pursue international arbitration to resolve a series of long-standing commercial claims against ... Petroecuador and the government unless the government moves promptly to resolve them."

The U.S. oil company "will invoke its rights to pursue arbitration unless the government acts on the claims promptly," it said.

Ecuador's attorney general's office confirmed that it has received Chevron's request, but said the total in question was $186 million. Martha Escobar, a lawyer with the attorney general, told Dow Jones Newswires that the office received a letter from the president of the U.S.-based oil company on May 18.

"We're surprised because we can't make head or tail of the demand," Escobar said.

The letter asks the government to negotiate over the next six months, according to Escobar.

The lawyer said she is analyzing the case and reviewing the contract. However, she warned that Chevron's demand may be baseless, since the company cites a 1993 bilateral investment treaty between Ecuador and the U.S., and the contract pre- dates the treaty.

In addition, a local court already tried the case in 1991, Escobar said. Ecuador's Supreme Court hasn't issued a final ruling yet, but an adverse ruling against Chevron would negate the possibility of outside arbitration, which requires that a case not have been dealt with locally.

Escobar said that if Chevron seeks arbitration, the state will ask the proceedings to be thrown out.

Chevron signed an oil exploration and production agreement with the Ecuadorean state in 1964. In 1967, it partnered with state-owned Corporacion Estatal Petrolera Ecuatoriana, or Cepe. The state company held a 62.5% stake in the consortium, but Chevron was the operator until 1990. The U.S. company quit the consortium in 1992.

Ecuadorean indigenous groups sued Chevron in New York courts in 1993, alleging environmental damage. The U.S. judges said the case should be resolved in local courts, and the plaintiffs filed a lawsuit in 2004 in the Amazon region of Lago Agrio. That court is still doing environmental inspections and a ruling isn't expected for another two years.

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