Occidental Withdraws From Controversial Peru Venture

HOUSTON, Dec 06, 2006 (Dow Jones Newswires)

Environmental activists and indigenous leaders claimed victory Tuesday after Occidental Petroleum Corp. (OXY) confirmed plans to withdraw from a controversial oil and gas venture in Peru.

Amazon Watch, a San Francisco nonprofit, and leaders of the Achuar indigenous nation of the northern Peruvian Amazon planned a news conference Wednesday morning in Los Angeles to tout Occidental's withdrawal, which affects three exploration blocks that Occidental controls or shares with other oil companies in Peru. Los Angeles-based Occidental does not currently produce in the South American country.

Occidental's departure, which the company said is contingent on approval by the Peruvian government, follows extensive criticism by non-governmental organizations regarding rain-forest pollution from Occidental and other oil companies. Occidental's high-profile travails with NGOs in South America have typified the difficulties encountered by many Fortune 500 companies in the developing world.

Occidental's decision to divest its Peru assets is significant as an acknowledgment by a big company that "the risks to a company's reputation" from unpopular development in the Amazon "outweigh by a long-shot any economic advantage," said Atossa Soltani, executive director of Amazon Watch.

But Soltani acknowledged that the victory will be diminished if Occidental simply divests its holdings to other oil companies that already have a stake in Peru. Repsol YPF (REP) and Petroleo Brasileiro SA (PBR), or Petrobras, share one of Occidental's blocks. Amerada Hess Corp. (AHC) and Talisman Energy Inc. (TLM) share another lease.

In 2002, Occidental divested some Colombian holdings following extensive protest from another tribe, the U'wa. But Colombian state oil company Ecopetrol SA has since pushed ahead with the development in the face of continued tribal opposition.

"That's still in a standoff," Soltani said of the ongoing Colombia dispute. "The industry as a whole has not learned its lesson," she added.

Occidental spokesman Larry Meriage confirmed that the company wants to leave Peru, but that the decision still awaits final approval from the government.

Meriage said the move reflects Occidental's growing emphasis on the U.S. and the Middle East. In July, Occidental filed a petition with the World Bank's International Center for Settlement of Investment Disputes after Ecuador seized an oil field operated by Occidental.

"This was essentially a business decision," Meriage said. "The company has been growing primarily in the Middle East and the U.S. ... We have better investment opportunities elsewhere."

But Atossa said Occidental's reception in Peru fell short of the standard the company has pledged was necessary to proceed.

"From the beginning, Oxy made clear that it would not work" on Achuar land "without the community's consent," Occidental said in its 2004 social responsibility report.

As Occidental has beefed up in other regions, it has had less interest in South America, where national oil companies are aggressive about striking advantageous terms, said John Parry a senior analyst with John S. Herold Inc. who has followed Occidental.

The company still has some holdings in Colombia and elsewhere, but Parry does not consider them among the choice assets.

"Shareholders are not really giving them any credit for the South America ventures because the profits are so low," Parry said. "If they could find some graceful way out of Colombia, they would probably take it."

(Rebecca Howard in Lima contributed to this story.)

Copyright (c) 2006 Dow Jones & Company, Inc.