Chevron in Worse Shape than Peers with Current Lawsuit
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Chevron (NYSE: CVX) is facing some serious problems, as allegations have been made against it related to environmental issues in Ecuador. This is a situation that has plagued the company for years. The accusations deal with events from over eighteen years ago, but the legal battle rages on. The actual damage was caused by a company called Texaco, and when Chevron bought Texaco, it inherited its lawsuits.
In the most recent developments, the case is now being held in Canada. Chevron may not be able to get away with things as easily in a Canadian court as it can an Ecuadorean court. Chevron maintains that the case is "a product of fraud" and is "illegitimate." It also stated that it would fight and even ignore the judgments passed, and we have already seen evidence of this. For a long time, Chevron has refused to pay the $18 billion pollution fine that Ecuador demands from it. We will have to see if Chevron will be able to maintain the same stance in the Canadian court, where legal proceedings are far stricter.
The Ecuadorean government hopes that the Canadian court will side with it and forcefully seize Chevron assets in order to facilitate the payment of the fine. Chevron has maintained that the legal system in Ecuador is fraudulent, which is why it refuses to pay, but Canadian courts have a solid reputation. As a result, this is an argument that Chevron will no longer be able to make with any conviction if the court sides with the Ecuadorean government.
Further complicating the matter, Chevron's Ecuadorean opponents intend to also file suits in several other countries where Chevron has sizable assets. They merely started with Canada because it has a good reputation for upholding foreign decisions. Chevron is far from being done with this situation, therefore, and it must now deal with at least one more court case. The company's Ecuadorean opponents have stated that at least one more suit will be filed this month. It is uncertain where this will occur, however, as there are thirty countries that the opponents are considering as potential candidates for the Chevron lawsuits.
This is a situation that is being closely tracked by the global oil industry. The lawsuit has experienced some strange turns along the way, and I am sure other oil-and-gas companies are interested in how this case will set precedents. As far as Chevron stock is concerned, I feel that even if the case ends favorably for Chevron, the bad press will affect public perception of the company and weaken the stock considerably. Even now, this will likely impact the stock in negative ways.
Chesapeake (NYSE: CHK) is also struggling, although it is facing problems of a much different nature. Analysts expect this company to experience huge shortfalls this year and next year. They predict that Chesapeake will have to sell a minimum of $7 billion in assets, although even this probably will not be enough to keep it going comfortably. Assets that the company has put up for sale include its 1.5 million acres in the Permian Basin and a half million acres in Colorado and Wyoming. It also hopes to find a joint venture partner in the Mississippi Lime basin. Regardless, the financial struggles facing this company will likely cause the stock to fall until it can prove its ability to handle the situation.
Noble (NYSE: NBL), is selling its North Sea assets to Maersk. This will give Maersk the upper hand in the area, but this has benefits for Noble as well. The company will now be able to focus its attention on its five core business units, and this sale should also allow the company to strengthen its balance sheet. As far as long term plans go, this seems to be a wise move by the company, and I feel that this makes it a good option to consider in the stock market. It may only be a small increase, but I imagine that the stock will be rising in the near future.
Competitor Cabot (NYSE: COG) prides itself on its ability to recycle water from the fracking process. Fracking is a big environmental concern and often results in bad press for companies like Cabot. This is one of the few companies, however, that have found a way to make the best of a bad situation. Cabot, together with Comtech, has developed a system that allows it to recycle no less than 100% of the water. Although other issues related to fracking are still notable, this is one of the main concerns, and I believe it improves Cabot's reputation. As a result, it should have a positive impact on its stock.
Many competitors are struggling at the moment, but Chevron's situation is not any better. As a result of the lawsuit, the company faces more difficulty related to its reputation and may even face financial difficulties if the case turns out badly. I believe that Cabot and Noble would be slightly better companies to invest in for the time being. In comparison, I think Chevron stock will be falling in the near future and would be a risky investment at the moment.
BobbyFisher has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.