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Thursday
Jan312013

Chevron Whacked By Record Fine, Might Not Notice

The California Division of Occupational Safety & Health just slammed Chevron with massive, record-breaking penalties related to the refinery in Richmond, California—the one that ended up in a fireball last August.

It started when a severely corroded pipe began leaking. Rather than shutting down the unit to fix it properly—and forgoing some revenues—managers decided to rig it. So they told workers to remove the insulation. It might have sounded like a good idea at the time. But it didn’t help. Not at all. The pipe ruptured, and mayhem broke out. The people in Richmond were told to stay indoors and keep their doors and windows closed. A reported 15,000 people sought treatment after inhaling the toxic airborne gunk. And gas prices jumped....

Cal/OSHA investigated, and now it broadsided Chevron with 23 citations for “serious” violations—serious “due to the realistic possibility of worker injuries and deaths in the fire.” Of these violations, 11 were also classified “willful” because “Chevron did not take reasonable actions to eliminate refinery conditions that it knew posed hazards to employees, and because it intentionally and knowingly failed to comply with state safety standards.”

One of the “willful serious” violations: “Investigators identified leaks in pipes that Chevron had clamped as a temporary fix. In some cases the clamps remained in place for years,” and the pipes were never replaced. More generally, Cal/OSHA determined that Chevron:

Did not follow the recommendations of its own inspectors and metallurgical scientists to replace the corroded pipe that ultimately ruptured and caused the fire. Those recommendations dated back to 2002.

Did not follow its own emergency shutdown procedures when the leak was identified, and did not protect its employees and employees of Brand Scaffolding who were working at the leak site.

To punish Chevron and teach the mega-company an excruciatingly painful lesson, Cal/OSHA whacked it forcefully with the largest penalty it had ever imposed, and “the highest allowed under state law”: 963,200 dollars and no cents.

Chevron isn’t ready just yet to throw in the towel. That would be against its corporate warrior spirit. It would appeal. “Although we acknowledge that we failed to live up to our own expectations in this incident,” Chevron said soothingly in a statement, “we do not agree with several of the Cal/OSHA findings and its characterization of some of the alleged violations as ‘willful.’“

Chevron will get over it. The fine, if it is ever paid, won’t even be a rounding error on the income statement. It certainly won’t impact executive compensation. The refinery, which used to process 245,000 barrels of crude oil a day, will be all fixed up and ready to go again by the end of March. Eventually, Chevron will be able to brush off its remaining legal issues related to the fire. And the other two Cal/OSHA investigations—one into Chevron’s El Segundo refinery near LA and the other into its Lost Hills oilfield near Bakersfield? The company will handle them—and whatever deterrent value they should have—with its usual aplomb.

But in other places, Chevron wasn’t so lucky. The same day, an appeals court in Buenos Aires, Argentina, upheld a freeze on up to $19 billion in Chevron assets. Targeted are two of its subsidiaries there, Chevron Argentina and Ing. Norberto Priu—which are worth only about $2 billion. The aftermath of a 20-year legal battle in Ecuador where Texaco, which Chevron later acquired, was accused of contaminating the rainforest in the Amazon watershed for nearly 30 years, sickening tribal people and farmers. Chevron has been fighting back with all its might, refusing to make payments, and counter-accusing the Ecuadorian court of “judicial fraud.” Allegations and admissions of bribes are swirling wildly. It’s a mess.

Chevron pulled up its stakes in Ecuador long ago, so plaintiffs are chasing down whatever they can find within reach elsewhere. The company, after years of fighting it, isn’t going to kneel down suddenly. Instead, it would “pursue all available legal remedies to reverse the interim measure.” But if that judgment does eventually trickle down to the income statement—as an analyst-ignored non-cash adjustment, of course—it might be more than just a rounding error. 

Oil and gas is a risky business, just about anywhere. Particularly in Libya. Awash with roving militias and undergoing a near-total evacuation of Westerners from oil-producing Benghazi, it is doing its best to make cosmetic security changes in an atmosphere of growing uncertainty. But much of the country’s south and half of its border regions are not even under government control. Read... Libya, An Energy Asset Security Nightmare.

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