Court Ruling Puts Extractives on Notice: Royal Dutch Shell plc (RDS.A)

Shell is not the only company with a serious interest in the Niger River Delta. TOTAL S.A. (ADR) (NYSE:TOT)Chevron Corporation (NYSE:CVX), and ConocoPhillips (NYSE:COP) all have a significant presence there, as well, and studies have found that they have also contributed to the kind of pollution that is at issue in the Kiobel case. The Sustainable Investments Institute (Si2) conducted a recent study attempting to calculate a dollar amount for which corporations – explicitly including Total, Chevron, and ConocoPhillips – could be liable if they were held to account for the damage they’ve done in the broader Niger River Delta region. Si2 concluded that total liabilities, excluding punitive damages, could range anywhere from $16 to $51 billion. With punitive damages, the costs could be far higher. For several of the companies analyzed, the potential costs of addressing oil spill damage in the Niger Delta could wipe out a significant portion of annual earnings — more than 40 percent of 2011 net income in some cases.

Chevron is currently engaged in a landmark legal battle, as well. The company is facing an unprecedented judgment against it in Ecuador to the tune of nearly $19 billion, for widespread pollution of the Ecuadorian rainforest. Shockingly, in the face of its own shareholders’ calls for increased accountability, Chevron is pursuing a strategy of legal action against these shareholders .

Takeaways
This is a complex topic, and no single court case or shareholder campaign will decide its outcome. What does seem increasingly clear, though, is that companies operating in sensitive regions could save both money and brand by maintaining good relationships with the communities their activities affect. Investors should consider assessing things like outstanding court cases, environmental damage claims, and corporate reputation in sensitive regions when they analyze extractive stocks. I’ll be writing much more on this theme in the weeks and months to come.

The article Court Ruling Puts Extractives on Notice originally appeared on Fool.com and is written by Sara Murphy.

Sara E. Murphy has no position in any stocks mentioned. The Motley Fool recommends Chevron and Total SA. (ADR).

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