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MarketWatch: Oil companies revamp ethical plans as legal risk grows

Today, Royal Dutch/Shell Plc (RDSB.LN) is still reeling from allegations, that it denies, of complicity in human rights violations in Nigeria’s Ogoniland in the 1990s. On Sept. 29, a New York court rejected a motion by the company to have counts of “crimes against humanity” dismissed in a case accusing it of facilitating repression at the time. Shell declined to comment on the ruling.  Shell may now lose its license in Ogoniland due to a decade of inactivity, following the unrest and subsequent negative publicity.

*U.S. Ogoni/Shell Court Order 29 Sept 2006

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THE ARTICLE

Last Update: 1:05 PM ET Oct 13, 2006

By Benoit Faucon
Of DOW JONES NEWSWIRES

WASHINGTON (MarketWatch) — Around July 2000 in the restive Indonesian province of Aceh, military personnel allegedly protecting Exxon Mobil Corp.’s (XOM) natural gas extraction project approached a passing villager.

The soldiers allegedly took the villager to an area of the company’s facilities called “Post A-13,” where they tortured him for several weeks, using a knife to carve the name of an armed rebel group into his back, according to court documents.The testimony of the Indonesian villager, whose name is withheld to protect his life, is now part of a lawsuit against ExxonMobil for which a Washington court gave the go-ahead in March.

The case exemplifies how oil companies now face a rising risk to their reputations from the use of extra-terratorial legislation. The increase in lawsuits comes at a time when the impact on oil companies’ public profile has never been greater, even as high oil prices and supply diversification mean they increasingly invest in more risky and unstable parts of the world, leaving them open to charges of collusion with questionable regimes or practices.

In the corporate social responsibility area of its Web site, Total S.A. (TOT) of France sums up the issue: “Unfortunately, the world’s oil and gas reserves are not necessarily located in democracies, as a glance at a map shows.”

And that means the companies are implementing new, more stringent corporate policies, while at the same time trying to avoid a public airing of uncomfortable allegations in the courts.

“What matters is the publicity generated by such cases, not the legal risks,” says Alexandra Maddy, a global issues analyst at consultancy Control Risks Group in London, referring to a number of human rights cases that have been settled out of court.

Since high-profile cases such as the execution of Nigeria’s Ogoni environmental activist Ken Saro-Wiwa in the 1990s, major oil companies have faced increased pressure from shareholders and non-government organizations to improve their record on human rights. This is now part of a broader push for corporate responsibility by means of community programs and greater environmental efforts, industry experts say.

The desire to avoid publicity means major oil companies are more inclined to reach an out-of-court settlement, says William Bourdon, a lawyer who obtained out-of-court compensation from Total for Myanmar plaintiffs.

In November, Total agreed to pay EUR5.2 million toward development programs in relation to claims by Myanmar villagers that the army used them as forced labor. Total denied any involvement in forced labor.

The exposure surrounding the lawsuits can increase the risk of consumer boycotts or ethical investors offloading the stock, while the ultimate sanction is that a company could be forced to leave the country, Bourdon says.

Today, Royal Dutch/Shell Plc (RDSB.LN) is still reeling from allegations, that it denies, of complicity in human rights violations in Nigeria’s Ogoniland in the 1990s. On Sept. 29, a New York court rejected a motion by the company to have counts of “crimes against humanity” dismissed in a case accusing it of facilitating repression at the time. Shell declined to comment on the ruling.

Shell may now lose its license in Ogoniland due to a decade of inactivity, following the unrest and subsequent negative publicity.

In the last few years, the number of lawsuits against both major oil companies and independents has been on the rise, underscoring the increased risk to the companies’ public profile.

In 2001, a lawsuit was filed in Manhattan against Canada’s Talisman Energy Inc. (TLM) alleging it aided genocide by investing in a Sudanese oil project. The case provided additional publicity to a campaign against the company’s presence in the country, which ultimately led the company to leave in 2003. Yet, on Sept. 12 this year, five years after the lawsuit was filed, the Manhattan court ruled in favor of Talisman, asserting plaintiffs had failed to find evidence it violated international law.

But the risk of a lengthy legal battle and attendant publicity has pushed most of the companies faced with such cases to settle out of court.

Early last year, Unocal, Total’s partner in a Myanmar project and now part of Chevron Corp. (CVX), also agreed to pay undisclosed compensation to villagers after lawsuits filed in federal and California state courts were upheld. The plaintiffs alleged that soldiers guarding the partners’ Yadana pipeline joint venture had committed rape and murder. Unocal denied any knowledge of human-rights abuses.

And in June this year, BP Plc (BP) agreed to compensate about 1,000 Colombian farmers who were preparing to bring a lawsuit in London. They claimed they suffered harassment from far-right paramilitary groups as a result of their opposition to a pipeline built by the U.K. oil giant. The company settled for about $5 million, according to a person familiar with the matter.

Lawyers representing the farmers say BP wasn’t suspected of supporting the paramilitaries, but they allege the farmers’ campaign against the project made them a target.

To combat this and shore-up their reputations, now and in future, oil companies are likely to implement “tighter due diligence, impact assessments, training and awareness programs in relation to human rights,” Control Risk’s Maddy says.

As a result, most have set up stringent human-rights policies. Since last year, ExxonMobil has started rolling out new guidance to improve security practices, including increased dialogue with host governments and mandatory training for private security contractors.

But it’s not only human rights issues that are of increasing concern. The recent regulatory woes faced by the Royal Dutch Shell-led Sakhalin-2 venture show how environmental issues can endanger the pursuit of a project and how companies face greater scrutiny when they venture into risky areas.

In the long run, where companies improve their environmental and human rights strategies, it can be beneficial to all parties, experts say.

In ExxonMobil’s Indonesian case, Agnieszka Fryszman, a Washington-based lawyer with Cohen, Milstein, Hausfeld & Toll who is defending the plaintiffs, says that the goal of the ExxonMobil lawsuit is to make its operations run more smoothly by improving community relations. She uses as another example BP’s Tangguh, an Indonesian LNG project which uses the local police and community representatives for security, instead of an army known for its human-rights violations.

She says implementing a better security policy would make ExxonMobil’s investment “more sustainable and less costly, in lives and money.”

-Contact: 201-938-5400  
 

*Court document link added by ShellNews.net

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