Oil Company Leaves Peru; Is it Part of a Larger Trend?

Sources: Houston Chronicle, Occidental Washes its Hands of Peru; International Herald Tribune, Amazon Indians Say US Oil Company Should Clean Up Waste.

Los Angeles-based Occidental Petroleum Corporation announced on December 6 that it will abandon its search efforts for oil and natural gas in the remote jungles of Peru. The company sold its pumping operation to the Argentine company Pluspetrol in 1999, but even though it is not presently producing petroleum in the country, it still holds drilling rights for more than six million acres.

The company claims that its move to leave the area is purely business motivated, enabling it to focus more on its Middle Eastern and North American operations. Global energy analysts, however, believe that the decision to leave Peru is reflective of the changing political climate over the control of natural gas resources in South America, citing the governments’ control over such resources in Bolivia and Ecuador and the increasing percentage of earnings that companies are shelling out to Latin American states. In fact, in May 2006, Ecuador’s government seized Occidental’s oil operations in that country, and Occidental is still contesting that move. Given these recent events, analysts posit that oil companies such as Occidental simply are not willing to “continue to fight against a trend of nationalization that’s just going to cause them a lot of headaches.”

For many indigenous advocates Occidental’s move is a great victory, and they hope that “[b]y announcing their decision to withdrawal entirely from Peru, Occidental is setting precedent for the oil industry.” The battle with the company is not over, however, as indigenous leaders are now calling for the company to engage in extensive environmental clean-up. Leaders of the Achuar indigenous community say that Occidental has degraded the environment for the past thirty years and now must recognize its role in its restoration. The company must be held liable for its “toxic legacy,” the non-profit group Amazon Watch stated. Occidental claims that responsibility for the clean-up is with Pluspetrol as part of the 1999 purchase agreement.

Questions:

(1) What are some of the reasons against allowing oil companies to contract away their liability for environmental clean-up? Are their legitimate business reasons for allowing companies to do so, even at the expense of the people their company affected?

(2) Is Occidental's move indicative of a larger hesitancy on the part of oil companies to work in the region? What are some of the benefits of having Latin American or national companies control the oil reserves in Peru?