of 26
8/8/2019 Conoco Final
1/26
8/8/2019 Conoco Final
2/26
About ConocoConoco Inc. began in 1875 as the Continental Oil and Transportation Co.Based in Ogden, Utah
The company distributed coal, oil, kerosene, grease and candles to theWest.
In 1981, DuPont acquired Conoco Inc.
Conoco contributed over 37% of Du Ponts revenues
The acquisition made DuPont one of the top ten U.S.-based petroleumand natural gas producers and refiners
8/8/2019 Conoco Final
3/26
Conoco in Ecuador
y Discovery of a new oilexploration site in EasternEcuador
y The prospect area partiallysituated within theboundaries of a national park
y Concern about the impact ofexploration on theenvironment and indigenouspeople
8/8/2019 Conoco Final
4/26
Ecuadors Oil Industryy Ecuador rich in oil
reserves
y Heavily reliance on the oilindustry in the 1970s and80s
y Exploration led by a
Texaco/Gulf consortium
y Government felt the needto expand its exploration
Block 16
Block 22
8/8/2019 Conoco Final
5/26
PESTEL Analysis of Conoco
Conoco
Political
Economic
Social
Technological
Environmental
Legal
8/8/2019 Conoco Final
6/26
Social Factors
y The Rain forest area inhabited by 100,000 native Indians
y Huaroni : group of 1600 people located 35 km southwest of Block 16
y Homelands included block 16 and 22
y Huorani were one of the few remaining isolated ethnic groups
8/8/2019 Conoco Final
7/26
Social Factorsy Oil exploration had put pressure on the land and animal populations which the
Huaroni depended on for food
y Fell victim to new diseases when exposed to tourists and outsiders
y Local environmental groups lobbying for the Huorani
Filed a report to the United Nations Commission of Human Rights Accused oil companies of ethnocide
Sierra Club Legal DefenceFund
Took over Texaco and British gas office in protestMovimiento Por La Paz
(Peace Movement)
National confederation supporting regional indigenousorganizations
CONAIE
Asked Du Pont to call off Conocos Plans
Annual Budget of $16 million and 150,000 members for lobbying
National ResourcesDefence Council
8/8/2019 Conoco Final
8/26
Social Factors
National Protestsand Strikes in
defense of landrights
Petroterrorists inneighboring
countryColumbia
Social Unrestbecause of
environmentalactivists andindigenous
groups
EconomicDisruption
8/8/2019 Conoco Final
9/26
Environmental Factorsy Rainforest home to unique species of
flora and faunay 400 species of plantsy 600 species of birdsy 500 species of fishy 120 species of mammals
y Most biologically diverse rainforest onearth
y Oil development had caused damage tobiodiversity in Yasuni National Park
8/8/2019 Conoco Final
10/26
Environmental Factorsy Impact on the rain forest:
y 55,000 miles of rainforest lost due todeforestation and exploration activitiesevery year
y By 1990, only 3 million square miles
remainedy Rainforest Action Network requested
Conoco to withdraw
Pollution from the oil production
17 million gallons spilt between 1982 1990
Hazardous wastes being dumped into thewaterways
8/8/2019 Conoco Final
11/26
Conocos Environmental Program
Pioneering Initiative to address the environmentalconcerns in Ecuador
Formulation of Environmental ManagementProgram (EMP)
Decision to incur additional costs at 5 10 of its
proposed $600 million investment
Conoco entered into talks with environmental andindigenous groups and the Ecuadorean governmentto finalize the EMP
8/8/2019 Conoco Final
12/26
Legal Factors
y Ecuadors Tribunal for Constitutional Guaranteesasked to issue a ruling regarding future oil exploration
in areas protected by the Forestry Law
y Ruling prompted by the Cordavi environmental group
y Urged the government to avoid granting futureconcessions on petroleum exploration in protectedareas
8/8/2019 Conoco Final
13/26
Implications of the rulingConoco
performingunder Risk
Service
contract not oilconcession
Only a 10 milesection of theaccess road toBlock 16 would
pass throughpark lands
Bid award ofblock 22 to
Conoco(service
contract notsigned)
Conocosdevelopment
plans related toblock 16
considered
futureagreements
The ruling left the legality of theConoco consortium in doubt for thefollowing reasons:
Tribunal later clarified that there wereinconsistencies in the original decision
Revised decree: Future oil activities inprotected areas take care of environment
Decision outraged environmentalists
8/8/2019 Conoco Final
14/26
Ecuador Governmenty Exploration initially led by Texas/Gulf consortium
y In 1972 formation of Petroecuador to oversee
development of oil resources.y Later owned around 75 (280 wells) of oil production
y Initiative to include foreign players to improveefficiency
y Enabled investments of $200 million through only riskservice contracts
8/8/2019 Conoco Final
15/26
Block 16Risk service contract signed with Conoco led consortium by Petroecuador
Exploration in 6 wells for 6 years with production for 12 years
200 million barrels of heavy oil
Investments of $200 Million to cover entire project
Conocos stake of 35 with capital reimbursement
Profits shared in the ratio of 20:80 with Petroecuador
Largest find of Conoco increasing production by 20
Reserved exploration rights on lock 22
8/8/2019 Conoco Final
16/26
Economic Significance Worldwide US Non US
Ecuador(est.)
Total reserves (mbbl)
1208.00 477.00 731.00 70.00
Total ro ctio(mbbl/year)
131.00 44.00 87.00 5.80
Exte sio aiscoveries
56.00 20.00 36.00 3.21
Ext /Total Reserves 0.05 0.04 0.05 0.05
rice per Barrel ($) 22.41 24.55 21.33 32.00
Total reve es 2936.00 1080.00 1856.00 185.60
Total Cost 2758.00 1031.00 1727.00 165.20
cost/mbbl per year ($millio )
2.28 2.16 2.36 2.36
rofit fromOperatio ($
millio )178.00 49.00 129.00 20.40
rofitability per
barrel 14.74 10.27 17.65 29.14
8/8/2019 Conoco Final
17/26
Interest Groups Involved Natural Resource Defense Council Cultural Survival: cultural and
ethnic concerns. US Sierra Club Friends of the Earth
United
States
Cordavi: Corporation for defensefor life.
Rainforest Action Network: Confeniae: Federation of local
indigenous groups.
IndigenousGroups
8/8/2019 Conoco Final
18/26
NRDCy Founded in 1970 as law firm for the environment.
yAnnual Budget $16 million, members 15000
y Image: Thorough, Thoughtful organization.y Initial Stance:
y U.S. oil companies causing incredible destruction inrain forest areas.
y Ask Du Pont to call off Conocos plansy Opposed Ecuador's decision to open National park for
drilling
8/8/2019 Conoco Final
19/26
NRDCy NRDC Demands:
y Independent oversight to monitor Conocos EMP
y Channel economic benefits from Block 16 to Localcommunities.
y Found Conoco highly receptive, thus adoptednegotiated approach.
y Meeting with CS, Feb 1991
8/8/2019 Conoco Final
20/26
Meetingy NRDC accepted that Ecuador will continue to develop
oil resources even without Conoco.
y
Suggested establishing a foundation. Possible budgetwas under negotiation.
y Demanded clear size and structure of the fund beforemounting a full scale effort with other organizations.
y Confeniae and other indigenous groups also agreed tonegotiate. Locals were hostile.
8/8/2019 Conoco Final
21/26
Conflicts
InternalReview(C
onoco)
USGroups
Indigenous
Groups
The Turny Minutes of Conoco, NRDC and CS were made publicy Split between NRDC, CS and other leading environmental groups.
8/8/2019 Conoco Final
22/26
Conflictsy RAN: Represented rights of Huaoranis, opposed all oil
development specially Conocos plan in Block 16.
y
Cordavi asked US Justice department to investigateConocos violation of the Foreign Corrupt Practices Act
y Sierra Club and Friends of the Earth criticized NRDC
y Confeniae became reluctant to join and support the
joint action program with NRDCy Internal review led Conoco to consider other
investment options
8/8/2019 Conoco Final
23/26
Options for Conoco
Conoco inBlock 16
Continue
exploration 16
Implementthe EMP
Continuewithout EMP
Discontinueexploration
Look for
newer sites
LeaveEcuador
8/8/2019 Conoco Final
24/26
Continue OperationyWithout EMP
y Highly unlikely
yWith EMP
y Increase cost
y Flack from environmental groups
y Attacks from tribal guerrilla
y Increasing environmental standards
y Legal action due to tribunal
8/8/2019 Conoco Final
25/26
Discontinue Operationsy Look for newer sites
y Block 22 was a major catch
y Possibility of no find/ less amount of oil
y Increasing government pressure
y Positive global image
y Exit Ecuadory Largest non US oil deposit discovered
y Government highly co-operative
y Incentives to continue (tax benefits, consortium)
8/8/2019 Conoco Final
26/26
Our Recommendationy Discontinue operations in Block 16
y Explore the oil wells of Block 22
yAlongside look for other viable and non controversialoil well sites