Conoco Final

8/8/2019 Conoco Final

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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


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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


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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


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PESTEL Analysis of Conoco

Conoco

Political

Economic

Social

Technological

Environmental

Legal


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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


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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


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Social Factors

National Protestsand Strikes in

defense of landrights

Petroterrorists inneighboring

countryColumbia

Social Unrestbecause of

environmentalactivists andindigenous

groups

EconomicDisruption


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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.


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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.


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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


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Options for Conoco

Conoco inBlock 16

Continue

exploration 16

Implementthe EMP

Continuewithout EMP

Discontinueexploration

Look for

newer sites

LeaveEcuador


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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


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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)


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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

Documents

Conoco Final