Group 2

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Conocos Green Oil Strategy

CONTEXT
OVERVIEW: CONOCO
Acquired by Du Pont in1981 Single largest business segment in the chemical and energy divisions (37% of the total revenue) Conoco gave Du Pont a substantial position in the oil industry with operations spanning the United States, Europe, Africa and the Far East

Highly dependent on its oil industry By 1990 petroleum industry accounted for over 13% of the countrys GNP, 47% of revenues and 43% of exports The industry was of primary national importance
Initial exploration by Texaco/Gulf State Owned Oil Company (CEPE) Petroecuador replaced Gulf in the Texaco Consortium Texaco/Petroecuador JV drilled 50 exploratory wells, finding oil in 37 of them Government decided to expand its exploration activities and include foreign players Finding new reserves became a matter of urgency

OVERVIEW: ECUADORS OIL INDUSTRY

Pre 1972 1972 1974 By 1991 Early 1980 By 1984 11/30/12

Should the company proceed with developing a new oil exploration site in eastern Ecuador ?

Eastern Ecuador situated in the midst of pristine rain forest

Many groups were concerned about the impact of oil exploration on the local environment and people

Conoco developed a proactive environmental plan to minimize the impact of its activities on the environment

By September 1991 Conoco started facing opposition environmental groups, local indigenous people etc.

Other options available to Conoco seemed more lucrative as compared to the Ecuador project 11/30/12

A 200 million barrel field represents a substantial find for Conoco, Rick Oslo, VP Latin America
Block 16 A $44 mn RSC signed by a Conoco led consortium signed in Jan 1986 By 1989, 5 of the 6 wells had oil 200 Mn barrel Oil reserve 120 wells could lift the oil in next 20 years peak producing rate of 45,000 barrels/day All this translated into 6% of Conocos worldwide reserves and 4% of total revenues Click viewed Conoco to edit Master subtitle style this find as springboard forthis important for future expansion Why was Ecuador? By 1983, they had only 1 billion barrels of proven reserves Block 16 would account for 20% Cost of Development expansion
Risk Service Contracts (RSC)an International Oil Company supplies services and know-how to the state from exploration through production phases for the government in exchange for an agreed-on fixed fee or some other form of compensation. In risk service contracts, the IOC bears all the exploration costs. Profits Sharing

Conocos Stakes in Ecuador

Investments Capital Exploration Development

$600 Mn Drill wells, build production facility, twin pipelines, roads Conoco to 11/30/12 bring in $200 Mn of the $500 Mn production budget

Timeline Before Profit Sharing In 5 years In 10 Years

Key bottlenecks and Environmental Implications

Significant Impact to the rain forests RAN and other environmental organizations opposed exploration Yasuni National Park issue government failure? Yasuni was know for its bio-diversity 11/30/12

Block 16: Bottlenecks Major complex operational and contractual implications Light crude from Texcos Shushufindi field to mix with Conocos heavier crude, so that the resulting lighter blend could be transported Additional refining capability at Esmeraldas refinery No previous experience in such developments edit Master subtitle style Click to June 1989 terms and conditions were being explored Implications Environmental

Without an iota of a doubt, it is possible to safely develop oil fields in environmentally sensitive areas of the world CEO Constantine Nicandross view on environmental concerns

Judith Kimerling, Consultant, Natural Resource Defense Council Study of 1989 Previous oil production in rain forests had resulted in degradation of the environment 17 Mn gallons of oil had been spilled 4.3 Mn gallons hazardous waste discharged in waterways Unspecified quantities of Conocos Reaction toxic drilling mud buried and Acknowledged the concerns

recognized that they needed to integrate environmental concerns In 1989, proactive efforts were taken to incorporate constructive ideas of wide range of external interest groups

THE RAIN FOREST

Click to edit Master subtitle style

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SIGNIFICANCE OF RAIN FORESTS

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GROWING CONCERNS

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CONOCOS ENVIRONMENTAL PROGRAMME

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CONOCOS PLANS 1989 : Launch initiatives to address these environmental concerns 1990: Detailed EMP( Environmental Management Plan) to minimize potential ecological damage of operations Conocos was ready to incur 5% to 10% of $600million on EMP Project also strong economic and competitive reason CONOCOS HIGHLY COOPERATIVE APPROACH

Conoco still lacked consensus, though their efforts were 11/30/12 appreciated

Local Government Indigenous Groups James Yost, Anthropologist Fundacion Naturs US conservation Groups

1990: Revised draft guidelines Invited interested parties to a 4 day meeting

NEGOTIATIONS WITH THE GOVERNMENT: 1990

Current negotiations with Ecuadorean government were encountering difficulty Delays were due to contract technicalities Increasing concerns over environment safety of crude production in Amazon region

NEW CONCERNS REGARDING INDIGENOUS GROUPS Rights of Indigenous groups had become an issue Groups protested to Ecuadorean government Redefined boundaries of Huaorani Indians reserves which bordered Yasuni National Park

GROWING PROTESTS Activist group invaded oil companies head offices Group claimed companies were destroying nature, killing Indian population hence should stop their activitites In Ecuador groups had launched national protests and strikes in defence of lands and suspended oil activities. Concos had to find a way to accommodate Environmental and Indigenous Concerns, even if government policies were not clear on 11/30/12 these issues

Tribunal for Constitutional Guarantees

The Tribunal Tribunal for Constitutional Guarantees Engaged to draw a framework for oil exploration in areas created as National Parks

The Ruling Law of Hydrocarbons Corporation for Defense of Life Cordavis petition to the Tribunal Tribunals ruling on Oct 2, 1990

Clarification On Oct 30, 1990 Tribunal issued a revised decree urging all the oil 11/30/12 companies that all future oil activities in protected areas take utmost

We saw rivers that were on fire. Animals had disappeared. There are no fish left. Among the people we found 80% malnutrition, earlier when there was none. What is NRDC? NRDC and Cultural Survival Conoco shared EMP and asked Leading US environmental group Founded as a law firm for the NRDC to partner with it to environment develop Block 16 NRDC two pronged strategy $16 mn budget , 1,50,000 US members the project Independent oversight for Impact on Investigative research on the project EMP Published a report on Oct 10, 1990 Share economic benefits NRDC charged US companies for with locals NRDCs negotiated approach incredible destruction Involvement of locals and Blame on Texaco and demand of $50 environmental groups mn After Feb 5, 1991 meeting NRDC Du Pont asked to call off Conocos came out in support of Conoco plans A leader in the campaign against for sustainable development of the region the oil industrys destruction of the Conoco Ecuador asked for a Various models for setting up a Oriente with NRDC to meeting trust fund discussed understand their criticism and Negotiations began on proposed share its EMP kick in amount for the fund 11/30/12

Natural Resources Defense Council

DISCUSSIONS WITH INDIGENOUS GROUPS

DISCUSSIONS WITH CONFENIAE March 1991: NRDC & CS went to Ecuador to meet Confeniae and other local environmental and indigenous groups Confeniae requests NRDC to present a proposal to Conoco on its behalf

RAINFOREST ACTION NETWORK (RAN)

Published a letter to represent Huaoranis interests opposing all oil developmeny in Block 16 Sent out second series of anti-Conoco fund-raising letters asking its members for donations to support Huaoranis efforts

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THE CONFIDENTIAL MINUTES

Minutes stamped Confidential from the meeting of NRDC and CS with Conoco was made public Striking a deal on behalf of other groups and discussion of sensitive issues Suggestions for a new foundation

LEAKED MINUTES

Cordavi meet NRDC and demand that they abandon support of Confeniae and reaffirm total opposition to any negotiations by any group with Conoco Circulation of minutes with memo criticizing NRDC and CS Accusations of betrayal of cause and colleagues U.S. press began to report a fundamental split between NRDC, CS and other leading environmental groups. 11/30/12

1991: ALLEGATIONS OF IMPROPRIETY

ALLEGATIONS

Cordavi asks the US Justice Department to investigate Conocos allegedly corrupt practices in influencing the Ecuadorean tribunal to reverse its original ruling Violation of Foreign Corrupt Practices Act Cordavi asks US Sierra Club to join in Public outrage at the underhanded methods of securing lease rights REACTIONS

Conocos officials responded by saying accusations were unjust and cynical Justice Department declines to investigate and dismisses the case as out of hand. Focused 11/30/12 media attention on the whole issue

NRDC vs OTHERS
Accused NRDC of Got in Bed with the Enemy Criticized for bypassing Welfare of indigenous people

Acted as Mediator Between Indigenous people and Conco Accepted the inevitability of Oil exploration

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ENVIRONMENT MANAGEMENT PLAN

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FINANCIAL REVIEW & NOD FROM GOVERNMENT Again For

st

Energy Ministry granted Approval on September 20

One Month for Conco to commit $200 Million Investment

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FINAL DECISION

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ROLE PLAYED BY ACTIVISTS GROUPS

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Initially Opposed for protection of Flora and Fauna Then for Indigenous people Even after Indigenous group agreed, they did not want to negotiate Petroecuador project in the neighboring block was not mentioned Only motive was to attack the US company

ACTIVISTS GROUPS

ROBERT KENNEDY, JR. (THEN HEAD OF NRDCS INTERNATIONAL PROGRAM)

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American corporations with rain

CONOCO -TOO SOFT ?

Do you support the Huaorani or do you support Big Oil?

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CONCLUSION

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Group 2
NAME
Sudarshan Balasubramaniam Omkar Deshpande Vivek Hariharan Richa Kapoor Apoorva Sharma Anand Tajpuriya Anurag Thakurta

Roll No.
C003 C015 C024 C029 C051 C058 C059

THANK YOU!

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