Conoco's "Green" Oil Strategy

GROUP-6
About Conoco:
• It represented the largest business
segment in its portfolio of chemical and
energy divisions. • Conoco (Du Pont's oil subsidiary) wanted to
• In 1990, it contributed over 37% of Du develop a new oil exploration site in eastern
Pont's $40 billion revenues and 40% of Ecuador which was situated in the midst of
after-tax operating income. pristine rain forest.
• Successful completion of the project
could provide an edge to the company • Oil exploration was of National importance for
in terms of environmental friendly oil Ecuador as its economy was hugely dependent
extraction throughout the world. on petroleum industry.
• The proposed area was partially situated within
the boundaries of an undeveloped national park,
and hence posed a threat to the local
environment and the residents.
• Conoco developed a proactive environmental
management plan for its proposed development
Introduction: to minimize the impact of its activities on the
local environment.
• The plan was one of the most extensive plan of
its kind in the oil industry. No other company
had previously committed itself to such high
environmental standards.
Ecuador Socioeconomic Profile Importance of the
project
For Ecuador:
• During the 1970s and 1980s, Ecuador had become highly
dependent on its oil industry. In fact, the industry was of
National importance.
• Despite consistently increasing production output the country
didn’t paid enough attention on further exploration and
expansion of oil reserves.
• By 1984, finding new reserves became a matter of urgency
because of high dependency on the petroleum economy.

For Conoco:
• Conoco committed to a 35% stake in the consortium which
called for a $44 million investment in the service contract for
exploration process.
• For fully developing block-16 (where reserves were present)
about $600 million was required out of which Conoco would
be contributing $200 million.
• The project included arrangements for lifting of heavy crude
oil which was entirely new for Ecuador since no heavy crude
had previously been lifted.
• Taking this into consideration the commitments that Conoco
needed from the Ecuadorean government would also be the
"first of their kind."
 KEY RISKS INVOLVED :
ENVIRONMENTAL RISKS:
• INDUSTRY PRACTICES DATING FROM THE EARLY '70'S HAD RESULTED IN SEVERE ENVIRONMENTAL DEGRADATION
AND ALSO BLOCK 16 STOOD ALMOST ENTIRELY WITHIN THE BOUNDARIES OF YASUNI NATIONAL PARK—AN AREA OF
EXTRAORDINARY BIODIVERSITY.
• THE WORLD'S RAIN FORESTS REPRESENTED A UNIQUE NATURAL RESOURCE IN FACT THESE FORESTS COVERED ONLY
6% OF WORLD’S TOTAL FOREST RESERVE BUT THEY WERE ESTIMATED TO CONTAIN OVER HALF THE WORLD'S PLANT
AND ANIMAL SPECIES.
• DEFORESTATION WAS ALSO A MAJOR ISSUE.
INDIGENOUS PEOPLES' CONCERNS:
• THE ECUADOREAN GOVERNMENT'S COLONIZATION POLICIES HAD LED TO INTENSE PRESSURES ON BOTH LAND AND
ANIMAL POPULATIONS, UPON WHICH THE INDIGENOUS PEOPLE DEPENDED FOR FOOD.
• COLONISTS, OIL WORKERS AND EVEN TOURISTS ALSO POTENTIALLY INTRODUCED NEW DISEASES TO WHICH MANY
OF THE INDIGENOUS PEOPLE HAD NO NATURAL IMMUNITY.

• RISK MANAGEMENT:
• CONOCO DECIDED TO INCUR ADDITIONAL COSTS—ESTIMATED AT 5% TO 10% OF ITS PROPOSED $600 MILLION
INVESTMENT—TO SUPPORT ITS ENVIRONMENTAL PROGRAM.
• CONOCO PREPARED AN EXTENSIVE ENVIRONMENTAL MANAGEMENT PLAN TO TACKLE AS MUCH RISKS AS POSSIBLE
IT ALSO INVITED CRITICISMS FOR IDENTIFYING THE FURTHER IMPROVEMENTS THAT COULD BE MADE.
• THE COMPANY ALSO TRIED TO COLLABORATE WITH LOCAL ENVIRONMENTAL ORGANIZATION FUNDACIONNATURA,
WHICH IS THE LARGEST ENVIRONMENTAL ORGANIZATION IN ECUADOR TO MITIGATE THE RISKS.
•
 Key Challenges:
➢ THE MAIN CHALLENGE AROSE BY A GROUP OF ABOUT 1600 PEOPLE CALLED AS
“HUAORANI” WHOSE RIGHTS WERE ENDANGERED AS THEIR TRADITIONAL HOMELANDS
ORIGINALLY INCLUDED BOTH BLOCKS 16 AND 22.
➢ IN JULY 1989, THE SIERRA CLUB LEGAL DEFENCE FUND (SCLDF) FILED A REPORT TO THE UN
COMMISSION OF HUMAN RIGHTS, ACCUSING OIL COMPANIES, CONOCO INCLUDED, OF
"GENOCIDE" IN RELATION TO THE HUAORANI.
➢ IN APRIL 1990, ECUADOREAN GOVERNMENT PLACED BLOCK-16 FULLY WITHIN THE
HUAORANI RESERVE WHICH COMPLICATED THE PROJECT.
➢ ON OCTOBER 10 1990, THE NATURAL RESOURCES DEFENSE COUNCIL (NRDC), BEGAN A
POWERFUL PROTEST AGAINST OIL COMPANY DEVELOPMENTS IN THE REGION.
➢ NRDC ALSO ASKED DU PONT TO CALL OFF CONOCO'S PLANS FOR OIL PRODUCTION IN
ECUADOR BECAUSE OF THREATS TO THE HUAORANI.
➢ AFTER DISCUSSING WITH THE STAKEHOLDERS NRDC ACCEPTED THE FACT THAT ECUADOR
WOULD CONTINUE TO DEVELOP ITS RESOURCES IN BLOCK 16, EVEN IF CONOCO PULLED
OUT. IT ALSO BELIEVED THAT CONOCO WOULD DEVELOP THE FIELD BETTER THAN ANY
OTHER OIL COMPANY.
 Discussion and Conclusion:
• DESPITE OF THE EFFORTS FOR MITIGATING THE RISKS INVOLVED WITH THE
PROJECT THERE STILL WAS A PRETTY GOOD CHANCE OF FAILURE.
• ALMOST ALL OF THE OIL RESERVES WERE LOCATED IN ECOLOGICALLY SENSITIVE
AREAS LIKE FOREST RESERVES, NATIONAL PARKS ETC. AND FURTHER
EXPLORATION OF POSSIBLE RESERVES COULD CAUSE HUGE IRREVERSIBLE
DAMAGE TO THESE AREAS.
• THE NATURAL RESOURCES DEFENCE COUNCIL (NRDC) ARGUED THAT OIL
EXPLORATION IS INEVITABLE AND AT THAT TIME CONOCO CAME UP WITH A
PRETTY EXTENSIVE ENVIRONMENTAL MANAGEMENT PLAN SO THE BEST OPTION
AVAILABLE WAS TO MOVE AHEAD WITH THIS COMPANY ONLY.
• THE PROJECT WAS OF EXTREME IMPORTANCE TO BOTH “CONOCO” AND TO THE
NATION, AS IF SUCCESSFUL, IT COULD POSITION CONOCO AS A LEADER IN THE
OIL INDUSTRY PREPARED TO PROACTIVELY INCORPORATE ENVIRONMENTAL
CONCERNS INTO ITS DEVELOPMENT PLANS AND COULD HAVE ALSO BOOSTED
AND SAFEGUARDED THE ECONOMY OF THE COUNTRY TO A GREAT EXTENT AS IT
WAS MAINLY DEPENDENT ON PETROLEUM.

Thank you