Score a victory for climate activists, and mark it as something of a loss for Chevron Corporation (NYSE:CVX) shareholders. And not just a loss for owners of Chevron stock.
Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP), BP plc (ADR) (NYSE:BP) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A) shareholders are also a little more on the hook than they were just a few days ago.
How’s that? In a California courtroom on Wednesday, Chevron’s attorneys didn’t dispute the science that suggested humans, and by extension oil companies, were at least contributing to adverse climate change.
Chevron stock holders need not hit the panic button just yet. Chevron didn’t exactly admit guilt as it pertains to its role in climate change. And, the legal argument being levied against “Big Oil” in this particular case is a bit confusing in its goal. Every little bit helps, or hurts, though, depending on which side of the table you’re sitting on.
The pre-trial hearing, which took place in San Francisco, didn’t determine innocence or guilt. The hearing was simply an unconventional way for litigants to decide which weapons would be allowed to be wielded in an upcoming legal battle between the five most prominent oil names and the coastal cities of San Francisco and Oakland.
They’re suing the five Big Oil icons not to stop spewing CO2 into the earth’s atmosphere, but rather, to demand these energy companies help fund the construction of a wall that will keep rising ocean waters from creeping into their cities.
Chevron’s lawyers, along with attorneys representing the other top four oil names, are asking for a dismissal of the pending case. In the meantime though, none of them are denying that the plaintiff’s evidence of global warming is untrue.
The defendants are, however, still going to argue they can’t be held liable for the outcome of higher global temperatures. They all agree that only Congress (via the EPA) has jurisdiction over the fossil fuel emissions.
The defendants added for good measure that they only provided what was being used by consumers, and that unchecked population growth exacerbated the issue.
The Case for Chevron Stock
It’s not a bad legal argument, truth be told. As Chevron’s written request for a dismissal noted:
“This is not the first (or even the second or third) time a plaintiff has tried to plead global warming-related tort claims. Similar claims have been considered, and dismissed, by the Supreme Court, the Ninth Circuit, and district courts around the country.”
Also weakening the plaintiff’s case is the nature of the suit itself.
It’s being filed as a nuisance suit, which generally call for the closure of a business or the removal of an annoying eyesore or noise. Not this nuisance suit though. This one is gunning for money. Richard Faulk, public-nuisance experts and counsel with Davis Wright Tremaine, commented on the matter “what we have here is a typical tort lawsuit for damages.”
The plaintiff’s attorneys aren’t exactly shooting blanks though. Along with Big Oil’s concession that climate change is real, even if their role in it has not yet been determined, the suit also claims that the likes of Exxon Mobil, BP and Chevron all funded climate change research that was ultimately intended to mislead the public about fossil fuel’s role in damage to the environment.
As San Francisco City Attorney Dennis Herrera said it, “These companies knew their products were causing sea-level rise, and they deceived people about it. Now, that bill has come due.”
Bottom Line for Chevron Stock
From a pure letter of the law perspective, owners of Chevron stock don’t have a great deal to worry about. At worst it would share a modest amount of liability with the rest of the oil industry, as sole causation has yet to be pegged to oil companies. And, even if it is determined, this really is an EPA matter.
The deception claims (suggesting that Big Oil paid to deceive… everyone) haven’t worked in other similar cases.
On the flipside, U.S. courtrooms are increasingly moving away from ruling based on the strictest letter of the law, and instead making decisions grounded in a sense of fairness. On the wrong day at the wrong time with a judge and jury in the wrong mood, this could end up being a blow to Big Oil.
The real risk to Chevron stock, however, goes beyond this one case. By forcing oil companies to take the small step of acknowledging that climate change science is valid now, the next step to energy companies conceding fossil fuels are a leading cause of climate change is a small one.
The climate activists’ war won’t be won with a decisive victory, but dozens and dozens of successful, progressive skirmishes.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.