The purchase of Unocal will give ChevronTexaco a big boost in terms of production and reserves, but it could also saddle the US major with a tricky new challenge — what to do about the 28% stake it will inherit in the controversial Yadana gas development in Myanmar (Burma).

Unocal has just settled out-of-court a US lawsuit relating to alleged human right violations perpetrated by the Myanmar military during the construction of the Yadana pipeline (EC Dec.24,p4). But the timely resolution of that litigation does not get Chevron off the hook, as several pro-human rights groups are quick to point out.

Myanmar’s military government, suppression of democracy and scandalous record on human rights make it a pariah in the eyes of much of the world, particularly the West. Chevron has now joined the ranks of the few remaining Western investors in the country’s modest petroleum sector — “rejoined” might be a more accurate way of putting it, since Texaco was a high-profile investor in Myanmar, as operator of the smaller Yetagun gas project, before its 2001 merger with Chevron. Texaco withdrew in 1997, selling its interest to UK independent Premier Oil, for what it insisted were strategic reasons following “an asset review … to determine ways to maximize the value of its assets.” But the timing was striking, coming just a few months after then US President Clinton introduced a ban on new US investment in the country. Premier has since pulled out itself.

Now Texaco, as part of ChevronTexaco, is back again. But for how long? Chevron has already talked about possible divestments from the Unocal deal of around $2 billion, and human rights lobbyists say that unless Myanmar is one of the first disposals it risks facing the kind of campaigning and negative publicity that have hounded Unocal in recent years.

Chevron “have bought themselves a major headache,” the pro-democracy Burma Campaign UK warned in response to the Unocal acquisition. Chevron is likely to enjoy a brief grace period while lobby groups wait for it to make an announcement on its plans for Yadana, but it should be in no doubt as to the pressure it could face,” Burma Campaign director John Jackson tells Energy Compass. “They need to really understand the threat is serious if they make the wrong decision.”

There will also be pressure from faith-based investor groups in the US. “We will be finding out what their intentions are and encouraging them to divest,” says Doris Gormley, a consultant on socially responsible investment to the National Jesuit Conference.

Chevron has reentered Myanmar at a time when the pro-democracy lobby both in and outside the country is very much flexing its muscles. The movement took great heart from its legal victory over Unocal, and has subsequently stepped up pressure on Total, Unocal’s partner and Yadana’s operator, with a new campaign involving 51 organizations in 18 countries launched against the French major in February (EC Feb.25,p12).

Total is regarded as the main obstacle to winning European Union agreement for sanctions against Myanmar. France has consistently blocked such a step because, Jackson believes, of Total’s involvement in the country. “If Total pulled out of Burma, it would open the way to a more progressive French foreign policy. It would still have to be fought for, but the obstacle would have been removed,” he says.

The brighter light shone upon Total’s operations in Myanmar appears to be having some effect. The Norwegian Petroleum Fund, established by Oslo in 1990 as a means of safeguarding Norway’s long-term interests, is reviewing its portfolio of investments in the light of new ethical guidelines introduced last December. Total is one of the investments under scrutiny, according to the chair of the fund’s advisory council on ethics, Gro Nystuen. “We have the Total case on our table,” Nystuen says. “We would look at that in the context of human rights.” The fund is a significant investor in Total, with a holding currently valued at just under $900 million.

Should Chevron decide it can do without the problems that have plagued Unocal and Total, it should have no shortage of takers for its Myanmar interests. While US sanctions and shareholder and campaign group pressure have reduced Western investment to a trickle, plenty of Asian companies — particularly state firms — are still keen (EC Mar.11,p5). A consortium led by China National Offshore Oil Corp. (CNOOC), for example, has signed no less than six production-sharing agreements with state-owned Myanmar Oil & Gas Enterprise since October 2004. CNOOC, of course, was Chevron’s main rival for Unocal, and if Chevron decided to rationalize its new portfolio, CNOOC could be a prime candidate for some of the assets, particularly in Asia.