12/16/10 Deposition Transcript- Shefftz

In The Matter Of:

CHEVRON CORPORATION

v.

JONATHAN S. SHEFFTZ

___________________________________________________

SHEFFTZ, JONATHAN S. ‐ Vol. 1December 16, 2010

___________________________________________________

JONATHAN S. SHEFFTZ - 12/16/2010

617-542-0039 www.merrillcorp.com/lawMerrill Corporation - Boston

Page 11 IN THE UNITED STATES DISTRICT COURT

2 FOR THE DISTRICT OF MASSACHUSETTS

3

4 CHEVRON CORPORATION,

5 Petitioner,

6 vs. Case No: 1:10-mc-10352-JLT

7 JONATHAN S. SHEFFTZ,

8 Respondent.

9 --------------------- x

10 VIDEOTAPED DEPOSITION OF JONATHAN S. SHEFFTZ

11 December 16, 2010

12 9:07 a.m.

13 Fierst, Pucci & Kane

14 64 Gothic Street

15 Northampton, Massachusetts

16

17

18 Reporter: Dana Welch, CSR, RPR, CRR

19 Certified LiveNote Trainer

20

21

22

23

24

25



Page 21 APPEARANCES:

2

3 For the Petitioner:

4 GIBSON, DUNN & CRUTCHER LLP

5 JOSEPH P. BUSCH III, ESQ.

6 CHRISTOPHER SPIKER, ESQ.

7 3161 Michelson Drive

8 Irvine, California 92612-4412

9 949.451.3898 Fax: 949.475.4627

10 [email protected]


12

13 For the Ecuadorian plaintiffs and the Witness:

14 MOTLEY RICE LLC

15 WILLIAM H. NARWOLD, ESQ.

16 20 Church Street, 17th Floor

17 One Corporate Center

18 Hartford, Connecticut 06103

19 860.882.1676 Fax: 860.882.1682


21

22

23 Also Present: Douglas Southgate, Consultant

24 William Slater, Videographer

25



Page 31 I N D E X

2 WITNESS:

3 JONATHAN S. SHEFFTZ

4

5 EXAMINATION: PAGE:

6 BY MR. BUSCH 8

7 EXHIBITS MARKED:

8 NO. DESCRIPTION PAGE:

9 Exhibit 1500, Analysis of Unjust 9

10 Enrichment in Maria Aguinda, et al v.

11 Chevron Corporation, September 13, 2010

12 Exhibit 1501, Response by Dr. Douglas 11

13 Southgate dated 10/4/2010

14 Exhibit 1502, Subpoena dated 12/16/10 16

15 Exhibit 1503, SHEFFTZ-NATIVE-000517, 26

16 Access Document SharePoint Site from

17 Patton Boggs

18 Exhibit 1504, SHEFFTZ-NATIVE-000466 - 490 27

19 Exhibit 1505, Westlaw opinion City of 54

20 Grass Valley v. Newmont Mining Corporation

21 Exhibit 1506, SHEFFTZ-NATIVE0000461, 60

22 September 25, 2010 Shefftz Consulting

23 invoice

24

25 --- index continues ---



Page 41 INDEX (continued)

2 EXHIBITS MARKED:

3 NO. DESCRIPTION PAGE

4 Exhibit 1507, SHEFFTZ-NATIVE-000379 - 380, 75

5 Index of Documents Sent to Ted

6 Dunkelberger

7 Exhibit 1508, SHEFFTZ-NATIVE-000327 - 378, 76

8 Technical Summary Report of Richard Stalin

9 Cabrera Vega, March 24, 2008

10 Exhibit 1509, SHEFFTZ-NATIVE000000319 - 80

11 324, Annex: Unjust Enrichment, 24 de

12 Marzo del 2008

13 Exhibit 1510, Annex T. Unjust Enrichment 86

14 [Profits], March 24, 2008

15 Exhibit 1511, SHEFFTZ-NATIVE-000250 318, 91

16 Appendix S. Cost of Reinjecting

17 Wastewater and of Recovery/Utilization of

18 Associated Gas

19 Exhibit 1512, SHEFFTZ-NATIVE-000100 -147, 95

20 Responses to the Plaintiffs' Questions

21 Concerning the Expert Report

22 Exhibit 1513, Response to the Allegations 96

23 of Mr. Cabrera Regarding the Supposed

24 Unjust Enrichment of Texpet





2 EXHIBITS MARKED


4 Exhibit 1514, Responses to the Proposal of 97

5 Mr. Cabrera Regarding Improvement of the

6 Infrastructure in the former

7 Petroecuador-Texpet Concession

8 Exhibit 1515 99

9 Exhibit 1516, Decree Number 925 dated 109

10 August 16, 1973

11 Exhibit 1517, Fugro-McClelland 161

12 environmental field audit

13 Exhibit 1518 206

14 Exhibit 1519, article by Michael Podolsky, 211

15 Ph.D.

16 Exhibit 1520, decision of the court in 220

17 United States v. The Portland Meadows, LLC

18 Exhibit 1521, subcontractor agreement 241

19 signed with Wineberg Group

20 Exhibit 1522, Beltman "Unjust Enrichment" 255

21 e-mail

22

23


25




2 EXHIBITS MARKED


4 Exhibit 1523, Donziger e-mail, "Excellent 261

5 points"

6 Exhibit 1524, e-mail chain 266

7

8 NOTATIONS:

9 Request of counsel 41

10

11

12 Exhibits appended to transcript.

13

14

15

16

17

18

19

20

21

22

23

24

25



Page 71 J. SHEFFTZ

2 P R O C E E D I N G S

3 THE VIDEOGRAPHER: This is the video

4 operator speaking, Bill Slater, of Merrill

5 Legal Solutions. Todays date is

6 December 16th, 2010. The time is

7 approximately 9:07 a.m. We are here at the

8 offices of Fierst, Pucci & Kane, located at

9 64 Gothic Street in North Andover,

10 Massachusetts.

11 THE WITNESS: Northampton.

12 THE VIDEOGRAPHER: Northampton, I'm sorry,

13 to take the videotaped deposition of

14 Jonathan Shefftz in the matter of Chevron

15 Corporation versus Jonathan Shefftz in the

16 United States District Court for the District

17 of Massachusetts, Case Number

18 1:10-mc-10352-JLT.

19 Will counsel please introduce themselves

20 for the record.

21 MR. BUSCH: My name is Joe Busch from

22 Gibson, Dunn & Crutcher on behalf of Chevron

23 Corporation.

24 MR. SPIKER: My name is Chris Spiker of

25 Gibson, Dunn on behalf of Chevron Corporation.



Page 81 J. SHEFFTZ

2 MR. SOUTHGATE: Douglas Southgate,

3 consultant.

4 MR. NARWOLD: Bill Narwold, Motley Rice,

5 on behalf the Ecuadorian plaintiffs and also

6 on behalf of the witness.

7 THE VIDEOGRAPHER: Will the court

8 reporter, Dana Welch, please swear in the

9 witness so we can proceed.

10 JONATHAN S. SHEFFTZ, sworn

11 MR. BUSCH: Could I ask the court reporter

12 what time she has?

13 COURT REPORTER: I have 9:08.

14 MR. BUSCH: Thank you.

15 EXAMINATION

16 BY MR. BUSCH:

17 Q. Mr. Shefftz, I apologize if I mispronounce

18 your name, but it is Shefftz, correct?

19 A. Correct.

20 Q. Are you represented by counsel today?

21 A. There is an attorney defending the

22 deposition, yes, if that's what that means.

23 Q. Okay. Have you had a chance to meet with

24 counsel prior to today to discuss the deposition?

25 A. Yes, I have.



Page 91 J. SHEFFTZ

2 Q. Okay. And have you had your deposition

3 taken before?

4 A. Yes. I have been deposed previously.

5 Q. Do you understand that the testimony that

6 you are giving is under oath?

7 A. Yes, I do.

8 Q. If I ask you a question that you do not

9 understand, will you let me know?

10 A. Yes, I will.

11 Q. Thank you very much.

12 Let me show you what we will mark as

13 exhibit 1500.

14 (Exhibit 1500, Analysis of Unjust

15 Enrichment in Maria Aguinda, et al v. Chevron

16 Corporation, September 13, 2010, marked for

17 identification.)

18 Q. Can you identify this exhibit?

19 A. Without looking through every single

20 paragraph, every single sentence, every single

21 word, it appears to be a copy of my report in this

22 matter.

23 Q. Okay.

24 A. Or I should say, I'm a little bit confused

25 because at the beginning it was said that this



Page 101 J. SHEFFTZ

2 deposition is being taken in Chevron versus United

3 States, the report I prepared has a different case

4 caption.

5 Q. Okay. You understand that this deposition

6 is being taken under section 1782 of title 28 of

7 the United States Code?

8 A. I'm not familiar with that legal

9 reference.

10 Q. Okay. Exhibit 1500 is a report that you

11 prepared for the court of justice of Nueva Loja,

12 correct?

13 A. That's correct.

14 Q. Okay. And that's N-u-e-v-a, Loja,

15 L-o-j-a.

16 Are you prepared to provide all opinions

17 you intend to offer to the Nueva Loja courts in

18 today's deposition?

19 A. I am prepared to offer all the opinions as

20 summarized in this report. Whether at some stage

21 this report might be supplemented to include other

22 opinions, I'm not really sure.

23 Q. Okay. Have you done any work to

24 supplement your opinions?

25 A. No, I have not.



Page 111 J. SHEFFTZ

2 Q. When was the last time that you did work

3 with respect to the opinions expressed in

4 Exhibit 1500?

5 A. Well, outside of reviewing my report and

6 preparing for today's deposition and also reviewing

7 documents pertaining to the controversy regarding

8 whether there would be a deposition today, the last

9 work I did of any analytical substance was

10 preparing this report. I can't remember the exact

11 date. It says here September 13th. I'm not sure

12 if there were -- let me go back and look at the

13 signature page to make sure it really was the 13th.

14 Yeah, the signature page says the 13th. So without

15 reviewing which day of the week that is, I don't

16 think I did any work after that date.

17 Q. Let me show you what we will mark as

18 Exhibit 1501?

19 (Exhibit 1501, Response by Dr. Douglas

20 Southgate dated 10/4/2010, marked for

21 identification.)

22 Q. Have you ever seen Exhibit 1501 prior to

23 today?

24 A. No, I have not seen this before.

25 Q. Okay. Do you intend to offer any opinions



Page 121 J. SHEFFTZ

2 to the court in Nueva Loja about the qualifications

3 of Chevron's experts, Professor Southgate and

4 Mr. Connor?

5 A. Given that this was just put in front of

6 me right now, I do not know what my intentions will

7 be.

8 Q. Okay. Did you ever ask if a response to

9 your report shown in Exhibit 1500 had ever been

10 prepared?

11 A. I'm not sure if I specifically asked if

12 one had been prepared. At the time I might have

13 asked if it was anticipated that one would be

14 prepared.

15 Q. Did you ever ask to see a copy of any

16 report that was a rebuttal to yours?

17 A. Well, given that I wasn't aware that one

18 existed, I really couldn't ask to see something

19 whose existence I wasn't aware of.

20 Q. Okay. Did you ever ask that if a report

21 in rebuttal to yours were prepared, that you be

22 provided with a copy of it?

23 A. Given that my experience in prior case

24 work was that when a rebuttal to my report is

25 prepared, I, at least as far as I've been aware in



Page 131 J. SHEFFTZ

2 the past, I've always immediately been given a copy

3 of it. I don't think I made that specific request.

4 Q. Okay. But it's something that you would

5 have assumed would have been provided to you?

6 A. Yes. I think that's a fair

7 characterization.

8 Q. You indicated that you did do some work to

9 prepare for this deposition. Did you meet with

10 counsel here before today?

11 A. Yes. I met with Mr. Narwold before today.

12 Q. Okay. And how long did you meet with him?

13 A. Net of a break when he had to attend to

14 some other business, I think it was about two and a

15 half hours.

16 Q. Okay. Did you review any materials to

17 prepare for this deposition?

18 A. Yes, I did.

19 Q. And what materials did you review?

20 A. I'm sorry. The "you" is referring to...

21 Q. You personally.

22 A. Okay. I -- well, I basically reviewed my

23 case file, all the files that I have for this case.

24 Q. Okay. Did you meet with anyone other than

25 counsel to prepare for this deposition?



Page 141 J. SHEFFTZ

2 A. No, I did not.

3 Q. Was anybody else present when you met with

4 counsel?

5 A. No. No one else was present.

6 Q. Was anybody present on the telephone?

7 A. No. No one was calling in.

8 Q. Other than counsel and potentially your

9 wife, who knows where you are today, did you

10 discuss this deposition with anybody?

11 A. "Discuss" meaning in-person conversations

12 or any form of?

13 Q. Any form of conversation.

14 A. Conversation, no.

15 Q. Okay. Did you have any exchange of --

16 A. Well, I'm sorry. I -- I suppose I

17 mentioned it to my daughter, but she can't talk

18 back yet, so it's not much of a conversation.

19 Q. Okay. What about exchange of e-mails with

20 anybody about today's deposition?

21 A. Yes.

22 Q. And with whom did you have exchanges of

23 e-mails?

24 A. Some friends familiar with parking in

25 Northampton.



Page 151 J. SHEFFTZ

2 Q. Okay. Anybody else that you exchanged

3 e-mails with?

4 A. No. That's the extent of it.

5 Q. Okay. Did anyone instruct you how to

6 testify with respect to today's deposition?

7 A. Yes.

8 Q. Okay. And what were you told?

9 A. I was told to tell the truth.

10 Q. Okay. Did anybody advise you that there

11 were things that you could not say in this

12 deposition?

13 A. No.

14 Q. Have you done any additional work on this

15 matter since you issued your report, Exhibit 1500?

16 A. I'm sorry. Do you mean -- well, yes.

17 Q. And what additional work have you done?

18 A. I reviewed the extensive materials that

19 were sent to me as part of the dispute regarding

20 the taking of my deposition in this matter. I had

21 quite a few exchanges with counsel and other staff

22 at Patton Boggs regarding discovery requests in

23 advance of the deposition. And I met with

24 Mr. Narwold yesterday and also had a call with him

25 beforehand. And on my own, I also reviewed my case



Page 161 J. SHEFFTZ

2 file in advance of the deposition.

3 Q. Okay. Were your communications with

4 Patton Boggs regarding discovery verbal or by

5 e-mail?

6 A. I think it was all verbal over the phone,

7 though at one point I forwarded -- actually, at two

8 points I forwarded files via e-mail to Patton

9 Boggs.

10 Q. Okay. Let me show you what we will mark

11 as Exhibit 1502?

12 (Exhibit 1502, Subpoena dated 12/16/10,

13 marked for identification.)

14 Q. Have you ever seen this document before?


16 Q. Well, then if you haven't seen the

17 subpoena, I can't ask you if you've seen attachment

18 A. But let me just draw your attention to

19 attachment A. Have you ever seen this portion of

20 the subpoena?

21 A. No. I have -- is this the right -- no,

22 I'm not even sure this is -- I'm sorry. I just

23 glanced down and really saw something about 3TM

24 Consulting, but I'll take it from you that this is

25 somehow relevant. I take it this must be some kind



Page 171 J. SHEFFTZ

2 of global thing that was prepared for multiple

3 people.

4 Q. Well some people have had communications

5 with 3TM Consulting and we wanted to determine if

6 you have?

7 A. Okay. Sorry. I just looked at that and I

8 was wondering if it was the right one at first.

9 Q. I take it that 3 TM consultants (sic) is a

10 name you don't recognize.

11 A. No.

12 Q. I guess it didn't. A no to, it would be a

13 double negative, which would be a yes. So let me

14 pose it a different way.

15 A. Sorry.

16 Q. Do you know or are you acquainted with 3TM

17 Consultants?

18 A. I've never heard of 3TM Consulting.

19 Q. Very good. Were all of the documents in

20 your case file produced to counsel?

21 A. All with the exception of documents that I

22 had received from opposing counsel regarding the

23 controversy regarding the taking of my deposition.

24 Q. Okay. Absent the pleadings to bring you

25 here today to take your deposition, did you produce



Page 181 J. SHEFFTZ

2 all documents in your case file to counsel?

3 A. Oh, I'm sorry. There is one exception. I

4 had forgotten it at the time and then I asked about

5 it and I was told it wasn't necessary. It was --

6 it was the one document I had in printed form but

7 not in electronic form and it was a letter from

8 another firm in Boston that was arguing the matter

9 of taking -- taking of my deposition.

10 Q. Okay. Have you produced all of your

11 communications --

12 MR. BUSCH: Let me just withdraw that and

13 lay foundation.

14 Q. Are you acquainted with an enterprise

15 known as the Wineberg Group?

16 A. Yes, I am.

17 Q. Okay. Did you produce all of your

18 communications with the Wineberg Group?

19 A. Any communications I had, I produced.

20 Q. Okay. Did you produce all of your e-mails

21 with the Wineberg Group?

22 A. All the e-mails I had, I produced.

23 Q. Okay. What practice do you have with

24 respect to the retention of e-mails?

25 A. Usually once I produce an expert report in



Page 191 J. SHEFFTZ

2 a case, I go through all my files and all my

3 correspondence and just tidy everything up to make

4 it easy to reference and find things in the future,

5 and if there are things I no longer need, then I

6 delete them.

7 Q. Do you print them out and put them in your

8 case file?

9 A. Print out e-mails?

10 Q. Yes.

11 A. No. I almost never print out e-mails for

12 any purpose, really.

13 Q. Okay. And you don't do that to preserve

14 them for purposes of your case file.

15 A. I mean, if there was some -- I shouldn't

16 say I never -- well, not quite sure if I said

17 never, almost never print out e-mails, but, I mean,

18 very rarely if there's an e-mail I need to

19 reference for the future, I might print it to a PDF

20 file or maybe copy the text to a word processing

21 file. But only very rarely.

22 Q. Okay. Were you asked to produce e-mails

23 relating to your engagement reflected in

24 Exhibit 1500?

25 A. Yes. At some point, I can't remember



Page 201 J. SHEFFTZ

2 exactly when, but I was asked to produce my case

3 file by Patton Boggs, including any e-mails that I

4 had.

5 Q. Okay. Let me just draw your attention to

6 exhibit 1502. What is the date on that subpoena?

7 A. What is the -- that's the hardest question

8 so far.

9 MR. NARWOLD: I don't think this

10 instrument is dated.

11 MR. BUSCH: It may not be.

12 Q. Okay. Let me put it this way. Was it

13 before or after Halloween?

14 A. I'm sorry, was what before or after

15 Halloween?

16 Q. The request to provide e-mails before or

17 after Halloween.

18 A. I -- I really can't -- I can't remember

19 when Patton Boggs asked me to produce my case file.

20 Q. Okay. When Patton Boggs asked you to

21 produce e-mails, did you go to your e-mail service

22 provider to try and get copies?

23 A. Well, I went to my e-mail account. I

24 mean, which is from my e-mail service provider.

25 I'm not quite sure what you mean by if I went to my



Page 211 J. SHEFFTZ

2 service provider.

3 Q. When you went to your e-mail account, were

4 there any e-mails relating to the engagement

5 reflected in Exhibit 1500?

6 A. Yes, there were.

7 Q. Okay. And did you produce those e-mails?

8 A. Well, let's see. One was just an e-mail

9 to me from opposing counsel regarding the

10 controversy regarding the taking of my deposition,

11 so that I did not produce.

12 Q. Okay.

13 A. Then there was one I think I might have

14 overlooked at first-- well, maybe. No, actually I

15 didn't have that e-mail, I just had the invoice

16 that was attached to that e-mail. So the only

17 e-mail was the one coming from opposing counsel to

18 me.

19 Q. When you noticed that you only had one

20 e-mail in your account, did you contact your

21 service provider to see if they had backup copies

22 of your e-mails relating to the work you did in

23 Exhibit 1500?

24 A. No, I did not do that.

25 Q. Let me show you what was previously marked



Page 221 J. SHEFFTZ

2 in Mr. Barnthouse's deposition as Exhibit 1014.

3 We're trying not to remark exhibits. Can you

4 identify the e-mail which is the last in this

5 string of e-mails on this document?

6 A. I'm sorry. Do you want me to read -- what

7 do you mean by identify. I mean it has its own

8 identifier.

9 Q. Okay. Do you recall receiving it?

10 A. Yes. Actually, I mean, not only is my

11 e-mail address there, but I do recall receiving

12 this at the time.

13 Q. Okay. Was this e-mail in your e-mail file

14 on your computer at the time that you were

15 searching for e-mails?

16 A. No.

17 Q. Okay.

18 A. No, it was not.

19 Q. Okay. Do you know who C. Picone is?

20 A. Well, I know the person's affiliation just

21 by looking the e-mail address, but no, I might have

22 looked up the person's name at the time and

23 background but I can't recall that now.

24 Q. Have you ever met that individual?

25 A. Not that I can recall.



Page 231 J. SHEFFTZ

2 Q. Have you ever used his work?

3 A. No.

4 Q. Have you ever read any of his work?

5 A. It's possible I might have briefly glanced

6 at a publication that was listed on his -- on his

7 bio out of sheer curiosity, but no, not really.

8 Q. How about Douglas C. Allen, do you know an

9 individual by that name?

10 A. Basically the same response as before. I

11 might have looked up the person's identity or

12 online bio just by, you know, starting with the,

13 what do you call it, domain part of the e-mail

14 address, but no, I don't know the person.

15 Q. How about Daniel Rourke, R-o-u-r-k-e?

16 A. I'm sorry. I mixed up my answer. I was

17 combining the two. The answer I gave previously

18 regarding Douglas Allen is one I meant to provide

19 for Daniel Rourke who has the domain name.

20 Q. Okay.

21 A. Douglas Allen I never heard of before and

22 I have no idea who the person is. Daniel Rourke is

23 the person whose online bio I might have looked at

24 briefly starting with the domain part of the e-mail

25 address.



Page 241 J. SHEFFTZ

2 Q. Okay. How about Larry Barnthouse,

3 B-a-r-n-t-h-o-u-s-e?

4 A. I don't know who that is.

5 Q. Okay. How about Kerry, K-e-r-r-y, Roche,

6 R-o-c-h-e?


8 Q. How about Tom Golojuch, G-o-l-o-j-u-c-h?


10 Q. How about Ted Dunkelberger,

11 D-u-n-k-e-l-b-e-r-g-e-r?

12 A. Yes, I know Ted Dunkelberger.

13 Q. And who is he?

14 A. He is the member of the Wineberg Group who

15 initially retained me in this matter.

16 Q. And who is Chris Arthur?

17 A. Chris Arthur is or I understand was a more

18 junior colleague of Mr. Dunkelberger at the

19 Wineberg Group.

20 Q. Okay. There's a reference here in this

21 exhibit. "I will be responsible for combining all

22 reference information for the final report." Do

23 you see that?

24 A. Yes.

25 Q. And then it says, "Please either include a



Page 251 J. SHEFFTZ

2 basic reference list with your section or at least

3 provide me with a written verbal list of all

4 documents relied upon for your work product." Do

5 you see that?

6 A. Yes.

7 Q. Okay. Did you have an understanding in or

8 about September 8th, 2010 that your work, as shown

9 in Exhibit 1500, was supposed to be part of some

10 final report?

11 A. Well, I'm not exactly sure what sort of

12 integration was implied by that. I understood that

13 other individuals, in addition to myself, were

14 preparing reports, and so as often happens in these

15 matters, some sort of summary is prepared for all

16 of them. But, I mean, I wasn't -- I had no

17 specific understanding of the nature of what sort

18 of synthesis or summary or compendium was being

19 planned to be produced.

20 Q. Did you ever discuss that topic with

21 either Mr. Arthur or Mr. Dunkelberger?

22 A. I can't recall any discussions that go

23 beyond the kind of vague understanding I just

24 conveyed.




Page 261 J. SHEFFTZ

2 Exhibit 1503?

3 (Exhibit 1503, SHEFFTZ-NATIVE-000517,

4 Access Document SharePoint Site from Patton

5 Boggs, marked for identification.)

6 Q. What is exhibit 1503?

7 MR. NARWOLD: Do you have a copy for me?

8 MR. BUSCH: I thought I just -- I'm sorry.

9 I apologize counsel.

10 A. This is a printout of, if I remember

11 correctly, a PDF file that I received with

12 instructions on how to access essentially a

13 document sharing website maintained by Patton

14 Boggs, kind of like an FTP website, though I can't

15 remember if the URL is actually FTP or something

16 else. Well, actually, I'm sorry, yes, the URL is

17 right here. It's just a regular http site.

18 Q. Okay. And that would be

19 www.PB3476.org/invictus?

20 A. Yes.

21 Q. Okay. Did you ever access that website?

22 A. Yes, I did.

23 Q. And what was on that website?

24 A. Well, my report was there, once I uploaded

25 it, it was there. And I think I recall being able



Page 271 J. SHEFFTZ

2 to see the file names of other reports that were

3 there, too.

4 Q. Did you ever review any of those other

5 reports?

6 A. No, I did not.

7 Q. Okay. Did you ever download any

8 information from that website?

9 A. It's possible I might have downloaded one

10 of my -- it's possible I might have downloaded my

11 own file just to make sure it was there and

12 uploaded correctly. I don't think, though, I ever

13 downloaded anything else from this site.

14 Q. Okay. Did you --

15 MR. BUSCH: I already asked that question.


17 Exhibit 1504. Let me show you what we will mark as

18 Exhibit 1504.

19 (Exhibit 1504, SHEFFTZ-NATIVE-000466 - 490


21 Q. This is a printout of what was provided to

22 us by Patton Boggs as JS, many zeros, 25 or

23 Document 25 from your file. It was I believe in

24 native format in an Excel spreadsheet. Can you

25 recognize this document?



Page 281 J. SHEFFTZ

2 A. Unfortunately, it's been -- sorry for

3 laughing but it's been produced in such a -- or

4 it's been printed up in --

5 Q. I know.

6 A. -- such a hard to follow format.

7 Q. Let me first -- while you're looking at

8 that, show the copy that I printed out to counsel

9 before I show it to you. It's a bigger font. I

10 find that at the age of 62 it's hard to read small

11 things. Okay. Does looking at it in a larger font

12 assist you in any way?

13 A. No. This copy is actually a little more

14 confusing because it doesn't have the row numbers

15 and column headers. But actually, there's one way

16 of figuring it out here.

17 Q. Let me draw your attention to

18 Exhibit 1500. Let me draw your attention to

19 Exhibit 6 in the back.

20 A. Yes.

21 Q. Okay. Did you use Exhibit 1504 in your

22 weighted average cost of capital calculations shown

23 in Exhibit 6 to your report?

24 A. Well, if this exhibit 1504 is an excerpt

25 from the beta calculation, then I did. But this



Page 291 J. SHEFFTZ

2 is -- this printout is very -- I'm not sure it has

3 everything. It's -- because the beta calculation

4 has more -- well, the version I'm looking at here

5 appears to include the Excel row numbers as well as

6 column headers and it's going down to 490 rows, but

7 I thought when I looked at the beta calculation the

8 other day it was something like 582 rows. Maybe

9 I'm remembering that number incorrectly. For some

10 odd reason that number is sticking in my head. But

11 the beta calculation has more columns than this.

12 So I'm -- it might be that Exhibit 1504 is just a

13 very confusing printout of the beta calculation

14 sheet.

15 Q. Well, let me go then to -- let me just

16 pick a page here.

17 A. Oh, wait, I'm sorry. This is -- now I

18 know what this is. This was throwing me off

19 because I kept thinking it was the beta sheet.

20 This is probably the custom data series from CRSP.

21 So if you look at the bottom of

22 Exhibit 6 --

23 Q. Yes.

24 A. -- I merged these cells so it's the note

25 for both Roman numeral two and Roman numeral three



Page 301 J. SHEFFTZ

2 and it says -- and the format of this note was

3 dictated to me with them.

4 Q. Right.

5 A. "Annual averages calculated based on

6 monthly data from CRSP US doc database, copyright

7 symbol, 2010, Center for Research in Security

8 Prices (CRSP), the University of Chicago Booth

9 School of Business," so that's what this is.

10 Q. So for example, column A is the date,

11 correct, and this shows the results for January of

12 1961 on the first line?

13 A. Yes, that's correct.

14 Q. And the adjusted average closing price for

15 Standard Oil Company stock for that month was

16 2.4485 continuing on, right?

17 A. Yes.

18 Q. Okay. And the adjusted number of shares

19 outstanding during that month was, I don't know if

20 there's a zero omitted or not, but 1291066,

21 correct?

22 A. Yes, that's how it reads here.

23 Q. And then what you would do is do an

24 adjusted price and in column 2 -- in column 3 of

25 your capital structure and you would do an adjusted



Page 311 J. SHEFFTZ

2 shares outstanding for the capital structure for

3 each year, correct?

4 A. Yes, if I remember correctly, that's where

5 that data came from, for the capital structure.

6 Q. Okay. Now, 1961 was not a year that you

7 used because you began in 1967, correct?


9 Q. And you would have used Texaco instead of

10 Chevron, right?

11 A. Yes, back then it was Texaco and at some

12 point it shifts to Chevron.

13 Q. Now, for 2009 you did use Chevron; is that

14 right?


16 Q. So if you would go to the page marked 478

17 and then the flowing over to 479, you show an

18 average share price for Chevron stock of 6991. Do

19 you see that?

20 A. Yes, in Exhibit 6.

21 Q. Yes, that's correct, Exhibit 6 of

22 Exhibit 1500. And if I wanted to test that, I

23 would do a weighted calculation using the data

24 starting with line 578 through line 589 in our

25 Exhibit 1504.



Page 321 J. SHEFFTZ

2 A. Well, I don't think it's weighted, but...

3 Q. What would you do, just an average for the

4 12?

5 A. Oh, maybe it was weighted. I can't

6 remember right now exactly how I calculated that.

7 I'd have to look at the formula.

8 Q. Okay. And you show how many shares

9 outstanding in 2009 for Chevron in Exhibit 6 to

10 Exhibit 1500?

11 A. So it's -- well, it's in -- the figure I

12 have is 2007.4 but that's -- I forget, that must

13 be -- I can't remember if that's in millions or

14 thousands right now.

15 Q. Okay. You don't know how many zeros to

16 add to the top of that or after that.

17 A. Yeah, I can't. It's basically in the same

18 as --

19 Q. Okay.

20 A. -- the -- there's a -- let's see -- it's

21 in the same terms as column Roman numeral I.

22 Q. Okay. And then what you did to arrive at

23 that number, you then somehow did a weighting also

24 using lines 578 through 589, correct?

25 A. I'm sorry. To arrive at which number are



Page 331 J. SHEFFTZ

2 you talking about?

3 Q. The 2007.4 that we see for 2009, for the

4 number of shares outstanding for Chevron.

5 A. Right, yes, it's based upon the data in

6 the Exhibit 1504.

7 Q. Okay. Now, how many months in 2009

8 exceeded 2007.4?

9 A. Well, adjusting for the -- for the --

10 what's the word I'm looking for, units or the

11 truncation.

12 Q. Right, okay. Thank you.

13 A. It appears that none did.

14 Q. Okay. If that is the case, then is your

15 weighted average capital calculation for 2009 for

16 Chevron using incorrect data?

17 A. It might have been using Value Line

18 instead. So it might be that the reference here is

19 off because I might have shifted to the annual data

20 from Value Line instead.

21 Q. Well, let me show you then line 578 in

22 your Exhibit 1504 and it does show 2031.8. Do you

23 see that?

24 A. Wait, I'm sorry. We're looking at -- so

25 line number 578.



Page 341 J. SHEFFTZ

2 Q. Yes, January 2009.

3 A. January 2009. Okay.

4 Q. That one is larger than 2007, right?

5 A. I'm sorry. Yes. Yeah, I'm sorry, it's

6 hard to look in this stuff that's all a jumble.

7 Yes, that one is bigger than 2007.

8 Q. Yes, okay.

9 A. So I'm sorry. I was wrong when I said I

10 skipped over that. I had started 2004.

11 Q. Okay. Now, in doing your weighted average

12 calculation, isn't it more appropriate to use the

13 median, the middle number, than using an average

14 for the year?

15 A. No. I mean, when you're trying to --

16 there are so many different ways to do this. One

17 could do it simply on a year-end basis, a snapshot,

18 one could do a straight average of all the months,

19 one could do a straight average of all the weeks.

20 One could get really carried away and do it on a

21 daily basis. One can take straight averages, one

22 can take weighted averages.

23 There's also the whole issue of timing

24 here, whether this is viewed as investor at year

25 end or the average of investor expectations



Page 351 J. SHEFFTZ

2 throughout the year. I mean, there are so many

3 different ways to do this and it's one of these

4 things where there's no one right answer,

5 especially because it's all harkening back to the

6 capital asset pricing model which deals with

7 investor expectations, and there's also the fact

8 that the intermediate horizon risk premium is taken

9 essentially from historical information at the end

10 of the prior year.

11 So I mean, say there's an opposing expert

12 who calculated this slightly differently than me, I

13 mean, I -- I wouldn't really have a big argument

14 with it.

15 Q. Okay. Let me ask you, in your weighted

16 average cost of capital model, you use Moody's

17 Seasoned AAA Corporate Interest, corporate bond

18 interest rates as the basis for column one, cost of

19 debt, correct?


21 Q. Okay. This is supposed to be company

22 specific, correct, Exhibit 6 and Exhibit 1500?

23 A. As much as is feasible, yes.

24 Q. Okay. Did you look to see what Texaco's

25 cost of debt was in the years from 1967 until it



Page 361 J. SHEFFTZ

2 was acquired by Chevron in 2001?

3 A. I can't remember if I did a spot check in

4 certain years or if I just used the AAA cost of

5 debt as the -- the lowest interest rate on

6 corporate bonds.

7 Q. Okay. The same for Chevron, from 2001

8 until 2009, did you check to see what Chevron's

9 cost of debt was?

10 A. Yeah. Basically the same answer as

11 before. I can't remember if I did some spot checks

12 or if I just decided that I was going to use the

13 lowest corporate bond interest rate.

14 Q. Okay. Do you know if either Texaco or

15 Chevron during the years in question had any

16 outstanding bonded indebtedness?

17 A. Well, I know they had long term debt.

18 Whether it was specifically in the form of bonds

19 issued to the public or whether it was other forms

20 of long term debt, I can't recall that right now.

21 Q. Did you attempt to ascertain whether the

22 credit rating for either Texaco or Chevron or how

23 that credit rating compared to the Moody's Seasoned

24 AAA index?

25 A. Well, I know at one point, Tex -- if I'm



Page 371 J. SHEFFTZ

2 remembering this correctly, Texaco was in a lot of

3 trouble because they -- I hope I'm not jumbling

4 this up with some other major oil industry company,

5 but I think they had that big lawsuit with Pennzoil

6 or maybe it was regarding the takeover of Pennzoil.

7 I'm probably getting this all jumbled up and I

8 think they were on the verge of bankruptcy at one

9 point. So if I'm remembering this correctly, at

10 one point, Texaco's credit was far worse than that,

11 but I didn't do an investigation over the entire

12 period.

13 Q. And you can't recall what years that was,

14 can you?

15 A. Sitting here right now, no, I can't recall

16 the specific year.

17 Q. When you did your weighted average cost of

18 capital, you also used the five-year treasury

19 notes; is that correct?


21 Q. Why did you use a five-year treasury note?

22 A. Well, one answer to that is because I used

23 the intermediate horizon risk premium and they have

24 to match. Of course, the next question would be

25 why use the intermediate horizon risk premium.



Page 381 J. SHEFFTZ

2 Q. Yes. And why did you use that?

3 A. Well, this is something I have

4 investigated in great detail for some related work

5 and one can -- in fact, I've actually commissioned

6 at least one, maybe two academic peer reviews that,

7 in part, discuss -- investigated, examined this

8 issue. And there's a lot of literature on whether

9 one should be looking at the short-term horizon

10 risk premium and combining with a shorter term

11 treasury note or using the longer term and,

12 therefore, using a longer term treasury note and, I

13 mean, one could spend one's entire academic career

14 producing treatises on the merits of each approach.

15 What I eventually decided to do and what

16 the peer reviewers signed off on in this similar

17 context, not for a specific case and not for this

18 case, was to use the intermediate horizon and,

19 therefore, five-year treasury notes. Number one,

20 because it's halfway in between the two different

21 approaches. Number two, because systematically

22 over time it shouldn't produce any different

23 results and also it -- it's more stable than using

24 the shorter term horizon risk premium with shorter

25 term treasury notes because -- I'm sorry --



Page 391 J. SHEFFTZ

2 treasury bills in that case because the shorter

3 term treasury bills tend to have more volatility

4 associated with their interest rates.

5 Q. Now, in this instance you were looking at

6 the weighted average cost of capital in a specific

7 year; is that right?

8 A. Well, yes. I mean, the weighted average

9 cost of capital, I think always has to be

10 calculated as of a specific point in time. Maybe

11 if I thought about this more I'd come up with some

12 exceptions but I don't think one can calculate a

13 weighted average cost of capital initially at least

14 over -- over some span of time.

15 Q. Now, you said that you commissioned a

16 report to study whether to use a shorter term or a

17 longer term or an intermediate term horizon. Do

18 you recall that?

19 A. Well, it was -- I was managing --

20 directing a peer review, an individual peer

21 reviewers produced initial reports and follow-up

22 reports.

23 Q. Did you author the report?

24 A. Well, the individual peer reviewers each

25 wrote an initial report or memorandum or whatever,



Page 401 J. SHEFFTZ

2 and then a follow-up one and then I produced

3 various summary materials for the client.

4 Q. Okay. Was this a -- when you say for the

5 client, was this ever published?

6 A. I think it was made public but was it ever

7 published, I mean, in this day of the Internet and

8 everything it's kind of a fine line between what's

9 just public and what's officially published, but,

10 you know, as far as in a journal or a book if

11 that's what you mean, then no.

12 Q. Who were the peer reviewers, if you can

13 recall?

14 A. Well, it's a little bit complicated

15 because I've managed several peer reviews on very

16 related subjects, so I can give you some of the

17 names of the peer reviewers who have worked on

18 related issues over the years. Whether those peer

19 reviewers specifically examined the one or two peer

20 reviews where that issue of which horizon to use

21 came up, I can't tell you for sure.

22 Q. Okay. But you relied on that work for

23 purposes of making your selection here; is that

24 correct?

25 A. Well, I wouldn't quite say it that way.



Page 411 J. SHEFFTZ

2 It was much more indirect than that.

3 Q. Do you still have a copy of the summary

4 report that you provided to your client that you

5 believe was made public?

6 A. Yes, I do.

7 Q. I'm going to ask that you produce it. I'm

8 not asking for an answer right now. Counsel will

9 advise me whether he's willing to produce it or

10 not, but I'm going to make a request for that since

11 that served as a basis for your selection of the

12 five-year treasury note.

13 Did you do a weighted average cost of

14 capital using the one year treasury bill?

15 A. No, I did not.

16 Q. Okay.

17 A. I'm sorry. You mean in regards to this

18 case?

19 Q. Yes.

20 A. I did not.

21 Q. In terms of, to be clear, Exhibit 6 to

22 Exhibit 1500, you did not do an analysis using the

23 one year treasury bill; is that right?


25 Q. Okay. Thank you.



Page 421 J. SHEFFTZ

2 Let's go back to Exhibit 1500. Okay. And

3 this has your curriculum vitae at the back; is that

4 correct?


6 Q. Okay. And has your curriculum vitae

7 changed since you issued your report?

8 A. Yes, it has.

9 Q. And how has it changed?

10 A. I mean, it's just generally been updated.

11 Do you want the specifics as much as I can recall?

12 Q. If you have the specifics, yes.

13 A. Let's see here. Okay. The first page is

14 the same.

15 MR. BUSCH: Let me withdraw the question.

16 Q. And just direct your attention to page A6

17 of your CV.

18 A. Yes, A6.

19 Q. Okay. Have there been any additional

20 publications or presentations?

21 A. Yes.

22 Q. And what additional publications and

23 presentations should be added to page A6?

24 A. There is a presentation, I think it was

25 something like the Sunday of Columbus Day weekend.



Page 431 J. SHEFFTZ

2 Q. That would be sometime in the middle of

3 October.

4 A. Uh-huh.

5 Q. And what was that presentation about?

6 A. It was on -- the title of it was something

7 like the role of the economic expert in corporate

8 control issues.

9 Q. And where was it presented?

10 A. It was in Durango, Colorado.

11 Q. And what organization?

12 A. It was -- it was an event called the --

13 something like the fall forensic economics

14 workshop.

15 Q. Okay. Any other publications and

16 presentations?

17 A. First of all, there's a change to the

18 title of the paper that I'm going to be a

19 discussant for in January, the one that says,

20 "Present Value and the Resolution of Uncertainty."

21 Q. Yes.

22 A. And the title of the paper I actually

23 received is a bit more complicated than that, but I

24 can't remember exactly what it is right now.

25 Q. Okay.



Page 441 J. SHEFFTZ

2 A. And then I also have another pending

3 presentation for next year that I included.

4 Q. And what is the other pending

5 presentation?

6 A. The title is something like, I'm the one

7 who came up with the title so I should be able to

8 remember it -- but it's something like Corporate

9 Control Issues and Insurance Indemnification

10 Litigation.

11 Q. Okay. On the documents shown on Exhibit

12 A6, you've used the expression "peer reviewed."

13 Have any of these presentations or writings been

14 peer reviewed?

15 A. Yes.

16 Q. Okay. Can you identify which ones?

17 A. The one that says, "Taxation

18 Considerations in Economic Damages Calculations."

19 Q. Okay. And that was in the Litigation

20 Economics Review in the summer of 2004; is that

21 correct?


23 Q. Any others?

24 A. That's it for peer reviewed.

25 Q. Okay. What does it mean to be peer



Page 451 J. SHEFFTZ

2 reviewed?

3 A. The exact procedures can vary, but it

4 means typically that three peers, that is people

5 who do similar work in some ways to the author of

6 the prospective paper, are separately provided with

7 a copy and then provide a marked up version with

8 typically -- I mean, based on my experience being a

9 peer reviewer, typically accept, accept with

10 modifications, kind of another option is usually

11 send back for revisions or, you know, just reject

12 outright.

13 Q. Okay. Now, you graduated from Amherst

14 College up the road with a bachelor of arts in

15 economics and political economy in 1989; is that

16 right?

17 A. Yes.

18 Q. And you graduated from the Harvard Kennedy

19 School with a master's of public policy with a

20 concentration in government and business and energy

21 and environmental policy in 1992, correct?

22 A. Concentration should be plural, those were

23 two -- I know it's a little bit complicated but

24 they're both combined words.

25 Q. I have concentrations plural in my



Page 461 J. SHEFFTZ

2 outline, so I may have misspoken only because I'm

3 getting parched here. But have you taken any

4 postgraduate education since that time?

5 A. Yes.

6 Q. And what additional postgraduate education

7 have you done?

8 A. I audited a course in ecological

9 economics, which at least its practitioners would

10 think is distinct from environmental economics.

11 That's probably it as far as -- oh, and I've

12 taken -- I've taken training from the Government

13 Finance Officers Association. I've taught a lot of

14 training courses, but as far as additional

15 education I've had as it pertains to my consulting

16 practice, I think that's it. At least that's what

17 comes to mind right now.

18 Q. You said you took a course, audited a

19 course in ecological economics, where was that

20 offered?

21 A. Tufts University.

22 Q. Are you affiliated with a school next door

23 to Tufts, MIT?

24 A. Affiliated?

25 Q. Yes. Are you the cross-country skiing



Page 471 J. SHEFFTZ

2 instructor?

3 A. I'm afraid your Googling is a bit out of

4 date there.

5 Q. Okay. That's fine.

6 When did you audit that course at Tufts?

7 A. That must have been sometime in the 1990s.

8 Q. Okay. Have you ever entered a program for

9 a Ph.D.?

10 A. Yes.

11 Q. And where was that at?

12 A. That was Harvard University, the Graduate

13 School of Arts and Sciences, as distinct from the

14 John F. Kennedy School of Government.

15 Q. Did you complete and in what discipline

16 were you seeking a Ph.D.?

17 A. Economics.

18 Q. Did you complete that course of study?


20 Q. And why?

21 A. I decided first to check out the -- the

22 master in public policy program at the Kennedy

23 School of Government, so I went on leave, turning

24 down a full tuition scholarship for the Ph.D.

25 program to instead pay full tuition for the Kennedy



Page 481 J. SHEFFTZ

2 School of Government which, at the time, was a

3 financial decision I was wondering if it made

4 sense, but I found the applied economics and

5 regulatory issues I was studying at the Kennedy

6 School to be very interesting and valuable. And

7 then after two years of that, I had a job that was

8 paying me while my former classmates were still

9 studying away and so I decided eventually to

10 withdraw from the economics Ph.D. program.

11 Q. Okay. Did the Harvard Kennedy School have

12 a special program in energy and environmental

13 policy at the time you attended?

14 A. I'm not quite sure what you mean by

15 special program. I mean, they had, you know, the

16 Kennedy School kind of likes to come up with new

17 jargon in a lot of ways, so instead of having kind

18 of traditional departments, there are all sorts of

19 programs and research centers, some of which

20 matched up with the different formal concentrations

21 one had to choose from for one's course of study.

22 Others didn't seem to match up with anything else

23 in particular. So, I mean, my two formal

24 affiliations in terms of the concentrations I had

25 were as described here, government and business,



Page 491 J. SHEFFTZ

2 and then the other is energy and environmental

3 policy.

4 Q. Okay. Do you know if the Kennedy School

5 had a policy area known as energy and environmental

6 policy back when you were attending there or was

7 that something you developed for yourself?

8 A. Oh, no. These were -- these were standing

9 concentrations and I -- you had to just choose one.

10 I ended up choosing two. And I can't remember

11 right now if my -- if my dissertation -- well, of

12 course they didn't call it that -- they called it

13 something like a PAE, policy analysis exercise, I

14 can't believe I still remember that, but instead of

15 calling it a thesis or dissertation, they had to

16 come up with some new term for it, and I can't

17 remember if it was affiliated with both of those

18 concentrations or just one. But either way, those

19 concentrations were, you know, existing, standing

20 descriptions, categories that I chose from, not

21 some sort of multi-interdisciplinary combination

22 that I chose or created.

23 Q. Prior to your preparation of Exhibit 1500,

24 have you ever performed any economic benefit or

25 avoided cost analysis regarding alleged



Page 501 J. SHEFFTZ

2 contamination at an oil production facility?

3 A. I'm really not sure. I've been doing

4 these calculations since 1992 and I've performed

5 them for a variety of clients, in a variety of

6 contexts for -- involving a large variety of

7 industries. At one point actually on my CV, I did

8 keep this running tally of every industry, every

9 type of company, but after a while, it got way too

10 long, so I just stopped maintaining that list.

11 Q. But as you sit here today, can you recall

12 one way or another whether you provided such an

13 analysis regarding alleged contamination at an oil

14 production facility?

15 A. Well, I know recently I had one involving

16 an oil pipeline system. I've had so many cases in

17 the past against the oil industry, I can't remember

18 specifically whether it was a production

19 facility -- I mean whether I've had other

20 production facilities, though.

21 Q. When you prepare avoided cost benefit

22 analysis, do you typically visit the alleged

23 contamination site?

24 A. No, that is not a typical at all.

25 Q. Have you ever done it?



Page 511 J. SHEFFTZ

2 A. I can't recall right now if I've ever had

3 a site visit relating to an economic benefit

4 analysis I was performing, nothing comes to mind

5 right now.

6 Q. Have you ever been to Ecuador?

7 A. I've never been to Ecuador.

8 Q. Other than -- we're going to take a break

9 shortly. Other than this matter, have you ever

10 done work on a case in Ecuador?

11 A. I did help out a colleague once for some

12 weighted average cost of capital calculations

13 regarding a matter in South America, but I can't

14 remember if it was Ecuador or not or some

15 combination of other countries.

16 Q. Okay. Other than the matter you just

17 described and this matter, have you ever worked on

18 a case outside of the United States where you

19 performed an economic benefit or avoided cost

20 analysis?

21 A. I'm sorry. Could you repeat that

22 question. I want to make sure I got that.

23 Q. Other than the matter you just described

24 in South America and this matter, have you ever

25 worked on a case outside of the United States where



Page 521 J. SHEFFTZ

2 you performed an economic benefit or avoided cost

3 analysis?

4 A. Well, I've certainly had a lot of economic

5 benefit cases that involved foreign companies.

6 Whether or not the actions arose -- whether or not

7 the financial gain arose from actions or inactions

8 outside of the U.S., I think so but I'm having

9 trouble recalling any specific examples right now.

10 Q. Okay. Let me draw your attention back to

11 Exhibit 1500 and page A7. This sets out your

12 testimony history from 1996 to 2010, correct?

13 A. Yes. Basically my entire testimony

14 history, yes.

15 Q. Are there any changes to be made to this?

16 A. Yes.

17 Q. Okay. And what additional changes?

18 A. There's a case I testified in, when was

19 it -- I think it was -- was it at the beginning of

20 this month or either towards the beginning of

21 December or maybe -- maybe it was November, but

22 either way within the last month or so. And the

23 case caption, it's something like Marvin Evans

24 versus some insurance companies.

25 Q. And what was the nature of the opinion



Page 531 J. SHEFFTZ

2 that you provided in that case?

3 A. It was regarding the business

4 relationships among some of the companies that were

5 involved with the original injury that gave rise to

6 the insurance litigation.

7 Q. Okay. Have you ever been disqualified as

8 an expert?

9 A. There have been two cases where I was not

10 allowed to testify. I think that falls under what

11 you're asking.

12 Q. And what two cases are those?

13 A. Let's see, the fourth item here, and it

14 says, "In the matter of 99 Cents Only Stores."

15 Q. Yes.

16 A. And then there's another one that's not

17 listed here because it was -- that I was not

18 allowed to submit a supplemental report, so in

19 other words, I'd only -- I never testified at all.

20 Q. Did you provide an affidavit in that case?

21 A. No, I did not. I include affidavits here

22 but not expert reports in forms other than

23 affidavits, just to clarify. Did that not clarify?

24 Q. That's exhausting.

25 A. Sorry. I include in the affidavits here,



Page 541 J. SHEFFTZ

2 but this is not a list of all my expert reports

3 because only rarely is an expert report produced in

4 the form of an affidavit.

5 Q. Okay. You understand that in most

6 instances when you provide an expert report you

7 sign it under penalty of perjury?

8 A. I'm not sure if most of my reports have

9 that line in there.

10 Q. Okay.

11 A. I can't even remember -- does this one

12 have that line? No, this doesn't have that.

13 Q. Do you recall if the report where they

14 would not permit you to provide a supplemental

15 report was in the case City of Grass Valley versus

16 Newmont Mining Corporation?

17 A. Yes, that's it.

18 Q. Okay. Let me just show you what we will

19 mark as Exhibit 1505.

20 (Exhibit 1505, Westlaw opinion City of

21 Grass Valley v. Newmont Mining Corporation,


23 A. Yes.

24 Q. Can you identify Exhibit 1505?

25 A. I've never seen it in this format before,



Page 551 J. SHEFFTZ

2 but it appears to be -- it appears to have all

3 the -- without looking at it in great detail, it

4 appears to have all the text of an expert -- my

5 initial expert report in that matter.

6 Q. Drawing your attention to the second page,

7 do you recall signing this opinion under penalty of

8 perjury?

9 A. Well, once again, I can't recall exactly

10 how it was written up at the time. But everything

11 else about this seems to be accurate, so it seems

12 like I must have used that language.

13 Q. You see that because -- you say that

14 because you see that there is an adjurate, "I

15 declare under penalty of perjury that the

16 statements in this report are true and accurate to

17 the best of my knowledge," correct?

18 A. Sorry. The word you used was adjurate.

19 Q. Yes.

20 A. I have to admit I don't even know what

21 that words means. Again, you're the lawyer, so...

22 Q. You see that it contains in the last

23 paragraph an expression of a declaration under

24 penalty of perjury?

25 A. Yes.



Page 561 J. SHEFFTZ

2 Q. Okay. And were there any others, reports

3 that you have prepared but where you did not

4 provide either an affidavit or declaration or

5 testify in court that are not listed in your

6 curriculum vitae in Exhibit 1500?

7 A. Yes. I have many other -- I have other

8 expert reports that were not produced in affidavit

9 form and all of those are not listed here under

10 testimony history.

11 Q. Can you give me an approximate number?

12 A. Probably several dozen, high single

13 digits.

14 Q. High single digits.

15 A. Probably not triple digits yet.

16 MR. BUSCH: Let's go ahead. We're been

17 going slightly more than an hour and let's

18 take a break.

19 THE VIDEOGRAPHER: This is the end of tape

20 number one. The time is 10:20 we're off the

21 record.

22 (Proceedings interrupted at 10:20 a.m. and

23 reconvened at 10:35 a.m.)

24 THE VIDEOGRAPHER: Here begins tape two in

25 the deposition of Jonathan Shefftz. We're



Page 571 J. SHEFFTZ

2 back on the record. The time is 10:35.

3 BY MR. BUSCH:

4 Q. Mr. Shefftz, do you understand that you're

5 still under oath?

6 A. Yes, I do.

7 Q. Would you turn to Exhibit 1500, that's

8 your report.

9 A. Okay.

10 Q. On page numbered one, which is the second

11 page of the exhibit, the first paragraph says, "I

12 have been asked by counsel for plaintiffs in this

13 matter to provide an analysis of the potential

14 unjust enrichment that accrued to defendant. In

15 the process of preparing this analysis, I have also

16 reviewed the unjust enrichment calculations in the

17 report prepared by court appointed expert Richard

18 Stalin Cabrera Vega, (Cabrera)." Do you see that?

19 A. Yes.

20 Q. First of all, does the first sentence

21 reflect what you were asked to do?

22 A. Yes, it does.

23 Q. Okay. And was it your conclusion that the

24 economic benefit analysis that you performed showed

25 that the defendant had unjust enrichment of



Page 581 J. SHEFFTZ

2 $4.57 billion on an after-tax basis and

3 $9.46 billion on a pretax basis?

4 A. Yes, that summarizes my calculations.

5 Q. And did you then conclude that if you made

6 adjustments, depending upon the probability of

7 detection, prosecution and payment, that that range

8 could be adjusted upwards to a range of

9 $18.26 billion to $37.86 billion?

10 A. Well, it doesn't quite accurately

11 summarize it. I was providing just examples of

12 how, depending on different probability levels, the

13 amounts would be higher. But I wasn't -- I wasn't

14 imputing any particular significance to those

15 probability levels. They were just random

16 examples.

17 Q. Okay.

18 A. In other words, it could be much higher

19 than that if one thought that the probability of

20 ultimate payment was far less and that lower

21 probability was applied to the figures I initially

22 calculated.

23 Q. And you picked 50 percent as one example,

24 correct?

25 A. Yes, that's one example I used.



Page 591 J. SHEFFTZ

2 Q. And if you used 50 percent, you would then

3 essentially double the amount of unjust enrichment

4 that you calculated, 4.57 billion and 9.46 billion

5 based on tax effects, correct?


7 Q. And if you determined that -- were you

8 opining that the rate of probability of detection,

9 prosecution and payment was 50 percent here?

10 A. No. I'm not making any sort of analysis

11 like that.

12 Q. Did you -- are you opining that the rate

13 of probability of detection, prosecution and

14 payment was 25 percent?

15 A. No. No. As I said earlier, I'm just

16 using those as example probabilities and showing

17 how the math follows from that. I don't have any

18 opinion on -- on what the true underlying values

19 are.

20 Q. Now, the conclusion that you express of

21 unjust enrichment of between 4.57 billion and

22 9.46 billion based upon tax treatment, now, is that

23 a conclusion that you arrived at yourself alone?

24 A. Well, it follows from some data and cost

25 figures from the Cabrera report, but otherwise it's



Page 601 J. SHEFFTZ

2 my own work.

3 Q. Did anybody assist you in preparing this

4 report, Exhibit 1500?

5 A. No. I did not have assistance.

6 Q. Do you recall when you were retained in

7 this matter?

8 A. Yes.

9 Q. Okay. And can you recall approximately

10 when?

11 A. It was the Tuesday morning before my

12 report.


14 Exhibit 1506.

15 A. Actually, I should modify that slightly.

16 I was first contacted the Tuesday morning before my

17 report. And that's when I started initial work.

18 (Exhibit 1506, SHEFFTZ-NATIVE0000461,

19 September 25, 2010 Shefftz Consulting invoice,


21 Q. Let me show you Exhibit 1506.

22 A. Yes.

23 Q. Can you identify this document.

24 A. This is my first invoice in this case.

25 Q. Have there been any other invoices issued?



Page 611 J. SHEFFTZ

2 A. Not yet.

3 Q. Okay. Are you intending to issue an

4 invoice based upon the work you did for preparing

5 for today's deposition?

6 A. In part, including that, yes.

7 Q. And what are the other remaining portions

8 that you intend to invoice for?

9 A. Well, there was the matter of reviewing

10 the various documents that opposing counsel sent to

11 me regarding the controversy regarding the taking

12 of my deposition in this matter, as well as various

13 conversations regarding that and updates on the

14 Outlook, so that would be one set of activities.

15 The other set of activities, it's just a

16 lot of little exchanges that added up regarding

17 discovery requests from Chevron or Chevron's

18 counsel and then preparation for this deposition

19 and then today's deposition.

20 Q. Okay.

21 A. I should say, and any other work that

22 might follow on. I mean, I have a report from an

23 opposing expert. I don't know if I'm going to be

24 reviewing that and rebutting that.

25 Q. Do you intend to review Exhibit 1501 and



Page 621 J. SHEFFTZ

2 prepare a response as you sit here right now?

3 A. Well, I already took a quick glance

4 through it during the break. Whether or not I'm

5 going to prepare a formal rebuttal, I don't know.

6 Q. Have you formed any conclusions or

7 opinions with respect to Exhibit 1501?

8 A. The initial opinions I have are based upon

9 such a brief review, I don't think it's really

10 anything that -- anything firm yet.

11 Q. And do you have any impressions based upon

12 your review of Exhibit 1501?

13 A. Well, my initial impression is that the --

14 this response seems to be focusing on issues that

15 both go beyond the calculations that I performed as

16 well as criticize some of the -- the data and cost

17 figures from Mr. Cabrera that I relied upon.

18 Q. Did you rely exclusively on the cost and

19 data information provided by Mr. Cabrera?

20 A. Well, I did investigate alternatives for

21 those data items and those cost figures if that's

22 what you mean.

23 Q. Were you instructed to assume that the

24 data items in his reports were correct?

25 A. No. I was not provided with any such



Page 631 J. SHEFFTZ

2 instructions like that.

3 Q. Did you make the assumption that the

4 information in his report was correct?

5 A. I used them as the inputs for my

6 calculations. I don't -- I don't know one way or

7 the other whether they're correct or not. But my

8 results depend, in part, on the accuracy of his

9 data series and his cost figures.

10 Q. If his data series or cost figures are

11 incorrect, what impact would that have on your

12 report?

13 A. Well, it depends on the nature. I mean,

14 it might be that any inaccuracies in his cost

15 figures and data series just kind of cancel each

16 other out and ultimately there's no effect. Or it

17 could lend a downward bias or an upward bias to my

18 results. It all depends on the nature of whatever

19 inaccuracies you're alleging might be or

20 hypothesizing might be as they pertain to his

21 figures.

22 Q. Okay. Now, looking at Exhibit 1506, do

23 you recall that your first contact was on Tuesday,

24 September 7th?

25 A. Yes.



Page 641 J. SHEFFTZ

2 Q. And what was the last day on which you

3 performed work with respect to Exhibit 1500?

4 A. As stated here, it was Monday,

5 September 13th, which matches up with the date on

6 my report.

7 Q. So that would be approximately six days or

8 excuse me, that would be seven days, correct?

9 A. Yes. It's over the course of seven days.

10 Q. Okay. And for your work, you were paid

11 $12,930?


13 Q. Is $300 per hour your standard billing

14 rate?

15 A. I don't have a standard billing rate.

16 Q. How did you arrive at $300 per hour as

17 referenced in Exhibit 1506?

18 A. It's within the range of what clients pay

19 for my hourly work.

20 Q. What is the range that your clients pay

21 for your hourly work?

22 A. I'd have to look at the spreadsheet where

23 I have all the different rates. I work on a lot of

24 different contracts, including for the federal

25 government, so there's a big range in what clients



Page 651 J. SHEFFTZ

2 pay per hour for my work.

3 Q. Excluding the federal government, what is

4 the highest that a client has paid?

5 A. Um, I think it's close to $400 an hour.

6 Q. And excluding the federal government,

7 which is an entity unto itself, what is the lowest?

8 A. You mean the lowest right now for this

9 calendar year?

10 Q. Yes.

11 A. I think I had a case that carried over

12 from a prior year and I didn't increase the rates

13 for this year, so it was probably somewhere in the

14 low 200's.

15 Q. And other than that case, what was your

16 lowest rate?

17 A. Oh, I'm sorry, that was the lowest rate

18 for outside -- I'm sorry -- you said outside the

19 federal government.

20 Q. Yes.

21 A. State -- they're also some not-for-profit

22 clients and state governments who have rates that

23 are set more or less equal to the federal rates.

24 There are so many different federal rates, it gets

25 kind of complicated.



Page 661 J. SHEFFTZ

2 Q. The entry for September 13th in

3 Exhibit 1506, describes 1.8 hours of work for

4 additional modifications for newly received data.

5 Do you see that?

6 A. Yes.

7 Q. What were the -- what was the newly

8 received data that you received that permitted you

9 to do additional modifications?

10 A. I think that was additional information

11 from Value Line pertaining to long-term debt for

12 one of the companies because I think I had a gap in

13 the data series for either Texaco or Chevron and I

14 might have been using the capital structure of one

15 company as a proxy for the other, and then I think

16 it was something on Friday the person I needed to

17 get the information from was out of the office and

18 then Monday morning I got it from that person, and

19 then -- so I think it related to modifications to

20 Exhibit 6.

21 Q. The entry for September 7th shows initial

22 discussions, document review and initial setup for

23 calculations. Do you see that?

24 A. Yes.

25 Q. With whom did you have the initial



Page 671 J. SHEFFTZ

2 discussions?

3 A. The very first call and perhaps all the

4 other calls that day were with

5 Mr. Ted Dunkelberger.

6 Q. And what did you discuss with him?

7 A. Well, first he gave me some basic

8 background on the case and their need for an expert

9 in this area, and I discussed my expertise as it

10 relates to that and my potential availability to

11 produce a report.

12 Q. What did he say about the nature of this

13 case?

14 A. Well, one way of summarizing it for me was

15 he referred to a movie that had been made about it

16 and unfortunately I hadn't seen the movie and I'm

17 not even sure I'd heard of it before. So he

18 described that an oil company had been involved in

19 production activities in Ecuador and it had led to

20 contamination and there was a -- well, there was a

21 lawsuit and a court appointed independent expert

22 who had produced a report on a number of subject

23 areas and plaintiffs were interested in retaining

24 their own expert to produce reports on various

25 subject matters that this -- that this Cabrera



Page 681 J. SHEFFTZ

2 report had analyzed.

3 Q. Did Mr. Dunkelberger name the movie?

4 A. I'm pretty sure he -- well, I'm not sure

5 if he -- if he told me the name of it or not or if

6 I just quickly looked it up on my own.

7 Q. What was the name of the movie?

8 A. If I remember correctly, the name of the

9 movie is "Crude."

10 Q. Have you, since that conversation, seen

11 that movie?

12 A. I watched the trailer online, but no, I

13 haven't gotten it.

14 Q. Did Mr. Dunkelberger advise you that the

15 Cabrera report was prepared by an independent

16 expert?

17 A. I'm pretty sure he described it that way,

18 a court appointed expert as opposed to -- as

19 opposed to, you know, we typically have in this

20 country each side hires its own experts.

21 Q. Did you assume when you used the Cabrera

22 report that he was a neutral expert?

23 A. I mean, I -- that was my -- that was my

24 baseline understanding. But when I used his

25 figures, it didn't matter either way, I was not --



Page 691 J. SHEFFTZ

2 I was not engaging in any exercise to verify his

3 data series or his cost figures. I was just using

4 them in my report.

5 Q. Would it have made any difference in your

6 report had you known or understood that Mr. Cabrera

7 was not neutral?

8 A. I'm not a petroleum engineer. Either way,

9 I -- I -- I'm using these figures. I don't -- I

10 don't see how it would have made a difference if

11 I'm told that he's somehow -- has some bias one way

12 or the other.

13 Q. Would it have made any difference if you

14 had been told that his underlying data was biased?

15 A. Well, if I was told that there's been some

16 analysis and the bonds he uses are specifically ten

17 percent too high and then, you know, I could have

18 done an analysis where I changed the volume figures

19 at some sort of adjustment, maybe presenting the

20 original analysis and then additional analysis

21 showing some adjustment if there's some specific --

22 some specific calculation that shows how they

23 should be adjusted.

24 Q. Let me draw your attention to the entry on

25 September 11th, Saturday, on Exhibit 1506.



Page 701 J. SHEFFTZ

2 A. Yes.

3 Q. Do you see that?

4 A. Yes.

5 Q. It says conference call prep participation

6 and follow-up. Do you see that?

7 A. Yes.

8 Q. With whom did you have that conference

9 call?

10 A. Um, that was -- I'm pretty sure that was

11 the conference call with various attorneys for the

12 plaintiffs in this matter.

13 Q. Can you identify the names of the

14 individuals with whom you had that conversation?

15 A. Adlai Small from Patton Boggs. I think

16 Steve Donziger was on that call, I'm pretty sure

17 though not absolutely sure. The other attorneys I

18 can't recall their names right now.

19 Q. Have you had any other communications with

20 Mr. Small other than the one on September 11, 2010?

21 A. Yes, I have.

22 Q. Okay. And when did those take place?

23 A. I can't remember. I don't think there

24 were any calls with him prior to September 11th.

25 There might have been some brief calls with him



Page 711 J. SHEFFTZ

2 over the next couple of days, September 12th and

3 September 13th. And then there have been many

4 calls with him since then. Well, there have been

5 many calls with him since then.

6 Q. Okay. Have any of those calls since then,

7 as you use the phrase, related to anything other

8 than simply document production and for this

9 deposition?

10 A. Yes.

11 Q. And can you recall when those calls took

12 place?

13 A. Oh, specific dates? No. Oh, actually,

14 well, yes, there was one date I can specifically

15 recall.

16 Q. Okay. And what is that date?

17 A. It was Monday of this week.

18 Q. Okay. Have you ever met Mr. Small

19 face-to-face?


21 Q. Other than the conference call with

22 Mr. Donziger on September 11th in which he

23 participated, have you had any conversations with

24 Mr. Donziger?

25 MR. NARWOLD: Objection. Go ahead and



Page 721 J. SHEFFTZ

2 answer.

3 Q. That's just a yes or no.

4 A. It's possible he -- that there might have

5 been another call with multiple attorneys and he

6 was on that call, but you know, I'm looking at the

7 invoice here and I reference only one conference

8 call, but there might have been another conference

9 call with multiple attorneys. I could be

10 remembering that wrong -- incorrectly, though.

11 Q. Have you ever met Mr. Donziger

12 face-to-face?


14 Q. Was 43 hours sufficient time in your

15 opinion to prepare Exhibit 1500?

16 A. Yes. The only outstanding item that

17 actually you reminded me of earlier was it would

18 have been possible to go back and calculate the

19 cost of debt for each company going back to 1967.

20 The only problem is going back to 1967, I'd need to

21 go to Harvard Business School library to get access

22 to -- they maintain on behalf of the SEC, the

23 Securities and Exchange Commission, the archives

24 for financial reports for companies going back that

25 far. Of course, more recent years it wouldn't be



Page 731 J. SHEFFTZ

2 quite that complicated. But that's the one

3 outstanding item that could be done in more detail.

4 But other than that, yes, the hours were

5 sufficient.

6 Q. Did you do any research applicable to

7 Ecuadorian legal standards?

8 A. No. I'm not a lawyer.

9 Q. Did you do any research regarding the

10 applicable standards of the petroleum production

11 industry as they have existed or changed over time?

12 A. No. I'm not a petroleum engineer.

13 Q. Okay. Did you review any Ecuadorian rules

14 about the obligations of expert witnesses in

15 Ecuador before you signed the original of

16 Exhibit 1500?

17 A. No. I did not review any such rules that

18 might exist regarding that.

19 Q. Do you have any understanding of what

20 Ecuadorian law requires of an expert witness?

21 A. I have no specific understanding of that,

22 no.

23 Q. Do you have any understanding of whether

24 your report meets the attestation requirements of

25 Ecuadorian law?



Page 741 J. SHEFFTZ

2 A. I'm sorry. What was that word you used?

3 Q. The attestation requirements.

4 A. Oh, to attest.

5 Q. Yes.

6 A. No. I'm not familiar with any specific

7 attestation requirements in Ecuador.

8 Q. When you attended Amherst, did you take

9 any courses in business law?

10 A. Business law? No. Amherst was very

11 anti-preprofessional, no business law courses.

12 Q. Okay. When you attended the Kennedy

13 School did you take any business law courses?

14 A. I mean I certainly had a lot of course

15 work that touched upon areas of business law, but

16 any course specifically devoted in its entirety to

17 business law, no.

18 Q. Did you review the Ecuadorian standards

19 for scientific testimony in court?


21 Q. Do you have any understanding regarding

22 whether your report meets Ecuadorian standards?

23 A. I have no idea what specific standards

24 Ecuador might maintain in that regard.

25 Q. Let me show you what we will now mark as



Page 751 J. SHEFFTZ

2 Exhibit 1507.

3 (Exhibit 1507, SHEFFTZ-NATIVE-000379 -

4 380, Index of Documents Sent to Ted

5 Dunkelberger, marked for identification.)

6 Q. This is a copy of a document that you

7 produced. Can you identify it?

8 A. This is not a document that I produced.

9 Q. Well --

10 A. I'm sorry. Produced. You mean handed

11 over?

12 Q. Turned over to counsel --

13 A. Sorry. I thought you meant created.

14 Sorry about that.

15 Q. Was this a document in your file?

16 A. Yes, it was.

17 Q. Did you author this document?


19 Q. Very good. Okay.

20 What is this document?

21 A. The title says, "Index of Documents sent

22 to Ted Dunkelberger," and it's a list of 40

23 numbered documents.

24 Q. Is this a list of documents that you sent

25 to Mr. Dunkelberger?



Page 761 J. SHEFFTZ

2 A. No, it is not.

3 Q. Okay. How did you use this Exhibit 1507?

4 A. Well, although I refer in my report to the

5 Cabrera report, the Cabrera report comprises many,

6 many different files and so the vast majority of

7 them had no relevance to my analysis in this

8 matter. I was trying to figure out just what there

9 was as pertains to unjust enrichment, so I used

10 this as a sort of summary or guide to figure out

11 which files I should look at.

12 Q. Did you look at item number one?

13 A. Yes.

14 Q. And let me show you what we will mark as

15 Exhibit 1508, a document.

16 (Exhibit 1508, SHEFFTZ-NATIVE-000327 -

17 378, Technical Summary Report of Richard

18 Stalin Cabrera Vega, March 24, 2008, marked

19 for identification.)


21 A. It's entitled, "Technical Summary Report

22 by Engineer Richard Stalin Cabrera Vega, Expert for

23 the Court of," I know I'm going to mispronounce

24 this, "Nueva Loja, Expert Opinion March 24th,

25 2008."



Page 771 J. SHEFFTZ

2 Q. Okay. And what did you understand this

3 was?

4 A. Well, it's -- it's his expert report, the

5 main body of it.

6 Q. Is this the expert report that you used by

7 Mr. Cabrera?

8 A. This and then there's an appendix or

9 annex, as it's sometimes referred to, that

10 specifically covers unjust enrichment, and I think

11 also Annex or Appendix S I also used. I can't

12 remember right now exactly which part of it I took

13 the specific figures from.

14 Q. Were you told that Exhibit 1508 was the

15 final version of the Cabrera report?

16 A. I can't remember if I was told one way or

17 the other. I vaguely remember coming across some

18 responses he had. I'm not sure if that's listed

19 here.

20 Q. Do you know if this was a -- Exhibit 1508

21 was simply a preliminary draft of the report that

22 was filed with the court?

23 A. I don't have any knowledge of that.

24 Q. Let me draw your attention to page 30 of

25 Exhibit 1508. Do you see that there's highlighting



Page 781 J. SHEFFTZ

2 here on that page and the following page?

3 A. Yes. I mean, it's a little bit hard to

4 see what it originally looked like before it was

5 printed or photocopied, but there's something that

6 appears to be some sort of highlighting there.

7 Q. And you see that the section under "Cancer

8 and Spontaneous Abortions" also has highlighted

9 sections that are readable, correct?

10 A. I'm sorry. Highlighted sections that are

11 readable?

12 Q. Yes.

13 A. The text is still legible within the

14 highlighting. It's not like it's been redacted.

15 Q. Were you told to pay any special attention

16 to the highlighted portions of Exhibit 1508?

17 A. No, I was not.

18 Q. When you do your work and using the

19 technical work of another, do you typically ask for

20 the final version of that individual's work?

21 A. Well, I mean, it all depends on the

22 context. If -- let's say -- I mean, I often am in

23 a situation where I rely upon figures from

24 engineering -- an engineering expert in a case. If

25 reports are being submitted simultaneously, it



Page 791 J. SHEFFTZ

2 might be that I take figures from a draft report or

3 I just get an excerpt or it might be there's

4 already a report, but the context can vary a lot

5 for that.

6 Q. How did you obtain this?

7 A. This was downloaded from some sort of file

8 sharing website. I can't remember if it was an FTP

9 site or something similar that was maintained by

10 the Weinberg Group.

11 Q. So you got this from the Weinberg Group?


13 Q. Now, if you will go to in Exhibit 1508

14 towards the back, it's page 50 of 52.

15 A. Okay.

16 Q. Under the title "Unjust Enrichment," it

17 shows about one, two, three, four, five, six lines

18 down, it says, "The details of the unjust

19 enrichment calculation are provided in Annex T."

20 Do you see that?

21 A. Yes.

22 Q. Okay. Did you -- I notice that there is

23 nothing designated as an Annex T in our

24 Exhibit 1507.

25 A. No, there is.



Page 801 J. SHEFFTZ

2 MR. NARWOLD: There's a reference to

3 Annex T.

4 A. Number 21.

5 Q. Okay. That's number 21. Were you given a

6 copy of number 21?

7 A. Well, I downloaded it from the Weinberg

8 website, yes.

9 Q. Okay. And let me show you what we will

10 mark as 1509.

11 (Exhibit 1509, SHEFFTZ-NATIVE000000319 -

12 324, Annex: Unjust Enrichment, 24 de Marzo

13 del 2008, marked for identification.)

14 Q. Is this what you downloaded?

15 A. It's some interesting paper it's printed

16 on, but...

17 Q. Well, we tried to print it on both sides

18 to try and save. Okay?

19 A. It's really interesting paper, I have to

20 say. But yes, this looks like it.

21 Q. And did you recall that the version that

22 you downloaded had highlights in different colors?

23 A. Yes. It's coming to mind now. I do

24 remember the -- kind of lavender or maybe mauve, is

25 that the right word, highlighting.



Page 811 J. SHEFFTZ

2 Q. I don't know.

3 A. As well as the yellow highlighting for the

4 infrastructure annex. It's coming back to mind

5 now.

6 Q. And how about the blue underlying?

7 A. The blue underlining. Where is the

8 blue -- oh, you just mean the hyperlinks? Oh, like

9 the blue, sorry, which page?

10 Q. Oh, okay. I'm sorry.

11 MR. BUSCH: Let me withdraw that.

12 Q. Were you told to pay any special attention

13 to the yellow or lavender highlighting?

14 A. No, I was not.

15 Q. Is this what you downloaded that you

16 considered to be Annex T from the Weinberg website?

17 A. Without matching it up to my files, yes.

18 I mean, this is what I would call it. It doesn't

19 say "Annex T" on it, but it says, "Unjust

20 Enrichment" and the index has as Document 21,

21 "Appendix back slash Annex T unjust enrichment,"

22 eight pages, and this is entitled "Unjust

23 Enrichment" and it has eight pages.

24 Q. And it shows here in the highlighted

25 sections, Table 1, Production Water Reinjection



Page 821 J. SHEFFTZ

2 Avoided Costs; Table 2, Produced Well Waste

3 Disposal Avoided Costs; and then under 3.1.3, Gas,

4 something also, a second Table 2, Produced Gas

5 After Avoided Cost. Do you see that?

6 A. Yes, sir -- I should say, the label it

7 says, the text of Table 3 and then the table, those

8 titled Table 2, which seems to just be a typo.

9 Q. And you picked that up in your report,

10 didn't you, you noted that fact?

11 A. Oh, the typo.

12 Q. Yes.

13 A. Yes.

14 Q. Okay. And these were the numbers --

15 MR. BUSCH: Excuse me. I'll withdraw

16 that.

17 Q. The volume of produced water barrels in

18 Table 1 of Exhibit 1509 is what you used in your

19 Table 1 in your report, correct?

20 A. That's correct, yes.

21 Q. Then the volume of well waste that is

22 found in Table 2 of Exhibit 1509 is what you used

23 in your Table 2 as the volume of well waste in your

24 report, correct? ?




Page 831 J. SHEFFTZ

2 Q. Finally, in the Table 2 found on pages

3 five and six of Exhibit 1509, that's the volume of

4 produced gas that you used in your Table 3 of

5 Exhibit 1500; is that correct?


7 Q. If you'll turn to page 3 under produced

8 water, the second full paragraph, it shows that

9 Table 1 presents the avoided cost of not injecting

10 this water given a cost of injecting water of $0.81

11 per barrel. Do you see that?

12 A. Yes.

13 Q. And you used that $0.81 a barrel adjusted

14 for inflation and conversion to the Ecuadorian

15 currency for your avoided-cost calculations in your

16 Table 1, correct?

17 A. Well, I never-- I never translated into

18 Ecuadorian currency at the time, but my -- my -- my

19 inflation data series reflects the ratio between

20 U.S. and Ecuadorian currency.

21 Q. Based on inflation, correct?

22 A. Based on inflation and exchange rates

23 between the U.S. and Ecuador.

24 Q. Thank you.

25 Then if you'll turn to page 4, it shows in



Page 841 J. SHEFFTZ

2 the middle of the page that the average cost of

3 disposing of produced well wastes is $70.48 per

4 cubic meter of produced well waste. Do you see

5 that?

6 A. Yes.

7 Q. And that was the number that you used in

8 your report for calculating the avoided cost for

9 produced well waste disposal, correct?


11 Q. And your conversions from $2,008 to $1,990

12 is shown in your Table 5; is that right?

13 A. Well, it's a two -- it's a two part

14 adjustment. Exhibit 4 in my report first adjusts

15 it from 2008 to 1990, just with reference to the

16 U.S. producer price index series for oil and gas

17 field services and then I adjust it back from 1990

18 to the specific years in my Exhibits 1, 2 and 3,

19 using what I construct in Table 4 which is

20 essentially a U.S. dollar denominated version of

21 the Ecuador consumer price index.

22 Q. Okay. And then for Table 3 -- excuse

23 me -- if you go to page five of Exhibit 1509, it

24 has an avoided cost column, but here it references

25 you the estimated cost of capturing produced gas



Page 851 J. SHEFFTZ

2 are described in Annex Infrastructure. Do you see

3 that?

4 A. Yes.

5 Q. And did you find Annex Infrastructure?

6 A. I can't remember right now if I did and it

7 was -- it was labeled something else. It might

8 have been a reference to Annex S, S as in Sam,

9 which is number 20 on the index or if I did not, I

10 can't recall that right now.

11 Q. But the number that you did use, if we

12 look at Exhibit 4 in your Exhibit 1500, was $.00178

13 per cubic foot, correct?

14 A. I don't know. Let me look at that to make

15 sure. So essentially it's 178 thousandths of a

16 cent I think that could be described as. Actually,

17 no, that's not quite right. It would be something

18 like 178 ten thousandths. Well, either way, it's

19 $0.00178 is the figure I used in 2008.

20 Q. Let me show you what we will now mark as

21 exhibit 1510.

22 THE WITNESS: I need to take a bathroom

23 break at some point. What time are we at

24 actually. We're at 11:19, so...

25 Q. Would you like to take a break, sir?



Page 861 J. SHEFFTZ

2 THE WITNESS: Yeah. What time do you want

3 to do lunch?

4 MR. BUSCH: Let's go off the record.

5 THE VIDEOGRAPHER: The time is 11:19.

6 We're off the record.


8 reconvened at 11:25 a.m.)

9 (Exhibit 1510, Annex T. Unjust Enrichment

10 [Profits], March 24, 2008, marked for

11 identification.)

12 THE VIDEOGRAPHER: Back on the record.

13 The time is 11:25.

14 BY MR. BUSCH:

15 Q. Mr. Shefftz, do you recall that you're

16 under oath?

17 A. Yes.

18 Q. Let me show you Exhibit 1510. Have you

19 ever seen this document before in this form?

20 A. Well, it's hard for me to remember the

21 exact details. It seems to be very similar to the

22 other document that was to Exhibit 1509 that

23 appears to be from my files. This one actually

24 says Annex T at the top, but it seems to be

25 covering the same topic, although it has "profits"



Page 871 J. SHEFFTZ

2 in parentheses after "Unjust Enrichment." Sitting

3 here right now, I recall seeing only one version of

4 this document.

5 Q. When you say this document, you mean

6 Exhibit 1509?

7 A. Well, one version of an appendix on Unjust

8 Enrichment. I don't remember going back and forth

9 between two different versions of it. And 1509

10 seems to have some header generated at the top that

11 indicates it's from my files. So I can't remember

12 right now seeing this different one. Oh, there's

13 also a Spanish -- I'm sorry -- I should have looked

14 through the whole document before I discussed

15 whether I've seen it before. Then there's

16 something at the end here. There's the accuracy

17 certification from a translator regarding

18 translating it from Spanish into English. Then

19 there's a Spanish version that follows at the end.

20 Q. Do you recall ever seeing a Spanish

21 version of any of Mr. Cabrera's reports or annexes?

22 A. I vaguely recall that. At some point I

23 might have started to look at Spanish documents,

24 but since I don't know Spanish at all, I quickly

25 stopped doing so.



Page 881 J. SHEFFTZ

2 Q. The telephone conversation you described

3 an September 11 that you had with Mr. Small and

4 Mr. Donziger, was anybody else on the call other

5 than counsel?

6 A. Well, I'm pretty sure my answer previously

7 was that it was a number of attorneys and those are

8 the only two whose names I can specifically recall

9 right now.

10 Q. Do you recall if any other potential

11 experts or previously retained experts were on the

12 call with you?

13 A. No. I'm pretty sure it was just all

14 lawyers.

15 Q. Let me draw your attention in Exhibit 1510

16 to it's now the sixth page and at the bottom.

17 A. I don't think there are page numbers.

18 Q. There aren't. But it's one, two, three,

19 the back side. That's right. And right above

20 Table 3 at the bottom it says, "Approximate cost

21 for capturing production gas are described in

22 Annex S." Do you see that?

23 A. Yes.

24 Q. Does that refresh your memory that you

25 found those estimated costs in what you were



Page 891 J. SHEFFTZ

2 provided as Annex S?

3 A. I'm sorry. Refresh my memory. What are

4 you -- you seem to be referencing something before?

5 Q. Exhibit 1509 on page five says that the

6 estimated cost of capturing produced gases are

7 described in Annex Infrastructure.

8 A. Oh, right.

9 Q. Okay.

10 A. Yeah, I think as I said before, I wasn't

11 quite sure, but I think it turned out that Annex 6

12 seemed to be what was meant by annex

13 infrastructure.

14 Q. Now, you have not had a chance to review

15 Exhibit 1510, have you?

16 A. Well, other than flipping through it very

17 quickly right now, I don't think I saw this version

18 of the Appendix on unjust enrichment previously.

19 Q. And you're not prepared to say one way or

20 another whether you had the final version of

21 Annex T when you did your work.

22 A. No, I'm not sure which is final.

23 Q. Okay.

24 A. I'm pretty sure it's 1509 what I had, but

25 I'd have to go back and check. I mean, you -- I



Page 901 J. SHEFFTZ

2 know I sent all my files to Mr. Small and it seems

3 like you have some sort of generation of all those

4 files with you. So I'm thinking 1509 is what I

5 reviewed and 1510 I didn't see unless maybe I --

6 you know, it's always possible that I looked at it

7 briefly and then thought it was a duplicate of 1509

8 without realizing it was slightly different, but

9 that's pretty much all I can make of it right now.

10 Q. Would you expect, as an expert retained by

11 counsel, to render an opinion to be provided with

12 the final version of the document on which you were

13 being asked to rely for purposes of doing your

14 calculations?

15 A. Well, I mean, it all depends on the

16 context.

17 Q. Why would that matter?

18 A. Well, I mean, for instance, let's say --

19 let's say I'm working on some Clean Air Act case

20 and my client, lawyer for some party says that we

21 have an engineering expert, he's preparing a cost

22 estimate for how much it would have cost to

23 construct a bag house last year. And I say okay.

24 That makes sense. That sounds like a pretty

25 standard arrangement.



Page 911 J. SHEFFTZ

2 And then they send me a page or maybe even

3 an entire draft report that shows the derivation of

4 the -- of the cost estimate for the bag house and I

5 use that in my economic benefit calculations and

6 the expert reports are due on the same day and

7 maybe the other expert's report has some changes to

8 it but doesn't affect the bag house calculations.

9 In that case, do I expect that from my files that

10 the attorney is going to send me the final version

11 of that other expert's report, I don't know and it

12 really doesn't make any difference to me as long as

13 I know I have the -- that expert's final

14 calculations or final data, final cost figures.


16 exhibit 1511.

17 (Exhibit 1511, SHEFFTZ-NATIVE-000250 318,

18 Appendix S. Cost of Reinjecting Wastewater

19 and of Recovery/Utilization of Associated Gas,


21 Q. Is this the document that you used in

22 preparing your analysis for the avoided costs on

23 natural gas flaring?

24 A. This looks like a document that I reviewed

25 previously and it has that stamp at the bottom that



Page 921 J. SHEFFTZ

2 shows it's from my files, so it looks like -- I

3 mean, I haven't looked at Appendix S in a long

4 time, but looks vaguely familiar.

5 Q. Let me show you the first page of

6 Exhibit 1511.

7 A. Okay.

8 Q. And the last sentence of the last full

9 paragraph says, "The cost of recovery per foot of

10 associated gas is estimated at $.00171 per cubic

11 foot of associated gas." Do you see?

12 A. Yes.

13 Q. Why did you use .00178?

14 A. I'm pretty sure the figure I used was

15 derived from the actual relationship between the

16 two columns in the Cabrera report where he does

17 those calculations.

18 Q. And let me draw your attention to, in

19 Exhibit 1511, to page that's labeled nine of six.

20 A. Nine of six?

21 Q. Yes.

22 A. Indeed. Okay.

23 Q. Yes. Did you ever notice that before

24 today?

25 A. That it said nine of six?



Page 931 J. SHEFFTZ

2 Q. Correct.

3 A. I don't recall that.

4 Q. Do you know if the version of Annex S that

5 you used had the final -- was the final version?

6 A. All I know is I pulled it from the

7 Weinberg website.

8 Q. Now, you said that you used 1.78 per

9 thousand cubic feet based on the ratio that you saw

10 in Exhibit 1509, correct?

11 A. I think that's what I recall using. I'd

12 have to go back to my worksheets, but that's what I

13 recall.

14 Q. And did you notice that there was a slight

15 difference as shown in Annex S?

16 A. I can't recall right now whether I noted

17 that discrepancy at the time.

18 Q. Did you test the calculations for the

19 derivation of that $1.71 per thousand cubic feet

20 that are shown on pages eight of six and nine of

21 six of Exhibit 1511?

22 A. I'm sorry. You mean did I go back and

23 check --

24 Q. The math.

25 A. -- the calculations?



Page 941 J. SHEFFTZ

2 Q. Yes.

3 A. No, I don't recall doing that.

4 Q. Assuming that the calculations as shown on

5 page eight of six and nine of six are -- in

6 Exhibit 1511 are correct, would that mean that your

7 use of a $1.78 per thousand cubic feet would

8 overstate the amount of avoided costs by a factor

9 of about four percent?

10 A. Let's see. Well, if 171 should be used

11 instead of 178, then -- I mean, that's a difference

12 of $0.07. So you know, cutting it in half, so

13 about 4 percent difference, that sounds about

14 right.

15 Q. Okay. Thank you.

16 A. For Exhibit 3, that is.

17 Q. That's correct. That would be for your

18 calculations of avoided costs on...

19 Did you review Mr. Cabrera's second

20 submission in the fall of 2008?

21 A. The second submission. As I testified

22 earlier, I recall reviewing some sort of responses

23 by him. And looking here at the document list

24 there's a number 26, December 1st, 2008, comments

25 on the report of the court. I'm not sure if -- I'm



Page 951 J. SHEFFTZ

2 not sure if that was it. That title is a little

3 bit confusing. But I remember what seemed to be

4 some sort of responses from Cabrera.

5 (Exhibit 1512, SHEFFTZ-NATIVE-000100 -147,

6 Responses to the Plaintiffs' Questions

7 Concerning the Expert Report, marked for

8 identification.)


10 Exhibit 1512. Is this the document that you were

11 just referencing?

12 A. Um, this -- oh, yeah, it's in my files.

13 Yes. I remember looking through this very briefly.

14 Q. Did you use this in any way in preparing

15 your report?

16 A. No. I don't recall using it.

17 Q. Okay. When you wrote your report, were

18 you aware that Chevron had filed rebuttals to the

19 unjust enrichment analysis presented by

20 Mr. Cabrera?

21 A. I was aware that Chevron was disputing

22 many aspects of this case, but I can't recall that

23 I was aware of any analysis specifically regarding

24 unjust enrichment by Chevron or its consultants or

25 experts or counsel.



Page 961 J. SHEFFTZ


3 Exhibit 1513.

4 (Exhibit 1513, Response to the Allegations

5 of Mr. Cabrera Regarding the Supposed Unjust

6 Enrichment of Texpet, marked for

7 identification.)

8 Q. Have you ever seen this document before

9 today?

10 A. No. I have not seen this document

11 produced.

12 Q. As an expert witness, would you have

13 expected counsel to have provided you with any

14 response to Mr. Cabrera's Annex T that you had

15 received?

16 A. Yes, I think usually -- I mean, well, it's

17 a little bit strange because I've never been in a

18 case before where there's a neutral independent

19 court appointed expert and each side has its own

20 expert, so I've never quite been in a situation

21 like this before. But given that I'm producing

22 analysis of the unjust enrichment and there's both

23 a neutral expert and an adversary expert, then I

24 think I would have expected to receive a copy of

25 this.



Page 971 J. SHEFFTZ

2 Q. And sitting here today you have no idea

3 what Exhibit 1513's effect might have been on your

4 report, correct?

5 A. I don't know if it ended up -- it would

6 have ended up not changing my opinion at all or if

7 I would have produced alternative calculations or

8 multiple sets of calculations reflecting different

9 analyses of the underlying engineering cost figures

10 and volume data series and whatnot.


12 Exhibit 1514.

13 (Exhibit 1514, Responses to the Proposal

14 of Mr. Cabrera Regarding Improvement of the

15 Infrastructure in the former

16 Petroecuador-Texpet Concession, marked for

17 identification.)

18 Q. Have you ever seen Exhibit 1514 prior to

19 today?

20 A. No. I've not -- or wait a minute. I

21 should look through just to make sure that there's

22 not something lurking inside here that I've seen

23 previously. No, I've not seen this previously.

24 Q. Would you have expected, as an expert, to

25 have received Chevron's expert response to Annex S,



Page 981 J. SHEFFTZ

2 what you had as Exhibit 1511?

3 A. Well, I need to know whether this -- I

4 mean, this is dated August 29, 2008, and then the

5 expert report on unjust enrichment or response on

6 unjust enrichment is dated after that,

7 September 8th, 2008. So I mean, it might be that

8 the information that is relevant to my analysis is

9 all contained in the September 8th report.

10 Q. Well, your Exhibit 1511 is dated March 24,

11 2008, correct?

12 A. Sorry. Say that again, my exhibit?

13 Q. Yes.

14 A. Okay. The exhibit labeled--

15 Q. 1511, your copy of Exhibit S?

16 A. Yes.

17 Q. Is dated -- it's in your hand there?

18 A. Well, they're all dated. Even the ones

19 that we're not quite sure whether it's draft or

20 final has been discussed, they're all still dated

21 March 24, 2008.

22 Q. Now, the document that you're saying

23 responses to the plaintiff's questions concerning

24 the expert report, which we marked as 1512, do you

25 see that?



Page 991 J. SHEFFTZ

2 A. Okay. 1512.

3 Q. Yes. That came from your files, correct?

4 A. Right, uh-huh.

5 Q. And it says, "Responses to the plaintiffs

6 questions concerning the expert report." Do you

7 see that?

8 A. Yes.

9 Q. Did you ever ask for Mr. Cabrera's

10 responses to the defendant's questions concerning

11 the expert report?

12 A. Well, that presumes such a thing exists.

13 I did not -- I did not ask whether there were

14 defendants' questions, too.

15 Q. You just accepted the two Cabrera reports

16 as provided as the information to use; is that

17 right?

18 A. I wasn't aware of any additional

19 information that was relevant to the topic, well,

20 other than doing original research on my own which

21 was out of the question given that it's not my area

22 of expertise.


24 (Exhibit 1515 marked for identification.)

25 Q. Showing you Exhibit 1515. Have you ever



Page 1001 J. SHEFFTZ

2 seen that document before?

3 A. No, I've not.

4 Q. Are you familiar with the name Texas

5 Petroleum or Texpet, Texaco Petroleum or Texpet?

6 A. I've seen that come up before, yes.

7 Q. Do you know what the connection is between

8 Texpet and Chevron?

9 A. I can't remember what was a subsidiary of

10 whom at what date, but I -- I haven't -- well, I'm

11 not familiar specifically with the business

12 relationships of it and what entities and what

13 dates.

14 Q. Do you know what the relationship was

15 between Texpet and Texaco?

16 A. No. As I said before, I have not looked

17 into the -- I mean, it's something I do in some

18 cases, but no, here I have not looked into the

19 business relationships amongst subsidiaries, joint

20 ventures and whatnot in this case, no.

21 Q. Did you attempt to determine in doing your

22 weight of average cost of capital if there was a

23 different cost of debt for Texpet than there was

24 for Texaco?

25 A. Well, for cost of debt, as I've testified




2 earlier, I just used the very best interest rate

3 that I could find for corporate bonds.

4 Q. Do you know when Texpet ceased operations

5 in Ecuador?

6 A. No, I do not.

7 Q. Do you know who has been the primary

8 operator of the oil exploration and production

9 facilities in the former concession area since June

10 of 1990?

11 A. No, I do not.

12 Q. Have you ever heard of the name

13 Petroecuador?

14 A. I probably came across it at some point in

15 this case.

16 Q. Have you heard of a company who is known

17 as CEPE?

18 A. CEPE, I don't have any recollection of

19 that right now.

20 Q. Do you have any understanding of the

21 relationship between Petroecuador and the

22 government of Ecuador?

23 A. I might have come across that at some

24 point, but right now, I can't -- I can't remember,

25 no.




2 Q. If I asked you to assume that Petroecuador

3 was wholly owned by the government of Ecuador,

4 would that affect your opinion?

5 A. Well, if there was some exercise being

6 done to kind of parse out the economic benefit

7 among the different companies, it would. But as it

8 stands right now my analysis is of the entire

9 economic benefit.

10 Q. When you say the entire economic benefit,

11 you mean -- what do you mean?

12 A. The economic benefit from the -- from

13 avoiding the costs as laid out in the Cabrera

14 report without regard to whether some of the

15 benefit might have accrued to related parties.

16 Q. When you do an avoided cost analysis, do

17 you typically do it as the avoided cost for the

18 entire enterprise?

19 A. I'm not sure. What do you mean by entire

20 enterprise?

21 Q. The owner.

22 A. Well, the baseline is to -- the baseline

23 approach is to look at the economic benefit that

24 accrued from the actions or inactions and sometimes

25 there are complicated issues with exactly to whom




2 the economic benefit accrues. It comes up a lot in

3 utility cases when there's rate of return regulated

4 power companies or when there's parties that are

5 kind of at odds with each other in some way.

6 One example is when the defendants were a

7 state transportation agency and the contractor and

8 it was a little bit unclear which party was

9 benefitting from the costs that were avoided and

10 delayed. So it's kind of a hard question to answer

11 as a generality.

12 Q. Now, in your report, Exhibit 1500, you're

13 assuming the avoided costs for all of the

14 production activities that were conducted in the

15 concession area, correct?

16 A. Right. I'm focusing on all the -- right,

17 without regard to -- well, yes, basically yes.

18 Q. And if Texpet owned ten percent of the

19 enterprise and someone else owned 90 percent of the

20 enterprise, that avoided cost was shared 90/10

21 between the two owners, correct?

22 A. Well, it all depends on what sort of --

23 what sort of arrangements they had for that, who

24 would have borne those costs, I don't know.

25 Q. What if the costs were simply borne by the




2 operations of the enterprise?

3 A. Oh, so you mean that the cost would have

4 been proportionate to the ownership stake?

5 Q. Yes, yes.

6 A. Yeah, well, in that case -- I mean, it

7 would be something to research further, but the

8 baseline would be that it was -- ultimately, it

9 accrued in proportion to the ownership stake.

10 Well, usually the focus is just on -- well, on the

11 enterprises I think you said previously, it's not

12 like...

13 Well, I mean, let's say we have a more

14 simple situation where there's a publicly-held

15 company with many dispersed shareholders, it's not

16 like I tried to produce a graph at the end that

17 shows say a million dollar economic benefit split

18 among 10000 different shareholders, it just stops

19 at the level of the company.

20 Q. Were you aware, when you prepared your

21 report, that Petroecuador or its predecessor, CEPE,

22 owned a 62 and a half percent interest in the

23 enterprise from 1977 until 1992?

24 MR. NARWOLD: Objection. Go ahead and

25 answer.




2 A. I can't remember the specific

3 arrangements, but I do recall that there might have

4 been some sort of relationship between the

5 U.S. company at the time and the Ecuador government

6 or -- and a nationalized company owned by the

7 government.

8 Q. Were you aware, when you did your report,

9 that Petroecuador or its predecessor, CEPE, owned a

10 25 percent interest in the enterprise from June of

11 1974 until 1977?

12 MR. NARWOLD: Objection, foundation. Go

13 ahead.

14 A. Essentially the same answer as before. I

15 was aware that there was some relationships between

16 the U.S. company and its Ecuadorian partner of some

17 sort, using that term loosely, partner that is, but

18 I don't know the specifics of it.

19 Q. Did you read any of the contracts between

20 Texaco and the government of Ecuador with respect

21 to the concession area?


23 Q. Did you read any of the contracts between

24 Texaco and Petroecuador with respect to the

25 operation of the concession area?




2 A. No, I did not.

3 Q. Did you have any understanding that as of

4 1977, Petroecuador assumed and exercised majority

5 control in regulating, funding and dictating the

6 consortium's operations?

7 MR. NARWOLD: Objection, foundation.

8 A. I don't know if I came across that at some

9 point, but I mean, right now I don't have any

10 specific recollection of that.

11 Q. I want you to assume that as of 1977

12 Petroecuador exercised majority control in

13 regulating funding and dictating the consortium's

14 operations. Would that impact your opinion in any

15 way?

16 A. No.

17 Q. Would that impact your opinion in any way

18 as to the allocation of the avoided costs among the

19 owners of the enterprise?

20 A. The -- no. The decision-making? I mean,

21 the decision-making as you've described it there

22 would not affect the ultimate accrual of financial

23 gain to the different partners.

24 Q. Okay. What about if I asked you to assume

25 that Petroecuador funded 62 and a half percent of




2 the consortium's operating and capital costs?

3 A. If you mean by that, that they were the

4 majority owner and the issue is trying to parse out

5 to whom these cost savings accrued then, yes, that

6 information would affect such an exercise.

7 Q. Okay. And how would it affect it?

8 A. Well, absent any additional information,

9 if the goal is ultimately to figure out who really

10 gained from these cost savings among the different

11 parties and that one partner was taking out

12 whatever it was, 62 percent of the profits, then

13 that would be my baseline approach for how to

14 allocate the financial gain.

15 Q. Did you see in the Cabrera report any

16 attempt to allocate the financial gain among the

17 owners?

18 A. Sitting here right now, I can't recall

19 anything like that. It's possible I might have

20 missed it, but...

21 Q. Let's go to the version I believe that you

22 used --

23 A. By the way, it's almost exactly noon right

24 now.

25 Q. All right?




2 A. If there's a topic you want to wrap up.

3 Q. Exhibit 1508.

4 A. I have to find it. 1508.

5 Q. It's his report.

6 A. Okay.

7 Q. And let me draw your attention to page 50

8 of 52.

9 A. Uh-huh.

10 Q. That is his discussion of unjust

11 enrichment; is that right?

12 A. Right. His discussion in the main body of

13 his report.

14 Q. Does he, in any way, allocate his unjust

15 enrichment calculation among the owners of the

16 enterprise based upon their representative shares

17 of the enterprise? I should have said respective

18 shares.

19 A. No. The Cabrera report in section 7.3

20 just refers simply to Texpet.

21 MR. BUSCH: As you said it's almost noon,

22 would you like to take your lunch break, sir.

23 THE WITNESS: Yes. It's a good time.

24 THE VIDEOGRAPHER: This is the end of tape

25 number two. Time is 11:59. We're off the




2 record.


4 reconvened at 1:07 p.m.)

5 THE VIDEOGRAPHER: This is the beginning

6 of tape number three in the deposition of

7 Jonathan Shefftz. We're back on the record.

8 The time is 1:07.

9 BY MR. BUSCH:

10 Q. Mr. Shefftz, did you have a good lunch?

11 A. All you can eat Sushi, away from my wife,

12 who has a life threatening fish allergy, it doesn't

13 get any better than that.

14 Q. Do you recall that you're -- you

15 understand that you're still under oath?

16 A. Yes.

17 Q. You testified earlier this morning that

18 you had not seen any of the governmental decrees

19 involving the concession area. Do you recall that?

20 A. I can't recall that specific question, but

21 either way, I have not seen any such decrees.

22 Q. Okay. Let me just show you what we will


24 (Exhibit 1516, Decree Number 925 dated

25 August 16, 1973, marked for identification.)




2 Q. This is a copy of Decree Number 925 dated

3 August 16, 1973. Have you ever seen a copy of this

4 before?

5 A. I can't recall seeing any such decree from

6 the -- what I gather this is the military junta or

7 whatever, ruler of Ecuador at the time, no?

8 Q. That's what my representation will be, the

9 ruler of Ecuador. Let me draw your attention to

10 the page which is Bates marked at the -- excuse me,

11 at the top you'll see a page number 24.

12 A. It says clause 20?

13 Q. Yes. And then clause 21.

14 A. Uh-huh.

15 Q. Okay. Were you aware, looking at clause

16 21.1, that Texaco was required to present for the

17 approval of the ministry on December 1st of every

18 year a program detailing the activities to be

19 performed during the next calendar year including

20 the budget of investments?

21 A. No. I was not aware of any such

22 requirement as outlined in this clause.

23 Q. Okay. Were you aware, looking at

24 paragraph 22.1, that Texpet was required to submit

25 to the government during the first month of every




2 year a detailed report specifying everything

3 related to exploration, exploitation, production,

4 reserves, transport, industrial activities,

5 domestic sales, experts personnel and other details

6 of the work performed during the immediately

7 preceding year?

8 A. No. I have not previously been aware of

9 that requirement at the time.

10 Q. Let me draw your attention to clauses 23

11 and -- yeah, just to clause 23. Have you finished

12 reading them?

13 A. I'm sorry. 23.1 and 23.2?

14 Q. Yes.

15 A. Yes.

16 Q. Okay. Were you aware of those

17 requirements?

18 A. No. I was not aware of those

19 requirements.

20 Q. Okay. Having read those requirements,

21 does that impact your opinion, in any way, as to

22 whether or not the probability of detection by the

23 government of any violations was less than one?

24 A. I'm sorry. Could you repeat that

25 question, again.




2 MR. BUSCH: I'll have the reporter read it

3 back.

4 COURT REPORTER: Question: "Having read

5 those requirements, does that impact your

6 opinion, in any way, as to whether or not the

7 probability of detection by the government of

8 any violations was less than one?"

9 A. Well, I don't think I specifically

10 rendered an opinion on whether the probability of

11 detection by the government of Ecuador regarding

12 contamination was less than one. So I think I'll

13 stop there, since I haven't -- I haven't provided

14 any opinion on that.

15 Q. Okay. You used the phrase "unjust

16 enrichment" in your report; is that correct?

17 A. Yes. I used the phrase "unjust

18 enrichment."

19 Q. Why do you use the phrase "unjust

20 enrichment"?

21 A. Well, two reasons: Number one, I think it

22 accurately characterizes -- it's one way of

23 accurately characterizing what I am calculating.

24 And number two, although there are alternative

25 terms to use for what I'm calculating, it's what's




2 already been used in the context of this case prior

3 to my involvement.

4 Q. Okay. Used by whom?

5 A. It's used in the Cabrera report. I can't

6 remember if anyone else was referring to it as

7 such.

8 Q. Are you aware that the phrase "unjust

9 enrichment" has a specific meaning within American

10 law?

11 A. I've worked on cases where the phrase

12 "unjust enrichment" is used but -- and I'm sorry --

13 where I've calculated "unjust enrichment." Exactly

14 what it means in American law, I'm not a lawyer.

15 Q. Are you intending to use the phrase

16 "unjust enrichment" in a legal sense?

17 A. Am I intending to use it in a legal sense?

18 I'm just using the phrase in kind of a common sense

19 way, as interchangeable with economic benefit or

20 financial gain. I'm not making any specific legal

21 assertions or rendering a legal opinion when I use

22 that phrase.

23 Q. Why don't you use the phrase "avoided

24 costs"?

25 A. "Avoided costs" would be too narrow of a




2 term to just use by itself, since if it turned out

3 that economic benefit, financial gain or unjust

4 enrichment, whatever we want to call it, had arisen

5 also because of delayed costs or of factors that go

6 beyond the relatively straightforward avoidance or

7 delay of costs, then it would be restricting,

8 whether just in terms or in reality, it would be

9 restricting the scope of the calculations that

10 could be performed.

11 Also, if I was to use the phrase "avoided

12 costs," that would imply to me that things like

13 taxation issues and present value issues would

14 somehow be precluded if we were just looking at

15 kind of the raw unadorned avoided costs.

16 Q. Now in Exhibit 1 to your report,

17 Exhibit 1500, you have a column, two columns

18 actually entitled "Avoided Costs," correct?


20 Q. You don't use economic benefit, correct?

21 A. Well, right, for those columns I'm

22 starting with the avoided costs.

23 Q. Okay. But that's all that you calculate

24 in Exhibit 1, correct?

25 A. Well, and then there after-tax present




2 values.

3 Q. That's as of today; is that right?

4 A. As of 2010. Everything is just being done

5 on an annual basis here.

6 Q. But it's the avoided costs, correct? .

7 A. Right. What's giving rise to the economic

8 benefit or unjust enrichment or financial gain,

9 whatever we want to call it here, I use those terms

10 interchangeably in my own work, that's based purely

11 at this point upon just the avoided costs.

12 Q. And that's what you do in Exhibits 2 and 3

13 of your report, correct?

14 A. Right. They have the same -- Exhibits 1,

15 2 and 3 all have essentially the same structure to

16 them.

17 Q. Do you understand that under American law

18 "unjust enrichment" as that term is used in the law

19 does not apply to cases where a contract governs

20 the rights between the parties?

21 A. I'm not a lawyer so none of that really

22 has any meaning to me.

23 Q. Well, do you believe that it's then

24 appropriate for you to use a phrase to characterize

25 some form of level of damage or penalty where there




2 is a -- that would not be available in the event

3 that there's a contract between the parties?

4 MR. NARWOLD: Objection.

5 A. Well, I mean, first of all, this -- I'm a

6 little bit confused as to whether I'm being deposed

7 today in the case that's encaptioned on my report

8 or in some individual action that Chevron has filed

9 against me. This report is being filed in a court

10 in Ecuador, so although I'm a United States

11 citizen, I've written in it the United States, I

12 have no idea which country's laws pertain to

13 matters like that, nor given my role, is that

14 directly relevant to me.

15 This is a term that was used in the

16 Cabrera report. What I'm doing is calculations

17 starting with some of the information in the

18 Cabrera report and to me, from a common sense point

19 of view, I think I even use it as such in my -- in

20 my -- in my CV, when I'm performing these types of

21 calculations, whether they're called here on page

22 A3 of my CV, I have financial gain backslash

23 economic benefit backslash unjust enrichment, those

24 terms are interchangeable from my perspective

25 performing financial economic calculations.




2 Whether they mean something else -- whether they

3 mean different things to attorneys is a question

4 that's outside the scope of what I do.

5 Q. So you just decided to use -- do you think

6 that the phrase "unjust enrichment" has a more

7 negative connotation than the phrase "avoided

8 costs"?

9 A. Well, as I said before, the problem with

10 "avoided costs" is it's not adequately capturing

11 the full extent of what these calculations are and

12 especially what they might be in a more complicated

13 scenario. Avoided costs? I mean, it implies

14 something should have been done, instead it wasn't,

15 it was avoided, so that has a negative connotation

16 to it. "Unjust enrichment," sort of the word

17 "unjust" also has negative connotations to it.

18 Which one has more negative connotations, I'm not

19 here to render English language opinions like that.

20 Q. Well, you've stated that your use of the

21 phrase "avoided costs" is without focusing on the

22 intent of the party, a person could act and

23 inadvertently avoid costs that are required to be

24 incurred; is that right?

25 A. I'm sorry. Are you talking what I've said




2 today, in my report or --

3 Q. In your report.

4 A. I think I have a line in there about

5 economic benefit being -- well, unjust enrichment,

6 I can't remember if I consistently used "unjust

7 enrichment" here or slipped into the economic

8 benefit term that I often use in these contexts.

9 But yes, the point is that the financial gain or

10 unjust enrichment, whatever we want to call it, is

11 no fault in nature and whether or not a party or

12 parties knew that costs should have been incurred,

13 either way, if costs were not incurred and should

14 have been incurred or were incurred in a delayed

15 manner, a party is better off by not having

16 incurred those costs in a full in and timely

17 manner.

18 Q. Now in this instance there was a contract

19 between Texpet and the government of Ecuador,

20 correct?

21 A. I don't know that I -- I mean, you've

22 shown me a decree here. Whether or not that

23 constitutes a contract or not, I don't know the

24 nature of the written arrangements between the

25 parties in this case.




2 Q. Are you aware of the contract relationship

3 between CEPE or Petroecuador and Texpet?

4 A. No, I'm not aware of the specifics of that

5 relationship.

6 Q. Let's go to page two of your report, 1500?

7 A. Number page two?

8 Q. Yes, please. Now, you say here as

9 described in the Cabrera report's Annex, Appendix

10 for Unjust Enrichment, Chevron Texaco should have

11 incurred certain costs for injecting produced water

12 properly disposing of well waste and capturing

13 produced gas. Do you see that?

14 A. Uh-huh.

15 Q. Is that a yes?

16 A. I'm sorry. Yes. Sorry about that.

17 Q. We're sitting here, the recorder has you

18 but the reporter has to do the verbal.

19 When you say that Chevron Texaco should

20 have incurred certain costs, does that statement

21 assume that Texpet was required to assume those

22 costs by contract?

23 A. No, not necessarily. That assumption is

24 not necessarily implied by that statement.

25 Q. Did you assume that Texpet was required by




2 some standard of the petroleum industry to have

3 incurred those costs?

4 A. No, I'm not making that specific

5 assumption, no.

6 Q. Okay. Have you studied what the standards

7 of the petroleum industry were during the period

8 from 1967 to 1990?

9 A. No. I have performed no such studies

10 along those lines.

11 Q. Okay. When you said that Chevron Texaco

12 should have incurred certain costs, were you

13 assuming that some law issued by the government of

14 Ecuador imposed those conditions or obligations on

15 Texpet?

16 A. No. I'm assuming the existence of no such

17 law.

18 Q. Then under what circumstances, if it was

19 not imposed by law, standards of the industry or

20 contract, was Texpet obligated to incur certain

21 costs for reinjecting produced water properly

22 disposing of well waste or capturing produced gas?

23 A. I'm taking those three measures from the

24 Cabrera report as my understanding of the Cabrera

25 report's measures that, if taken, would have




2 prevented the environmental contamination that has

3 ensued over the intervening years.

4 Q. What would have imposed on Texpet the

5 obligation, for example, of reinjecting produced

6 water?

7 A. Well, my understanding of what the Cabrera

8 report is getting at is that if reinjecting the

9 produced water would have been performed, that

10 would have prevented the contamination that's at

11 issue in this case. But I have no independent

12 opinion on that.

13 Q. Now, you understand that your avoided-cost

14 calculations were designed to provide a range for

15 the imposition of a penalty; is that right?

16 A. Well, I have language that discusses

17 applying unjust enrichment results in that context,

18 but given the context of this case, I'm not exactly

19 sure whether it's the Cabrera report, and my

20 analysis of the same is there as a guide for

21 penalties to be assessed or if it's just putting

22 other environmental and human health damages

23 figures in context.

24 Q. Okay. Let me draw your attention to page

25 number 3 of your report. The second full




2 sentence -- excuse me -- second full paragraph

3 begins, "The appropriate unjust enrichment estimate

4 should represent the amount of money that would

5 make the company indifferent between compliance and

6 noncompliance." Do you see that?

7 A. Yes.

8 Q. Compliance with what? A contract?

9 A. No. That's -- I wasn't specifically

10 referring to contracts, no.

11 Q. Compliance with the law?

12 A. It could either be construed specifically

13 as compliance with specific laws or compliance in

14 the sense of avoiding any environmental --

15 preventing any ensuing environmental contamination

16 in the future. So in other words, sometimes if --

17 in other words, sometimes there's what in this

18 country is called "command and control regulation,"

19 where it specifically says you have to dispose of

20 waste in a certain manner or put on this type of

21 control equipment.

22 Other cases I work on, it's okay, here's a

23 problem that's come up, what would have been

24 necessary to avoid that problem or to prevent that

25 problem, trying to use the word avoid in too many




2 different contexts here. And so it's much more

3 open-ended because since specific measures aren't

4 legally required, it's a matter of okay, what could

5 have been done differently to prevent the

6 contamination from occurring in the first place.

7 Q. So is it your testimony that what your

8 report is doing here is assessing what could have

9 been done differently to prevent the contamination?

10 A. Yes. I think -- yes. I'm looking at what

11 it would have cost to take these measures that

12 would have prevented this contamination from

13 occurring.

14 Q. And that's regardless of whether or not

15 there was any specific legal requirement that such

16 actions be taken.

17 A. Yes. I think -- I'm not looking -- in

18 some cases, for example, it's -- in one case it was

19 looking at different permit fees that should have

20 been paid. And so it wasn't tied at all -- in

21 fact, a lot of the cases I work on are tied to

22 specific legal requirements that actually have no

23 direct relationship at all to environmental

24 contamination.

25 Here it's kind of the other extreme.




2 There's environmental contamination that's alleged

3 to have occurred because of certain actions or

4 inactions, and my understanding of the measures in

5 the Cabrera report is that he's trying to figure

6 out what would have been necessary to prevent that

7 contamination from occurring.

8 Q. So even if not required by law, Texpet

9 should still be assessed for the actions that it

10 didn't take --


12 Q. -- using hindsight.

13 MR. NARWOLD: Objection. Argumentative.

14 A. I'm sorry, I didn't -- that seemed more

15 like a statement than a question. I was a little

16 confused there.

17 Q. Is it your opinion that Texpet should

18 still be assessed for the actions that it didn't

19 take even if those actions were not required by any

20 legal standard?

21 MR. NARWOLD: Same objection, foundation

22 as well.

23 A. Well, my role here is to perform

24 calculations of how much financially better off the

25 company is. Then the question becomes okay,




2 financially better off because of what. My

3 understanding, the measures outlined in the Cabrera

4 report are measures that would have prevented

5 environmental contamination that arose at the site

6 as opposed to measures that were specifically

7 legally required at the time.

8 Q. Do you know if the government of Ecuador

9 today permits water from pumping operations to be

10 discharged into the environment instead of being

11 reinjected?

12 A. I have no knowledge of current Ecuadorian

13 laws regarding water reinjection.

14 Q. Would that matter to you or to you

15 opinion?

16 A. It -- no. I mean current -- current

17 Ecuadorian laws regarding water reinjection from my

18 calculations that end in 1990? No.

19 Q. So it wouldn't matter for purposes of your

20 analysis to know, one way or another, whether

21 Ecuador permits produced water to be discharged

22 into the rivers as to whether or not Texpet had

23 been in compliance?

24 A. My calculations cover the period something

25 like 1967 to 1990 and what is or is not allowed in




2 2010 has -- I don't think that has any relevance to

3 my calculations.

4 Q. But also what was in effect between 1967

5 and 1990 doesn't have any relevance to your

6 equations either, does it? Excuse me -- to your

7 calculations?

8 A. No. I mean, as I said, my understanding

9 of the measures in whose costs and related volume

10 figures I'm taking from the Cabrera report, my

11 understanding of that is it's tied to his analysis

12 of what would have been necessary to prevent the

13 contamination, not necessarily what was legally

14 required, legally permitted at the time.

15 Q. And would your answer be the same with

16 respect to produced well waste disposal?


18 Q. And would your answer be the same also for

19 produced gas capture?


21 Q. And would your opinion change if you knew

22 today that Petroecuador continues to flare gas?

23 A. I don't see how the current practices of

24 flaring gas or not would affect the calculations

25 I've performed here.




2 Q. And would it affect your opinion if you

3 that knew from 1990 -- June of 1990 until the

4 present, Petroecuador has been flaring natural gas?

5 A. I don't see how that would -- I don't see

6 how the continuing practices from 1990 on would

7 affect my calculations here, no.

8 Q. Okay. Are you familiar with the standard

9 methodology and acceptant procedures of engineering

10 economics?

11 A. Well, I've delivered guest lectures at

12 university courses on engineering economics. And

13 in reviewing textbooks on engineering economics, it

14 almost seems like they took texts on financial

15 economics and just changed the title and then left

16 out any sophisticated discussion of what discount

17 rate to use. But as far as whether there's some

18 kind of standard curriculum, I'm not sure exactly

19 what you're referring to.

20 Q. Okay. Are you criticizing the standard

21 methodology and accepted procedures for engineering

22 economics?

23 A. Well, I'm not sure there's anything that

24 really exists like that. I mean, if you were to

25 substitute say labor economics or macroeconomics or




2 financial economics, or a whole host of other

3 branches of economics in for engineering economics,

4 my response would be well, I really don't think

5 there's anything you can officially refer to using

6 that term you used.

7 Q. Okay. Let's return to your report, which

8 is Exhibit 1500.

9 A. Yes.

10 Q. Could you go to Exhibit 1 in the report.

11 It's half the page of your signature.

12 A. Yes.

13 Q. You have a column in Exhibit 1 labeled

14 "Volume Barrels." Do you see that?

15 A. Yes.

16 Q. Did you get those directly from the

17 Cabrera report?

18 A. Yes.

19 Q. Excuse me or the Cabrera Annex T?

20 A. Yes, that's where I obtained them from.

21 Q. Did you do anything to verify the accuracy

22 of the volume that's shown here?

23 A. You mean the accuracy of the figures that

24 he uses?

25 Q. Yes.




2 A. No. I did not attempt to independently

3 verify his volume figures.

4 Q. Did you ask to see if there were any

5 governmental figures that you could use just to

6 check those against?

7 A. No. I did not request any such data.

8 Q. Okay. Now, in 1979, your table shows

9 270,132,074 barrels of water produced. Do you see

10 that?

11 A. Yes.

12 Q. And do you see that that exact number, on

13 a base of 27 million, was produced in 1981, 1982,

14 1984, and 1990, do you see that?

15 A. Yes.

16 Q. Okay. Did you notice that when you

17 prepared your report?

18 A. I mean, that was done over three months

19 ago. I might. I mean, looking at it now, there's

20 also a repeat of the figure from 1977 and 1978. I

21 probably noticed it at the time. I can't remember

22 if there's any explanation in the Cabrera report

23 about that being an approximation or how it was

24 derived.

25 Q. When you see approximations, don't you




2 usually see the number rounded to a certain number?

3 A. No.

4 Q. You see approximations precise to a base

5 of 27 million as an approximation.

6 A. It can be. I mean, it all depends on the

7 basis for the approximation.

8 Q. Okay. Now, you noticed that -- you just

9 remarked that the number for 1977 and '78 was

10 identical, correct?


12 Q. And that 21,102,724 million barrels shown

13 for those two years is also repeated in 1986 and

14 1988; is that right?

15 A. Yes.

16 Q. Okay. And did you notice that -- that

17 that number is repeated four times?

18 A. I mean, sitting here right now I can't

19 remember whether over three months ago I saw these

20 numbers. I mean, I typed them in. I'm sure at the

21 time I must have noticed that there are repeats

22 here as well as for 1974 and 1975. What my

23 reaction was at the time, I can't recall right now.

24 Q. Did you consider what you were doing was a

25 peer review of the Cabrera report?




2 A. No. I was not providing a peer review of

3 the Cabrera report.

4 Q. Okay. And seeing the same repeating

5 numbers didn't raise any questions in your mind as

6 to whether or not you were being provided with the

7 proper volumes; is that right?

8 A. Well, it's quite clear, it must be an

9 approximation or a proxy at some level, that's the

10 other word I should have used earlier when I said

11 it was an approximation. So except by some

12 astounding coincidence, we wouldn't expect to see

13 the number of barrels exactly equal, so it's quite

14 clear it's an approximation or a proxy. Whether

15 that raises concerns, I mean, given that we have

16 data -- that we're dealing with a data series going

17 that far back in time, it's hardly surprising that

18 some approximations or proxies might have been

19 necessary.

20 Q. And you never asked for a double check, so

21 to speak, on the actual production numbers that may

22 or may not have been available.

23 A. I can't recall at the time whether I might

24 have said oh, by the way, clearly there are some

25 approximations or proxies being used in the volume




2 figures. Has anything more accurate been produced

3 since then. I can't recall whether or not I asked

4 that.

5 Q. And who would you have asked that of?

6 A. Well, my primary contact, as we discussed

7 earlier, was Mr. Ted Dunkelberger. I had some

8 contact with Mr. Chris Arthur. It's possible I

9 might have -- if I was going to ask a question like

10 that that I might have asked it of him and then at

11 some point my primary contact became Mr. Small of

12 Patton Boggs.

13 Q. Okay. Did he provide you with any

14 assumptions that you were to use in preparing your

15 reports?

16 A. He being...

17 Q. Mr. Small.

18 A. No.

19 Q. Now, turning your attention to the "Water

20 Produced Volume" column again, do you see that the

21 number for 1973, 1974 and 1987 is the same?

22 A. I think you meant to say some different

23 years there.

24 Q. '73 -- oh, excuse me, '74, '75 and '87.





2 Q. And again, that coincidence didn't raise

3 any questions in your mind, as you sit here today.

4 A. Well, I think I already said. When I see

5 numbers like that, that repeat to that precision,

6 it says to me clearly there's some sort of

7 approximation or proxy being used.

8 Q. Okay. Even though it's with that level of

9 precision; is that right?

10 A. Right. And approximation or a proxy

11 doesn't have to be rounded off to some level.

12 Q. Now, if -- now, in your Exhibit 4, it

13 shows how you took the 81 cents per barrel

14 injection rate or cost and applied the Producer

15 Price Index from the U.S. Department of Labor

16 Statistics for support activities for oil and gas

17 operations and worked that back to 1990; is that

18 correct?


20 Q. Okay. And then what you did was is you

21 took that 1990 number and in your Consumer Price

22 Index and currency exchange adjustments, you

23 calculated what the amount would have been in 1990

24 dollars, going from 1990 back to 1967 for purposes

25 of Ecuador currency, correct?




2 A. Well, it's -- it's what it's doing in

3 Exhibit 5, which is what you seem to be looking at

4 now, is it's not specific yet to any of the cost

5 figures in Exhibit 4. Instead, what I'm doing is

6 constructing a U.S. dollar denominated Ecuadorian

7 CPI over the period 1967 to 1990.

8 Q. Okay. Now, in this instance, Exhibit 5

9 would show, for example, that using Ecuadorian

10 currency, in 1990, the ratio that you developed was

11 1; is that right?

12 A. Well, by definition, yes, the ratio of

13 something in 1990 to something in 1990 is one.

14 Q. And then you determined using the

15 calculations that that dollars' value in 1967 in

16 Ecuador would have been 57.64 cents, right?

17 A. Well, it's basically saying that if you

18 have an estimate that says the cost of doing

19 something in United States in 1990 is $1, if you

20 had to do that instead in 1967 and you're doing it

21 in Ecuador instead, then it's about 58 cents.

22 Q. Okay. Now, you use the CPI for Ecuador;

23 is that correct?


25 Q. That's the Consumer Price Index?




2 A. Yes.

3 Q. Why did you not use the Producer Price

4 Index?

5 A. It wasn't available over that entire time

6 period.

7 Q. For what period of time was it available?

8 A. Oh, I can't remember now.

9 Q. Okay. Have you ever heard of a gross

10 domestic product deflator?

11 A. Yes, of course.

12 Q. Why did you not use the GDP deflator?

13 A. Because the GDP deflator does not refer to

14 a constant market basket of goods. Rather it

15 refers to -- it's actually a weighted average of

16 all prices throughout an economy. So although that

17 certainly has its valid uses, generally when I'm

18 trying to move cost estimates throughout time, it

19 would be inappropriate to use that because it

20 represents substitution away from higher priced

21 goods towards lower priced goods and vice versa.

22 So instead, here we're talking about

23 specific items. Now, of course, over a long period

24 of time, the representative market basket of goods

25 can change quite a bit and we're looking over a




2 long period of time, but for those reasons, it's

3 more accurate to use a measure like the CPI instead

4 of a GDP deflator.

5 Q. Had you used the GDP deflator, how would

6 that have impacted your calculations?

7 A. Well, it would have been less accurate.

8 Q. Do you know if they would have been more

9 or less?

10 A. I have no idea.

11 Q. Okay. Now, you used the Ecuadorian CPI

12 because it with a common basket; is that right?

13 A. Well, in general, I'm using something that

14 refers to a market basket of goods, as opposed to a

15 weighted average of prices throughout the economy,

16 and I wanted to use a price index relevant to

17 Ecuador.

18 Now, in the United States when I do

19 similar calculations, I mean, there are far more

20 cost indices I can draw from. I mean, for example,

21 the U.S. Environmental Protection Agency BEN,

22 B-E-N, computer model, that has something like, I

23 don't know, eight different cost indices I

24 maintain, and then there are also all sorts of

25 variations on some of those cost indices. But you




2 know, what often happens is they really don't vary

3 all that much. They all move somewhat in lock step

4 with each other. At least, especially over longer

5 periods of time because all prices throughout the

6 economy are influenced to some extent by the same

7 inflation.

8 Q. Why did you not use the U.S. Producer

9 Price Index from 2008 taking it back to 1967 and

10 then translate that dollar value into the

11 Ecuadorian currency?

12 A. Well, because then I'm dealing with a

13 longer period using the U.S. Producer Price Index

14 and I thought it was more accurate to keep that --

15 well, if instead I had gone from 19 -- from 2008 to

16 1967, using the Producer Price Index and then

17 brought it forward essentially each year using the

18 U.S. dollar-denominated CPI, then I believe that's

19 introducing more potential inaccuracies into my

20 calculations because I have this shift between 1990

21 going back to 1967, which isn't accomplishing

22 anything mathematically, and it's just -- well,

23 basically it just seems pointless to me to do that.

24 Q. Well, why did you do it using the CPI for

25 Ecuador going back that far?




2 A. Because the -- well, ideally, I would have

3 cost estimates derived in Ecuador for each and

4 every year and this entire exercise would be

5 unnecessary. Instead, the only cost estimates I

6 have available to me were in U.S. dollars in 2008.

7 So first I have to move that back from 2008 to some

8 point in the time period over which the economic

9 benefit calculations are being performed. And it

10 seemed to make the most sense to minimize that

11 initial shift just to the end of this period, in

12 1990. Of course, that's still an 18-year period.

13 And then going back each year, I wanted a notion of

14 how prices have changed within Ecuador, so that's

15 the way I did it.

16 It's certainly possible to come up with

17 other methodologies, but this is the one I came up

18 with that I thought made the most sense, and it's

19 possible someone could show me some alternative way

20 of doing it. But right now, just using the

21 U.S. Producer Price Index an moving it around

22 throughout that entire period without reference to

23 what's going on in Ecuador does not seem as

24 accurate to me.

25 Q. Had you had more time, would you have




2 tried to have gotten actual cost estimates for

3 Ecuador in Ecuadorian currency for the years in

4 question, '67 to '90?

5 A. You mean cost estimates for reinjection --

6 Q. Yes.

7 A. -- and things like that? I mean,

8 conceivably I could try something like that. But

9 realistically, it's probably beyond my area of

10 expertise, plus I don't even know Spanish.

11 Q. Okay. Now, are you aware that the Cabrera

12 calculations were based on an average production of

13 150,000 barrels per day?

14 A. Right now, I can't recall that figure

15 specifically. But I did look throughout the report

16 where I vaguely recall that he used averages and

17 approximations like that.

18 Q. Okay. Let me show you Exhibit 1511, which

19 is your copy of Annex S and draw your attention to

20 page six of six.

21 A. Okay.

22 Q. And do you see right under "Reinjection

23 Cost Per Waste Water Barrel and For Crude Oil

24 Barrel," it shows 150,000 barrels per day?

25 A. Yes, I see that.




2 Q. Did you attempt in any way to verify the

3 accuracy of his calculations?

4 A. I think for this one I just took the 81

5 cents figure. I don't recall trying to dig beneath

6 that essentially.

7 Q. Did you do anything to verify the accuracy

8 of the assumptions on which this calculation is

9 based?

10 A. No. I did not get into the cost analysis

11 there.

12 THE WITNESS: What time is it?

13 Q. Do you need to take a break?

14 A. No. We've been going for less than an

15 hour, so let's -- I can't, we started a little

16 after 1:00.

17 Q. Yeah. We started at 1:07.

18 If the actual produced water generated in

19 the concession area averaged only 56,000 barrels

20 per today as opposed to 150,000 barrels per day,

21 would that impact your calculations?

22 A. I'm sorry. Could you repeat that. I

23 wasn't quite sure which way that was going.

24 Q. I was just asking if the actual amount of

25 water generated per day was only 56,000 barrels,




2 would that have affected your calculations?

3 A. Well, if the actual volumes are less than

4 I have in that column, then it goes down, the

5 ultimate unjust enrichment figure.

6 Q. Okay. Mr. Cabrera, in his report, is

7 assuming that 31 wells would be needed to reinject

8 water. Do you recall that?

9 A. Well, I'm looking at it right here where

10 he says the total annual cost for the complete

11 system of 31 injection wells, et cetera, et cetera.

12 Q. Okay. I want you to assume that when you

13 account for the reduced volume of produced water,

14 only eight wells would be needed. On that

15 assumption, would that have an impact on your

16 opinion?

17 A. Well, I don't know how that affects the

18 per -- I mean, there are many interlinked things

19 going on here. I mean, fewer wells, that might

20 mean higher -- I don't know if that means higher

21 cost per unit, if that -- it might also imply lower

22 volume. I mean, the two elements that are feeding

23 into my calculations are the volume and the per

24 unit cost. So exactly how the number of wells

25 would affect that, it could go in different ways.




2 Q. Well, let's look at page five of six in

3 this Exhibit 1511. Do you see in the calculation

4 of capital costs, he's taking that the actual

5 recent cost of construction was $6 million per

6 injection well?

7 A. Yes.

8 Q. And he multiplies that by 31 injection

9 wells?

10 A. Yes.

11 Q. To get capital cost of 186 million?

12 A. Yes.

13 Q. And if I multiplied eight injection wells

14 by 6 million dollars per well that would be

15 48 million dollars, correct?

16 A. Well, multiply six by eight, you get 48.

17 Q. Okay. Now, are you aware that Chevron

18 actually has completed recently three injection

19 systems for an average cost of $2.3 million per

20 well?

21 A. I have no such knowledge of that.

22 Q. Okay. Assuming that the cost of

23 construction were $2.3 million per well, would that

24 reduce the capital cost?

25 A. Well, 2.3 million is less than 6 million.




2 Q. Okay. Are you aware that Chevron's

3 experts have calculated that Mr. Cabrera's cost of

4 81 cents per wastewater barrel is too high by a

5 factor of seven?

6 A. I'm not aware of any specific calculations

7 that Chevron's experts have performed other than

8 briefly looking at the reports that were put in

9 front of me this morning.

10 Q. Would -- if you were aware that Chevron's

11 experts had calculated costs that were reduced by a

12 factor of seven, would you have wanted to know how

13 they came about doing it?

14 A. Well, yes and no. It depends on whether

15 it's something I could follow or whether it's

16 something outside my expertise. So I'd look at it;

17 whether I'd set up my own spreadsheets, my own

18 calculations and try to see if it's something that

19 I could decide between or whether it's depending on

20 facts and expertise far beyond me, I don't know.

21 Q. Okay. Would you agree with me then that

22 if --


24 Q. To adjust for the calculations of

25 Chevron's experts to use the proper totals based on




2 their work as to actual cost, would I reduce the 43

3 cent number shown here in Exhibit 1 by seven?

4 A. Well, it gets a little bit more

5 complicated than that because remember, we're

6 dealing with fixed capital costs and also variable

7 operating costs. Here everything is represented on

8 a per barrel basis, but, of course, it's not going

9 to work that way in reality. I mean, if you

10 produce one additional barrel, your costs really

11 aren't going up by 43 cents. It's in a very lumpy

12 manner.

13 So in another words, the wells need to be

14 set up for some anticipated level of volume and

15 then there are per unit costs that are going to

16 track exactly -- more or less exactly with the

17 volume. So depending on what these other experts

18 are calculating, it might be that it's as simple as

19 coming up with an approximation that reduces these

20 by a factor of seven or it might be something more

21 complicated than that is merited.

22 Q. Okay. But if they found that it was

23 increased by a factor of seven and it was a

24 constant, then that would flow through your chart

25 all the way to the present value calculations,




2 correct?

3 A. Yeah. I mean, that's what I was trying to

4 get at, that if as a reasonable approximation it

5 was determined or believed by some parties that

6 these costs are accurate except and there's a

7 reasonable way of representing the costs except

8 they're too high by a factor of seven and it's

9 constant throughout the entire period from 1972 to

10 1990, then it's a relatively simple matter of

11 taking the present value totals and just dividing

12 by the number seven.

13 Q. Okay. And so that would give us something

14 in excess of it looks like 200 and something

15 million -- 210 million for the after-tax

16 calculation and something around between 400 and

17 450 million on the pretax calculation, right,

18 approximately?

19 A. Yeah. I mean, without actually doing the

20 calculations that proverbially, what's the word I'm

21 looking for, thumbnail, no, coming up with a very

22 rough approximation.

23 Q. It's rough. You don't have a calculator

24 here in front of you, do you?

25 A. Well, of course, my phone does everything,




2 but yeah, including having Excel on it, a

3 full-fledged version of it, but yes, that seems for

4 the purposes of what you're getting at here, that

5 seems accurate enough.

6 Q. Okay. You had asked about when we would

7 be taking a break. If you could like to take a

8 break now.

9 A. Yeah. We're at -- we are a little past

10 2:00. So we've been on for about an hour, so it

11 seems about right.

12 Q. Go ahead.



15 (Proceedings interrupted at 2:02 p.m. and



18 of tape number four. We're back on the

19 record. And this is the deposition of

20 Jonathan Shefftz. Back on the record. Time

21 is 2:17.

22 BY MR. BUSCH:


24 still under oath?

25 A. Yes.




2 Q. Do you know of --


4 Q. You used to work for the EPA?

5 A. No.

6 Q. You used to work for a consultant for the

7 EPA?

8 A. I used to work for a consulting firm who,

9 among other clients, had and still has EPA.

10 Q. And do you from time to time consult for

11 the EPA?

12 A. Under subcontract with my former firm,

13 yes, I still do work for the U.S. Environmental

14 Protection Agency.

15 Q. Are you aware of any circumstance where a

16 penalty was assessed against a company in the

17 United States for having -- for not having violated

18 some law?

19 A. I am not familiar with the entire history

20 in the United States of penalties in all contexts

21 and what they might be assessed for.

22 Q. Have you ever heard of the EPA, the United

23 States Environmental Protection Agency, imposing a

24 penalty for contaminating the environment where

25 there was not at least an alleged violation of a




2 law, regulation, or judicial decision?

3 A. Well, there are certainly costs that

4 companies have to pay all the time for Superfund

5 cleanups that do not entail violating any laws that

6 were in place at the time. Those are not quite

7 characterized as penalties, though, officially,

8 even though often the people paying the amounts

9 refer to them as such.

10 Whether there are other penalties that

11 have been paid that arose from contamination that

12 did not directly relate to laws, I don't know if

13 those would be characterized as penalties or in

14 some other fashion.

15 Q. Okay. Let's return to your Exhibit 1500,

16 which is your report, and go to Exhibit 4 in the

17 report. And there you used a number of $70.48 per

18 cubic meter as the cost of waste disposal in 2008,

19 correct?

20 A. Yes, that's the figure I've used.

21 Q. And then you reduced that back to 1990

22 using the United States PPI, to $37.16, correct?


24 Q. And then in Exhibit 2, you used $37.16 in

25 your third column as the cost; is that right?




2 A. Yes.

3 Q. And then you multiplied the $37.16 by the

4 last column to the right in your Exhibit 5; is that

5 right?


7 Q. Okay. So if I multiplied $37.16 by

8 0.5764, I would get something pretty close to

9 $21.41.

10 A. Yeah. There's some rounding --

11 Q. Right.

12 A. -- going on -- I'm sorry. There's

13 rounding in the display, but not in the

14 calculations. But yes, that's -- I think I have a

15 line in my report about how these calculations are

16 fairly replicable for any other analyst with the

17 exception that the rounding in the display could be

18 a little confusing at times.

19 Q. Now, you got to that $70.48 per cubic

20 meter number from Exhibit 1509 at page 4 of 8.

21 Would you look at that, please.

22 A. Yes. That's where the $70.48 figure

23 occurs.

24 Q. Now, at the bottom of that page in

25 Exhibit 1509, it says at the end, "The avoided




2 costs of labor and avoided cost for equipment are

3 calculated separately. Annex Infrastructure has

4 details of the calculations." Do you see that?

5 A. Yes.

6 Q. And exhibit -- your version of Exhibit S

7 is Exhibit 1511.

8 A. Yes. The copy I have of Appendix S is

9 denoted as Exhibit 1511.

10 Q. Okay. Now, the first couple of pages of

11 the exhibit have an abstract and then a discussion

12 of production of crude oil and wastewater and gas;

13 is that right?

14 A. The document speaks for itself in that

15 regard.

16 Q. Okay. Well, then, let me ask you the next

17 question: The calculations for the reinjection of

18 wastewater are on page 4, 5, and 6, correct?

19 A. Yes. That's covered under Roman numeral

20 Section III, "Reinjection of Wastewater."

21 Q. And then Roman numeral IV is "Associated

22 Gas Recovery Utilization," and that's on pages 7,

23 8, and 9, correct?

24 A. Right. That's what Roman numeral IV seems

25 to cover.




2 Q. Okay. Where in Annex S, your version,

3 which is Exhibit 1511, is there a calculation of

4 the waste treatment numbers?

5 A. Well, I don't know how much time you want

6 me to spend on this, but looking through it right

7 now, it doesn't appear that Appendix S covers the

8 derivation of the $70.48 figure.

9 Q. Did you ever notice that before today?

10 A. It's hard for me to remember things like

11 that over three months later, but I -- I have a

12 vague recollection that I couldn't find the backup

13 for that figure at the time.

14 Q. Did you ask for the backup?

15 A. It's possible I might have had discussions

16 at the time, saying that I don't -- I couldn't find

17 the supporting calculations for that.

18 Q. Wouldn't you typically want to have the

19 supporting calculations behind a cost number that

20 you're using just to make sure that they're

21 accurate?

22 A. Well, it depends. If I feel that I have

23 the expertise and if there's need for me to go into

24 engineering cost estimates and verify them,

25 replicate them, modify them in some fashion, then




2 yes, it's certainly helpful, maybe even necessary,

3 to have those calculations.

4 But if, as in this case here, I'm not

5 getting into the details of the petroleum

6 production engineering and I'm simply taking the

7 cost figures from another expert, then there's no

8 need for me to see it.

9 Q. Okay. Would it have affected your

10 calculations in any way had you been told that the

11 actual cost being incurred by Petroecuador in 2008

12 for produced-well waste disposal was $15.71 per

13 cubic meter, as opposed to $70 and change per cubic

14 meter?

15 A. Well, if I was told that that's a more

16 accurate figure to use for going back in time to

17 apply to the unjust enrichment calculations in the

18 1970s and 1980s, then yes, I would use that figure,

19 and it's a lower number.

20 Q. Okay. Would you agree with me that it's

21 about -- $70.48 per cubic meter is about four and a

22 half times $15.71 per cubic meter?

23 A. I don't usually like to do calculations

24 like that in my head in a deposition, but that

25 seems about right.




2 Q. Would you like to go ahead and use your

3 phone?

4 A. I don't know. I might get carried away

5 and start checking e-mail, but that's close enough.

6 Q. Okay.

7 A. Not sure if you want to ask a deponent to

8 start looking at his phone; who knows what notes he

9 might have there.

10 Q. I would not -- I would not do that to your

11 counsel.

12 Okay. In your Exhibit 2 to your

13 Exhibit 1500 you use -- you show a volume for

14 produced-well waste. Do you see that?

15 A. Yes. In cubic meters.

16 Q. And did you also get that from

17 Exhibit 1509?

18 A. Yes. The Unjust Enrichment Appendix was

19 my source for that.

20 Q. Okay. Now, it shows here in the report at

21 page 3 that -- under "Well Waste," he assumed an

22 average area of 768016 square meters and he assumed

23 an average depth of waste in the pits of 2 meters.

24 He said that, then, a total of 1,536,032 cubic

25 meters of well waste had to be managed. Do you see




2 that?

3 A. Yes.

4 Q. Okay. Why is it then, at 1.5 million

5 cubic meters of well waste had to be managed, his

6 Table 2 on pages 4 and 5 show a combined amount of

7 2,304,048 cubic meters?

8 A. Well, it's unclear to me whether one is

9 intending to be -- whether Table 2 is intended to

10 follow from the simple calculation that you read in

11 the text of the report.

12 Q. Well, it says here under "Well Waste" that

13 the total volume that needed to be managed was

14 1.5 million cubic meters, right?

15 A. Well, he says assuming that an average

16 depth of weight in the pits of 2 meters.

17 Q. Okay. Now, did you notice that

18 2 million --


20 Q. Would you agree with me that if you

21 multiplied 768,016 square meters by 3, you would

22 get exactly 2,304,048 cubic meters of volume?

23 A. That math seems to be correct, yes.

24 Q. Thank you.

25 Now, did you ever notice that in his




2 Table 2 in Appendix S -- excuse me -- his

3 Appendix T, Exhibit 1509 that the person had used

4 an average depth of 3 meters instead of 2 meters?

5 A. Well, it's possible that's the basis for

6 it. I'm not absolutely sure. But if you're saying

7 it's proportional, it could be that Table 2 is

8 based upon the depth of 3 meters and not 2 meters.

9 Q. Okay. But it's an average depth of waste

10 of 2 meters is what he said on page 3, right?

11 A. Assuming an average depth of weight in the

12 pits of 2 meters, yes.

13 Q. Yes. Now, let's go to page 2. In the

14 last full paragraph above 2.3, "Capturing Gas," do

15 you see the sentence -- the second sentence reads,

16 "The pits were typically open excavations of

17 approximately 1 to 2 meters in depth." Do you see

18 that?

19 A. Yes. I see that.

20 Q. Okay. Do you know why Mr. Cabrera used

21 2 meters instead of the average between 1 and

22 2 meters?

23 A. I don't know the basis for his 2 meter

24 average assumption --

25 Q. Okay.




2 A. -- average input, no.

3 Q. It's referring to a Woodward-Clyde report;

4 is that correct?

5 A. It says Woodward-Clyde, hyphenated, in

6 parentheses 2000.

7 Q. Yes. Do you know what the Woodward-Clyde

8 report found as the average depth?

9 A. According to his bibliography -- it seems

10 to be in Spanish. Either that or it's -- although

11 maybe the title has just been translated to Spanish

12 and not translated back since it's -- oh, no. I

13 see, "Prepared for Texaco in White Plains." So

14 maybe the original document is Spanish. But either

15 way, no, I have not gone back and looked at that

16 document.

17 Q. Okay. If that document actually showed

18 that the actual average depth was 1.3 meters,

19 shouldn't 1.3 meters have been used for calculating

20 the volume of the pits to be filled?

21 A. Well, if applying that -- if that figure

22 really applies to the 917 waste pits and that's a

23 reasonable approximation of the total waste that

24 we're trying to model here, then 1.3 should be

25 used. I just don't know whether that should be




2 extrapolated to the entire total.

3 Q. Okay.

4 A. In other words, if the goal is that -- if

5 this Woodward-Clyde record is the most accurate

6 measure to be applied to the number of pits and

7 then that's supposed to be allocated to each year,

8 et cetera, et cetera, and so the goal is to take

9 whatever that single metered-depth figure is from

10 the Woodward-Clyde -- well, if it's 1.3, then 1.3

11 should be used, but I don't know what other factors

12 are present.

13 Q. Prior to today, had you noticed that the

14 Table 2 in Exhibit 1509 had a multiple of 3 times

15 the amount of square meters?

16 A. No. I had never looked at that

17 relationship before.

18 Q. Had you ever asked anyone why the number 3

19 was used as opposed to the number 2 as referenced

20 on page 3?

21 A. Well, I think I already said, I hadn't

22 noticed that the number -- that there was a ratio

23 almost exactly of 3 between the total in Table 2

24 and the -- and the square meters referenced on

25 page 3. So I did not ask anyone about something




2 that I wasn't aware of.

3 Q. If -- I want you to assume that the actual

4 average was 1.3 meters. Which number should have

5 been used, 1.3, 2, or 3, in terms of calculating

6 the volume of the pits?

7 A. Well, I just don't know whether it's

8 reasonable to take a single figure like that and

9 plug it in and carry it throughout all of Table 2.

10 If there's a single figure that's supposed to be

11 plugged in here and it carries through entirely

12 and 1.3 is the right number instead of 2 or instead

13 of 3, well, then that's the right number.

14 But I'm just not sure -- I'm not the one

15 that set up this calculation; I don't know what

16 other assumptions are inherent in it. But I mean,

17 if 1's the right number to use, it's the right

18 number to use. I just don't know how to set up

19 this calculation for extrapolating from, I mean,

20 potentially a single figure from a single report to

21 annual -- annual waste figures from 1967 to 1990.

22 Q. Okay. If -- I want you to assume for a

23 moment that the right number that should have been

24 used was 1.5. So not very good in math. By how

25 much would the volume be overstated?




2 A. Well, if the volume is dependent upon this

3 single figure for average depth in meters and it's

4 supposed to be 1.5 and the figures in Table 2 were

5 generated based on 3, then 1.5 is half of 3, so

6 it's pretty straightforward.

7 Q. So it would be off by a factor of 2,

8 correct?


10 Q. And if your number of $70.48 was off by a

11 factor of four and a half, that would mean that

12 your calculation would be off by a factor of

13 approximately 9; is that right?

14 A. No, that's not necessarily correct.

15 Q. Why is that?

16 A. Well, because although these are --

17 although in Table -- Exhibit 4, I'm simply using a

18 per unit figure and applying it to all the volume

19 figures, if there's a lower volume, that doesn't

20 necessarily mean that the cost per unit would have

21 stayed the same.

22 Q. Well, we know that the cost in actual are

23 not 70 --


25 Q. But if the costs were the same per unit of




2 $15 and some-odd cents per cubic meter and it was

3 half this volume, that would mean that your -- your

4 calculations would be reduced by a factor of 9,

5 correct?

6 A. Yeah. If we're saying that the volume

7 should be cut in half and the per unit cost, at the

8 same time, should also be reduced by a factor

9 of 4.5, then the results go down by a factor of 9.

10 Q. Now, you assume for purposes of your work

11 that there were 917 pits, correct?

12 A. I made no such assumption.

13 Q. Did you see that that was an assumption in

14 Exhibit 1509?

15 A. I mean, we've read a couple of times into

16 the record where the Cabrera report says there are

17 estimated 917 waste pits.

18 Q. Okay. Do you know how we came up with

19 that number?

20 A. We?

21 Q. I'm sorry.

22 A. You and I are in this together, huh?

23 We're a team.

24 Q. Well, that may be true.

25 Do you know how he came up with that




2 number?

3 A. He refers to Annex Pit Cleanup, but I

4 don't think I went and looked at that at any point

5 in time.

6 Q. Okay. Did you ever review the

7 Fugro-McClelland environmental field audit that was

8 conducted in 1992?

9 A. That does not sound familiar to me or at

10 least it certainly doesn't look like a document --

11 maybe I saw it at some point in a bibliography, but

12 no, I did not get into that.


14 (Exhibit 1517, Fugro-McClelland

15 environmental field audit, marked for

16 identification.)

17 A. So much for the confidential treatment

18 requested, huh?

19 Q. It's been marked, believe me.

20 A. It's been almost 20 years, so...

21 Q. Do you recall ever having seen this

22 document before?

23 A. No. I do not recall seeing this.

24 Q. Okay. Let me draw your attention to a

25 page that's going to be marked in the Bates numbers




2 on the bottom; the last three digits are 476, and

3 it's going to have a Table 6-4, Well Site Pit

4 Summary.

5 A. Uh-huh.

6 Q. Okay. I'll make an offer of proof to you

7 that the Fugro-McClelland audit was based on a

8 physical inspection of 50 percent of the drilling

9 sites and that this document, starting at

10 Table 6-4, which begins on page 476 and ends at

11 page 486, shows that there were 176 pits.

12 Would you agree with me that two times 176

13 is 352?

14 A. Two times -- sorry. What was it again?

15 Q. 176 times two, would you agree, is 352?

16 A. Yes.

17 Q. Okay. Would you agree with me that 352 is

18 substantially less than 917?

19 A. The number 352 is less than the

20 number 917. I didn't go to graduate school to

21 answer questions like that, but I can do so.

22 Q. Okay. Did anybody at the Wineberg Group

23 advise you that a physical inspection of the

24 concession area revealed only 176 pits?

25 A. No. We never -- I certainly can't recall




2 any conversation like that.

3 Q. Did you do anything to verify

4 Mr. Cabrera's assertion that there were 917 pits?

5 A. No. I didn't look into that at all.

6 Q. Okay. I will represent to you that if you

7 wanted to do a calculation of the volume -- excuse

8 me -- a calculation of the area, although expressed

9 in feet, you would be able to come up with

10 something just under 109,000 cubic meters,

11 representing 50 percent of the field.

12 Would you agree with me that two times

13 109,000 square meters would be about 218,000 square

14 meters?

15 A. I can do that math in my head. Yes.

16 Q. Okay. Now, Mr. Cabrera estimated that a

17 hundred percent of the pits covered a surface area

18 of 768,016 square meters. Do you see that?

19 A. Yes.

20 Q. And that is about three and a half times

21 218,000 square meters approximately.

22 A. Close enough for just averaging things out

23 verbally.

24 Q. Yes. Had you known that the

25 Fugro-McClelland audit showed a volume of




2 109,000 square meters for a physical inspection of

3 50 percent of the well sites, would that have

4 caused you to inquire about the 768,016 square

5 meter figure that was used by Mr. Cabrera?

6 A. I think I would have asked about the

7 source of the disagreement in those figures there.

8 Q. Would you like to know what the source of

9 the disagreement is, as you sit here today?

10 A. Well, if I'm going to be producing some

11 sort of -- I have no idea. If I'm going to be

12 producing some sort of revised calculations and I'm

13 wondering whether I should use one or the other or

14 whether I should just present a range showing the

15 differences estimates, it would be interesting to

16 know what the source of the discrepancy is. But if

17 I'm never producing any more calculations again and

18 if I'm not going to be testifying in person, then

19 it's -- really doesn't have any interest to me.

20 Q. If you were doing a peer review of

21 Mr. Cabrera's report, would you have wanted to find

22 out the basis for some of the numbers that he used,

23 such as the 768,016 square meters?

24 A. Well, that's a big if. I mean, that's

25 saying if I, as a financial economist, were looking




2 at some of the numerical extrapolations performed

3 by a petroleum engineer, I think my main piece of

4 advice would be that I should be working in

5 conjunction with someone whose expertise is more

6 specific to that aspect of the Cabrera report's

7 calculations.

8 Q. Did you work with any such individual in

9 this matter?

10 A. No, I did not. As I've said before, I've

11 simply taken his volume figures and his cost

12 figures and used those as inputs to my

13 calculations.

14 Q. Would you be satisfied in subjecting your

15 report, Exhibit 1500, to peer review for the

16 conclusions that you reached as to avoided costs?

17 A. Yeah, with the caveat, of course, that the

18 aspects of my report that should be subjected to

19 peer review are the aspects that I performed and

20 not the aspects that have been performed by the

21 Cabrera report. Sure, I think my -- I mean, my --

22 these calculations in Exhibit 4 have been subject

23 to peer review because my calculations became the

24 US EPA BEN model and that's been subjected to peer

25 review.




2 And so if someone wanted to go through my

3 Exhibits 1 through 7 with the understanding that

4 the cost figures are exogenous to the report and

5 are inputs taken from another report, then sure.

6 Q. The mathematics that you have applied in

7 your report are consistently correct; is that

8 right?

9 A. I hope they are. I hope my calculations

10 and research to weigh the average cost of capital,

11 my inflation calculations, my tax research, my

12 after-tax calculations, the present value

13 calculations, and all the links between these seven

14 exhibits, as well as the very complex beta

15 calculations that occupy something like almost

16 600 rows, I hope they're right. I think they're

17 right.

18 Q. Okay. In other words, if I sat down and I

19 took the last line on your weighted average cost of

20 capital spreadsheet, and I would be able to go to

21 the Moody's Seasoned AAA average, which you have

22 produced, and see how you have calculated the

23 5.31 percent, correct?

24 A. The 5.31 -- I'm sorry. You're looking at

25 column -- Exhibit 6, Column 1 --




2 Q. Cost of debt?

3 A. -- 2009 entry.

4 Q. Yes.

5 A. 5.31?

6 Q. Yes.

7 A. I'm not sure if that's a calculation or if

8 that's just taken straight from the data release.

9 Q. Okay. But most of the 35 percent, the

10 8.84 percent, those two, added together, give you

11 40.75 percent. You multiply that number times the

12 5.31. That does give you 3.1 percent, correct?

13 A. Well, the 35 percent and the 84.84 percent

14 are -- the term I think I used for it is combined;

15 they're not added together because of the

16 deductibility of one type of tax from the taxable

17 income for the other tax.

18 Q. Now, assuming that the actual area used

19 was three and a half times, was off by a factor of

20 three and a half, would that mean that if one

21 assumed the $15 and change cost for waste disposal

22 and the overstatement of depth by a factor of 2 and

23 the overstatement of area by approximately three

24 and a half that Exhibit 2 would be overstating by

25 approximately a factor of 30?




2 A. No. Now we're getting into numbers that

3 are little more difficult to do in my head, and

4 you're also assuming that these figures change

5 independently of one another and per unit costs

6 stay the same, even with volume changing, and

7 you're also assuming that the number of -- the

8 number of pits changes, but the 1.3 meter depth

9 stays the same and -- I mean, it's also combining

10 figures from different surveys which aren't

11 necessarily looking at the same areas as one

12 another. So I'm really not sure, and I don't know

13 whether all those factors could be changed in

14 isolation that way.

15 Q. Okay. Would you agree with me that four

16 and a half times two is nine?

17 A. Four and a half times two is nine. Yup,

18 that sound good.

19 Q. And would you agree with me that three

20 times nine is 27?

21 A. Yeah. I learned those multiplication

22 tables from Thomas Jefferson Elementary School.

23 Q. Very good.

24 And nine times .5 is four and a half?





2 Q. And four and a half and 27 is 31 and a

3 half?

4 A. I'm sorry. 4.5 plus 27?

5 Q. Yes.

6 A. Okay. You said "and," I wasn't quite sure

7 what you were combining there.

8 Q. Okay.

9 A. 4.5 plus 27 equals 31.5.

10 Q. Okay. Let's go to the produced-gas

11 capture chart.

12 A. It's almost 3:00, so once we maybe go

13 through this section, then we'll take a break?

14 Q. Sure.

15 In this instance, you used the -- I'm

16 going to use it in the dollars per thousand cubic

17 feet. You used 1.78; is that right?

18 A. Yes.

19 Q. And you got that by dividing the

20 avoided-cost number by his cubic foot number in his

21 table on produced gas.


23 Q. Okay. And prior to today, you had not

24 noticed that his Annex S, the version that you had,

25 which is Exhibit 1511, had actually used a




2 dollar 71 per thousand cubic feet?

3 A. Well, I'm not sure that was my testimony.

4 I mean, sitting here right now addressing that

5 question, I can't remember if I noted that

6 discrepancy and went with the figure in the table

7 or whether I did not notice the discrepancy at the

8 time.

9 Q. Why would you use the figure in the table

10 if his calculations in Exhibit 1511 showed that the

11 proper unit to use was 1.71?

12 A. Well, if he's using -- if he's calculating

13 one figure and using another, it's -- it's

14 ambiguous which figure he intends to use or

15 intended to use.

16 Q. Okay. Now, in Exhibit S, you have not

17 checked the math to see whether that -- his

18 calculations actually come out to $1.71 per

19 thousand cubic feet?

20 A. I can't remember if I did at the time. My

21 only recollection is that I started looking at some

22 of the derivations for his cost figures and then

23 decided that I would just go with the figures that

24 he presented, given that I can't start from scratch

25 and look through all these document sources and do




2 things like count the number of pits and whatnot.

3 So rather than do this kind of in a

4 halfway form, I just decided to stick with using

5 his cost figures and data series over time for

6 volume as the inputs to my calculation.

7 Q. As was shown in your version of Annex T,

8 right?

9 A. Yes. Exhibit 1509.

10 Q. Yes.

11 A. When you say "your version," it sounds

12 like something I created. My copy of his --

13 Q. Okay. Your copy?

14 A. Yeah.

15 Q. If the math is correct in Exhibit 1511

16 that came to $1.71 per thousand cubic feet, should

17 that number have been used in Exhibit 1509?

18 A. Well, you say "the math." I mean, it

19 might be that there are other inputs that were

20 different. It all depends on which one is more

21 accurate. And I don't -- I mean, if it turns out

22 that 171 is what he intended to be used and

23 Table 3 -- well, the second Table 2 in the unjust

24 enrichment annex incorrectly applied 178 and

25 there's no basis for 178, then 171 should be used




2 instead. But if, alternatively, 178 was based upon

3 some other derivation that's more accurate

4 than 171, then that should be used.

5 Q. Okay. Now, in Annex S, did you notice

6 that his calculations assumed 40 million cubic feet

7 per day? It's page 9 of 6.

8 A. It says, "The electric power demand for

9 compressing recovered associated gas is," and it

10 includes the figure 40 million cubic feet per day.

11 Q. Okay. And you see it also in Number 4 as

12 "recovery cost per associated gas fee," correct?

13 A. Yes. 40 million -- there it just says

14 "feet per day," but yes.

15 Q. Were you aware of the actual amount of gas

16 that was being generated at the concession sites

17 during the period of time that -- from '72 until

18 1990?

19 A. No. I did not review any figures for

20 cubic feet per day over that period.

21 Q. Do you know whether or not any gas that

22 was being generated was being captured and used at

23 the production sites?

24 A. No. I do not have any information on such

25 practices at the time.




2 Q. I want you to assume for a moment that the

3 actual amount of gas produced was 26 million cubic

4 feet per day and not 40 million cubic feet per day

5 and that, of that amount, approximately 11 million

6 cubic feet per day was being captured and used at

7 the facilities to generate power and the like.

8 What impact would that have had on your

9 calculations?

10 A. Well, it's hard to say just based upon

11 that information because, if the volume is going

12 down, then that lowers the unjust enrichment. On

13 the other hand, if it's linked to costs, if, say,

14 the capital is going to be similar, the variable

15 operating costs are less, then the per unit cost

16 might go up substantially.

17 So it's -- although, all else being equal,

18 it seems like the unjust enrichment would go down,

19 the net effect might be significantly moderated by

20 any linkage between volume and the per unit cost

21 figures.

22 Q. In doing an avoided-cost calculation for

23 your clients, do you usually ask to have actual

24 data with which to work?

25 A. It varies so much. I mean, you said




2 avoided-cost calculations, but it's hard for me to

3 focus just on avoided-cost calculations because I

4 think, in terms of my practice area, that

5 encompasses these kinds of calculations, usually

6 called economic benefit.

7 And they occur in so many contexts that

8 sometimes I'm producing the calculations entirely

9 on my own just with some data I might research on

10 my own. Sometimes it's data being provided to me

11 by some other source. And sometimes, like in this

12 case, there's another expert with an engineering

13 background who's provided cost estimates, maybe

14 associated volume figures, some sort of quantity

15 figures in addition to cost figures, and those are

16 used as inputs to my calculations.

17 So it's -- I'm sorry to just refer to such

18 a wide range, but I've been doing these

19 calculations since 1982. There aren't that many

20 cases that appear on my CV because almost none of

21 my cases go all the way to testimony. But

22 including cases where I've written expert reports

23 or just done calculations on the settlement

24 context, it's just such a wide range of

25 experiences.




2 Q. Should Mr. Cabrera have used actual

3 figures?

4 A. Well, Mr. Cabrera should use the figures

5 that are as reasonably accurate as possible to give

6 him what is typically termed in this context, at

7 least in U.S. law, reasonable approximation of the

8 financial gain. Certainly, it's entirely

9 reasonable in this context to use approximations

10 and proxies.

11 At what level does one need to get the

12 exact historical information for every period as

13 opposed using approximations and proxies,

14 especially when there are calculations going all

15 the way back to 1967. That's a difficult question

16 to answer in a vacuum like that.

17 Q. Are you aware as to whether or not

18 Petroecuador continues -- I've already asked you

19 that question.

20 If I told you that the actual unit cost

21 used by Mr. Cabrera were off by a factor --

22 MR. BUSCH: Withdraw that.

23 Q. If I told you that the costs used by

24 Mr. Cabrera for his annual operating and

25 maintenance costs were off by a factor of 10 times




2 relative to what he used, how would that have

3 impacted your opinion?

4 A. It depends upon the relation -- its

5 proportion to total cost.

6 Q. Okay. And what was that proportion?

7 A. Well, right here it says, "The annual cost

8 for the operation and maintenance of equipment add

9 up to 10 percent of the annual capital cost for

10 such equipment." So it's pretty small.

11 Q. And what does he say for the annual cost

12 for the purchase and the operation and the

13 maintenance?

14 A. I'm sorry. What -- I'm sorry. Wasn't

15 that the same question?

16 Q. No.

17 A. I'm confused now. I'm sorry.

18 Q. Let's look at Number 2, Operation And

19 Maintenance Cost?

20 A. Sure.

21 Q. What does that show?

22 A. Well, it says, "The annual cost for the

23 operation and maintenance of equipment add up to

24 10 percent of the annual capital cost for such

25 equipment." Thus the annual cost for the operation




2 and maintenance of this equipment is 0.10 times

3 125.5 million equals 12.5 million per year.

4 Q. Okay. And in his next paragraph, "Total

5 Annual Cost," he adds that amount plus the annual

6 cost for the purchase of equipment to come up with

7 $25 million a year, correct?

8 A. It does. There seems to be a

9 contradiction here in either some of the figures or

10 the text. So looking at it right now, I'm a bit

11 confused because if we back up, it says the

12 aggregate capital cost for the recovery systems and

13 associated electric power-generation systems adds

14 up to 109 million plus 16.5 million equals

15 125.5 million. And then it says the annual cost

16 for this investment, with an investment recovery

17 rate of 0.10, is 0.10 times 125.5 million equals

18 12.5 million per year. But then later on, he's

19 saying that the annual cost is equal to .1 times

20 125.5. So I'm a bit confused here as to what

21 he's -- what he's trying to convey.

22 Q. But yet his $1.71 number as using all of

23 that information of 25 million a year and dividing

24 it by the number of cubic feet, correct?

25 A. Yes. He's keying off 25 million per year.




2 Q. Okay. And if his 12 and a half million

3 dollar number for operation and maintenance costs

4 was off by a factor of 10, that would be

5 1.25 million instead of 12 and a half million,

6 correct?

7 A. Yes. All else being equal, that's

8 correct.

9 Q. And all else being equal, that would mean,

10 instead of being $25 million a year, it would be

11 $13.75 million a year.


13 Q. Okay. And then that would flow into his

14 calculation for the dollar 71 for a thousand cubic

15 feet. Do you see that?

16 A. Yes.

17 Q. And if that number were reduced, then the

18 dollar 71 would be reduced, right?

19 A. Yes. If it's all going through that way,

20 yes.

21 Q. But you have no idea what he was doing

22 there?

23 A. Well, I have some idea. Exactly what -- I

24 mean, a part of this is all being translated from

25 the Spanish, so I kind of shudder to think what the




2 Spanish economist reading my report would think

3 about my abilities in writing, given that I've had

4 experience before with trying to have English

5 language documents translated into other languages

6 on topics very similar to this. So given this

7 English translation, I'm not sure what was intended

8 in some of these passages.

9 Q. Okay. But you went ahead and used his

10 1.78 per thousand cubic feet anyway; is that right?

11 A. I took the information for his three cost

12 figures and for his data series over time for the

13 associated volumes, and that's what I used in my

14 analysis.

15 Q. Now, going back to your Exhibit 3, I want

16 you to assume that the unit cost, as determined by

17 Chevron's experts, is overstated by a factor of 3

18 and that it's a constant unit cost. What impact

19 would that have on your produced-gas capture?

20 A. Well, if some other expert thinks that the

21 cost is too high by a factor of 3 and the volume is

22 the same, then the final unjust enrichment

23 calculations for Exhibit 3 are also overstated by a

24 factor of 3.

25 Q. Okay. Now, let me draw your attention to




2 the second column on volume of cubic feet. Now,

3 those are expressed in -- to the single digit,

4 correct?

5 A. Yes.

6 Q. Did you notice that several of the numbers

7 are repeated?

8 A. I don't have any specific recollection of

9 that, but since I typed them in, I'm sure I noticed

10 it at the time.

11 Q. Did that raise any questions in your mind?

12 A. Well, we already went through this before.

13 I'll repeat my same answer. But it's clear, in

14 that case, that unless there's some absolutely

15 astounding coincidence going on that these figures

16 are based, in part, upon approximations or proxies

17 of some sort.

18 Q. Have you ever seen approximations to a

19 base of 16 million -- 16 billion expressed in a

20 single digit?

21 A. Well, whether I've seen a number that's an

22 approximation that's specifically $16 billion in --

23 plus and is to the final figure, I don't keep track

24 of every single approximation I've ever seen. But

25 have I seen approximations that are not rounded off




2 that, nevertheless, are very big figures, well,

3 sure.

4 I mean, what do you think -- I mean, gross

5 domestic product of the United States, you can see

6 it calculated out in many digits and it's an

7 approximation. Any number that big is almost

8 always an approximation. In fact, it's hard the

9 think of any number that's over 16 billion that's

10 absolutely precise and doesn't have some level of

11 approximation in it.

12 Q. But isn't that suggesting to the reader

13 and user that it is precise?

14 A. It's a number, whether -- just because a

15 number is calculated out all the way and doesn't

16 have any clear rounding, I don't think that implies

17 that it's necessarily accurate to that -- to the

18 exact dollar or cubic foot figure. I mean, no,

19 I -- anyone who sees a big number and it's not

20 rounded off and, therefore, assumes that it's

21 accuracy is plus or minus one is really deceiving

22 him or herself.

23 Q. Okay. Do you feel that you were deceived

24 when you were using these numbers provided by

25 Mr. Cabrera which keep repeating themselves?




2 A. Well, maybe you're just using that word as

3 coincidence, but I said anyone who believes that is

4 deceiving himself. I never said I was believing

5 that. I, in fact, said the exact opposite earlier,

6 that when I saw a number repeating itself to that

7 precision that it was very clear to me that some

8 level of approximation and/or proxy was being used.

9 Q. Now, when you presented your opinion as to

10 the amount of avoided costs in after-tax 2010

11 dollars, you were precise to the last digit on a

12 base of two billion, correct?

13 A. The increment readout, so to say, is

14 calculated to the exact dollar. By no means am I

15 saying that it's precise down to the last dollar.

16 And in fact, if you look at my report, in the text,

17 I always round things off and use the word

18 "approximately" also.

19 Whenever you reach a logical stopping

20 point, it's 3:18. I mean, if you have something

21 and you want to keep going on this topic, that's

22 fine.

23 Q. No. Now is a good time.









5 of tape number five in the deposition of

6 Jonathan Shefftz. Back on the record. The

7 time is 3:27.

8 BY MR. BUSCH:


10 still under oath?

11 A. Yes.

12 Q. Let me draw your attention to your report,

13 Exhibit 1500. Just so I understand your testimony,

14 would you go to page 3. At the -- in the last

15 paragraph on that page, you say, "Unjust enrichment

16 does not represent compensation to plaintiffs as in

17 a" -- "as in a typical damages calculation for a

18 tort case, but instead is the minimum amount that

19 Chevron-Texaco must pay as a civil penalty." You

20 see that?

21 A. Uh-huh.

22 Q. Is that a yes?

23 A. Yes. Sorry.

24 Q. That's okay. You used the word "must

25 pay."




2 A. Well, you haven't finished the whole

3 sentence yet, so...

4 Q. I understand. But you used the words

5 "must pay"?

6 A. Yes.

7 Q. And you used the words "civil penalty"?

8 A. Yes.

9 Q. And it's your position that, even if there

10 was no legal obligation for Texpet to have

11 reinjected water, done something different with the

12 well waste, and captured all of the natural gas, it

13 still must pay a civil penalty; is that right?

14 A. Well, you're asking me about part of the

15 sentence and you haven't even read the complete

16 sentence. It goes on from there to say, "must pay

17 as a civil penalty so as to return Chevron-Texaco

18 to the position it would have been in had it

19 complied in a timely manner."

20 So my point here is that if the goal is to

21 return the company to the financial position it

22 would have occupied had it taken all these measures

23 at the time that would have prevented the

24 environmental contamination from occurring

25 subsequently, that, therefore, that amount must be




2 paid in order to return it to that position.

3 Q. Now -- but again you're saying must pay.

4 It is a penalty, and it had to comply. In 1967,

5 what was Texpet obligated to comply with?

6 A. Well, my point here is complied in a

7 timely manner so as to avoid -- so as to prevent

8 the subsequent environmental contamination.

9 Q. Even though there was no legal obligation

10 for it to do any of those actions; is that right?

11 MR. NARWOLD: Objection, argumentative.

12 A. I mean, we've been through this before.

13 I'm saying that the measures that I'm using in my

14 analysis are at least one expert's opinion as to

15 what would have prevented the subsequent

16 contamination. So what I'm saying here is, if the

17 goal is to return the company to the financial

18 position it would have occupied had it complied

19 with measures, legally required or otherwise, that

20 would have prevented the subsequent environmental

21 contamination, then that's what I'm calculating

22 here.

23 Q. How does a company know what obligations

24 are otherwise required if they are not legally

25 required?





3 A. Well, if, at the time, the goal had been

4 to prevent the likelihood of environmental

5 contamination occurring, then taking these measures

6 would have prevented that. Now, that's not my

7 independent opinion.

8 I don't know, in the last 1960s and early

9 1970s, what would have been concluded at the time.

10 I don't know what degree of hindsight is necessary

11 to determine what would have worked back then or

12 not.

13 But as a general principle, what's

14 attempted to be calculated here, the goal of what's

15 being calculated here is what measures, going back

16 in time, would have prevented the environmental

17 contamination.

18 Now, certainly, in some cases I work on,

19 there are very specific regulations that have to be

20 adhered to. Often those are cases that have --

21 even with the violations, the legal violations,

22 have no environmental contamination whatsoever.

23 They're essentially paperwork violations, paperwork

24 that's important, but still, it's just paperwork.

25 Here, it's at the opposite extreme. At




2 least I'm not aware of any specific legal

3 requirement. But if the goal is to prevent the

4 pollution, then my understanding is the Cabrera

5 report lays out measures that, indeed, would have

6 prevented the environmental contamination from

7 occurring.

8 Q. And it's your opinion that Chevron should

9 pay up to $9.46 billion as a civil penalty, using

10 hindsight in 2008, for what actions could have been

11 taken back in 1990 and before, even though those

12 actions were not required by law?

13 MR. NARWOLD: Objection, argumentative and

14 misstates his testimony.

15 A. Well, the 9.46 figure is with no after-tax

16 adjustment at all. On the other hand, my

17 $4.57 billion figure is based on a marginal tax

18 rate that quite likely, almost certainly overstates

19 the true tax impact over time. But -- and, of

20 course, there's been a lot of back and forth on

21 what the true volumes -- true historical volumes

22 and the actual historical costs would have been.

23 But whatever the measure of unjust

24 enrichment is, if the goal is to return the company

25 to the position it would have occupied had it taken




2 these measures to prevent the environmental

3 contamination, then that's what should be paid.

4 On the other hand, this is a case that

5 has -- also in contrast to the other kind of

6 paperwork cases, paperwork violations that I

7 analyze, this is a case that does have

8 environmental contamination. And so there's the

9 issue of compensating the victims of that

10 environmental contamination, either making them

11 whole or compensating them in other ways, as well

12 as what possibly can be done to remediate the

13 environment. So it's a little more complicated

14 than just the typical penalty action that I often

15 work on.

16 Q. But if Tex- -- the goal that you have is

17 to establish a civil penalty to prevent

18 Chevron-Texaco from achieving an unfair competitive

19 advantage over other companies in its industry,

20 right?

21 A. Over companies that were complying to some

22 extent with the goal of preventing environmental

23 contamination.

24 Q. What other companies were doing the things

25 that Mr. Cabrera says that Texaco did not do, but




2 should have done, even though the law did not

3 require those companies to do those things?

4 A. Well, I'm not intimately familiar with all

5 the allegations regarding the environmental

6 contamination here, but it certainly sounds like

7 the environmental contamination outdoes quite a few

8 other companies operating in other places.

9 I certainly don't know of any place in the

10 United States that has environmental contamination

11 like that, whether it's just by luck or something

12 to do with topography or something to do with the

13 nature of the oil being extracted or whether it has

14 to do with the extraction practices at the time, I

15 don't know the details of that.

16 But I have not -- although I have not done

17 any studies of what practices were typical of other

18 companies in the industry at the time, as a general

19 statement, if the unjust enrichment, economic

20 benefit, financial gain, whatever you want to call

21 it, is not disgorged, to use a term we often

22 term -- use even though it's a little bit odd, if

23 that figure is not disgorged in the form of a

24 payment, then yes, then the company retains an

25 advantage over firms that did either take those




2 practices under account or at least did other

3 things to avoid such contamination.

4 Q. What companies were doing it in 1972?

5 A. I'm sorry. You specifically want a list

6 of which companies were --

7 Q. Yes. Which companies?

8 A. I have not done research on that fact.

9 Q. You don't know, do you?

10 A. Off the top of my head? Well, I don't

11 know of any companies that -- I mean, certainly

12 what plaintiffs allege here is that the

13 environmental contamination that ensued from the

14 companies' operations in Ecuador are -- sounds like

15 some of the worst ever in the history of the oil

16 industry.

17 So according to the plaintiffs here,

18 perhaps everybody else was doing a better job of

19 this. But specifically have I done research on

20 that? No.

21 Q. Okay. You're accepting all of the

22 statements in the Cabrera report, Exhibit 1508, as

23 being true, aren't you?

24 A. No, I'm not.

25 Q. Then how can you say that there has been




2 environmental contamination?

3 A. Well -- so I'm a little bit confused by

4 the sequence of your questions there. It seems to

5 be implying --

6 Q. No. It's a very simple question, sir.

7 A. Is there some relationship to what you

8 just asked?

9 Q. How do you know, other than having read

10 the Cabrera report, that there has been

11 environmental contamination in Ecuador?

12 A. Well, I -- I've looked at other mass media

13 sources discussing the contamination in Ecuador. I

14 looked that summaries of the other expert reports

15 that were submitted simultaneously with mine. I

16 looked at Chevron's own website or a portion of its

17 website devoted to this case.

18 I can't remember whether it denies that

19 there's any environmental contamination at all in

20 Ecuador near the oil fields or whether it just

21 attempts to mitigate it or blame others for it.

22 But my understanding is that no one is disputing

23 that environmental contamination, to some extent,

24 exists in the area of the oil field production.

25 Q. So you have read some of the other expert




2 reports recently submitted in September?


4 Q. Then what other expert reports are you

5 referencing? You said you --

6 A. I was referencing -- I said -- I referred

7 to the expert reports that were submitted

8 simultaneously with mine.

9 Q. And did you read those?


11 Q. Okay. What expert reports were you

12 referencing when you said that you have read about

13 it in other expert reports and in the general

14 media? What expert reports, sir?

15 A. That misstates my testimony.

16 Q. What expert reports have you read?

17 MR. BUSCH: Go back and get me the

18 testimony.

19 MR. NARWOLD: I think he said summaries.

20 Q. What summaries did you read?

21 A. I looked at the summaries, the brief

22 summaries of the expert reports.

23 Q. Of whose expert reports?

24 A. The expert reports that were submitted

25 simultaneously with mine.




2 Q. And where are those summaries?

3 A. Pretty much everywhere on the Internet. I

4 just searched on Chevron and Shefftz, and all sorts

5 of stuff came up everywhere on the Internet, many,

6 many websites.

7 Q. Who prepared the summaries?

8 A. I don't know who prepared them.

9 Q. Okay. Did you make copies of them?

10 A. Did I make copies of the summaries?

11 Q. Yes.

12 A. I printed to a -- to PDF files some of the

13 press releases on various websites. I can't

14 remember whether any of those included summaries of

15 the other experts' reports or if I was just looking

16 at the ones that included brief references to

17 myself.

18 Q. Okay. Have you read any of the judicial

19 decisions that have been rendered in the 1782

20 proceedings in this case?

21 A. 1782 proceedings. I've looked at the

22 Chevron website, as I said, devoted to this case.

23 It had some judicial opinions there. Whether those

24 were 1782 or however you described them, I can't

25 recall.




2 Q. Did you read any of them?

3 A. I think I opened up some of them and

4 looked at them briefly, but out of sheer curiosity.

5 But as they had no relevance to my opinion, then

6 no.

7 Q. They had no relevance to your opinion?

8 A. As to what the court has decided? I mean,

9 I'm calculating the economic benefit, unjust

10 enrichment, financial gain, whatever you want to

11 call it, based upon the volume figures and the

12 associated cost figures in the Cabrera report.

13 What -- unless the judge or a court has

14 come up with some sort of definitive conclusion as

15 to what those volume figures and cost figures

16 should be, then I don't see how that has any

17 relevance to my calculations here.

18 Q. Did you see any judicial decisions to the

19 effect that the Cabrera report was a fraud?

20 A. Not that I can recall.

21 Q. I'll try and maybe refresh your memory.

22 In doing your calculations, did you

23 consider any of the costs of remediation that

24 Texaco incurred in the 1990s?

25 A. I thought about it along the way. I can't




2 remember whether I have a specific reference to

3 that in my -- in my report or not.

4 Q. Okay. Why did you not consider the amount

5 that Texaco paid?

6 A. Because I don't -- because, at the time at

7 least, I didn't have any information on whether

8 those costs really were directly related to -- to

9 fixing -- to addressing the environmental

10 contamination that arose out of, essentially, the

11 inactions that I'm modeling in my report.

12 And also given that the figures that I'm

13 calculating are at a minimum of about four and a

14 half billion dollars, the references that I've come

15 across recently to the -- the remediation are such

16 a small fraction of that that it's almost lost in

17 the rounding.

18 Q. Okay. And what was the number that you

19 have been since given?

20 A. I remember figures in the -- in the tens

21 of millions of dollars.

22 Q. How about 40 million?

23 A. I'm sorry. What about it? What's the

24 question?

25 Q. Is that the number that you've heard?




2 A. I can't remember the specific number.

3 Q. Okay. If I told you that $40 million was

4 paid by Texaco to remediate well sites between 1995

5 and 1998, should that be included within your

6 calculations?

7 A. If it's of the nature that it was

8 addressing the environmental contamination and that

9 those costs would not have been necessary had the

10 environmental contamination been prevented in the

11 first place by the measures that I model in my

12 Exhibits 1, 2, and 3, then, conceptually, the

13 after-tax net present value of that would be

14 subtracted from the unjust enrichment figures I'm

15 calculating here.

16 Q. If one assumed that all of that money was

17 spent, $40 million in 1998, what number would you

18 multiply that by to get to a present value?

19 A. Well, let's see, if you look -- Exhibit 6,

20 you said 1998?

21 Q. Yes.

22 A. And so the combined tax rate there is

23 40.85 percent. So subtract 40.85 percent from

24 40 million. So I mean, approximately that means

25 you're left with about $24 million. Usually I




2 don't do these things in my head, but given that

3 you've tried doing it, too, I'll also do it. And

4 then the present value factor for that year is

5 about 2.6, so 2.6 times 24 million, put myself into

6 a corner here, so 24 plus 24 is 48.

7 Q. Roughly 50 to 50 and a half?

8 A. Somewhere in that range.

9 Q. Okay.

10 A. So in other words, the person with

11 40 million, you can think of it as first it gets

12 smaller when it's reduced to an after-tax figure,

13 then it gets bigger when it's compounded forward to

14 the present.

15 Q. Okay. But that's where you would find the

16 number to multiply it by, the 2.582 in the line in

17 your Exhibit 6; is that right?

18 A. Right. That's the basics of the

19 calculation.

20 Q. Now, in Exhibit 1508, which is your copy

21 of the Cabrera report, would you turn to page 24

22 of 52.

23 A. Okay.

24 Q. It says -- in the first full paragraph on

25 the page about halfway down, it says, "However, in




2 the last few years of operations, Texpet

3 installed --

4 A. I'm sorry. I'm sorry. Where are you

5 again?

6 Q. Halfway down, "However"?

7 A. Oh, the first paragraph. Sorry.

8 Q. First paragraph. Okay. It says,

9 "However, in the last few years of operations,

10 Texpet installed a few gas capture stations

11 although most of the gases were still openly

12 burned." Do you see that?

13 A. Sure.

14 Q. Do you know what was expended prior to

15 1990 by Texpet in terms of installing gas operating

16 stations?

17 A. I'm sorry. You said gas operating

18 stations or gas capture?

19 Q. Excuse me. Gas capture stations?

20 A. No, I do not.

21 Q. Should that amount be also subtracted from

22 your avoided-cost calculations?

23 A. It seems to be saying here that some

24 portion was, indeed, captured. So, yes, I mean,

25 those last few years -- what does it have here --




2 gas capture... So yes, those costs are still

3 significant enough it should be subtracted.

4 Q. Was it your understanding that Mr. Cabrera

5 was attempting to capture the costs of 100 percent

6 gas recapture?

7 A. I think that's my recollection. I'd

8 have -- well, what does it say right here? That's

9 what I recall. I think this was modeled on

10 recapturing all gas.

11 Q. Was recapturing of all gas feasible prior

12 to 1990?

13 A. I don't know.

14 Q. Was that an assumption that you made in

15 using Mr. Cabrera's calculations?

16 A. It's implicit that when I'm relying upon

17 his volume figures and his cost figures that it

18 was, indeed, possible to do so. If it wasn't, then

19 probably more expensive measures would have to be

20 modeled. So it might be a significant

21 underestimate in my calculations.

22 Q. Why is it -- I want you to --

23 MR. BUSCH: Withdraw that.

24 Q. I want you to assume that Petroecuador

25 today continues to flare over 51 percent of the




2 natural gas. Does that affect your opinion in any

3 way?

4 A. That fact by itself, I don't see how that

5 affects my calculations. I mean, I'm -- I'm

6 modeling costs that should have been incurred from

7 the late '60s and early 1970s up until 1990. If --

8 even if the practices still are not in accord with

9 what's been modeled here for what should have been

10 done, I don't see how that affects may

11 calculations.

12 Q. And it doesn't matter to you whether or

13 not Ecuadorian law at any point in time permitted

14 the flaring of natural gas?

15 A. No. What I'm doing here is modeling these

16 measures that the Cabrera report says would have

17 prevented the environmental contamination. Whether

18 or not those measures are specifically required by

19 law, that's not the focus of my calculations.

20 Q. And it would not matter to you whether or

21 not the contract between Texpet and Ecuador

22 permitted Texpet to flare natural gas with the

23 consent of the government?

24 A. No. I mean, I work on plenty of

25 contract -- breach of contract cases, but that's




2 not what I'm focusing on here, no.

3 Q. Would you go to Exhibit 6 of your

4 Exhibit 1500, which is your weighted average cost

5 of capital.

6 A. Yes.

7 Q. Why did you use U.S. tax rates in your

8 weighted average cost of capital?

9 A. The company is headquartered in the U.S.

10 I think -- I can't remember if we discussed this

11 before; it might have been very brief. I would be

12 very surprised if a large multinational company

13 like Texaco and then Chevron was actually paying

14 tax rates these -- this high, but I've used the tax

15 rates that they would have been paying on profits

16 in the United States, the very highest statutory

17 rates.

18 It's kind of become a common practice in

19 these types of cases that we always use the highest

20 marginal rates, even though we know companies

21 typically are not paying such high marginal rates.

22 So it's probably conservative -- is advertise

23 conservative to be using tax rates so high, when

24 the reality is, especially when we're talking about

25 large multinational companies, that they're, most




2 likely, paying tax rates far less than that.

3 Q. Was Texpet located in the United States or

4 Ecuador?

5 A. The operations at issue here were in

6 Ecuador.

7 Q. Okay. And was it a wholly owned

8 subsidiary? Excuse me. Was it an independent

9 company?

10 A. I can't recall, even if I knew at the

11 time, what the exact business relationships were.

12 But ultimately, the parent company is Texaco --

13 well, Texaco and then Chevron.

14 Q. Did Texpet pay taxes in Ecuador?

15 A. I don't know the details of -- well, as I

16 said, I don't know the details of exactly what

17 taxes it was paying in what country.

18 Q. Okay. And that's also true for Texpet; is

19 that right?


21 Q. If I told you that, by 1990, the marginal

22 tax rate that Texpet was paying was 87.3 percent

23 after having paid royalties, would that have

24 affected your calculations?

25 A. Well, if I heard that allegation, I --




2 that's something I would have to investigate. I

3 would be -- I would be amazed if a multinational

4 oil industry giant based in the United States was

5 paying something like 87 percent of its profits out

6 in the form of taxes to Ecuador. But it's

7 something I'd want to research.

8 Q. What about if I told you that of the

9 revenues generated and profits generated by Texpet

10 that Texpet was paying to the state of Ecuador

11 87.3 percent, would that affect your calculations?

12 A. I'm sorry. How was that question

13 different than the previous question you asked? I

14 thought -- or which entity did you name earlier?

15 Q. I thought I had named Texpet.

16 A. But didn't you just say Texpet again?

17 Q. Yes. Texpet was paying the government of

18 Ecuador 87.3 percent tax?

19 A. Right. Wasn't that the question you just

20 asked, or did I misremember the previous question?

21 Q. I think you may have misheard the prior

22 question.

23 MR. NARWOLD: I think you asked the same

24 question twice. He's free to answer it again.

25 But I heard the same question twice. Go ahead




2 and just answer it again.

3 A. Okay. Unless I'm missing some very subtle

4 difference in your questions, it seems like you

5 just asked the same question.

6 And it's basically the same answer as

7 before, that I would just be amazed that a large

8 multinational oil industry giant based in the

9 United States was paying out something like

10 87 percent of its profits to the government of

11 Ecuador.

12 It's something I would certainly want to

13 research, but I find it hard to believe. It's one

14 thing if it somehow faced a statutory rate of that

15 amount. Whether or not it was really paying out

16 that in its marginal income the government of

17 Ecuador is another issue altogether.

18 Q. Do you understand that Texpet is not a big

19 multinational corporation?

20 A. Well, its ultimate parent is.

21 Q. That's the distinction. Do you understand

22 that the tax rate that Texpet was facing in Ecuador

23 was 87.3 percent?

24 A. Well, you're saying the tax rate it was

25 facing. Whether it's the tax rate it really paid,




2 and moreover whether the profits really stayed with

3 the Texpet entity versus being shifted to other

4 entities, I mean, that's -- when I made brief

5 references to a sophisticated company, part of it

6 is that these companies are very good at

7 transfer-pricing and other practices that shift

8 income in one entity to another.

9 So it might be that whatever profits were

10 officially generated in that country were taxed at

11 that rate. But from an economist's perspective,

12 the profits might have been showing up in other

13 countries.

14 Q. Well, let me ask you, are you aware about

15 the royalties that Texpet paid on its pretax

16 income?

17 A. I don't know what the royalty rate was,

18 no.

19 Q. If I told you that the royalty rate was

20 18 and a half percent in 1990, would that impact

21 your opinion?

22 A. That fact by itself? No.

23 Q. Okay. Have you done any analysis of the

24 economic relationship between Texpet and the

25 government of Ecuador?




2 A. No. I have not performed any sort of

3 business relationship analysis of that.


5 (Exhibit 1518 marked for identification.)


7 A. No, I have not. I suppose maybe I should

8 look through it first, but given that the title on

9 the first page is something I've never seen before,

10 this does not look like anything I've seen before.

11 I've never even seen this case caption before.

12 Q. Okay. I want you to assume for a moment

13 that Texpet had operating income of about

14 $105 million in 1991 and that it paid taxes to

15 Ecuador of $88.9 million. Would you agree with me

16 that that would be an effective rate of

17 approximately 86, 87 percent?

18 A. On stated income, yes. But as I said

19 before, that ignores the important issue that

20 income can be shifted from one country to another

21 through transfer-pricing and other accounting

22 practices.

23 Q. Have you seen any study of the economic

24 impact of the agreement in the concession area

25 between Texpet and Ecuador?




2 A. No, I have not seen anything like that.

3 Q. I want you to assume that the economic

4 benefits shared between Texpet Ecuador and Texpet's

5 original partner in concession were as follows:

6 Gulf Ecuador approximately 1 percent; Texpet,

7 2 percent; and Ecuador, 97 percent, all of the

8 economic benefits. What impact would that have on

9 your avoided-cost opinion?

10 A. Well, I mean, that fact by itself, I don't

11 know whether it's referring to some sort -- first,

12 I don't know how economic benefit there is being

13 defined. I don't know whether you're talking about

14 some sort of average share or whether marginal

15 share. So that, by itself, doesn't provide me with

16 sufficient information to allocate the unjust

17 enrichment calculations I've performed, if that's

18 the ultimate goal.

19 Q. What would you need to do that?

20 A. Well, like I said, if the goal here is to

21 say, okay, here's the total unjust enrichment

22 generated by the avoidance of these measure and the

23 consequent cost savings, if the goal is to take

24 that figure and then say, okay, who ultimately was

25 the beneficiary of that among different parties,




2 I'd have to have an understanding of how the

3 incremental gains from the oil field operations

4 would have accrued to the different partners. And

5 it also might be a case where, you know, exactly

6 who shares at the margin depends on which direction

7 you're going.

8 Essentially my analysis is saying what

9 would have happened if there had been higher costs

10 as opposed to higher revenues. So details like

11 that may or may not be important, given whatever

12 the nature of the relationship was.

13 Q. Okay. But if it was -- the costs were

14 shared equally, then it would have flowed through

15 the same way, correct?

16 A. I'm sorry. If the costs were shared

17 equally among --

18 Q. Based upon their percentage interest.

19 A. Upon their percentage ownership stake?

20 Q. Yes.

21 A. Well, I mean that's -- if there's an easy

22 answer to a difficult cost-allocation or

23 benefit-allocation issue, then there's an easy

24 answer. I mean if you're just assuming that

25 it's -- they're allocated according to some simple




2 formula, then, well, that's the answer.

3 Q. Okay. Is it your opinion that 100 percent

4 of the avoided costs that you have calculated

5 should be attributed 100 percent to Texpet?

6 A. I'm really not sure of that. And if, in

7 my report, I've implied that, then my language is

8 imprecise in that regard. What I'm really doing

9 here -- and you know, I also refer somewhat

10 imprecisely to -- perhaps imprecisely to

11 Chevron-Texaco throughout.

12 But what I focused on is the total

13 financial gain accruing from the measures that were

14 avoided according to the Cabrera report. I have

15 not attempted to allocate the total amount among

16 whatever different parties might have been sharing

17 in the financial gains from the oil fields.

18 Q. Have you heard of a gentleman by the name

19 of Michael Podolsky, P-o-d-o-l-s-k-y?

20 A. Mike Podolsky. It's not really a unique

21 name. I might have heard of someone by that name

22 before. It doesn't ring a bell right now.

23 Q. He received his -- let me see if this will

24 help refresh your memory. He received a Ph.D. in

25 environmental policy and management from the




2 University of Pennsylvania.

3 A. Mike Podolsky, still not -- nothing is

4 clicking for me.

5 Q. Okay. Have you read an article by him

6 entitled "The use of discount rate in EPA

7 enforcement actions"?

8 A. Oh. Now, wait a minute. You said he

9 received a Ph.D. in what before? Environmental --

10 Q. In energy and environmental management and

11 policy from the University --

12 A. Mike Podolsky. I'm sorry. He wrote an

13 article on the subject?

14 Q. Yes.

15 A. Mike Podolsky. There was -- there was --

16 I do remember an article -- I mean, there have been

17 many articles written on economic benefit analysis,

18 some by me. There is one that stood out, though,

19 for being very, very poorly thought out, and it was

20 by a noneconomist. But I thought it was by a

21 lawyer. So maybe I'm -- I might be mixing that

22 article up with another one.

23 Q. Is it possible that Dr. Podolsky also has

24 a law degree?

25 A. That could explain it. Perhaps I am




2 thinking of that person. Because there was a

3 person I had some either e-mail or phone exchanges

4 with. And although I have my counterparts on the

5 other side of these cases with whom I disagree, at

6 least they seem to be understanding my points,

7 whereas there was a person who wrote an article who

8 just didn't -- who just didn't even seem to be

9 understanding the main points.

10 I don't know if that's the person or not.

11 I don't want to disparage Mr. Podolsky before I

12 match him up with my recollection of whatever

13 author of whatever article I'm disparaging from my

14 recollection.


16 (Exhibit 1519, article by Michael

17 Podolsky, Ph.D., marked for identification.)

18 A. Oh, yeah. This could be a Case Western

19 Law Review. Maybe it's a different one. I could

20 go back and see if I have this one in my files. I

21 can't remember right now.

22 Q. And this is one in which he argues that

23 the rate that should be used is the risk-free rate

24 as opposed to the weighted average cost of capital,

25 which includes risk?




2 A. I mean, do you want me to go through and

3 look at it to see if that's what he's arguing or --

4 I mean, I -- the document speaks for itself, as

5 they say. I haven't gone through and looked at it.

6 Do you want me to?

7 Q. Yes, if you need to. I can draw your

8 attention to page 5, in the middle of the page --

9 A. Sure.

10 Q. -- if that will refresh your memory.

11 A. Well, it seems to be -- highlighting seems

12 to be added here. Well, refresh my memory. I'm

13 not -- I'm not sure if I've read this one before.

14 I do remember a really subpar article being written

15 on the subject compared to what's usually written

16 by my adversaries on the other side. I can't

17 remember if this is it though. But I'll read this

18 paragraph here that's highlighted.

19 Okay. I've read the highlighted

20 paragraph.

21 Q. Does that refresh your memory?

22 A. Well, I can't remember if this is the

23 article that I've read before that I have in my

24 files. So I mean, refresh my memory, I'd have to

25 go back and match it up with the article I have in




2 my files as written by someone who had some contact

3 with me prior to writing his article.

4 Q. Do you disagree with his conclusion as

5 expressed in that paragraph?

6 A. Well, he has multiple -- well, he has one

7 main conclusion along with -- I mean, a factual

8 misstatement, but generally I disagree with his

9 paragraph, yes.

10 Q. And why?

11 A. Why? Well, he says, "If the amount of

12 cash" -- well, why? I don't know what level you

13 want me to go on on this issue. I've had literally

14 depositions that went on all day long just on

15 essentially the subject matter of this one

16 paragraph.

17 First, he says, "The EPA implicitly

18 acknowledges the accuracy of this statement."

19 Well, no. I can tell him for sure, it does not.

20 And then he goes on to say that, because

21 something occurred in the past, there's no need to

22 include a risk premium in the discount rate. I

23 think he's fundamentally misunderstanding what's

24 being done when the weighted average cost of

25 capital is being applied to past cash flows. The




2 whole point is to determine the rate at which the

3 company can reinvest monies because that's the rate

4 at which the company needs to earn over time in

5 order to maintain and attract investors in the

6 company.

7 He refers to the amount of cash flow being

8 known. I can't remember if he says -- let's see --

9 yeah. He says, "There's no uncertainty in the

10 amount of avoided cost." Well, we've spent many

11 hours today discussing exactly that, the

12 uncertainty in the avoided costs. For him to say

13 that there's no uncertainty in the amount of

14 avoided costs runs contrary to pretty much every

15 economic benefit case that I've worked on, and

16 there have been many.

17 He also says -- I mean, his final sentence

18 here just totally fundamentally misstates and

19 misunderstands everything that's been written by

20 EPA and its consultants and its experts and those

21 who serve as experts for the government, like

22 myself, when he says, "The use of the WACC to

23 estimate the present value of economic benefits

24 would compensate the government for risks it did

25 not bear."




2 The whole point -- and, in fact, we even

3 read a sentence in my expert report, and it's worth

4 going back to that since we already came across it

5 earlier. So just a little bit of flipping here.

6 But I -- let's see. I wrote, "Unjust enrichment

7 does not represent compensation to plaintiffs as a

8 typical damages calculation for a tort case," and

9 then it goes on from there.

10 So even though I included that in many of

11 my expert reports and I think he even reviewed some

12 of them, if this is the same gentleman I remember,

13 he ignores that completely and seems to be arguing

14 that we're talking about the compensation to the

15 government for risk.

16 The whole point is not compensation for

17 the government or other plaintiff, like when I work

18 for not-for-profit groups, but rather to extract,

19 to disgorge -- rather odd word we use, but I think

20 it does get the point across -- to disgorge the

21 financial gain that the -- that the company at

22 issue has accrued from violating the law.

23 So it's the exact opposite of what he's

24 positing here, and he's -- I find it entirely

25 unconvincing. Once again, I don't know how long




2 you want me to go on about this because I've spent

3 entire days just arguing about the conceptual basis

4 for the discount/compound rate.

5 Q. Well, you -- in other words, you disagree

6 with Dr. Podolsky?

7 A. That sums it up.

8 Q. But he doze have a Ph.D. from the

9 University of Pennsylvania. Are you acquainted

10 with that university?

11 A. Am I acquainted with the University of

12 Pennsylvania?

13 Q. Yes.

14 A. Yes, I am acquainted with the University

15 of Pennsylvania.

16 Q. What is its academic reputation?

17 A. The University of Pennsylvania is a member

18 of the Ivy league. And although those of us who

19 graduated from Harvard University would, of course,

20 like to say that Harvard University is far superior

21 to the University of Pennsylvania, I think I will

22 grant it that the University of Pennsylvania is a

23 fine academic institution.

24 Q. And your program was a two-year program?

25 A. My graduate degree from Harvard is a




2 two-year program.

3 Q. And how long is a Ph.D. program at the

4 University of Pennsylvania?

5 A. It all depends what field and how long one

6 takes as an individual. It's -- it is not a normal

7 distribution, as we say. It has -- it's kind of a

8 one-tailed distribution with that tail going on for

9 quite a bit.

10 Q. Do you know if any other professors of

11 economics at any universities in the United States

12 who concur with Mr. Podolsky?

13 A. Concur with his conclusion or concur with

14 his reasoning?

15 Q. Concur with his conclusion that, in

16 assessing avoided costs, one should not use the

17 weighted average cost of capital, but instead

18 should use a risk-free rate?

19 A. I know of one professor, I can't remember

20 if he's recently advocated using the risk-free

21 rate, though, or the company's cost of debt.

22 Sorry. Do you want the name?

23 Q. Yes.

24 A. Oh. Stew Myers. I think he's still

25 teaching at MIT.




2 Q. Thank you.

3 Are you acquainted with the decision in

4 United States versus WCI Steel Company?

5 A. Yes, I am.

6 Q. Okay. And in that case, did the court use

7 the weighted average cost of capital or did it use

8 instead the risk-free rate?

9 A. The court used the risk-free rate.

10 Q. Okay. Are you acquainted with the

11 decision of the court in United States v. The

12 Portland Meadows, LLC, in the District of Oregon

13 back in 2003?

14 A. I can't remember all the details of that

15 decision, but yes, I'm familiar with it to some

16 extent.

17 Q. In that case, you were a testifying

18 expert?


20 Q. And you used the weighted average cost of

21 capital as you used it in this case, to calculate

22 the avoided cost realized by the defendant for

23 violating the Clean Water Act, correct?

24 A. I used that rate and other rates.

25 Q. Okay. You also calculated the economic




2 benefit using the rates proposed by the defendants'

3 expert, right?

4 A. I used -- I used quite a few different

5 rates under quite a few different scenarios. I

6 mean, there were 24 different calculations total.

7 Q. Okay. Was one of the rates the rate --

8 the two and a half percent rate on short-term

9 U.S. treasuries?

10 A. I can't remember exactly what the rate was

11 at this point in time. I'd have to go check my

12 files.

13 Q. Do you recall testifying that you thought

14 that the risk-free rate was inappropriate?

15 A. I must have had testimony to some extent

16 that said it would -- it would underestimate the

17 extent of the company's financial gain.

18 Q. Okay. What did the court apply?

19 A. The court applied one of my figures, which

20 was equal to every -- essentially every remaining

21 cent that was in the company. And that included

22 all of my -- that reflected all of my compliance

23 scenario information, but combined that with the

24 government cost of capital.

25 MR. BUSCH: Exhibit 1520.




2 (Exhibit 1520, decision of the court in

3 United States v. The Portland Meadows, LLC,



6 A. I haven't looked at it for a while, but it

7 seems to be a copy of the decision in the case.

8 Q. Do you recall ever receiving a copy of it?

9 A. Yes. I still have a copy of it.

10 Q. Would you go to page 10?

11 A. Yes.

12 Q. And at line 4, the court begins, "I assume

13 a 1997 date for connection to the sewer for reasons

14 explained above. I also assume the United States

15 short-term cost of capital for the calculations

16 because I believe it results in a more reasonable

17 economic benefit estimate." Correct?

18 A. Yes.

19 Q. Okay. And his reference there to the

20 U.S. treasuries short-term cost of capital was to

21 the U.S. short-term treasury bill, correct?

22 A. Yes, that's a reasonable inference. I

23 mean, that's what he's referring to the figures in

24 my report without any reference to the other

25 experts, so yes, it's -- that's what he's referring




2 to.

3 Q. Had you used the short-term treasury bill

4 rate instead of your weighted average cost of

5 capital, what effect would that have had on your

6 economic benefit calculation?

7 A. The calculation would be lower -- the

8 final result would be lower.

9 Q. Okay.

10 A. So it's 4:22, so we've been on for close

11 to an hour so maybe another --

12 Q. Would you like to take a break, sir?

13 A. No. I think --

14 Q. We're about to go into a new topic.

15 That's fine.

16 THE VIDEOGRAPHER: Time is 4:22. We're

17 off the record.




21 of tape number six in the deposition of

22 Jonathan Shefftz. We're back on the record.

23 The time is 4:34.

24 BY MR. BUSCH:





2 still under oath?

3 A. Yes.

4 Q. Okay. Last hour you said that you had

5 visited the Chevron website about this matter. Why

6 did you do that?

7 A. Oh, just -- at first, I was just curious

8 about the case in general, in the larger context,

9 and then later on, when I saw how publicly this

10 case is being fought out, I suppose, I --

11 especially after I filed my report, I kept being

12 curious if maybe there would be some mention of my

13 name on the Chevron website. Hope that doesn't

14 come across as too vain.

15 Q. Okay. When was the last time you visited

16 the Chevron website?

17 A. Oh, just a few days ago. I was hoping

18 there might be some update there specifically

19 denouncing me or having something to do with the

20 deposition or something like that.

21 Q. Do you have any particular animus against

22 Chevron?

23 A. Oh, no. I mean, they're -- well, I mean,

24 it's -- I haven't looked into the details regarding

25 the allegations of the environmental contamination




2 in Ecuador. It certainly sounds, I mean, really

3 unfortunate.

4 But no, I -- I buy Chevron gas every now

5 and then. I mean, plus -- well, every now and

6 then. I guess I was going to say -- I guess it's

7 Stop & Shop most of the time these days. I don't

8 know who they're getting their gas from. But, no,

9 nothing against them in particular. Gas is good

10 stuff. I used it to drive here this morning.

11 Q. Do you consider your --


13 Q. Would you consider the imposition of an

14 avoided-cost civil penalty as being punitive in

15 nature?

16 A. Well, the economic benefit-based portion

17 of a penalty is really just creating a difference.

18 Even though it's being called a penalty, it's

19 restoring the company to the financial position it

20 would have occupied if not for the alleged wrongful

21 actions.

22 It -- really the -- only the portion of a

23 penalty over and above the economic benefit or

24 financial-gain portion has real punitive value.

25 But you know, it depends on how you look at it. I




2 mean, a penalty, it's supposed to punish; but given

3 that the economic benefit is just putting a company

4 back in the position it would have been in, it can

5 be thought of as not having punitive value. On the

6 other hand, we're kind of getting into wordsmithing

7 here.

8 Q. Would you view the imposition of a

9 multiplier based on the probability of detection,

10 prosecution, and ultimate payment as being punitive

11 in nature?

12 A. Well, once again, I mean -- it also

13 depends on how you view it. I mean, if a company

14 is -- it has to pay a penalty of some amount of

15 money, well, it certainly has a punitive nature to

16 it.

17 On the other hand, if reviewing it in the

18 context of the company's financial position over

19 time and what it would have been had it taken

20 different actions, then even if the economic

21 benefit is multiplied by some figure representing

22 the probability of ultimately paying that, then on

23 average over time, the company really is no worse

24 off than it would have been had it not engaged in

25 the actions at issue.




2 Q. Do you know if Ecuadorian law permits

3 civil penalties?

4 A. I'm not familiar with Ecuadorian law in

5 any capacity.

6 Q. Earlier today you indicated that the

7 avoided cost would be reduced by the amount of any

8 remediation related to the contamination for the

9 specific avoided costs that should have been

10 incurred. Do you recall that?

11 A. Well, I think I said more broadly the

12 unjust enrichment result or economic benefit or

13 financial gain would be reduced by the after-tax

14 present value of any remediation costs that were

15 necessary because of the environmental

16 contamination and would not have been necessary at

17 all had the environmental contamination been

18 prevented in the first place.

19 Q. Is avoided cost the outside limit that a

20 company should pay because of environmental

21 contamination?

22 A. I'm sorry. Is -- is avoided costs? I'm

23 not -- I'm not really following that question.

24 Maybe you're just using avoided cost instead of

25 unjust enrichment or economic benefit?




2 Q. Well, you used the word "avoided costs" on

3 the top of your charts; do you recall that? And

4 that's in Exhibit 1500.

5 A. No. The top of my exhibits, the title of

6 them does not contain the word "avoided costs," if

7 that's what you're referring to.

8 Q. Well, the column in Exhibit 3 shows the

9 avoided costs to produce gas capture, correct?

10 A. Right. That's not the top. That's the --

11 that's part of the column -- part of the header

12 for -- well, it's the joint header for two of the

13 columns.

14 Q. Okay. And are you using economic benefit

15 and avoided costs in these charts as synonyms?

16 A. No.

17 Q. Okay. What was the economic benefit to

18 Texpet, as you have determined it, for the failure

19 to capture a hundred percent of the produced

20 natural gas?

21 A. Well, as shown here, the total economic

22 benefit or unjust enrichment, those terms, as well

23 as financial gain, I'm using synonymously at the

24 bottom of the chart. The two figures correspond to

25 the after-tax amount in the 0 percent tax rate




2 amount are a little over 2 billion and a little

3 over 4.1 billion.

4 Q. Okay. And the top of those columns, you

5 say present value at 2010. What's that a present

6 value of?

7 A. That's a present value of the avoided

8 costs.

9 Q. Okay. So when I use the phrase "avoided

10 costs," would you understand I'm using it in the

11 sense that you have set forth in Exhibit 3 to your

12 report?

13 A. Well, if you're using it to refer to those

14 two columns, I mean, the two final columns are the

15 present value of those two sets of avoided costs.

16 Q. If the -- I want you to assume that the

17 present value, on an after-tax basis, of the

18 avoided costs for failure to capture a hundred

19 percent of the gas was $2 billion even and that

20 Texas [sic] Petroleum on an after-tax present value

21 had paid 100 -- had paid 1 billion to remediate and

22 install gas-recapture equipment, what is the

23 amount, based on your analysis, that Texas

24 Petroleum should have to pay?

25 A. Well, you've left that kind of open-ended




2 there in terms of have to pay.

3 Q. What do you say that it should be?

4 A. That's what the courts will decide.

5 Q. What do you think it should pay?

6 A. Should pay to do what?

7 Q. Based on those facts.

8 A. Well, I'm not the court of law here. I

9 mean, should pay, there are many other factors in

10 either a natural resource damages estimate case or

11 a civil penalty enforcement case. I mean, should

12 pay is a very broad open-ended question. I'm --

13 I'm calculating what the unjust enrichment or

14 economic benefit is.

15 Q. Should the unjust enrichment or economic

16 benefit be reduced by the amount that was incurred

17 to remediate and install new equipment?

18 A. As a general concept, yes. Sometimes the

19 details of that can get complicated. But as a

20 general concept, if there are costs incurred for

21 remediating environmental contamination that would

22 not have occurred in the first place had the

23 measures that are being modeled in the economic

24 benefit allocation actually been incurred, then,

25 yes. The met amount should reflect those




2 remediation costs.

3 Q. I want you to assume, instead of

4 $1 billion as an after-tax basis for the amount

5 paid to remediate, the amount was actually

6 $3 billion. How does that impact your unjust

7 enrichment assessment?

8 A. Well, if, in general, we had a case where

9 the -- and we kind of can think about the initial

10 or the gross financial gain to a company was

11 $2 billion, but because of the contamination that

12 ensued because those measures were not taken that

13 gave rise to the $2 billion and the company had to

14 spend $3 million, that's -- I'm sorry --

15 $3 billion, use the same million -- billion,

16 whatever.

17 Q. That's right.

18 A. Only a factor of a thousand, right.

19 So if that essentially gave rise to

20 $3 billion that the company needed to incur and had

21 no choice in the matter, then the company has

22 incurred a net loss, viewed across the entire time

23 line because of its actions, of a billion dollars.

24 Q. Okay. In that instance, would it be

25 appropriate to impose on the company the $2 billion




2 for its economic benefit plus the $3 billion for

3 the remediation?

4 A. I'm sorry. To impose on it the 3 billion?

5 I thought the 3 billion had already been incurred

6 in your scenario.

7 Q. Yes. But would it be appropriate to

8 impose an additional $2 billion for the avoided

9 costs?

10 A. Well, there really aren't $2 billion in

11 avoided costs. I mean, the net cost is a negative

12 $1 billion here. That's why I was trying to get a

13 distinction between -- I mean, avoided cost is just

14 one component of the total economic benefit.

15 So here there's an initial -- in your

16 scenario, there's an initial economic benefit of

17 $2 billion derived exclusively, it just so happens,

18 from avoided costs; but the $2 billion could be,

19 also, from delay costs, it could be factors that go

20 beyond mere cost savings.

21 And now you're saying because of whatever

22 actions or inactions gave rise to that $2 billion

23 in economic benefit, now the company has incurred

24 remediation costs of $3 billion, there is overall a

25 net loss of a billion dollars. And so that's the




2 final economic benefit.

3 Q. Let me draw your attention to

4 Exhibit 1508.

5 A. Which one is that again?

6 Q. That is your copy of the Cabrera report.

7 A. All right. There we go.

8 Q. And it shows based on -- if I draw your

9 attention to page 6 of 52.

10 A. That's the page with the table?

11 Q. Yes.

12 A. Yeah.

13 Q. And it shows total losses and damages of

14 between roughly 7.2 billion and $8 billion. Do you

15 see that?

16 A. Yeah. There's a figure at the bottom that

17 says minimum cost, $7.2 billion, and there's

18 estimated costs for 8 billion. I'm really not sure

19 what the -- I mean, there's no separate column for

20 minimum cost. I'm sorry. There's no separate

21 entries for minimum costs under total reparations,

22 but maybe it's just -- I guess it's supposed to be

23 the same for both columns.

24 Q. Yeah. If you add 3.4 billion and 3.9 --

25 3.8 billion, you get about 7 .2 billion, correct,




2 under the estimated minimum cost?

3 A. Yeah, that seems to be the derivation.

4 Q. Okay. If it -- the consortium was

5 required to pay $8 billion to remediate the

6 problems caused by the contamination, would it be

7 appropriate to impose the additional $8.3 billion

8 shown here for the economic benefit on top of that

9 first 8 billion?

10 A. Well, this is -- it's a difficult question

11 because, for the most part, these penalty actions

12 where economic benefit is calculated, there's no

13 notion of what the remediation costs are. Here, if

14 a company is being -- I mean, if a company's

15 financial gain is 8.3 billion but it's also paying

16 8 million to remediate, then if the point is a

17 penalty -- I mean one could argue that the net

18 economic gain is about 300 million, but if the goal

19 is to -- is to provide deterrence, an additional

20 amount would still be necessary if the focus is on

21 the penalty action.

22 Q. Okay. And in terms of deterrence, what

23 are you talking about?

24 A. In terms of deterrence, what I mean is

25 making sure that an entity is financially worse --




2 or I should say financial deterrence through a

3 penalty is achieved when the penalty is greater

4 than the company's financial gain. And one can

5 argue that that financial gain should be adjusted

6 for the probability of ultimate payment since if,

7 let's say, a company is -- is hit with a penalty --

8 let's just say a hundred dollars to make the

9 numbers a little easier to say, but the company

10 figures, well, you know, only half the time this is

11 ever going to happen that we'll have to pay a

12 penalty for such actions, then it's still not

13 achieving deterrence. There would have to be $200

14 just to achieve financial indifference.

15 And even then, if the company is saying

16 well, you know, we profited a hundred dollars, we

17 got hit with $200, but, you know, we expect only

18 half the time this is going to happen, there would

19 still need to be an additional amount added to that

20 penalty in order to have financial deterrence.

21 Q. Is this concept set forth any place in the

22 law that you know?

23 A. Is it set forth in the law? I mean,

24 certainly in the law in economics literature,

25 there's discussion of it. In the law, there's




2 trebling of damages in a variety of contexts. What

3 the rationale is for that, I don't know if it

4 pertains to this notion of probabilities or if it's

5 something else all together.

6 Q. Now, trebling of damages is available in

7 antitrust law, correct?

8 A. Among others, yes.

9 Q. And that's a matter of statute, isn't it?

10 A. I'm not a lawyer, but I think it pertains

11 to statute rather than precedent. But I'm not a

12 lawyer, so I don't know the specifics of that. I

13 just know that's how it's done.

14 Q. Can you think of any instance where

15 trebling of damages is permitted that is not

16 governed by statute?

17 A. Well, ERISA also has -- I'm sorry -- all

18 capitals E-R-I-S-A. ERISA, I think, also has

19 trebling of damages. I can't recall what the basis

20 for that is.

21 There have also been environmental civil

22 penalty decisions in U.S. District Court that

23 involved -- I can't remember if it was doubling or

24 trebling. What the basis for that was, I don't

25 think it was articulated at the time.




2 Q. Okay. The trebling under ERISA occurs in

3 the circumstance where a party in interest engages

4 in a prohibited transaction and, within one year,

5 does not return to the pension fund the amount that

6 it is has taken as part of an interested-party

7 transaction, correct?

8 A. I have no idea. All I have is an

9 awareness that ERISA entails trebling of damages.

10 Q. Okay.

11 A. The specifics and the rationale behind it

12 and the enabling statute or precedents, I don't

13 know.

14 Q. Okay. But that is a statute, correct?

15 A. I don't know.

16 Q. You don't know if ERISA is a statute?

17 A. I'm sorry. ERISA -- yes, ERISA is a

18 statute. Exactly what gives rise to trebling of

19 damages under ERISA, I don't know.

20 Q. Okay. If the court in Lago Agrio was to

21 impose damages based on remediation costs of

22 $8 billion and then an $8.3 billion award also for

23 unjust enrichment or economic benefit, wouldn't

24 that be resulting in a double penalty?

25 A. Well, it's a penalty of over $16 billion.




2 To call it a double penalty, I mean, it could be

3 construed in many different ways.

4 If the specific rationale is that there's

5 economic benefit of 8.3 billion even after paying 8

6 billion, the underlying rationale wouldn't quite

7 match up with what I'm calculating.

8 On the other hand, if there's economic

9 benefit of 8.31 billion, to have a penalty that's

10 almost twice that, I mean, that could represent a

11 notion that -- probability of around 50 percent.

12 It could also represent just adding something to

13 the penalty to achieve financial deterrence. I

14 wouldn't describe it as a double penalty though. I

15 mean, it's one penalty, one big penalty, but it's

16 not two different penalties.

17 Q. Okay. Do you understand the distinction

18 between absolute deterrence and conditional

19 deterrence?

20 A. I think I've come across that before, but

21 I can't quite remember now what that is supposed to

22 mean.

23 Q. Do you recall an example of absolute

24 deterrence being homicide?

25 A. That reminds me of an article I looked at




2 once that was entitled something like Why Don't We

3 Just Hang Price Fixers, but I can't recall that

4 specifically.

5 Q. Do you recall the EPA ever taking the

6 position that environmental contamination is the

7 subject of conditional deterrence?

8 A. I can't remember whether I've come across

9 EPA using that language before in its

10 penalty-setting practices or discussion.

11 Q. Do you understand conditional deterrence

12 weighs the economic benefits versus -- of the

13 activity versus the economic detriments of the

14 activity?

15 A. I can't recall that right now, no.

16 Q. Do you know what the economic benefit to

17 the Ecuadorian economy has been as a result of the

18 exploration of the concession area and extraction

19 of oil from the concession area?

20 A. Well, I think that would be a very

21 contentious issue give what I've come across in

22 this case. I think there would be a wide variety

23 of opinions about that.

24 Q. Do you know how much money Petroecuador

25 has made in the concession area since 1990?




2 A. No, I do not.

3 Q. Does that impact your opinion?

4 A. No. I have a hard time imagining how that

5 information would affect my opinion on how much was

6 gained by not implementing certain measures prior

7 to that date.

8 Q. Prior to your conversation on

9 September 7th of this year with the people from the

10 Wineberg Group, had you ever heard of the Lago

11 Agrio litigation, the litigation in Ecuador?

12 A. Well, I thought when I first -- well, in

13 September, at the time, I thought that was the

14 first time I heard about it. I felt a little bit

15 embarrassed I had never heard about it before given

16 how high profile it is. But I don't have any

17 recollection of hearing about it prior to that. As

18 I said, I've never seen the movie. I'd never heard

19 about the movie either as far as I can recall.

20 Q. And since that time you've visited the

21 Chevron site and looked at other sources to find

22 out information about it, correct?

23 A. More out of sheer curiosity, not a

24 detailed research effort, but I Google it every now

25 and then.




2 Q. Okay. You can answer this question yes or

3 no. Have you discussed, other than in the context

4 of your deposition here today, that -- the Lago

5 Agrio litigation with any of the attorneys for the

6 Ecuadorian plaintiffs?

7 A. I'm sorry. I -- you can have the court

8 reporter read that back. I just -- for some

9 reason, I didn't follow that question.

10 MR. BUSCH: Okay. Would you read it back,

11 please.

12 (Testimony referred to was read by the

13 stenographer.)

14 A. It seems like a straightforward question.

15 I'm a little confused by it. My understanding is

16 that it seems that Mr. Norwald here -- I think I've

17 already -- I thought I've already testified today

18 that I've had conversations with plaintiffs'

19 attorneys in this case.

20 Q. Okay. And that was on September 11th,

21 correct?

22 A. Among other dates, yes.

23 Q. I see. And you've also --

24 A. Including but not limited to

25 September 11th.




2 Q. That's correct. And you also testified

3 about having had conversations with counsel

4 relating to this deposition. I haven't asked you

5 what you've discussed with them, but just simply

6 about the deposition?

7 A. Yes, that's right.

8 Q. Other than those -- the conversation on

9 the 11th and the conversations relating to the

10 deposition, have you had any other conversations

11 with counsel for the Ecuadorian plaintiffs?

12 A. Yes.

13 Q. And when did those take place?

14 A. I think we've already been through this

15 before, but -- so let's see. September 11th, that

16 was a Saturday. That was the conference call

17 that's referenced on my invoice.

18 I might have had some conversations with

19 Mr. Small on September 12th and also on

20 September 13th. And then -- I think I've already

21 testified to all this. But I had numerous

22 conversations with Mr. Small concerning the status

23 of the litigation or controversy or whatever you

24 want to call it regarding my -- the taking of my

25 deposition in this matter.




2 And then I had numerous conversations with

3 him. And also one with one of his colleagues

4 regarding the discovery request. I'm not sure if

5 you're saying that's all related to this deposition

6 or not.

7 Q. I would not consider that relating to the

8 deposition.

9 A. Okay. I'm sorry.

10 Q. That's fine.

11 A. I was thinking that was more broad.

12 Q. Let's go back to your first contact with

13 the Wineberg Group. Let me show you what we will


15 (Exhibit 1521, subcontractor agreement

16 signed with Wineberg Group, marked for

17 identification.)


19 A. Yes. This looks like the subcontractor

20 agreement that I signed with the Wineberg Group.

21 Q. Did you sign any other agreement that

22 identified either your scope of work or what your

23 compensation rate would be?


25 Q. Prior to your contact on September 7th,




2 had you ever worked with the Wineberg Group?

3 A. No, I had not.

4 Q. Now, you indicated you went on the

5 Internet and checked out Chevron. Did you go on

6 the Internet when you were first contacted to check

7 out the Wineberg Group?

8 A. Yes, I did.

9 Q. And what did you determine?

10 A. Seemed like an interesting company in

11 terms of -- you know, maybe describe it as kind of

12 a niche. I mean, I'm certainly familiar with law

13 firms. I'm familiar with various economics

14 consulting firms. And I've never quite come across

15 a firm in the exact line of business as the

16 Wineberg Group before.

17 Q. Did you understand, when you were first

18 contacted, that you were told or that your work

19 product would be submitted to the court in Ecuador?

20 A. Yes. I'm pretty sure that was conveyed to

21 me, that this action was -- even though it was

22 against a U.S. company, it was taking place in an

23 Ecuadorian court.

24 Q. When you originally had your conversations

25 with the people at the Wineberg Group, did you




2 discuss doing any work beyond an economic benefit

3 analysis?

4 A. No. It was very clear to me that that's

5 what they needed, an economic benefit analysis. I

6 can't remember if they were calling it economic

7 benefit or unjust enrichment or financial gain.

8 But it's what they needed, and it's what I was able

9 to do. So it matched up well.

10 Q. When you had this conversation with the

11 people at the Wineberg Group, did they tell you who

12 their ultimate client was?

13 A. Well, they -- they said they were doing

14 this for a legal team. Whether they identified the

15 specific law firms -- firm or firms, I can't recall

16 right now.

17 Q. Okay. Did you have any discussion with

18 the people at the Wineberg Group that they

19 originally had not been charged with doing an

20 unjust enrichment analysis?

21 A. I wouldn't quite -- it wasn't quite the

22 language they used, but essentially that. That's

23 kind of what it amounted to.

24 Q. Then did they tell you that they had just

25 recently been asked to do one and they needed




2 assistance from you?

3 A. That was pretty much the gist of it,

4 yes -- well, or needed assistance from someone who

5 could do the work, which -- which turned out to be

6 me.

7 Q. Did anybody at the Wineberg Group explain

8 to you why the scope of the work had been expanded

9 to include unjust enrichment?

10 A. No. No, I did not -- I did not receive

11 any specific explanation for that.

12 Q. Did anybody at the Wineberg Group ever

13 encourage you to reach a particular result in your

14 work?

15 A. Well, they -- the result they

16 encouraged -- well, they were interested in whether

17 I could achieve a result in terms of perform any

18 calculations. But I mean, up or down, that result,

19 no. I mean, they were certainly hoping that some

20 set of calculations could be performed.

21 Q. Were you encouraged at any time to come up

22 with the highest cost estimate that you could?

23 A. Well, I wasn't coming up with any cost

24 estimates. I was taking the cost estimates from

25 the Cabrera report.




2 Q. Were you aware, when you began working for

3 the Wineberg Group, that you might be deposed here

4 in the United States?

5 A. I can't remember if the possibility of a

6 deposition was specifically mentioned. But on the

7 other hand, quite often, when I write expert

8 reports, I eventually end up being deposed. So I

9 can't remember if I even bothered inquiring about

10 it just because it's something that often happens,

11 but not all the time. So it wasn't something

12 inquiring about.

13 Q. Did anybody at the Wineberg Group indicate

14 to you that you needed the approval of Mr. Donziger

15 before taking any actions or doing -- undertaking

16 any work?

17 A. No, not at all.

18 Q. Have you ever met with Mr. Cabrera?

19 A. No, I have not met with Mr. Cabrera.

20 Q. Are you familiar with the name Bill Powers

21 or William Powers?

22 A. Yeah. Yes, I'm pretty sure I am familiar

23 with that name. Well, of course, there are

24 probably many people named William Powers or Bill

25 Powers, but I'm pretty sure I know -- know of one




2 through my work with that name unless I'm confusing

3 it with somebody else.

4 Q. Okay. And who is the Bill Powers that

5 you -- that you are acquainted with?

6 A. Oh, I'm pretty sure there is a consulting

7 engineer in the field of air quality and air

8 emissions whose name is Bill Powers. Unless I'm

9 mixing it up. I'd have to go back and check my

10 files but Bill Powers, William Powers it rings a

11 bell. I hope I'm not remembering it incorrectly.

12 Q. Have you done any work with Mr. Powers in

13 the context of this report?


15 Q. Are you familiar with a company known as

16 Stratus Consulting?

17 A. Yes, I am.

18 Q. And how are you acquainted with them?

19 A. Mainly because they're in the natural

20 resource damage assessment field, they're pretty

21 much the only and main direct competitor with the

22 firm I used to work for and still do a lot of work

23 for under subcontract, Industrial Economics.

24 Q. Do you have any understanding of what

25 Stratus's role is in the Lago Agrio litigation?




2 A. I understand there's some controversy

3 about that, but I understand they've been doing

4 work in some -- doing some sort of background

5 analytical work, and exactly what the controversy

6 is I don't have any interest in.

7 Q. Have you communicated with anybody from

8 Stratus regarding your work in the case?


10 Q. Have you communicated with anyone from

11 Stratus regarding their work on this case?


13 Q. Are you acquainted with Doug Beltman?

14 A. Doug Beltman, that name doesn't ring a

15 bell.

16 Q. About Ann Maest, M-a-e-s-t?

17 A. No, that name does not ring a bell either.

18 Q. How about Brian Lazar, L-a-z-a-r?

19 A. Yes, I'm familiar with him.

20 Q. And how are you familiar with Mr. Lazar?

21 A. In addition to his work at Stratus, he's

22 the head -- I can't remember his official title

23 because they've changed things around recently, but

24 he's the head of American Institute for Avalanche

25 Research and Education, and I'm an avalanche safety




2 instructor involved in three different

3 organizations but also for -- well, the

4 abbreviation is capital A-I-A-R-E, AIARE. And I've

5 done some kind of copy-editing and some drafting

6 some documents for them in addition to being a

7 member and one of their instructors.

8 Q. And that's with the non-profit

9 organization, correct?


11 Q. Have you ever worked with Mr. Lazar on any

12 environmental cases?


14 Q. Are you acquainted with Jennifer Pers,

15 P-e-r-s?

16 A. That name does not ring a bell, no.

17 THE WITNESS: I need to take a bathroom

18 break at some point, but if you have just a

19 few questions on this, we can keep going.

20 MR. BUSCH: Let's go ahead and take a

21 break. That's fine.








2 THE VIDEOGRAPHER: We're back on the

3 record. The time is 5:25.

4 BY MR. BUSCH:


6 still under oath?

7 A. Yes, I do.

8 Q. What is your understanding of the

9 controversy over the Cabrera report and Stratus

10 Consulting that you've picked up from your readings

11 on the Internet?

12 A. My understand -- I understand the

13 allegations -- well, my understanding of the

14 allegations is that Stratus was providing some sort

15 of information and/or analysis to Cabrera and that,

16 instead, he was supposed to be acting totally on

17 his own or without any assistance from a firm like

18 Stratus, something like that.

19 Q. Are you aware that six federal judges have

20 ruled that the involvement by Stratus Consulting in

21 writing the Cabrera report and plaintiff's work

22 with Cabrera is a fraud on the courts?


24 A. I have no awareness of those specific

25 allegations.




2 Q. If six federal judges had made such

3 rulings, would that have affected your opinion in

4 any way?


6 A. I'd have to see what the specifics are. I

7 mean, if it turns out these tables were put

8 together -- I mean, if it turns out that the cost

9 figures and the data series that I relied upon were

10 vetted by Stratus and they did a lot of detailed

11 analysis and research, that would actually give me

12 a lot more confidence in their veracity.

13 I mean, I'm accepting them as is, but it

14 would be reassuring to know that such a major

15 well-regarded firm in the field had provided

16 assistance.

17 Q. Even though Mr. Cabrera's report was

18 supposed to be that of a neutral expert?


20 A. Well, I don't see how -- as much as I've

21 been trained to believe in this big rivalry between

22 IAC and Stratus, at the end of the day, we have a

23 lot of regard for Stratus's objectivity and

24 integrity. So if they were helping Cabrera out, my

25 initial reaction would be that that helps the




2 accuracy of the Cabrera report.

3 Q. Notwithstanding that Stratus is the

4 consultant for the Ecuadorian plaintiffs?

5 A. I'm sorry. What's the question?

6 Q. And that would be -- your opinion would

7 not change, notwithstanding that Stratus is the --

8 excuse me -- consultant for the Ecuadorian

9 plaintiffs?

10 A. Well, it means there's -- there's a

11 court-appointed expert whose receiving additional

12 information from Stratus being retained, I think,

13 by plaintiffs that -- that makes the categories a

14 little bit harder to understand.

15 But if anything, having that kind of

16 support from a well-regarded firm -- I mean, I --

17 when I looked at information from Stratus, I --

18 unless their legal assumptions in a Stratus

19 analysis, I -- once again, as much as I want to go

20 in for this big IAC/Stratus rivalry, kind of like,

21 you know, Amherst/Williams or Harvard/Yale,

22 realistically they're well regarded and I wouldn't

23 have any reason to believe that Stratus is slanting

24 things one way or the other.

25 Q. Why would Stratus use the number of 3 in




2 calculating the cubic meters of the waste disposal

3 instead of 2?

4 MR. NARWOLD: Objection, foundation,

5 speculation.

6 A. I suppose I've been hanging around lawyers

7 too much, but I knew there was an objection coming

8 to that one. I -- that question seems to be

9 presupposing that Stratus did a calculation

10 involving the number 3. I have no knowledge of

11 that.

12 Q. Well, we saw in the waste-disposal numbers

13 that the square meters were multiplied by the

14 number 3 to come up with a 2 million

15 300-some-odd-thousand cubic meters of disposable

16 waste, correct?

17 A. That seems to be a reasonable inference

18 from the available information, yes.

19 Q. Okay. And would you expect Stratus to do

20 that if the actual number was one and a half?


22 A. Well, there can be differences of opinion

23 on what the, quote, actual number is.

24 Q. Have you seen affidavits and declarations

25 from experts who have opined that the very draft of




2 Exhibit T that you have, which is Exhibit 1509 --

3 A. Thank you. Oh yes, the fancy paper

4 document.

5 Q. -- was actually written by Stratus?

6 A. No. I -- I've seen no such affidavits or

7 other assertions.

8 Q. And that affidavit would not impact your

9 opinions in any way, is that correct, if such an

10 affidavit existed?

11 A. Well, I'm starting with the figures in

12 this report for volume and per unit cost. I

13 referred to it as the Cabrera report. Whether the

14 figures were calculated by Cabrera or Stratus,

15 either way, these are the figures that I've been

16 using.

17 It would be kind of fun if it turned out

18 Brian Lazar had calculated these figures because I

19 know him in other contexts, but that doesn't change

20 my calculations.

21 Q. That would be fun? What do you mean by

22 that?

23 A. Fun in an amusing sense that here's

24 someone that I know from an entirely different

25 context is -- is doing work that intersects with my




2 professional work. I should say fun because I have

3 been aware of his role as a ski-mountaineering

4 guide and an avalanche safety educator for years,

5 and I thought he did some professional work that

6 related to avalanches and hydrology. But I didn't

7 realize he was a employee of a firm that was a

8 competitor, very similar to a firm I've been an

9 employee of for many years.

10 Here I thought he was kind of a full-time

11 guide. And so it's just kind of amusing to

12 suddenly have sort of overlap with someone whose in

13 a field sort -- that overlaps a bit with mine, but

14 that I know from something entirely different.

15 Q. Would it affect your opinion in any way if

16 you were told that Mr. Donziger instructed Stratus,

17 after it did its first economic benefit

18 calculation, to add the reinjection of water and to

19 add capture of natural gas?


21 A. It all depends on the nature of that

22 instruction.

23 Q. Why is that?

24 A. Well, if -- let's say Mr. -- getting into

25 great speculation here, but if Mr. Donziger said




2 you guys have missed something really important,

3 how could you not be aware that these two

4 additional elements are -- would have been

5 necessary to avoid -- to prevent the ensuing

6 environmental contamination and they said, oh, my

7 gosh, how could we have overlooked this, you're

8 absolutely right, we need to go back and do some

9 additional research and analysis, we've missed out

10 entirely on two key components that way, then that

11 wouldn't change my opinion at all.

12 If, on the other hand, the nature of the

13 communication was some nefarious chortle and he

14 said, you know, add in these two random components

15 that, in realty, have absolutely nothing to do with

16 environmental contamination, but I want to see

17 bigger results, then I would have to get

18 additional -- I mean, even though I've been taking

19 these figures from the report, if it turns out that

20 everyone agrees they have no relevance to

21 preventing environmental contamination, then it

22 would be an unjust enrichment calculation.

23 Q. Let me show you what we'll marked as

24 Exhibit 1522.

25 (Exhibit 1522, Beltman "Unjust Enrichment"




2 e-mail, marked for identification.)

3 Q. I believe -- have you ever seen this

4 document before?

5 A. No. I've never seen this before.

6 Q. Okay. I believe you testified you've

7 never met Mr. Beltman?

8 A. That's correct. Not that I can recall. I

9 mean, who knows, maybe I had some chance encounter

10 with him in the past.

11 Q. Okay. Do you see that the topic of this

12 e-mail is "Unjust Enrichment"?

13 A. I mean, it's a reply, but right, unjust

14 enrichment, yeah.

15 Q. And in Mr. Beltman's e-mail at the bottom

16 of the page to Mr. Donziger, it references, in the

17 first paragraph, "I'm quite confident that Eric" --

18 A. Wait. I didn't follow you. Where --

19 where are we, on the first page?

20 Q. Yes. Mr. Beltman's e-mail to

21 Mr. Donziger, Stephen?

22 A. It's incorporated into the --

23 Q. Yes. It's the bottom the chain. Do you

24 see that?

25 A. Where -- I'm sorry. Where are you looking




2 at specifically?

3 Q. Mr. Beltman to Mr. Donziger; it's Doug to

4 Stephen.

5 A. Okay.

6 Q. And he states in the first full paragraph,

7 "I am quite confident that Eric's calculations

8 are" --

9 A. You mean in the middle of the paragraph?

10 Q. Okay. I'm sorry.

11 A. That's why I wasn't following you.

12 Q. Sure. Do you see that?

13 A. Yeah. "I'm quite confident that Eric's

14 calculations are robust."

15 Q. And then Mr. Donziger responds -- this is

16 back in 2007 -- "Please read our submission

17 carefully and make sure you don't say or even

18 suggest anything that backs away from the figures.

19 Remember, we said in the submission that the unjust

20 enrichment would be on the order of billions of

21 dollars (for everything, not to just dumping). We

22 should run the numbers for burning of gas and

23 drilling muds and see what that comes out to." Do

24 you see that?

25 A. Yes.




2 Q. Does that in any way concern you, that

3 Mr. Donziger is instructing Mr. Beltman to also run

4 numbers for the burning of gas and drilling muds?

5 A. Well, this is a three-page e-mail

6 exchange, plus it spills onto the fourth pages --

7 to the fourth page with signatures of various

8 people. I mean, you've quoted three sentences from

9 Mr. Donziger and a single sentence from

10 Mr. Beltman.

11 I have no idea what the context is here.

12 I mean, he says -- his final sentence is "See what

13 that comes out to." I don't know the basis for

14 inclusion or exclusion of these things, and there's

15 nothing to be concerned about reading this so far.

16 I don't know what the entire exchange is and what

17 the background is.

18 Q. Okay. Let me show you the third page. At

19 the bottom, the last paragraph above the "By" line,

20 Doug, it says, "Our economist then took their

21 estimated avoided costs for each year from 1967 to

22 1991 and ran it through an unjust enrichment model.

23 The answer is approximately 530 million. This

24 represents the amount of additional money equity

25 that Chevron has now because they did not build and




2 maintain proper pits and reinject water from 1967

3 to 1991." Do you see that?

4 A. Uh-huh, yeah. I'm sorry. Yes, I see

5 that.

6 Q. Okay. And you don't understand

7 Mr. Donziger telling Mr. Beltman the number is too

8 low, pump it up?

9 A. Well, that's not what Mr. Donziger said.

10 First of all, I haven't read the entire exchange.

11 I don't know what analysis Stratus did. I haven't

12 seen it. I haven't had the chance to read this

13 entire e-mail exchange. I haven't seen the initial

14 analysis. And if Stratus is leaving out some

15 important component, then Mr. Donziger would be

16 right to say they're leaving something out.

17 I don't even know what -- there's no

18 attachment here from Mr. Beltman showing what his

19 analysis or what his economist's analysis is.

20 I've certainly seen analyses performed by

21 other firms and government agencies that are too

22 low just because they're leaving something out. I

23 have to review the entire chain here as well as

24 what the analysis was.

25 Q. Have you ever been asked by counsel, after




2 you have prepared an analysis, to increase your

3 estimates of economic benefits?

4 A. You mean that the numbers's just too low

5 and it should be higher?

6 Q. Yes.

7 A. No. I've had -- I've had methodological

8 disagreements before that could result in a number

9 going either way. Usually that's been, though, in

10 the form of my agreeing conceptually with an

11 argument that the other side is making. But no, no

12 one's ever said your number is too low.

13 Q. If counsel told you that your number was

14 too low, you needed to increase it, would you

15 resign from the engagement?

16 A. Well, I'd try to understand, first, what

17 the source of the disagreement was. And I've had

18 some cases where I was essentially agreeing with

19 the analysis the other side was proposing, which

20 resulted in a low or even negative economic benefit

21 figure. And rather -- when the client expressed

22 disagreement with my position, rather than just

23 saying oh, I quit, I -- I've put a lot of effort

24 into trying to convince the client as to why the

25 other side was correct.




2 And I've had some very satisfying

3 successes there explaining why, in fact, the

4 economic benefit was much lower than what the

5 client had hoped it was going to be. Of course,

6 there are probably a lot of clients who don't call

7 me back because of that or I should say potential

8 or past clients.

9 Q. Let me show you another e-mail which we'll


11 (Exhibit 1523, Donziger e-mail, "Excellent

12 points", marked for identification.)


14 A. No, I've not.

15 Q. Does Mr. Donziger's e-mail at the top of

16 the page, "Excellent points. That number is puny,

17 and my instincts say we can do more with it," cause

18 you any problems?

19 A. I have no idea what it's in reference to.

20 Q. You don't believe it to be in reference to

21 the $530 million that --

22 A. I haven't read this e-mail. It could be

23 referring to his 401(k) balance. I have no idea.

24 Q. If this was a direction from Mr. Donziger

25 to Stratus Consulting to essentially increase the




2 damage number, would that cause you a problem?

3 A. Well, it depends on his basis for doing

4 so. If his basis is that they've left out

5 components, that his understanding of the case

6 means they should be included, and they're missing

7 out on many aspects of the economic benefit, then

8 it makes sense.

9 Q. Would you expect --

10 A. I just don't know. If you want me to sit

11 here and read -- I mean, this is part of a -- this

12 is the day after the other e-mail exchange, so I'm

13 not sure if there's some repetition.

14 This is a four-page e-mail exchange plus

15 some signatures that follow, and the other one was

16 what, three pages. And you just had me read these

17 short excerpts. I don't know what the context was,

18 and even if I read all these, I haven't seen their

19 analysis.

20 Q. Have you ever had an attorney instruct you

21 how to go about doing your reports?

22 A. You mean the formatting of the reports?

23 What do you mean by going about doing my reports?

24 Q. No. Have you ever had a lawyer, for

25 example, tell you what to use in your weighted




2 average cost of capital calculations?

3 A. I consider myself fortunate if my client

4 understands or will even be willing to listen to my

5 explanation of my weighted average cost of capital

6 calculations. I can't recall any client who's ever

7 dared to delve into that. I think sometimes I will

8 include -- I think sometimes they've tried to get

9 me to explain it more thoroughly even in the table

10 or the text of my report. That would be the extent

11 of it.

12 I should say now that we've had a

13 momentary pause, I see the response from Ms. Maest

14 here which makes perfect sense. She says -- she

15 writes, "I think the 3TM" -- I think that's a

16 consulting firm whose name came up at the very

17 beginning of this deposition I'd never heard of

18 before.

19 But anyways, "I think the 3TM piece could

20 be expanded if they had more time/money to include

21 more practices and different methods for disposing

22 and managing waste. Looking at the two documents

23 that get cited a lot from that era, attached (1991

24 Oil Industry Operating Guidelines For Tropical Rain

25 Forest; 1993 Exploration Production Waste




2 Management Guidelines), it may be possible for 3TM

3 to go back further than the creation of the waste

4 pits and the dumping of produced water. This would

5 allow them to include the cost of other Texaco

6 practices that should have been done more

7 thoughtfully (even the creation of roads). This

8 may seem farfetched, but roads are listed in the

9 1991 document as 'the single greatest cause of

10 environmental impact...' And helirigs are

11 recommended for at least initial access to remote

12 areas." And it goes on from there.

13 So I -- my impression of this is that

14 Stratus is saying -- I still haven't read the whole

15 thing. They're saying, okay, we've done the

16 benefit calculation so far, looking at certain

17 components, but it's incomplete. There should be

18 additional components to add. And Mr. Donziger is

19 giving them the go-ahead or some sort of

20 encouragement or approval to that.

21 So it seems like a -- I mean, once again,

22 I haven't read this entire e-mail exchange or the

23 prior e-mail exchange. I haven't seen the Stratus

24 analysis. I haven't seen the 3TM analysis. But

25 seems like a reasonable back and forth.




2 And I've certainly had experiences before

3 where I might include one component of the economic

4 benefit and then realize there's something more.

5 There's -- there have also been cases I've

6 had where, conceptually, there were many components

7 to economic benefit, but, unfortunately, I had

8 information for only a subset of that and I had to

9 walk away with this -- I don't want to use the

10 phrase "walk away," but I was in a situation where

11 I calculated, with some precision or at least

12 reasonable approximation, a few components of the

13 economic benefit. But at the same time, I knew the

14 company's economic benefit was significantly

15 greater than that because, conceptually, there are

16 areas where I knew the company had gained

17 financially and I just didn't have the information

18 to calculate it. So I was -- I was calculating

19 only a subset of the economic benefit.

20 Here they're going in the opposite

21 direction. They're starting with a subset and then

22 they're expanding it for areas where conceptually

23 they think there are some cost savings that they

24 have not yet analyzed.

25 Q. And then Ms. Maest ends her missive: "I'm




2 not sure how disposal or recycling/reuse of

3 drilling muds, et cetera, I'm not sure how many of

4 these are reasonable to include in unjust

5 enrichment, but there might be some to consider to

6 supportably expand their costs," correct?

7 A. Right. Except for the questionable use of

8 the word "supportably," which I'm not quite sure is

9 a word, yeah, it all makes sense.

10 Q. Do you know why plaintiffs chose to retain

11 you to do the work that you did?

12 A. Well, I know they needed someone with the

13 expertise in this area and that I had that

14 expertise. Why specifically did -- they decided

15 upon me, how they found me, I don't know.

16 Q. Well, let me draw your attention to an

17 e-mail string dated in August of this year.

18 (Exhibit 1524, e-mail chain, marked for

19 identification.)

20 Q. And let me show you Exhibit 1524. Have

21 you ever seen this document before?

22 A. No. I've not seen this document.

23 Q. Let me draw your attention to the second

24 e-mail in the string from Mr. Small to

25 Mr. Donziger, copies to others, and draw your




2 attention to the second full paragraph.

3 And in the last sentence, Mr. Small says,

4 "We probably wouldn't want to draw that much

5 attention to Cabrera, but we should think about

6 whether our expert might address Cabrera's findings

7 in such a subtle way that someone reading the new

8 expert report, the court in Lago or an enforcement

9 court elsewhere, might feel comfortable concluding

10 that certain parts of Cabrera are a valid basis for

11 damages." Do you see that?

12 A. Yes.

13 Q. Did you understand that you were being

14 retained in a subtle way so that someone reading

15 your report might feel comfortable concluding that

16 certain parts of the Cabrera report are a valid

17 basis for damages?


19 A. I mean, someone's either retained or not

20 retained. I was retained. I mean, you start off

21 by saying whether I understood that I was retained

22 in a subtle way. I don't see how there's anything

23 subtle about the way in which I was retained. It

24 was very standard. Someone called me up and

25 retained me, and I have that, I think, in the very




2 first sentence of my report: "I have been asked by

3 counsel for plaintiffs in this matter to provide an

4 analysis of the potential unjust enrichment accrued

5 to defendants."

6 Q. Okay. Does it bother you that you were

7 being retained to essentially whitewash the

8 findings of an expert report that were tainted by

9 fraud?

10 MR. NARWOLD: Objection, argumentative.

11 A. I don't see any evidence anywhere that I

12 was being retained to whitewash anything. It's

13 very straightforward what I did. And my report is

14 very explicit that I -- in fact, it's -- it's the

15 first sentence of my second paragraph, the third

16 sentence of the report. It says, "Starting with

17 the Cabrera reports engineering figures and cost

18 estimates, I have performed my own financial

19 analysis to arrive at an unjust enrichment estimate

20 range of between approximately 4.57 and

21 $9.46 billion, reflecting present values as of

22 2010."

23 I'm very clear there about my reliance on

24 the Cabrera report. I say "starting with." I make

25 it very clear what I'm doing is a financial




2 analysis, not some sort of petroleum engineering

3 exercise. And in the very first sentence of my

4 report, I say I've been asked by counsel for

5 plaintiffs. And also in the second sentence, I say

6 I've reviewed the Cabrera report. It's -- my

7 reliance upon the Cabrera report is very

8 straightforward there.

9 Q. But you say, in the first sentence, that

10 you're providing an analysis of the potential

11 unjust enrichment that accrued to defendant. Do

12 you see that?

13 A. Yes.

14 Q. And you understood that the defendant was

15 Chevron Corporation?

16 A. Yes.

17 Q. And you made no allocation in your report

18 based upon the ownership of the enterprise,

19 correct?

20 A. That's correct, there's no allocation

21 exercise in my report.

22 Q. And should there be an allocation

23 exercise?

24 A. If you notice in my report -- I've been

25 flipping through during some down time here -- that




2 in the -- for example, the second paragraph I just

3 read, it refers to unjust enrichment. And same

4 thing for the following paragraph and, also, for

5 the first three paragraphs of Section 4C, where it

6 says results, Exhibit 7. And then, in fact, in

7 all -- in Exhibits 1, 2, 3 4, 5, and 7, there's no

8 reference to Chevron.

9 So it probably would have helped to

10 clarify it to have a sentence that I'm doing this

11 calculation for an unjust enrichment based upon the

12 costs that should have been incurred, yet were not,

13 and I'm essentially calculating the total unjust

14 enrichment and I'm not performing any exercise at

15 this time that attempts to parse out or allocate

16 exactly to which companies, whether over time or

17 manifested today, the economic benefit -- the

18 unjust enrichment accrued to.

19 Q. Based upon what you have seen today and

20 your testimony today, is there any further work

21 that you would like to do to support the opinions

22 expressed in your report?

23 A. Well, I always like analyzing things and

24 doing more calculations, so when I see that there

25 are alternative cost estimates, when I see that




2 there is some dispute about allocation or the need

3 to perform an allocation, I mean, I just get all

4 excited and want to do more calculations.

5 Whether the client wants all these

6 additional calculations to be performed and -- I

7 don't know, but I love doing economic benefit

8 calculations and writing them up and explaining

9 them. I don't know if you like listening to my

10 explanations, but I like doing it. And if someone

11 wants me to do it, then that's great. I get

12 excited about that stuff.

13 Q. Are there any changes that you would like

14 to make to your report?

15 A. I don't -- well, I just mentioned a

16 sentence there that I think should be added for

17 clarification regarding the lack of allocation that

18 I did since -- well, if I write an expert report

19 and there's only one missing sentence for

20 clarification, I'll call that a great victory. But

21 that's definitely something I think should be

22 added. It -- well, if there is an allocation

23 exercise that's on, that's another issue; but if

24 there isn't, there should be a sentence to that

25 effect.




2 MR. NARWOLD: Slow down again.

3 THE WITNESS: I get so excited when I

4 start thinking about all the changes I could

5 make.

6 MR. NARWOLD: Slow down when you tell us

7 you're excited.

8 A. Certainly we've -- we've had a lot of

9 discussion about alternative cost estimates and

10 volumes, and I've seen reports from experts from

11 Chevron. I would love to go review those and

12 perform alternative sets of calculations and see

13 how their numbers work when their use of my cost of

14 capital. Or I don't know if they have alternative

15 interest rates that could be applied to other

16 aspects of my calculation.

17 Certainly one could get kind of carried

18 away with this. We were talking earlier about the

19 New Portland Meadows case, where my final

20 declaration in the case had no fewer than 24

21 different economic benefit estimates. And

22 certainly, when multiple ranges are calculated, it

23 can get kind of cumbersome and confusing.

24 But you know, there are possibilities for

25 doing more analysis here. I have no idea whether




2 the court is interested in additional reports and

3 whether the client wants to go through another

4 round. But that's where things stand as I look at

5 this big pile of papers in front of me here.

6 Q. Very good.

7 MR. BUSCH: Mr. Shefftz, I have no other

8 questions. I have some time left to do a

9 redirect.

10 I tender the witness to counsel.

11 MR. NARWOLD: I have no questions. You're

12 done.

13 MR. BUSCH: Let's go off the record.

14 THE VIDEOGRAPHER: Time is 6:00. We're

15 off the record.

16 (Off-the-record discussion.)

17 THE VIDEOGRAPHER: Back on the record.

18 It's 6:01. This is the end of tape number six

19 and the deposition of Jonathan Shefftz. We

20 are off the record at 6:02.

21 (Whereupon, this deposition was concluded

22 at 6:02 p.m.)

23

24

25



Page 2741 DEPOSITION ERRATA SHEET

2 Assignment No. 1201-85012

3 Caption: Chevron Corporation v. Jonathan Shefftz

4 DECLARATION UNDER PENALTY OF PERJURY

5 I declare under penalty of perjury that

6 I have read the entire transcript of my deposition

7 taken in the captioned matter or the same has been

8 read to me, and the same is true and accurate, save

9 and except for changes and/or corrections, if any,

10 as indicated by me on the DEPOSITION ERRATA SHEET

11 hereof, with the understanding that I offer these

12 changes as if still under oath.

13 Signed on the ___ day of _____________,

14 2010.

15 ______________________ JONATHAN SHEFFTZ

16

17 DEPOSITION ERRATA SHEET

18 Page No.____ Line No.____ Change to:_______________

19 Reason for change:_________________________________









Page 2751 CERTIFICATE

2 Commonwealth of Massachusetts

3 Suffolk, ss.

4

5 I, Dana Welch, Registered Professional

6 Reporter, Certified Realtime Reporter and Notary

7 Public in and for the Commonwealth of

8 Massachusetts, do hereby certify that JONATHAN

9 SHEFFTZ, the witness whose deposition is

10 hereinbefore set forth, was duly sworn by me and

11 that such deposition is a true record of the

12 testimony given by the witness.

13 I further certify that I am neither related

14 to nor employed by any of the parties in or counsel

15 to this action, nor am I financially interested in

16 the outcome of this action.

17 In witness whereof, I have hereunto set my

18 hand and seal this 17th day of December, 2010.

19

20 ____________________________ Dana Welch

21 Notary Public My commission expires:

22 October 6, 2017

23

24

25

12/16/10 Deposition Transcript- Shefftz

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Transcript of 12/16/10 Deposition Transcript- Shefftz