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NEW YORK (Reuters) - ChevronTexaco CVX.N next week will begin its defense in a multibillion dollar legal battle in Ecuador against accusations it has polluted portions of the country's Amazon region, the company said.

The suit, which was brought by thousands of residents near the company's former oil fields, alleges Texaco Petroleum Co, a subsidiary of Texaco Inc. which merged with Chevron in 2001, dumped roughly 18.5 billion gallons of oil-laden water into unlined pits, estuaries and rivers during its operations in Ecuador's Oriente between 1971 and 1992.

Attorneys said the trial could last two years.

People living near the fields, now operated by state firm Petroecuador, claim the oil pollution destroyed sources of drinking water, caused health problems, and led to deaths of farm animals, lawyers for the plaintiffs said.

ChevronTexaco denies the allegations, saying the "produced water" in question, a by-product of oil drilling, was treated before being discharged. They also say that the firm has already completed a remediation project to eliminate any permanent effect from its operations.

After 10 years of jurisdictional disputes, the case will be heard in court starting May 6 in Lago Agrio in Ecuador. The 2nd U.S. Circuit Court of Appeals, based in New York, ruled in 2002 that a ruling on the case in Ecuador would be enforceable in the United States.

Attorneys say damages could exceed $5 billion.

POISONED LAND

No one denies that the region is polluted: a stack of photographic evidence shows dozens of oil-filled pits, some on fire, slicked rivers and marshes, and residents' shoeless feet covered in crude oil.

Texaco entered Ecuador in 1964 along with Gulf Oil to help Petroecuador develop oil concessions. In 1977, Gulf left the consortium, leaving Petroecuador with a 62.5 percent interest and Texaco Petroleum the remaining 37.5 percent.

Upon leaving Ecuador, Texaco entered into a remediation agreement with the Ecuadorean government, putting $40 million into covering waste-water pits, replanting cleared land, and funding local infrastructure and institutions. Petroecuador continued to operate the fields in the area as full owner.

"It is important to remember that oil operations are ongoing in the region, so how can anyone say that TexPet is the one responsible for any current impact," said ChevronTexaco spokeswoman Maripat Sexton. "TexPet was committed to ensuring that there was no lasting impact to its operations."

Attorneys for the plaintiffs say several of the photos in evidence were taken in 1992, the year Texaco left Ecuador but also three years before the remediation project was completed. Many were taken in 1999, after years of solo operations by Petroecuador.

The attorneys, who say they represent 30,000 residents, add that they have a long list of testimonials from witnesses suggesting systematic toxic dumping, including one from former Ecuadorean Minister of Natural Resources Vargas Pazzos.

"The point is that Texaco made a decision to dump these toxins into the Amazon in order to save money and increase its profits," said attorney Steven Donziger.

The attorneys for the plaintiffs estimated Texaco Petroleum increased its profits $4.5 billion between 1964 and 1992 by dumping the produced water instead of re-injecting it.

ONLY WATER?

The principal contention in the case concerns the quality of the waste water before it was discharged. Produced water, a common by-product of drilling, is often re-injected back into the reservoir if its not properly treated.

Attorneys for the plaintiffs claim the water dumped by Texaco contained up to 5,000 parts oil per million, causing ponds and rivers to develop a layer of crude oil. The oil, they say, was later burned or sprayed on roads.

"The people there have said it sometimes rained black," said Donziger.

ChevronTexaco officials claim the waste water was put through a three-stage separation process in line with normal industry practice. But the officials could not give an estimate of the amount of oil left in the water before it was discharged.

The firm claims the final stage of separation took place in clay-bottomed pits, and oil was frequently siphoned out and placed into pipelines or used on roads to keep dust down.

"TexPet conducted road oiling at the express direction of Ecuador's government that it maintain and improve the roadways of Oriente," Sexton said.

The water remaining in the pits was released into "nearby rivers and streams," the company said. ChevronTexaco denied that Texaco Petroleum set any oil pits on fire.