Chevron Could Face 'Heavy' Fines for Brazil Oil Spill



RIO DE JANEIRO (Dow Jones Newswires), Nov. 22, 2011

U.S. oil major Chevron faces heavy fines in Brazil after the company accepted responsibility for an oil spill at an offshore field, including the possible loss of a key license that allows Chevron to operate in deep waters that potentially hold billions of barrels of crude, government officials told reporters late Monday.

Brazil's leading environmental regulator, the Brazilian Institute of the Environment and Renewable Natural Resources, or Ibama, imposed late Monday a 50 million Brazilian reais ($28 million) fine for environmental damages after a drilling incident caused between 2,400 barrels and 3,000 barrels of oil to leak into the Atlantic Ocean near Chevron's Frade field, according to company and government estimates.

But the penalties could rise dramatically as Chevron confronts a political backlash over the spill, including charges that the company withheld information from regulators. Rio de Janeiro state officials could levy fines of about BRL100 million, while Brazil's National Petroleum Agency, or ANP, announced two notices of infraction for Chevron that could each carry fines of BRL50 million.

ANP Director Magda Chambriard said during a press conference in Brasilia that Chevron "acted in complete violation of its concession contract and Brazilian law." According to Chambriard, who visited Houston and accompanied the investigation of the Deepwater Horizon disaster in 2010, Chevron edited 24-hour video images of the seabed. The regulator was forced to travel to the platform to get the full 24-hour video of oil seeping up from the seafloor.

In addition, ANP President Haroldo Lima said that a key piece of equipment needed by Chevron to abandon the well that was the source of the spill did not arrive in Brazil until Sunday. The ANP had approved Chevron's plan to abandon the well in an urgent review, but under the impression that all the necessary equipment needed to carry out the plan was in place, Lima said.

Given the circumstances, Lima called into question Chevron's status as an "A" operator under the ANP's drilling criteria. "A" operators are allowed to explore in ultra-deepwater areas such as the country's much-ballyhooed pre-salt region. "B" operators are confined to explore shallow-water areas, while "C" operators can explore only on land.

Further complicating matters is Chevron's request to drill a pre-salt well, which was to be considered by the ANP on Tuesday, Lima said. "Certain prerogatives that the company has as an A operator are going to be better examined," Lima said. "We can't anticipate [what will happen], but the recent facts introduce relevant data and the result may not be what the company expected previously."

Copyright (c) 2011 Dow Jones & Company, Inc.



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