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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Emmeline | Nov. 26, 2011
Accidents can happen, no matter how committed to the safety and environmental precautions the company is. And we know that Chevron and Petrobras always have safety first. ANP and IBAMA have never been easy on Petrobras. The main issue here is the capability to respond to an emergency.

Robert Wood | Nov. 25, 2011
Brazilian offshore regulation is generally politically motivated and built by people with no industry experience. As a result, the regulations and taxes are so ambiguous that an IOC exploration operator cannot predict his costs with any certainty. This fact coupled with the fact that politicians want all equipment built in their country at twice the cost as other locations will push the cost of exploration to the point of no return on capital investment and will lead to many experienced operators leaving the country. This publicity is a good example of politicians at work using changing regulations to abuse Chevron.

R. Hewgill | Nov. 23, 2011
These oil companies need to start making countries they operates in start depositing mult-billion dollar cash bonds into oil company accounts before they start work. So if these countries try to shake them down for an accident they can at least recoup any losses. These countries are just hoping something goes wrong so they can shake down the oil companies.

Craig Castille | Nov. 23, 2011
The Brazilian authorities should carefully consider their position in dealing with Chevron and ask themselves if they would take the same actions with Petrobras. It is obvious that Petrobras didn't loose its license to operate when the P34 (?) exploded, sunk and killed several workers. Why not focus on communicating the agency's expectations to focus all operators attention and on disclosing the design and operational errors (if any) and lessons learned to the public? This along with fair and balanced punitive damages levied on items which are clear violations of law seem better than casting out a primer leader in world wide E&P.

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