Brazil's Petrobras Seeks Suspension of Transocean Ban

RIO DE JANEIRO - Brazilian state-run energy company Petroleo Brasileiro, or Petrobras, said Friday it has joined the legal efforts to allow Transocean Ltd. to continue operating drilling rigs off the coast of the Latin American country.

Petrobras wants to overturn a ruling handed down by a court in Rio de Janeiro that banned Transocean and U.S. oil major Chevron Corp. from operating in Brazil because it will hurt Petrobras's operations, the Brazilian firm said in a statement.

The court ban, which was decided in July but took effect earlier this week, forces Petrobras and Transocean to take immediate action to shut down operations. That would affect the seven oil rigs that Transocean operates on behalf of Petrobras. An eighth Transocean rig is in dock, Petrobras said.

The decision to join the legal case lends significant heft to Transocean's and Chevron's own attempts to overturn the ban, which is related to a minor oil spill at an offshore field in November 2011. The court gave the two companies 30 days to shut down all operations in Brazil.

Petrobras, whose largest shareholder is the Brazilian government, has been vocal in its support of Chevron and Transocean. As well as using Transocean rigs, Petrobras is a partner in Chevron's Frade field. In mid-August, the company's exploration and production director, Jose Formigli, said there was "no reason for this ban."

The court decision also could throw a wrench into Brazil's plans to develop recently discovered ultra-deepwater oil fields known as the subsalt, which are expected to more than double Petrobras's current crude oil output to 4.2 million barrels a day by 2020.

"If the injunction is not overturned, it will cast a negative shadow over the industry," said Bob Fryklund, vice president of global exploration analysis at IHS, in an email. The cost to plug and abandon wells currently being drilled, as well as lost exploration and development time would be "enormous," Mr. Fryklund said.

Petrobras said it is looking at ways to soften the blow should the ban remain in place, including looking at bringing in new rigs from abroad and reorganizing its current offshore operations.

"It's conceivable many of [the Transocean] rigs might have to leave Brazil, and some may never come back," Mr. Fryklund said.

Petrobras has cited the lack of rigs as one of the key factors that has prevented it from increasing oil production as fast as it had planned. The company has placed an order for 28 new rigs to be built in Brazil to comply with strict local content rules, but they won't be ready until the second half of the decade.

The ban is the latest move in a series of court cases related to a drilling accident at the Chevron-operated Frade offshore oil field last November, when an estimated 3,700 barrels of crude oil seeped from cracks in the seabed. Chevron faces fines from local environmental and oil-industry regulators, while both companies face civil and criminal lawsuits brought by a federal prosecutor.

Brazil's oil regulator, the National Petroleum Agency, or ANP, also had its own attempt at overturning the ban rejected. The ANP is appealing the decision.

Copyright (c) 2012 Dow Jones & Company, Inc.


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