Chevron Appeals Drilling Ban in Brazil

By Andrew Willis, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Chevron, the second largest U.S. oil firm, last week appealed a recent court injunction banning it, and drilling company Transocean, from operating in Brazil while legal cases are ongoing. The move follows a decision by a Brazilian court earlier this month to ban Chevron and Transocean for their roles in an offshore oil spill last November, giving the two companies thirty days to halt operations or face substantial fines.

Brazil’s oil and gas regulator, ANP, has already decided to fine Chevron up to R$50 million (US$24 million) for last year’s estimated 3,000 barrel-spill, roughly a thousand times smaller than BP’s Gulf of Mexico disaster. The regulator cleared Transocean of any blame.

But Brazilian prosecutors are seeking nearly R$20 billion in damages for the spill, also charging seventeen Chevron and Transocean executives with crimes that carry jail terms of up to 31 years. Both companies deny any wrongdoing.

Local Rio de Janeiro prosecutor Eduardo Santos de Oliveira, who successfully secured the injunction, has described the November spill at the Frade field, northeast of Rio de Janeiro, as one of the worst ecological disasters in Brazil’s history.

As well as the appeal, Chevron has indicated that it is keen to restart production at the field as soon as possible, after voluntarily stopping operations there last March following the discovery of further oil seepage into the sea.

In a further twist to the ongoing controversy, Brazilian state-directed oil company Petrobras last week voiced a rare comment on the issue, announcing that it would lend the two foreign firms legal assistance in dealing with the Brazilian justice system.

Jose Formigli, Petrobras’ exploration and production chief, said the prosecutors and court’s “vision of Chevron and Transocean does not concur with our vision.” He added: “We think they should be able to operate.”

Petrobras’ reliance on Transocean rigs is one reason for its recent entry into the debate. Transocean currently has ten offshore oil drill rigs operating in Brazil, earning the top rig operator an estimated US$3.5 million a day. Petrobras leases seven of the ten rigs, with five operating in deepwater areas vital to their oil production expansion plans.

Petrobras chief executive Maria das Graças Foster conceded this month that a lack of drill ships was one of the main reasons for putting back plans to ramp up production by up to 2.5 years. Petrobras also owns thirty percent of the Frade field, with the shutdown in March cutting the company’s oil output and hampering revenue.

The company, which recently suffered its first quarterly loss in thirteen years, is in the midst of a US$237 billion investment plan through to 2016, aimed at tapping the large oil fields discovered off the country’s coast over the past half-decade. Successful exploitation could turn Brazil into one of the world’s leading producers and exporters of crude oil.

In a further sign of the bountiful oil deposits in Brazil’s “pre-salt” layer, Petrobras confirmed last week the presence of significant quantities of light oil in the Carcara well, located in the Santos Basin deep waters off São Paulo state.