Brazil Considers Bigger Fines Chevron and Transocean

By Sam Cowie, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Brazilian prosecutors have approached a federal court demanding that U.S. oil giant Chevron and rig contractor Transocean permanently halt oil drilling in Brazil and both pay R$20 billion in damages. The prosecutors’ proposed actions follow last month’s oil leak which saw around 3,000 barrels of oil leak into the Frade Field in the Campos Basin oil spill off the coast of Rio De Janeiro state.

So far, both Chevron and Transocean claim they haven’t been formally notified of any legal action and therefore couldn’t comment on the matter.

State prosecutor Eduardo de Oliveira Santos said that the two companies had demonstrated a lack of environmental planning and management, had not prepared an adequate contingency plan and omitted information to the National Petroleum Agency (ANP).

According to ANP, Chevron committed ten infractions although details have not been released. A final incident report is awaiting completion.

Chevron claim they have acted ‘transparently’ and dealt with the incident responsibly. Chevron’s press office said “There have been no coastal or wildlife impacts. Data verifies the currents continue to push the diminishing sheen away from the coast.”

“Our company continues to make significant progress in containing any residual oil and Chevron has also continued to address the surface sheen, which was estimated yesterday to be less than a single barrel. We value our relationship with Brazil and look forward to being a partner with the country in developing its potential as an energy superpower.” the statement explained.

With less than 3,000 barrels leaked into the ocean, if the law suit were to go ahead, Bloomberg estimates the cost would come to US$3.5 million a barrel. In comparison, BP has put aside US$40 billion in potential costs and payouts for the Gulf of Mexico spill, or US$8,163 a barrel.

Such harsh punitive measures are widely seen as being detrimental to the interests of Brazil and are not expected to be enforced. However Ali Moshiri, president of Chevron’s Latin American exploration and production unit, told reporters “We are committed to Brazil,” “We continue to work with the federal government of Brazil, with all the agencies.”

Robert Kessler, head of Pickering, Holt & Co.’s global integrated oil research department has said that the US$10.6 billion fine federal prosecutors are seeking is more than 700 percent of Chevron’s US$1.5 billion net capital investment in Brazil and that such a fine “would be a poor risk-reward ratio for all companies looking to invest in the business.”

Any permanent ban would also be a conflict of interest for Brazil in that Transocean operates 17 percent of Brazil’s rigs. A ban would see Brazil’s oil production wane significantly.

It is widely speculated across the industry that an agreement regarding the situation will be made. Industry expert Jim Kappeler, who lives and works in Rio, notes: “If the fine and the ban goes through then they would have to delay production of the pre-salt for several years while Petrobras invests billions to build deepwater drilling rigs.”

It is estimated that fifty to 200 billion barrels of oil sit deep under the ocean’s floor off Rio De Janeiro state’s coast. Brazil hopes to become the third largest oil producer by 2020 as a result of its development of the “pre-salt” region.