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DECEMBER 14, 2011, 8:22 P.M. ET
By MATTHEW COWLEY And JOHN LYONS
SAO PAULO-A Brazilian federal prosecutor on Wednesday asked a judge to shut down all Chevron Corp. and Transocean Ltd. operations in Brazil in a lawsuit that seeks some 20 billion Brazilian reais ($11 billion) in damages from the companies, the latest legal broadside to the firms since oil leaked from a well they operate in early November.
In a statement announcing the lawsuit, the prosecutor’s office in Campos, a city in Rio de Janeiro state, said Chevron and Transocean “showed a lack of planning and environmental management,” by allowing the leak, which authorities say allowed at least 2,400 barrels to flow into the ocean.
In a statement, Chevron said it hasn’t received any formal notice of the lawsuit. It said it responded “responsibly” to the spill, and that the flow of oil was stopped within four days. Chevron said there’s now less than a single barrel of oil on ocean surface, and that there hasn’t been any coastal or wildlife impact.
Experts on Brazil’s oil industry say the companies are unlikely to be shut down or pay the enormous damages sought in the lawsuit. Brazilian prosecutors have seldom succeeded when seeking to shut down companies in past environmental lawsuits. All the same, the lawsuit adds a new level of complications for Chevron, and underscores the highly charged political environment gathering around the Brazilian deep-water oil.
“Unhappily, oil has become political; every prosecutor wants to get on television, and so we get absurd lawsuits like this,” said Adriano Pires, director the Brazilian Infrastructure Center, a Rio de Janeiro firm that consults on oil and other energy projects. “Nothing is going to happen to Chevron. But what will happen is that it will scare investors; Brazil loses credibility, and the cost of investment goes up.”
The Nov. 7 drilling accident caused an oil spill at an appraisal well at the Frade oil field, located in deep Atlantic waters off the coast of Rio de Janeiro state. Brazilian authorities levied fines and ordered the firm to stop all drilling-but have allowed Chevron to continue pumping some 79,000 barrels per day from its other existing wells.
In a Dec. 1 interview with The Wall Street Journal, Ali Moshiri, who runs Chevron’s Latin American and African operations, said the “overreaction is puzzling us.”
The leak came at a crucial moment for Brazil’s oil industry, which is preparing to start developing huge oil fields discovered deep below the Atlantic seabed. They contain some of the largest reservoirs of oil and gas discovered anywhere in the world in the last two decades.
Brazil represents about 3% of Chevron’s world-wide assets, compared to 17% for Australia and 21% for the U.S. Gulf of Mexico, according to a Deutsche Bank research note.
But the South American country’s offshore riches make Chevron’s Brazilian assets a strategically important toehold, and the firm has previously challenged the Brazilian response to the spill.
Write to Matthew Cowley at matthew.cowley@dowjones.com and John Lyons at john.lyons@wsj.com
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Associated Press
Posted at: 12/14/2011 8:08 PM
By BRADLEY BROOKS
Prosecutors seeking $10B from Chevron for leak
(AP) SAO PAULO – Brazilian federal prosecutors said Wednesday they are seeking $10.6 billion in damages from U.S.-based Chevron Corp. because of environmental harm caused by an offshore oil leak.
The prosecutors are also asking a judge to order Chevron and Transocean Ltd., the drilling contractor for the well where the leak occurred in November, to halt all activities in Brazilian territory for an indefinite period.
“During an investigation, the attorney general’s office found that Chevron and Transocean were not capable of controlling the damage caused by the spill of nearly 3,000 barrels of oil, proof of a lack of environmental planning and management by the companies,” the statement read.
Chevron, in an emailed statement, said that it had received no notice of the action by the federal prosecutors and that Brazilian oil regulators had not contacted it about the issue.
“From the outset, Chevron responded responsibly to the incident at its Frade Field and has dealt transparently with all Brazilian authorities,” the company said.
Most of Brazil’s oil drilling is conducted offshore, and that is where Chevron’s work is concentrated. The company does own lubricants manufacturing plants in Rio de Janeiro and Sao Paulo. It wasn’t clear if these operations would be affected by any decision a judge might make on the federal prosecutor’s requests.
Transocean said in a statement that it also had not received any official notice of the prosecutors’ action. “At present, our rigs are operating in Brazilian waters and we continue to cooperate with the authorities,” it added.
In late November, Brazil’s National Petroleum Agency banned Chevron from any drilling activities in Brazil until an investigation into the leak was finished.
Brazil’s Environment Ministry fined Chevron about $28 million, but has said the company could face further penalties. Chevron has not indicated if it will contest the fine in court, which it can do under Brazilian law.
The company was strongly criticized by officials at the ministry and also the petroleum regulatory agency for not fully sharing information about the spill in its early days and for not having the proper emergency equipment on hand to deal with the spill.
Oil started leaking at the site of a Chevron appraisal well Nov. 7, about 230 miles (370 kilometers) off the northeastern coast of Rio de Janeiro state.
George Buck, chief operating officer for Chevron’s Brazilian division, has said the spill occurred because Chevron underestimated the pressure in an underwater reservoir.
He said in late November that this caused crude oil to rush up a bore hole and eventually escape into the surrounding seabed. The oil leaked out through at least seven narrow fissures on the ocean floor, all within 160 feet (50 meters) of the wellhead.
Both Chevron and Brazilian officials said in late November that the leak was under control, although some residual oil continues to seep from the site of the leak.
The work at the Frade field where the leak occurred is one of Chevron’s biggest capital investments, according to the company’s website, though details are not provided.
Special thanks to Richard Charter