Brazil suspends Chevron’s drilling activities

The oil spill at an offshore Chevron rig about 370km from of Brazil’s coastline could lead to $145m in fines [AFP]

The Brazilian government has suspended Chevron’s drilling rights in the country until it clarifies the causes of an offshore oil spill, those responsible for the disaster are identified and safety conditions are restored in the area.

The decision was announced as the chief executive of Chevron’s Brazilian unit was testifying before the Brazilian Congress on Wednesday, where he publicly apologised for the spill that leaked about 2,400 barrels of oil into the ocean off the coast of Rio de Janeiro.

On November 8, a helicopter from Brazil’s state-owned oil company Petrobras spotted a crude oil slick on the ocean and the leakage was traced by an underwater robot to a well operated by Chevron 1,200 metres deep near the Frade field, 370km northeast of the Rio de Janeiro coast.

Brazil’s National Petroleum Agency said it decided to halt Chevron’s drilling rights after determining that there was evidence that the company had been “negligent” in its study of data needed to drill and in contingency planning for abandoning the well in the event of accident.

The agency, known as ANP, also rejected a request from Chevron to drill deeper wells into subsalt areas in the Frade field where the spill took place.

ANP said Chevron Brazil’s activities were to be suspended until “the cause and those responsible for the spill have been identified and safety conditions have been restored in the area”.

The Frade field, which is located in the oil-rich Campos Basin, is the only place in Brazil where Chevron is producing oil and is the operator.

The Campos Basin is currently the source of more than 80 per cent of Brazil’s oil output.

Chevron’s ownership in Brazil

Chevron owns 52 per cent of Frade, whereas Petrobras owns 30 per cent and Frade Japao, a Japanese consortium, owns 18 per cent.

The US company has already been fined $28m by Brazil’s environmental agency for the spill, an amount that is likely to rise as high as $145m when the ANP and Rio’s state government slap fines on the company, as they have pledged to do.

Chevron’s CEO in Brazil, George Buck, told Brazilian legislators on Wednesday that the company “acted as rapidly and safely as possible” and “used all resources” to contain and stop the flow of oil from the well.

“We controlled the source in four days. We worked with transparency and cooperation with the authorities of Brazil,” Buck said.

“Please understand that during those first days it was very confusing, very difficult to manage the flow of information.”

The ANP said the suspension will remain in place until Chevron fully restores safety conditions in the field.

The Frade leak, while small, is likely to provide fuel for a growing worldwide opposition to offshore drilling in the wake of the estimated 4-million-barrel British Petroleum Deepwater Horizon spill in the US Gulf in 2010.

Chevron is also a 30 per cent partner in the nearby $5.2bn Papa-Terra project. Petrobras is the operator in Papa Terra.

Chevron, Petrobras and Frade Japao produce about 79,000 barrels a day of oil in Frade.

Petrobras and Chevron expect to produce about 140,000 barrels of oil and equivalent gas from Papa-Terra in 2013.