Brazil suspends Chevron’s drilling rights

An aerial view shows oil that seeped from a well operated by Chevron at Frade, on the waters in Campos Basin in Rio de Janeiro state November 18, 2011. Credit: Reuters/Rogerio Santana/Handout

An aerial view shows oil that seeped from a well operated by Chevron at Frade, on the waters in Campos Basin in Rio de Janeiro state November 18, 2011. Credit: Reuters/Rogerio Santana/Handout

Article originally published on Reuters.com

By Peter Murphy

(Reuters) – Brazil’s government suspended Chevron Corp’s drilling rights until Chevron clarifies the causes of an offshore oil spill, the latest twist in a political firestorm threatening the U.S. company’s role in Brazil’s oil bonanza.

The decision on Wednesday came as the head of Chevron’s Brazilian unit testified before Brazil’s Congress, where he apologized for the November 8 spill that leaked about 2,400 barrels of oil into the ocean off the coast of Rio de Janeiro.

Brazil’s National Petroleum Agency said it decided to halt Chevron’s drilling rights after determining 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 made before the leak to drill wells in the deeper subsalt areas in the Frade field where the spill occurred. The field is located in the oil-rich Campos Basin and is the only block in Brazil where Chevron produces oil as the operator.

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

While Chevron said late on Wednesday it had not received formal notice of the drilling halt, the company announced an indefinite voluntary suspension of all current and future drilling off Brazil, apart from plug and abandonment work.

“Chevron acknowledges, however, that ANP has posted a notice of suspension to its website,” the company added.

The only rig working for Chevron off Brazil is Transocean Ltd’s Sedco 706, which drilled the well that leaked.

The spill is an ominous reminder of the risks involved in offshore drilling, cooling the euphoria over vast subsalt oil reserves that Brazil found in 2007 up to 7 km (4.4 miles) below the seabed. The country is banking on those reserves of up to 100 billion barrels to speed its development.

Chevron has previously drilled for subsalt depth targets in the field, which is also owned by Brazil’s state-controlled energy giant Petrobras and Frade Japao, a Japanese consortium. Chevron owns 52 percent of Frade, whereas Petrobras owns 30 percent and Frade Japao 18 percent.

Chevron, the second-largest U.S. oil company, has been fined $28 million by Brazil’s environmental agency for the spill, an amount that is sure to rise when ANP and Rio’s state government slap fines on the company, as they have pledged to do.

Chevron had already halted all of its local drilling operations after the leak occurred, before ANP’s announced suspension. ANP said the suspension will remain in place until Chevron fully restores safety conditions in the field.

Chevron’s CEO in Brazil, George Buck, told Brazilian lawmakers 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….

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