Chevron, Transocean Charged in Brazilian Oil Spill

By and | March 22, 2012

A Brazilian federal prosecutor filed criminal charges on Wednesday against Chevron and drill-rig operator Transocean for a November oil spill, raising the stakes in a legal saga that is adding to Chevron’s woes in Latin America and threatens to slow Brazil’s offshore oil boom.

Prosecutor Eduardo Santos de Oliveira also filed criminal charges against 17 key executives and employees at Chevron and Transocean, owner of the world’s largest oil rig fleet.

Among the defendants is George Buck, 46, a U.S. national in charge of Chevron’s operations in Brazil, the prosecutor’s office said in a statement.

“The spilling of oil affected the entire maritime ecosystem, possibly pushing some species to extinction, and caused impacts on economic activity in the region,” Santos de Oliveira, federal prosecutor in Campos de Goytacazes, Brazil, said in his filing. “The employees of Chevron and Transocean caused a contamination time bomb of prolonged effect.”

Chevron and Transocean strongly disputed the charges. Santos de Oliveira’s charges “are not consistent with the facts of the incident and there have been no coastal or wildlife impacts,” said Chevron spokesman Kurt Glaubitz.

“Transocean strongly disagrees with the indictments,” the company said in a statement read by communications chief Guy Cantwell. “They are without merit and we will vigorously defend our company, our people, our reputation and our quality of services.”

The charges also allege that Transocean’s Sedco 706 rig, which drilled the well that leaked, had “grave” equipment failures that were detected by Brazil’s national petroleum agency, the ANP.

In addition to Buck, prosecutors leveled criminal charges against other Chevron and Transocean employees, including five other Americans, five Brazilians, two Frenchmen, two Australians, a Canadian and a Briton. Among them was Guilherme Dantas Rocha Coelho, 38, the Brazilian head of Transocean’s Brazil operations.

All were ordered to turn in their passports on Saturday and remain in the country, pending charges. Each individual will be required to post 1 million reais ($550,000) bail and each company 10 million reais ($5.5 million) to ensure payment of future fines, the statement said.

Prison sentences could be as lengthy as 31 years.

Under Brazilian law, a judge now has to examine the charges and determine whether to proceed with formal indictments. Either way, Chevron and Transocean likely face years of legal action in Brazil, one of the world’s most promising oil frontiers.

Lawyers have had travel bans lifted while similar cases were being litigated and few individuals or companies have ever been convicted of environmental crimes in Brazil and fewer have gone to jail.

The spill was less than 0.1 percent of the size of the 4 million-barrel BP oil disaster in the Gulf of Mexico in 2010. Transocean owned the rig in that spill.

The criminal prosecution follows a 20 billion reais ($11 billion) civil lawsuit filed in November over the spill, the largest ecological fine in Brazilian history. The indictments stem from a 3,000-barrel spill in the Frade field, about 120 km (75 miles) off the coast of Rio de Janeiro state.

Chevron’s troubles in Brazil could force it to rethink its Latin American strategies. A shortage of trained workers, engineers and equipment have driven up costs in Brazil and Chevron faces an $18 billion environmental verdict in Ecuador.

The charges come less than a week after Chevron asked for and received permission to temporarily stop production the Frade field after finding new seeps on the sea surface of its exploration area in early March. The field was producing 61,500 barrels a day, down from about 80,000 before the November spill.

Chevron owns 52 percent of Frade and is the operator. Brazil’s state-controlled oil company Petrobras owns 30 percent and a Japanese group led by Inpex and Sojitz owns 18 percent. The partners have spent more than $2 billion developing the field.

Chevron, the No. 2 U.S. oil company, said on Wednesday that oil from the new seabed is chemically different to crude from the November spill and that the two leaks are unrelated.

“There is no evidence that the two sets of seeps are related,” Glaubitz said in an email to Reuters. “Oil samples collected from the second seep and analyzed by the IPEX lab in Brazil and reviewed by Chevron indicate that the oil is not from the Frade production reservoir.”

Chevron said oil from the recent seep contained no drilling “mud,” suggesting it is not a residual spill or a new complication of the November spill. Only about 1 barrel of heavier crude has been found flowing out of the new seep.

Brazilian President Dilma Rousseff, a former energy minister who also served as chairwoman of the Petrobras board, warned oil companies on Wednesday that they must strictly follow security procedures in Brazil.

“On this question there can be no exceptions to being within safety limits and knowing them, to never test them and never go beyond them,” she said in Rio at the swearing in ceremony for the new head of oil regulator ANP.

The discovery of a new seep in the Frade field this month prompted Santos de Oliveira, the prosecutor, to allege that Chevron’s drilling has led to dangerous faults in the undersea oil reservoir at Frade that could be irreparably damaged and may eventually leak much more oil.

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