Brazil suspends Chevron's drilling rights

The Brazilian government on Wednesday suspended Chevron Corp's drilling rights in Brazil until it 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 was announced as the chief executive of Chevron's Brazilian unit was testifying before the Brazilian Congress, where he publicly 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 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. The Frade field, which is located in the oil-rich Campos Basin, is the only block in Brazil where Chevron is producing oil and is the operator.

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

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 has already been fined $28 million by Brazil's environmental agency for the spill, an amount that is sure to rise sharply 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 lawmakers 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 more ammunition for the growing worldwide opposition to offshore drilling in the wake of the estimated 4-million-barrel BP Deepwater Horizon spill in the U.S. Gulf in 2010.

Chevron is also a 30 percent partner in the nearby $5.2 billion 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.

[Source: By Peter Murphy, Reuters, Brasilia, 23Nov11]

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