Chevron's Brazil Operations Suspended By Federal Court

08/01/2012 11:42 am ET | Updated Oct 01, 2012

SAO PAULO (AP) — A federal court has given Chevron Corp. and driller Transocean Ltd. 30 days to suspend all petroleum drilling and transportation operations in Brazil until investigations are completed into two oil spills off the coast of Rio de Janeiro.

The court says in a statement posted Wednesday on its website that each company will be fined 500 million reals, or about $244 million, for each day they fail to comply with the suspension.

About 155,000 gallons of oil crude began seeping from cracks in the ocean floor at the site of a Chevron appraisal well in November. Chevron has placed the amount of oil that leaked at 110,000 gallons.

Two weeks later, the National Petroleum Agency said the seepage was under control. But in March, oil again started leaking and Chevron voluntarily suspended production in the field.

"Two environmental accidents in the space of just four months and the lack of equipment needed to identify the origin of the leaks and contain them, shows that the two companies do not have the conditions necessary to operate the wells in an environmentally safe manner," Judge Ricardo Perlingeiro said in his ruling.

Chevron said in an emailed statement it planned to appeal the court's decision.

"Chevron Brasil is confident that at all times it acted diligently and appropriately," the statement said adding that the company's "response to the incident was implemented according to the law, industry standards and in a timely manner. The source of the leak was contained in four days."

Transocean said in a statement: "We maintain that this case is without merit and reiterate that Transocean crews acted responsibly and quickly, following the highest industry standards."

Petroleum agency head Magda Chambriard said last month that the November spill involved about 25 safety infractions for which Chevron will be fined up to 50 million reals, or about $25 million, the maximum allowed under Brazilian law.

Chambriard told the newspaper that the November spill involved about 25 safety infractions for which Chevron will be fined no more than 50 million Brazilian reals, or about $24.6 million.

Chevron has said that it underestimated the pressure in an underwater reservoir, causing crude to rush up a bore hole and eventually escape into the surrounding seabed about 230 miles (370 kilometers) off Rio de Janeiro's coast. The oil seeped from at least seven narrow fissures on the ocean floor, all within 160 feet (50 meters) of the wellhead. No oil reached Brazilian shores.

According to the petroleum agency, Chevron "was not able to correctly interpret the geology and local fluid dynamics" of the reservoir when the leak occurred. It blamed Chevron's water-injection practices for the reservoir pressure.

Earlier this year, Brazilian authorities banned Chevron from any new drilling or water-injection activities at working wells in the country.

In April, a Brazilian prosecutor filed an $11 billion lawsuit against Chevron and the Switzerland-based Transocean for both the leak in November and the one in March, alleging they caused environmental damage. Prosecutors also asked that Chevron be temporarily prohibited from sending any profits made in Brazil outside the country.

A month before that lawsuit, federal prosecutors filed criminal charges against 17 Chevron and Transocean executives accusing them of environmental crimes, of misleading the petroleum agency about safety plans and of not providing accurate information after the spill. The charges carry a maximum penalty of 31 years in prison.

Judges must still decide if the cases will go to trial, which would be a lengthy process given the number of defendants, the case's complexity and the Brazilian legal system's room for numerous appeals.

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