Brazil suspends Chevron’s drilling rights

BRASILIA, (Reuters) – The Brazilian government yesterday 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 testified before the Brazilian  Congress, where he publicly apologized for the Nov. 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 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.
The spill is an ominous reminder of the risks involved in  offshore drilling, cooling the euphoria over vast subsalt oil  reserves 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.

The second-largest U.S. oil company 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 had halted all of its local drilling operations  after the leak occurred, before ANP’s announced suspension. The  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 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.

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Some lawmakers scoffed at Chevron’s claim that it did not  initially realize the spill, when first detected, was linked to  its own nearby well that it rushed to shut off after a pressure  surge or “kick” a day before the oil spill was spotted.

Chevron at first attributed the “sheen” on the sea surface  to naturally occurring seepage from the seabed. The company is  being investigated by the Federal Police, which noted  discrepancies between Chevron’s account of the spill and the  government’s.

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.
The oil flow has now been staunched except for residual  droplets still bubbling up from a fissure in the sea floor but  this is expected to cease in a few days. Chevron said the oil  “stain” on the sea surface now equated to about a barrel.

Most of the oil has been mechanically dispersed while 350  cubic meters of oily water has been recovered and will undergo  processing.

Addressing a crowded congressional commission through an  interpreter, Buck said Chevron still did not understand how the  crude rose 567 feet (173 meters) up to the seabed after rock  “parted” while drilling an the 8.5 inch-wide (22 cm) column.

“We have an ongoing investigation. We will share the  lessons learned with the people of Brazil to ensure that this  never happens here or anywhere else in the world,” Buck said.