Brazil cites Chevron third time for oil spill

RIO DE JANEIRO Fri Dec 30, 2011 8:50pm GMT

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RIO DE JANEIRO (Reuters) - Brazil's oil industry watchdog ANP said on Friday it issued a third citation against Chevron for a November oil spill at the Frade offshore field, signaling that regulators are stepping up oversight of the No. 2 U.S. oil company's offshore operations in Brazil.

ANP can fine Chevron up to 50 million reais ($26.8 million) for each citation.

Chevron failed to put in practice procedures that would slow the depletion of reservoirs at the well 9-FR-50DP-RJS in the Frade field, ANP said in a statement sent to reporters by email.

Also, Chevron has been cited in a $20 billion civil lawsuit filed by public prosecutors regarding the oil spill. Brazilian federal police have indicted Chevron, the drilling company Transocean and executives from both companies in a criminal case alleging environmental crimes and obstruction of justice.

The procedures the ANP alleges Chevron failed to meet had been agreed to in a development plan approved by the agency. Failure to follow the plan led to the leaking of oil from the reservoir, the statement said.

ANP did not say how much it planned to fine Chevron.

The U.S. company said in a statement later on Friday that it will analyze ANP's allegations but added it was "confident that it has always acted in a diligent and appropriate way," and accordingly to the development plan approved by ANP.

On November 20, Chevron said that the leak of 2,400 barrels of oil was the result of higher than expected pressure in the oil reservoir. When the company drilled into the reservoir, oil surged into the well in an event known as "a kick", Chevron said.

While the potential "blowout" was prevented by a valve on the seabed, pressure was so high that it cracked the walls of the well about 500 meters (1,640 ft) below the ocean floor. Oil then slowly worked its way through the porous undersea rock to the seabed from where it bubbled up to the surface, Chevron said.

Chevron on November 20 said it took full responsibility for the spill and that the leak was a result of underestimating the oil reservoir pressure and overestimating the strength of the rock through which they were drilling.

The Frade field is 52 percent owned by San Ramon, California-based Chevron, which is also the fields operator. Brazil's state-controlled oil company Petrobras owns 30 percent and 18 percent by Japanese consortium Frade Japao.

The companies were producing about 80,000 barrels of oil a day in the Frade field at the time of the spill which occurred during the drilling of a new well using a rig owned by Transocean.

Brazilian newspaper Folha de S.Paulo said Chevron had been fined as much as 100 million reais ($53.6 million) previously.

Chevron fell 0.92 percent to $106.55 a share at the New York Stock Exchange on Friday.

($1 = 1.865 reais)

(Reporting by Sabrina Lorenzi and Inae Riveras; Writing by Jeb Blount; Editing by Guillermo Parra-Bernal,; Marguerita Choy and Bob Burgdorfer)

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