March 23, 2012 / 12:17 AM / 8 years ago

Brazil oil regulator - Chevron leak not "negligence"

BRASILIA (Reuters) - Brazil’s oil regulator said Chevron was not negligent in the drilling of a well that caused an offshore oil spill in November, a finding that may help the company to fight criminal charges and an $11 billion (6 billion pounds) lawsuit.

An aerial view is seen of oil that seeped off the coast of Rio de Janeiro, caused by a well drilled by Chevron at Frade, on the water in Campos Basin in Rio de Janeiro state in this November 18, 2011 file photograph. REUTERS/Rogerio Santana/Handout/Files

Chevron (CVX.N) and its drilling contractor Transocean RIGN.VX committed operational and safety violations and improperly designed the well that led to the leak, according to a four-month investigation by the regulator known as the ANP.

But the accident does not appear to have irreparably damaged the deep-sea Frade field and the mistakes did not qualify as negligence, Silvio Jablonski, a senior ANP official, told a Senate hearing on Thursday.

“Negligence is a sensitive legal term,” Jablonski said. “It needs to be reserved for things that are beyond correction and improvement - and that’s not the case here.”

The hearing came a day after a federal prosecutor filed criminal charges against the companies and 17 of their employees. Both companies have denied the charges, which carry prison terms of up to 31 years.

The November accident “caused no discernable damage to the environment,” Jablonski said, spilling 3,000 barrels at most - less than 0.1 percent of BP’s (BP.L) 4.9-million-barrel Gulf of Mexico disaster.

Still, the stakes are huge for the companies and Brazil itself, which risks scaring away international investors and choking off an oil boom.

Chevron shares fell 2.56 percent on Thursday to $105.35. Transocean shares lost 2.87 percent.


The faulty design and reinforcement of the well shaft are one of the main causes for the November leak, according to the ANP report cited by Jablonski.

The ANP has completed its report and delivered it to Chevron for rebuttal, said Rafael Williamson, director of corporate affairs at Chevron, who spoke at Thursday’s hearing.

Chevron says it acted according to accepted industry practice, stopped the leak within four days and continues to work at controlling any residual flow.

Chevron and the ANP agree that higher-than-expected pressure in an oil reservoir caused oil to surge into the well. Before it could rise to the drill rig on the surface, causing a dangerous and possibly deadly gusher, a valve in the sea floor known as a blow-out protector sealed the well.

The pressure trapped in the well ruptured unreinforced rock in the bore hole far below the sea floor. The oil then flowed through porous rock and crevices to cracks in the seabed, where it bubbled to the surface.

Chevron could have prevented the accident by reinforcing more of the bore hole with cement, Jablonski said, but the well design did not properly anticipate actual oil pressure and rock strength.

Williamson said Chevron had sufficient information to explore and drill. The company is studying the ANP report.


Eduardo Santos de Oliveira, the prosecutor who filed the criminal and civil charges, said Jablonski and other speakers at the hearing were trying to cloud the issue and diminish the significance of the November spill.

An influential senator from President Dilma Rousseff’s party criticized the charges as “excessive” and “irresponsible” in an interview prior to the hearing.

Senator Jorge Viana told Reuters the charges “create a climate of insecurity” that could damage badly needed investment in the oil sector.

If the charges, plus an $11 billion civil suit filed against Chevron and Transocean in November, were fairly applied to other polluters, “the industry would shut down,” said Viana.

“Brazil is entering a phase in which we need investment from all over,” said Viana.

Chevron's Director of Corporate Affairs in Brazil, Rafael Jaen Williamson, wipes his face as he speaks about the oil leak that seeped off the coast of Rio de Janeiro into the waters of the Campos Basin, caused by a well drilled by Chevron at Frade, during a meeting with the environmental commission of the federal senate in Brasilia March 22, 2012. REUTERS/Ueslei Marcelino

Rousseff, a former energy minister who sat on the board of state-controlled oil company Petrobras (PETR4.SA), has remained mostly silent about the Chevron case.

She has warned that foreign companies in the oil sector need to respect Brazilian regulations, but refrained from demonizing the Chevron executives or the company in public.

Rousseff sees the case is “a legal issue, not a government one,” a senior official told Reuters on Thursday. He spoke on condition of anonymity to be able to frankly describe her views on a sensitive matter.

Additional reporting by Brian Winter; Writing by Reese Ewing; Editing by Alden Bentley, Jim Marshall and Bob Burgdorfer

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