Bloomberg News

Chevron Needs to ‘Come Into Line’ in Brazil, Minister Says

December 06, 2011

(Updates to include comments from Chevron executive in the eighth paragraph.)

Dec. 5 (Bloomberg) -- Chevron Corp. needs to “come into line” with Brazil’s laws, and the country is studying if the San Ramon, California-based producer will be able to compete for new exploration licenses after causing an oil spill, the country’s oil minister said.

Chevron, the second-largest U.S. oil producer after Exxon Mobil Corp., needs to comply with the country’s laws and coordinate activities with the country’s oil regulator, Minister Edison Lobao said in an interview in Brasilia today.

Brazil plans to offer exploration areas by the end of 2012 in the so-called pre-salt region in deep waters of the Atlantic Ocean. Brazil has made the largest oil discoveries in the Americas in more than three decades in the area, where oil deposits of up to four miles below the ocean floor are trapped under a layer of salt.

Chevron “needs to completely come into line with Brazilian law,” Lobao said. “From time to time there are gaps of information between them and the agency.”

Chevron has come under increased scrutiny in Brazil after it leaked 2,400 barrels of oil last month from an oil field in deep waters of the Campos Basin. Chevron underestimated the amount of pressure at an oil deposit it was exploring, and crude leaked from the reservoir for about eight days, George Buck, the head of Chevron for Brazil, said on Nov. 20.

Investigations

Brazil’s oil regulator, known as ANP, is investigating Chevron for only providing partial video clips of the Nov. 7 oil spill and not reporting the presence of hydrogen sulfide in an oil well at the Frade project where the spill happened, Magda Chambriard, a director at the agency, said Dec. 1.

The agency ordered Chevron to shut the well with hydrogen sulfide and is also investigating inconsistencies in Chevron’s plan to cement and abandon the well that caused the leak, she said. The agency has prohibited Chevron from drilling any new wells for at least three months until it finishes probing the spill, Chambriard said.

“Not even one drop has reached the beach; a reaction of this magnitudes is really surprising,” Ali Moshiri, the head of Chevron’s operations in Latin America and Africa, said in an interview on Nov. 29.

The well Chevron shut accounts for less than 10 percent of output at Frade, the company said in a statement Dec. 1. Frade was Brazil’s eighth largest producing field in September with 80,425 barrels a day of oil and natural gas production, according to information on the ANP’s website.

Drilling Ban

Output at Frade will decline if the drilling ban lasts longer than expected and Chevron is unable to drill new wells to produce oil and inject water, a process that maintains pressure and output levels at the reservoir, said William Edwards, president of Houston-based Edwards Energy Consultants. Other oil companies will study the government’s response to the Chevron spill before investing in oil exploration, he said.

“The way it’s handled causes people to think about if they’re going to put their money in,” Edwards said in a telephone interview from Houston. “When you think about the complexity of what they are doing, to think that anybody can prevent anything from going wrong is dreaming.”

Chevron halted the source of the leak more than 20 days ago and only residual droplets are seeping to the surface, Scott Walker, a Chevron spokesman, said yesterday in an e-mailed statement. The company abides by the government’s decisions and fully informs its agencies, Walker said.

Chevron has completed the second phase of cementing the well that caused the spill, and the amount of oil on the surface of the ocean has been reduced to less than a barrel of oil, Walker said in an e-mail today.

Chevron rose 2 percent, or $2.07, to $103.76 in New York at 10:54 a.m. New York time.

--Editor: Charles Siler, Robin Saponar

To contact the reporters on this story: Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net

To contact the reporter on this story: Peter Millard in Mexico City at pmillard1@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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