Chevron Is Blocked From Oil Drilling in Brazil After Spill, Regulator Says

Chevron Corp., the U.S. oil producer operating the $3.6 billion Frade oilfield off the coast of Brazil, was blocked from drilling in the South American country while the government probes a recent spill.

The company needs to pay more attention to safety after its “negligence” contributed to the accident, Brazil’s oil regulator, the Agencia Nacional do Petroleo, said yesterday. The ban will remain in place until the regulator identifies the causes and considers it safe to resume drilling, ANP said.

“This is a setback for Chevron in Brazil,” Gianna Bern, president of Chicago-based risk management adviser Brookshire Advisory and Research, said yesterday in a telephone interview from Buenos Aires. “It will be challenging for Chevron to emerge unscathed from the accident.”

Brazil is seeking to ensure foreign oil companies such as BP Plc, Statoil ASA (STL) and Royal Dutch Shell Plc (RDSA), which are exploring in deep waters off the coast of Brazil, help the country maximize vast oil deposits located deep beneath the ocean while avoiding disasters similar to BP’s Gulf of Mexico oil spill, the worst offshore incident in U.S. history. Brazil expects crude production to double during the next decade as it develops the largest oil finds in the Western Hemisphere since Mexico’s Cantarell in 1976.

Chevron Meeting

Chevron said today in a statement it “has not received any formal notice from” the Brazilian regulator suspending its drilling license, although it “acknowledges” the ANP posted a suspension notice on its website.

The oil producer “will adhere to all the rules and regulations of the government of Brazil and its agencies,” Lloyd Avram, a spokesman, said yesterday in an e-mail. Chevron, based in San Ramon, California, continues production from the field, he said. The stock slid (CVX) 2.8 percent to $93.75 at the close in New York yesterday. U.S. markets are closed today for the Thanksgiving holiday.

Ali Moshiri, Chevron’s president for Latin America and African operations, is scheduled to meet with Brazil Mining and Energy Minister Edison Lobao at 3 p.m. today, according to a statement on the ministry’s website.

Chevron hopes to continue operating in Brazil, George Buck, the head of Chevron’s Brazil operations, said at a Congressional hearing in Brasilia yesterday.

“Sincere apologies to the Brazilian people and the Brazilian government,” he said.

Pressure ‘Kick’

Chevron underestimated the amount of pressure at a reservoir at the Frade project about 230 miles (370 kilometers) northeast of Rio de Janeiro, Buck told reporters on Nov. 20. The well experienced a pressure “kick” at the reservoir, prompting oil to leak to fissures on the ocean floor, he said.

Chevron halted the flow of oil from the “source” at the reservoir on Nov. 13 and reduced the spill to residual seepage, he said. The company will continue to seal the well that caused the spill, the ANP said.

Chevron was fined 50 million reais ($27 million) by Brazilian environmental authorities for the spill, which occurred Nov. 7 off the coast of Rio. The company will be fined for falsifying information to ANP and also for failing to meet a plan to counter the accident, the regulator has said.

An estimated 3,000 barrels leaked, Haroldo Lima, head of the ANP, said Nov. 22. Lima, Buck and Petroleo Brasileiro SA Chief Executive Officer Jose Sergio Gabrielli are scheduled to meet with state lawmakers in Rio today at 2 p.m. local time.

BP’s Gulf Spill

Chevron, the third-largest oil producer in Brazil after state-controlled Petrobras (PETR4) and Shell, operates Frade with a 51.74 percent stake. Petrobras holds a 30 percent stake and Frade Japao Petroleo Ltda., a joint venture including Inpex Corp. (1605) and Sojitz Corp. (2768), holds 18.26 percent.

The regulator’s press office didn’t return phone calls seeking comment on the order.

Brazilian regulators are forcing Petrobras to shut production equipment more frequently for maintenance after the BP spill in April 2010, Gabrielli said in an Oct. 6 interview.

“Here in Brazil laws are stricter than in the United States,” Gabrielli told reporters yesterday in Rio before ANP announced the drilling ban. “The plan continues to be strongly oriented toward accident prevention.”

The ANP also said it rejected Chevron’s request to drill a so-called pre-salt well at the Frade project, where the increased depth makes drilling more risky.

“We’re going to see increasingly draconian measures,” said Brookshire’s Bern. “Operators can’t afford to have any accidents.”

To contact the reporter on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net

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

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