Chevron Risks Losing Brazil Oil License, Regulator Says

Chevron Corp. (CVX) runs the risk of having its oil exploration contract canceled in Brazil after regulators found it could have avoided a 3,000-barrel spill off Rio de Janeiro’s coast.

“There was a critical non-compliance,” Silvio Jablonski, an adviser to the board of the oil regulator known as ANP, told lawmakers at a hearing in Brasilia today. “It’s possible to demand the operator be changed or the contract revoked.”

Chevron has come under mounting attack from Brazilian politicians, prosecutors and regulators following the leak at its $3.6 billion Frade project in November and a second seep this month. Federal Prosecutor Eduardo Santos, who’s probing the slick independently from the regulator, charged executives at Chevron and rig operator Transocean Ltd. (RIG) with environmental crimes and called for prison sentences of as many as 31 years.

There was no negligence at the company’s operations at Frade, Rafael Jaen Williamson, a corporate affairs director at the company, told reporters in Brasilia today after the congressional hearing. Chevron has worked closely with regulators and hasn’t considered the possibility of a license suspension, he said.

“Chevron will vigorously defend the company and its employees,” Kurt Glaubitz, a spokesman, said in an e-mailed statement yesterday, adding that the prosecutor charges are “outrageous.”

The leak occurred at a time Brazil is increasing scrutiny of deep-water drilling following the 2010 Macondo spill in the U.S. Gulf of Mexico. Both Chevron and Transocean said the charges are “without merit.”

“We strongly disagree with the indictment,” Transocean Corporate Communications Director Guy Cantwell said in an e- mail. “We will vigorously defend our company, our people, our reputation and our quality of services.”

Transocean Spared

The ANP didn’t include Transocean in its probe of the leak because there were “no problems” with its rig used at Frade, Magda Chambriard, the head of the agency, said yesterday. The regulator will complete its final report on the spill after Chevron responds to questions within 15 days and expects to take a month to study the replies, Chambriard said.

The prosecutor’s charges, which will be pursued in court, call for each company to pay 10 million reais ($5.5 million) and for each of 17 executives indicted in the case to pay 1 million reais.

George Buck, head of Chevron in Brazil, and Michael Legrand, Transocean’s head of operations in the country, are among the executives who were banned from leaving Brazil this week while the prosecutor’s probe is conducted.

‘Political Firestorm’

“This political firestorm is indicative of a post-Macondo world,” Christopher Garman, a Latin American analyst at Eurasia Group, said in a telephone interview. “This is the reality international oil companies have to deal with.”

Chevron, the second-biggest U.S. oil company by market value, suspended production in Brazil last week after identifying a second leak at the Frade area.

The oil seep near Chevron’s Frade project this month didn’t come from the field where a spill occurred in November, company spokesmanGlaubitz said in an e-mailed response to questions.

Chevron fell 2.4 percent to $105.35 in New York today. Transocean dropped 2.8 percent to $55.20.

To contact the reporters on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net; Maria Luiza Rabello in Brasilia Newsroom at mrabello@bloomberg.net

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

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