Chevron's South American Nightmare

Chevron is facing some very tough times in South America and this year could be telling for the success of their continued business in the continent.

The latest disaster occurred in November last year when they were responsible for a spill of more than 2,400 barrels of crude off the coast of Brazil. Although the spill was less than 0.1 percent the size of the BP deep water horizon spill in the Gulf of Mexico in 2010, Chevron is being sued more than $11 billion by its Brazilian prosecutors. It also faces an extra $121 million in fines and has had its Brazilian drilling license revoked, putting a bit of a dampener on the development of its new $2 billion oil field; the largest foreign run oil field in the area.

The company is currently waiting for the Brazilian state oil regulator ANP to end a months-long investigation of the November spill, which Chevron are hoping will result in them regaining their drilling license for the region.

Chevron is also involved in another legal battle in Ecuador. Where it is facing an $18 billion verdict due to the decades of pollution inflicted upon the Amazon region by Texaco, whom Chevron bought in 2001.

Latin America is only a small part (about 6 percent) of Chevrons international business, but a worst case scenario in both Ecuador and Brazil could see them have to pay out damages that would exceed their 2011 total profits of $26.9 billion.

Rex Mitchell, Chevron's deputy comptroller, warned that paying damages in the Ecuadorian law suit could “cause irreparable injury to Chevron's business reputation and business relationships.”

And the South American nightmare continues for Chevron with uncertainty over their future in Venezuela. Ali Moshiri is Chevron’s head of exploration and production in Latina America and Africa and is a close friend of Venezuela’s president Hugo Chavez. However Chavez is up for re-election and is also suffering from pelvic cancer, without this special relationship Chevron may find its business in Venezuela severely restricted. As Fadel Gheit, an oil analyst at Oppenheimer in New York, explains, “a string of mishaps means things have gotten difficult” for Chevron. Mistrust is growing in South America over the reliability and safety of the oil major.

By. James Burgess of Oilprice.com