On 8 November oil began leaking from well 9-FR-50DP-RJS in 3,930 feet of water in Brazil’s Campo de Frade offshore field, 230 miles northeast of Rio de Janeiro state in the Campos Basin. In October the Frade field, which has been in production since 2009, produced 76,000 barrels a day of oil and natural gas. Chevron Corp. maintains that upon receiving approval from the Brazilian National Agency of Petroleum on 13 November, its subsidiary Chevron do Brasil Ltd immediately began plugging and abandonment activities and subsequently announced that the oil flow was stopped within four days, although on 24 November Ali Noshiri, president of Chevron for Africa and Latin America, said that the Frade oil spill had been largely contained and that Chevron do Brasil Ltd expected to safely seal the leaking well by mid-December.
What caused the leak? Chevron do Brasil Ltd boss George Buck said that the company underestimated the amount of pressure at an oil deposit it was exploring, and crude leaked from the reservoir for about eight days, an "unexpected pressure spike or 'kick'" during "drilling toward a targeted reservoir," which released a total of about 3,000 barrels of oil, while Rio de Janeiro authorities say in fact close to 15,000 barrels were spilled.
Legal consequences swiftly followed. On 21 November, the day after Buck spoke, Brazil fined Chevron $28 million in connection with the Frade oil spill and warned that the company could face more fines in the coming days. Agencia Nacional do Petroleo (National Petroleum, Gas, and Biofuels Agency, ANP) General Director Haroldo Lima said that Chevron do Brasil Ltd was "negligent," adding that the investigation was ongoing. Furthermore, Lima noted that Chevron do Brasil Ltd did not have in Brazil at the time the bleak began equipment that would be needed in a case of emergency and that 28 leak points overall were discovered during ANP’s investigation of the incident.
The bill is now coming in, and Chevron and its operator Transocean are reeling from sticker shock. On 15 December Brazilian federal prosecutors in Campos in Rio de Janeiro state have asked a federal court to order Transocean Ltd and Chevron Corp. to pay $10.6 billion (20 billion Reais) in environmental and social damages, asking the court to suspend their operations there permanently. The same day Chevron Corp. in a press release insisted, “From the outset, Chevron responded responsibly to the incident at its Frade field and has dealt transparently with all Brazilian authorities.” Chevron has already been hit with a temporary drilling ban, instituted by the ANP on 23 November.
Outrage in the oil industry quickly followed, with commentators pointing out that besides Chevron Brasil Upstream Frade Ltda., a Chevron Corp. subsidiary owing 51.74 percent stake in Frade, state oil company Petroleo Brasileiro SA, or Petrobras holds a 30 percent stake, while Frade Japao Petroleo Ltda., a joint venture including Inpex Corp. and Sojitz Corp, holds 18.26 percent.
Furthermore, many in the oil industry point to the fact that BP has suffered more than $40 billion in losses related to the 20 April 2010 blowout of the Macondo well, coincidently operated by Transocean’s Deepwater Horizon, in the Gulf of Mexico. The accident killed 11 workers aboard the rig and spilled 4.9 million barrels of crude before the well was finally capped on 15 July. Industry insiders grumpily point out that BP’s liability works out to about $8,163 per barrel spilled, compared to $3.57 million per barrel if the Brazilian fine were to hold, as if there is some equivalency.
Analysts also threaten that banning Transocean would be a potential blow to Brazil’s offshore expansion plans, as the rig company has 10 floating rigs operating there, 7 of them under contract to Petrobras. These analysts are apparently unaware of Brazilian President Dilma Rousseff’s communique released by Planalto Palace on 18 November in which the president ordered "a full investigation," even as a source close to her reported that she was more concerned about the possibility of an environmental disaster than on how international investors might react in terms of interest in exploiting the Brazil’s offshore pre-salt layer oil and natural gas reserves. It should be noted here that President Rousseff served as mines and energy minister early in the Lula administration, and so is well versed in the issues involved and immune from an oil industry snow job.
Such bluster overlooks the fact that, according to official figures, Chevron do Brasil Ltd currently accounts for a paltry 3.6 percent of the oil produced in Brazil, or 80,425 barrels a day, and one percent of the natural gas.
We will leave the last word to ANP General Director Lima, who in discussing the incident in 7 December editorial in Folha de Sao Paulo noted that the ANP acted appropriately in a rigorous and timely manner suspending potential exploratory activities of the concessionary company that caused the Frade oil leak to show that there will be "zero tolerance" in such instances.
The Brazilian government has the dolorous examples of the environmental devastation caused by years of exploiting Nigeria’s oil reserves, as well as last year’s Gulf of Mexico debacle, and they are trying to get the development of their offshore reserves right from the beginning. Chevron and Transocean decide to walk, there are plenty of other multinational companies would be willing to play by the rules to get a taste of developing Brazil’s offshore resources, which according to the Oil and Gas Journal total 12.9 billion barrels of proven oil reserves, the second-largest in South America after Venezuela.
By. John C.K. Daly of Oilprice.com