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20-07-2012 00:31:00

2nd UPDATE: Brazil Berates Chevron for Frade Oil Spill, But Production to Restart

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By Jeff Fick RIO DE JANEIRO--Brazil nominated an engine..

--Brazil oil regulator criticizes Chevron for November oil spill

--ANP to determine Chevron fines in 30 days

--Fines won't reach the maximum BRL50 million, says ANP director general

--ANP exonerates drill rig operator Transocean, takes no further measures

(Updates with Chevron comment in the 7th paragraph.)

By Brian Asher and Ben Lefebvre

RIO DE JANEIRO--Brazil's oil regulator laid heavy criticism on U.S. oil company Chevron Corp. (CVX) Thursday for an oil spill at an offshore field last November, but said it has no objections to the firm restarting production.

Some 3,700 barrels of crude oil leaked from the Frade oil field as a result of an accident that could have been avoided had Chevron followed its own safety procedures, Magda Chambriard, head of the National Oil Agency, or ANP, told reporters at a press conference.

The size of the spill was higher than the ANP's previous estimate of 3,000 barrels and Chevron's estimate of 2,400 barrels.

The director general spoke at the publication of the ANP's final report into the spill at Frade, which lies in Atlantic waters of Brazil's southeast coast. The report has been delivered to Chevron and to Brazil's government-run oil company Petroleo Brasileiro SA (PBR, PETR4.BR), a partner in the Frade field, and will be released to the public Friday, Ms. Chambriard said.

Chevron will be fined close to the maximum 50 million Brazilian reais ($25 million), said Ms. Chambriard, although she reiterated her regret that rules don't allow for heftier fines. The total fine for 25 infractions will be determined within 30 days, she said. The ANP is discussing possible reform to the system of fines with the Mines and Energy Ministry, she said.

Chevron said it was still reviewing the ANP report but took issue with some of the findings.

"We disagree with the report's characterization of our safety culture," Chevron spokesman Kurt Glaubitz said. "We are confident that at all times during the Frade incident we acted appropriately and responsibly, consistent with industry best practices, and within the plan of development approved by ANP."

Ms. Chambriard said Chevron will present its request to restart production at Frade on July 27, and the regulator said she has no objection. The company had asked ANP to be allowed to suspend production in March after a second leak was discovered close to Frade.

Chevron said it was too early to tell how long it would take to resume production.

But water injection into the Frade well remains suspended, as does further drilling, Ms. Chambriard said. To resume those activities, Chevron must show it understands the causes of the accident and has taken measures to limit risks of future ones, she said. The official said the ANP is still investigating the March incident, and that more fines could be applied relating to that case.

Chevron will likely continue to pursue projects in Brazil, home to potentially tremendous oil reserves, despite a possible $25 million fine and the political headaches resulting from the spill, said Lysle Brinker, research director at IHS Inc.

"As long as more rational heads and policies prevail, Chevron would want to continue looking for opportunities there," Mr. Brinker said. "Brazil is not as attractive as it used to be, but it is too big to ignore."

Meanwhile, Ms. Chambriard said that it found no fault with the steps taken by drill rig operator Transocean Ltd. (RIG, RIGN.VX), and it hasn't taken any measures against the company.

A Transocean spokesman said the company was reviewing the ANP report but was "encouraged" that it did not appear to fault the company.

The ANP's findings could undercut the civil and criminal lawsuits against Chevron and Transocean for their roles in the incident at the Chevron-operated Frade offshore oil field, said Christopher Garman, Latin America director for consultancy Eurasia Group. Both companies have denied any wrongdoing.

"The fact that the ANP allowed Chevron to begin production is a more measured response," Mr. Garman said. "The chance of the lawsuits being successful weren't high to be begin with and look to be diminishing."

--Matthew Cowley in Sao Paulo contributed to this article.

Write to Brian Asher at brian.asher@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

July 19, 2012 18:31 ET (22:31 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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