Chevron, Transocean in $11 billion Brazil oil suit

Reuters News
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Posted: Dec 14, 2011 7:38 PM
Chevron, Transocean in $11 billion Brazil oil suit

By Jeb Blount

RIO DE JANEIRO (Reuters) - Brazilian prosecutors sued Chevron Corp, the No. 2 U.S. oil company, and top offshore oil rig operator Transocean Ltd for 20 billion reais ($10.6 billion) over their alleged roles in a November oil spill near Rio de Janeiro.

The civil suit filed by federal prosecutors in Rio de Janeiro state also seeks to suspend the companies from operating in Brazil, the prosecutors office said in a statement on its website on Wednesday, a move that could halt operations of the 10 Transocean offshore drilling rigs operating in the country.

"During investigations the prosecutors found that Chevron and Transocean were not capable of controlling the damages caused by the leakage," the statement said. "This is evidence of a lack of planning and environmental management by the companies."

Some legal experts said the action may be a politically motivated suit that could be difficult to win given Brazil's extensive oil regulations, the case's technical complexity and the lack of evidence to date of serious negligence or wrongdoing.

But for Chevron and Transocean, the suit dramatically raises the stakes in Brazil as the country embarks on a technically challenging oil boom expected to more than triple output to about 7 million barrels a day by 2020. If realized it would allow Brazil to challenge the United States for the rank of world's No. 3 oil producer after Russia and Saudi Arabia.

It also risks alarming foreign oil companies eager to expand in one of the world's fastest-growing oil frontiers, where state-controlled oil company Petrobras accounts for more than 90 percent of the output, and government leaders are moving to assert even greater control of natural resources.

Chevron, which has said it takes full responsibility for the spill, said it has not received any formal notice of the suit and that the spill was staunched in four days with minimal or no damage to the environment.

Transocean had similar comments.

"We have not received a formal notice of this action. At present, our rigs are operating in Brazilian waters and we continue to cooperate with the authorities," it said in a statement to Reuters.

"NEW TERRITORY"

"We are really entering new territory here," said Marilda Rosado De Sa Ribeiro, a lawyer and former official at Brazil's oil agency, the ANP. "There are high hurdles to make a technical case like this work, but the public prosecutors are professional and serious."

The government of Brazilian president Dolma Rousseff has been expanding the funding and training of the public prosecutors office, helping them realize their constitutional role and national watchdog and helping them win more high-profile cases against corruption and environmental wrongdoing, said the lawyer, a partner at Doria, Jacobina, Rosado, Godinho in Rio de Janeiro.

On the other hand Brazil's legal system allows a large number of appeals and few major cases are settled quickly, meaning that even if successful, Chevron and Transocean could operate for years before facing any fine or sanction.

For both, though, it will add to their already large legal headaches. Chevron has been locked in an 18-year battle with Ecuador over alleged damage to the Amazon rainforest, while Transocean was the rig operator in the giant four-billion-barrel Deepwater Horizon spill in the Gulf of Mexico in 2010.

San Ramon-based Chevron has already assumed responsibility for leaking 2,400 barrels of oil into water off the coast of Rio de Janeiro. It has been fined $28 million by environmental authorities for the spill, and its local president has made a public apology before Congress.

The public outrage at Chevron, which did no damage to beaches and has left less than a barrel of oil on the ocean according to Chevron, has led some to suggest the prosecution may be based more on politics than the law.

"The lawsuit sounds like politics. If you have an inadequate contingency plan in place then maybe you can be suspended from operating or face an administrative fine, but how do you get to $10.6 billion in damages here?," said John Lowe, energy law professor at SMU Dedman law School in Dallas, and has studied Brazilian energy.

"It's a government with strong Populist ties and they may feel political pressure to take some kind of action. We did not take this kind of action in the United States against BP during the Macondo spill."

The November spill came from the Frade Field northeast of Rio de Janeiro, which produces nearly 80,000 barrels of oil a day and is owned 52 percent by Chevron, 30 percent by Brazil's state-controlled Petrobras and 18 percent by Frade Japao, a Japanese group.

The well involved in the spill was being drilled by Transocean aboard its SEDCO 706 rig.

Suspending Transocean's operations could stop drilling in some of the country's most promising oil fields including the 8 billion-barrel Lula and Cernambi complex, a Petrobras-led area part-owned by BG Group Plc and Galp, which is one of world's largest discoveries in three decades.

($1 = 1.8773 reais)

(Reporting by Todd Benson, Silvio Cascione and Jeb Blount; additional reporting by Joshua Schneyer in New York and Braden Reddall in San Francisco; Writing by Jeb Blount; editing by Matthew Lewis and Bob Burgdorfer)