Chevron fined US$28 million, faces Brazil spill backlash

Brazil's government slapped Chevron with a US$28 million fine on Monday for causing an offshore oil spill, and the penalty could rise as the US company faces a political backlash over the accident.

While the leak is relatively small and mostly contained, it has highlighted the environmental risks of tapping Brazil's newfound oil wealth at great depths, and could add to delays in politically sensitive plans to develop the offshore fields.

President Dilma Rousseff met with her environment and energy ministers to discuss it on Monday, a day after Chevron took full responsibility for the leak of about 2,400 barrels.

The accident at the Frade field, owned in partnership with Brazil's state-controlled oil company Petrobras and a Japanese consortium, had slowed to a "residual" flow, said Haroldo Lima, head of ANP, Brazil's National Petroleum Agency.

At its height, the leak in one of Brazil's most oil-rich offshore regions released 200 to 330 barrels per day (bpd) after a rupture in the well's structure on November 7, ANP said.

"There is no comparison with the Macondo spill in the Gulf (of Mexico) where 3,000 barrels a day leaked and 11 people died. This is a serious accident but not a major one," Lima told reporters, referring to BP's 2010 well blow-out.

Brazil's environment agency said it would fine Chevron 50 million reais (US$28 million) and might take legal action too.

ANP could slap Chevron with two fines of up to 50 million reais each, ANP director Magda Chambriad told a news conference in Brasilia. Rio de Janeiro state could impose 30 million reais more in fines as well, the state's environment secretary said.

The fine of 50 million reais is roughly equivalent to the value of three-and-a-half days output from the Frade field, which is producing about 79,000 bpd, according to Chevron.

The estimate is based on a Maya crude price for Mexican heavy oil that is a benchmark for heavy crudes similar to those from the Campos basin, where Frade is located.

Brazil's biggest oil spill since 2000 is a threat to Chevron's credibility in the country after the company acknowledged it had caused the accident by wrongly estimating pressure and rock strength in the reservoir it was targeting.

While Chevron's current production in Brazil is relatively small, at less than 1 percent of its 2010 worldwide output, the company has invested heavily in the country's offshore fields.

The total cost of Frade has been put at US$2.8 billion, while Chevron also has a 37.5 percent interest in the US$5.2 billion Petrobras-operated Papa Terra project in the Campos basin -- which could double Chevron's production from the country.

In its discussion of the accident, Brazil's government made no mention of Petrobras, which owns 30 percent of Frade.

Chevron, which faces a police probe and has been called to testify in Brazil's Congress, initially said it believed the leak was a natural seepage. Lima told a news conference after meeting Rousseff on Monday that Chevron did not have the necessary equipment in place to deal with an accident.

"If we think back to the BP incident, and the comments that Chevron made about safety and standards and all that, maybe we can forgive once," said Phil Weiss, oil analyst at Argus Research in New York. "But if they mess up again ... it's like they're on watch now. So they have to be careful."

Chevron may have avoided some of BP's pitfalls after the Gulf disaster by admitting full responsibility for the spill on Sunday and giving a thorough explanation for its cause.

"It doesn't appear as if there was any omission here like there was in the Gulf of Mexico," said Cleveland Jones, a geologist with the National Oil and Gas Institute at the State University of Rio de Janeiro.