Brazil Files Criminal Charges Against 17 Executives of Chevron and Transocean Over Oil Spill

By Jeb Blount and Joshua Schneyer, Reuters, March 22, 2012

From Rio de Janiero and New York

(Reuters) – A Brazilian federal prosecutor filed criminal charges on Wednesday against Chevron and drill-rig operator Transocean for a November oil spill, raising the stakes in a legal saga that has added to Chevron’s woes in Latin America and could slow Brazil’s offshore oil boom.

Prosecutor Eduardo Santos de Oliveira also filed criminal charges against 17 local executives and employees at Chevron and Transocean, owner of the world’s largest oil rig fleet. Among the defendants is George Buck, 46, a U.S. national in charge of Chevron’s operations in Brazil, the prosecutor’s office said in a statement.

“The spilling of oil affected the entire maritime ecosystem, possibly pushing some species to extinction, and caused impacts on economic activity in the region,” Santos de Oliveira, a prosecutor in the oil district of Campos de Goytacazes, said in the filing. “The employees of Chevron and Transocean caused a contamination time bomb of prolonged effect.”

The charges stem from a 3,000-barrel leak in the Frade field, about 120 km (75 miles) off the coast of Rio de Janeiro state. They include: failure to realize protocols to contain the leak; failure to take steps to kill the well and stop the drilling process; breach of licenses, legal norms and regulation, including altering documents; and failure to meet legal and contractual duties.

Chevron and Transocean strongly disputed the charges.

“These charges are outrageous and without merit,” Chevron said in a statement. “Once all the facts are fully examined, they will demonstrate that Chevron and its employees responded appropriately and responsibly to the incident.”

Transocean “strongly disagrees with the indictments,” said spokesman Guy Cantwell.

Chevron said it stopped the leak in four days. None of the oil that leaked into the Atlantic reached shore or interfered with marine life, it said.

In November, the same prosecutor filed an $11 billion civil lawsuit over the spill, the largest environmental suit in Brazil’s history. Chevron has already been fined around 200 million reais in fines ($110 million) for the spill by environmental and oil regulators.

Chevron’s shares dropped 1.1 percent to $107.91 on Wednesday, to their lowest in nearly a month. Transocean’s US-traded shares dropped 1.1 percent to $56.77.

Observers warned that the criminal charges could spook foreign companies attracted to Brazil’s offshore oil boom and slow development of more than 50 billion barrels of reserves discovered here since 2007.

“These charges are being used by those who want to shut out foreign investment and vilify foreign companies,” said Adriano Pires, head of energy think tank Brazilian Infrastructure Institute, and a former oil regulator.

The Chevron leak was less than 0.1 percent of the size of the 4 million-barrel BP oil disaster in the Gulf of Mexico in 2010. Transocean also owned the rig in that spill. Past Brazilian oil spills by state-run Petrobras, including some larger ones, have never prompted criminal charges.

Chevron’s troubles in Brazil could force it to rethink its Latin American strategies. A shortage of trained workers, engineers and equipment have driven up costs in Brazil and Chevron faces an $18 billion environmental verdict in Ecuador.

Oliveira’s filings allege that Transocean’s Sedco 706 rig, which drilled the well that leaked, had “grave” equipment failures that were detected by Brazil’s national petroleum agency, the ANP.

In addition to Buck, prosecutors leveled criminal charges against other Chevron and Transocean employees, including five other Americans, five Brazilians, two Frenchmen, two Australians, a Canadian and a Briton. Among them was Guilherme Dantas Rocha Coelho, 38, the Brazilian head of Transocean’s operations in the country.

All were ordered to turn in their passports last Saturday and remain in the country. Each individual will be required to post 1 million reais ($550,000) bail and each company 10 million reais ($5.5 million) to ensure payment of future fines.

Jail Time Unlikely

Prison sentences could be as lengthy as 31 years, the filings said. Oliveira told Reuters in January that jail terms for the oil workers would be unlikely and a “last resort.” On Wednesday, however, he said the executives should be jailed.

“Yes, I want them to serve the full time and if they don’t it won’t be for any lack of effort by the Federal Prosecutors’ Office,” he said at a news conference in Rio de Janeiro.

Under Brazilian law, a judge must examine the charges and determine whether to proceed with formal indictments, a process that could take days or weeks. Either way, Chevron and Transocean likely face years of legal action in Brazil, one of the world’s most promising oil frontiers.

Few individuals or companies have ever been convicted of environmental crimes in Brazil, and fewer have gone to jail.

Rousseff Warns Oil Companies

The charges come less than a week after Chevron asked for and received permission to temporarily stop production at Frade after finding new seeps on the sea floor. It was producing 61,500 barrels a day, down from about 80,000 before the November spill.

Chevron has spent more than $2 billion developing Frade, Brazil’s largest foreign-operated field in which the No. 2 U.S. oil company owns a 52 percent stake. Brazil’s Petrobras owns 30 percent and a Japanese group led by Inpex and Sojitz owns 18 percent.

The prosecutor alleges that Chevron and Transocean ignored signs that their drilling could blast through rock and the seabed as they tapped into a high-pressure reservoir in an area whose faults and fissures made it prone to an underground blowout. Chevron has said it encountered reservoir pressure levels far above those in previous wells.

Chevron has downplayed the potential for further environmental damage from the Frade incident, but has pledged to carry out a study of the field’s geology before asking regulators to resume production. Prosecutors said there could be further leakage, citing evidence of damage to the oil reservoir. A technical report by ANP has not been made public.

Chevron said on Wednesday that oil from the new seabed seep differs chemically from crude spilled in November, and that the two leaks are unrelated. Prosecutors allege the newest leak, measured at less than a barrel of oil, is a worrisome complication of the earlier spill. Brazilian President Dilma Rousseff, a former energy minister who also served as chairwoman of the Petrobras board, warned oil companies on Wednesday that they must strictly follow security procedures in Brazil.

“On this question there can be no exceptions to being within safety limits and knowing them, to never test them and never go beyond them,” she said in Rio at the swearing in ceremony for the new head of oil regulator ANP.

($1 = 1.82 reais)

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