Chevron, Transocean Say Brazil Drops Criminal Oil Spill Charges

A Brazilian judge dropped criminal charges against Chevron Corp (CVX.N), Transocean Ltd (RIG.N) and 17 of their employees related to a November 2011 offshore oil spill, the companies said on Wednesday.

The criminal case, and a civil suit seeking as much as 40 billion reais ($20.4 billion) in damages, have cast a chill over Brazil's oil industry.

The criminal suit carried penalties of up to 31 years. The still-open civil case is Brazil's largest-ever environmental lawsuit, even though the amount of oil spilled was much less than other recent spills in Brazil and abroad.

Brazilian oil output fell in 2012, and shutting Chevron operations in the South American country contributed to the decline. Investor interest was already waning in the face of regulatory changes and a bitter dispute over royalties that have blocked the sale of new exploration licenses for four years.

"Chevron has been tied up for more than a year over a spill that caused no real damage," said Adriano Pires, head of the Brazil Infrastructure Institute, a Rio de Janeiro energy think-tank. "It's impossible to understand how a country that wants to attract investment would have taken so long to dismiss the case against Chevron."

He said failure to resolve the legal actions related to the spill will make it hard for Brazil to attract investment for three oil and gas rights auctions planned for later this year.

With criminal charges dismissed, industry watchers will focus on the civil case and Chevron administrative efforts to restart output in the Frade field, where the spill occurred in November and all output was stopped in March.

In December, Chevron and Brazilian prosecutors said they were near a settlement in the civil case and that Chevron was ready to pay 311 million reais ($159 million) to compensate for damages caused by the spill, less than 1 percent of the amount initially sought.

The prosecutor called the offer "reasonable." Chevron said a settlement would render the suits extinct and that it, and not Transocean, would pay all costs.

Chevron said in December that a settlement of 30 million reais would be reasonable. They based their estimate on the size of financial awards in the Deepwater Horizon case and Exxon Valdez spill in Alaska in 1989.

FIELD RESTART DELAYED

In December, Chevron expressed hope that it would be able to restart output at the Frade field by early January. But output remains stalled. Court holidays delayed resolution of the civil case and Brasil's oil regulator, the ANP, moved more slowly than expected on renewing Chevron's authorization to pump oil from the Frade field, an oil industry executive involved in planning for the field told Reuters.

Chevron and its partners "had hoped to be producing oil again from Frade by now," said the executive, who asked not to be named because he is not authorized to talk to the press. "We got caught by the year-end, then the Carnaval holidays."

The Frade field is 52 percent owned by California-based Chevron, 30 percent by Brazil's state-led Petroleo Brasileiro SA (PETR4.SA) and 18 percent by Frade Japão, a group owned by Japanese trading companies Inpex Corp (1605.T) and Sojitz Corp (2768.T).

Chevron's global output in 2012 was 70,000 barrels per day short of company expectations. The loss of Frade was responsible for about 40 percent of that loss, according to Chief Financial Officer Patricia Yerrington.

Restart requires approval of the ANP. The regulator's website said the restart was not on the agenda of its board meeting Wednesday, and officials could not be immediately reached for comment.

Petrobras, as the Brazilian company is known, Sojitz and Inpex were never charged in relation to the spill.

DECISION WELCOMED

The press offices of Chevron and Transocean confirmed a Reuters report of the dismissal of criminal charges, which had been based on three sources with direct knowledge of the case.

One of the sources told Reuters that prosecutors can still appeal the ruling dismissing the charges, made by Judge Marcelo Luzio of the 10th Criminal Unit of the Rio de Janeiro Federal Court. The sources asked not to be named because their employers do not allow them to speak about the case.

"We welcome this news that the Court recognized, with respect to the Frade event of November 2011, that Transocean's crews did exactly what they were trained to do, acting responsibly, appropriately and quickly while always maintaining safety as their top priority," Guy Cantwell, a Transocean spokesman in Houston, said in an e-mailed statement.

The criminal charges were filed last March by Eduardo Santos de Oliveira, the same Brazilian prosecutor who filed the civil lawsuit. Oliveria, who is on vacation, told Reuters on Wednesday he had not yet been informed of the dismissal.

Dos Santos, who works from Campos, Brazil, in northern Rio de Janeiro state, was taken off the cases when they were moved to the city of Rio de Janeiro, the state capital. He considers the spill one of the worst ecological disasters in Brazil's history.

'NO DISCERNABLE DAMAGE"

But the ANP reported last year that the 3,600 barrel spill in the Frade field was quickly stopped, cleaned up and caused no discernable environmental damage.

The spill was less than 1/1000th of the size of BP Plc's (BP.L) Deepwater Horizon disaster in 2010. The Frade spill never came close to shore and no workers were injured. In the Deepwater Horizon disaster 11 died.

Chevron said in a statement that it "is pleased by the court's decision. Chevron Brasil remains committed to its policy of full transparency and close cooperation with the Brazilian authorities."

Chevron shares fell 0.8 percent in New York on Wednesday afternoon, in line with a broader stock market decline.

Shares of Transocean, which was also operator of the Deepwater Horizon rig which burned and sank in 2010 after BP's Macondo well exploded in the Gulf of Mexico, dropped 3.4 percent.