Chevron Expected to Pay US$ 100 Million in Fines for Spilling Oil Off Rio’s Coast

Chevron's spill Brazil’s National Petroleum Agency (ANP), the Brazilian Institute of Environment and Natural Resources (IBAMA) and the state government of Rio de Janeiro should start today the assessment of fines that will be applied to the oil multinational Chevron for its role in the leaking of thousands of gallons of oil in the Campos Basin, off the coast of Rio.

Together, the fines and repair requests may reach US$ 100 million. Executives and engineers from the American company are also expected to become defendants in a lawsuit to be opened by the Brazilian Federal Police.

The Environment Ministry should announce today that Chevron will get the maximum fine of US$ 50 million for environmental damage caused by the oil spill. which began two weeks ago at the Frade Field, in the Campos Basin. This value could be higher in a few weeks, when the calculations of the damage are assessed.

The company may also be fined by the ANP for lack of safety in its operation and by IBAMA, if it’s shown that Chevron failed to comply with any action under the Individual Emergency Plan (PEI), an obligation assumed under the licensing process.

Environmental experts argue that a fine of US$ 50 million would be too little and useless to send a strong message to possible polluters in the future. Paying the fine would be cheaper to a company than having tighter control on oil exploration.

In Chevron’s case, a US$ 50 million fine would represent about 1% of the company’s investment of US$ 5 billion for a decade in Brazil. The firm, which earned US$ 19 billion worldwide last year, invested US$ 3 billion in the Frade Field in partnership with Petrobras and Frade Japan.

Furthermore, according to experts, the maximum fine is outdated because this amount hasn’t changed since the Environmental Crimes Law was passed by the Brazilian Congress in 1998. Corrected for inflation, this value would be US$ 116 million.

Chevron’s Reaction

Chevron is going clean-up its mess, the CEO of the local subsidiary, George Buck, said on Sunday, taking full responsibility for an accident that has become a major test for one of the world’s fastest-growing oil frontiers.
The leak from the undersea well, owned in partnership with Brazil’s state-controlled Petrobras and a Japanese consortium, has been plugged and the residual oil flow from undersea rock is now “more than 10 barrels,” but “less than hundreds of barrels” per day, Buck said.

“Chevron takes full responsibility for this incident,” Buck told reporters in Rio de Janeiro. “We will share the lessons learned here in the hope that this sort of incident won’t happen again in Brazil or anywhere else in the world.”

The spill, one of the largest to hit Brazil’s growing offshore oil industry has raised questions about its safety and ability to respond to accidents. Oil companies in Brazil are testing the limits of drilling as they seek oil at depths as much as 7 kilometers below the ocean surface, putting equipment and people under strains often compared with those for space flight.

The stakes are large. Brazilian oil companies expect to produce about 7 million barrels of oil per day by 2020, most of offshore near Rio de Janeiro, an amount that would make Brazil the third largest oil producer after Russia and Saudi Arabia.

Opposition to offshore drilling is growing worldwide in the wake of the estimated 4 million barrel BP Deepwater Horizon spill in the Gulf of Mexico in 2010.

Buck told a news conference that the spill was the result of an underestimate of pressure in the offshore oil reservoir being targeted. At the same time, the company overestimated the strength of undersea rock through which they were drilling.

As a result, high pressure oil was able to leak into the well borehole, overcoming a liquid sealant and well cleaning fluid known as “mud.” Because of the low pressure estimate, the mud was mixed “too light” to keep the oil under control.

While the well was immediately shut off, the pressure from the so-called “kick” as oil rushed up through the well mud bore-hole, or outside edge of the well structure, to crack. Oil then seeped through more than 500 meters of crevices and porous rock to the seafloor. From there, it bubbled more than a kilometer up to the ocean surface.

Chevron, which experienced the pressure “kick” on November 7, has come under criticism in Brazilian newspapers for failing to provide an immediate explanation for the spill and for a failure to provide a clear estimate of how much oil has leaked into the ocean.

The company, though, says the problem was brought under control within four days despite major transportation, weather, geological and environmental challenges.



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