EXCLUSIVE - Chevron to face criminal charges over Brazil spill

CAMPOS, Brazil Fri Jan 27, 2012 3:57am IST

Motorists are shown at gas pumps at a Chevron gasoline station in Burbank, California July 31, 2009. REUTERS/Fred Prouser/Files

Motorists are shown at gas pumps at a Chevron gasoline station in Burbank, California July 31, 2009.

Credit: Reuters/Fred Prouser/Files

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CAMPOS, Brazil (Reuters) - A Brazilian prosecutor plans to file criminal charges against Chevron Corp and some of its local managers within weeks, adding the threat of prison sentences to an $11 billion civil lawsuit as punishment for a November offshore oil spill.

The filing in federal court in Campos, Brazil, will likely include a request for criminal indictment of George Buck, chief executive of Chevron's Brazil unit, as well as other staff, three Brazilian government officials involved in the case told Reuters.

Transocean Ltd, whose rig was used in the operation, and some of its employees in Brazil are also expected to be charged, according to the officials, who requested anonymity because the case has not been presented to a judge. It is up to a judge to determine whether to accept the charges and proceed with indictments.

The backlash against the Chevron spill has highlighted the risks that energy companies face as they rush to get a piece of Brazil's oil bonanza. Chevron's legal troubles come as new oil rules give Brazil's government more control over the country's vast oil wealth. The regulatory overhaul has also delayed investment projects and new drilling licenses.

Buck and Chevron acted in a "careless and irresponsible way," an official who investigated the 2,400-barrel spill told Reuters.

The official said it is unlikely that people facing charges will be arrested in the near term or be barred from leaving Brazil. As the case advances and more evidence is collected, however, such measures could be applied, the official added.

When Reuters informed Chevron that charges were pending, company spokesman Kurt Glaubitz said "Chevron believes that the charges are without merit."

"Chevron is confident that once all the facts are fully examined, they will demonstrate that Chevron responded appropriately and responsibly to the incident," he added.

Transocean spokesman R. Thaddeus Vayda declined to comment. Transocean is the world's biggest offshore oil rig operator.

Brazilian prosecutors have become more active in going after alleged polluters, sometimes bringing aggressive charges to encourage offenders to settle cases. They are moving far more swiftly than their U.S. counterparts: BP's 2010 spill in the Gulf of Mexico, more than 1,000 times larger in terms of oil, has not yet resulted in any criminal charges.

In Brazil, charges in cases such as these can take a decade before all appeals are exhausted. That could saddle Chevron and Transocean with years of costly litigation, said Paulo Augusto Silva Novaes, a lawyer with the Rio de Janeiro firm of Benjo, Garcia, Souto & Novaes.

The charges would come more than a month after a Federal Police investigator submitted a report saying Chevron and Transocean took "unacceptable" risks in the Frade oil field off Brazil's southern coast, and recommended that 17 individuals be indicted.

As many as 12 of those people are from Chevron, according to legal documents reviewed by Reuters.

Chevron is also fighting a separate 20-billion-real lawsuit brought by the same Brazilian federal prosecutors. Chevron also is contesting an $18 billion judgement in Ecuador related to environmental contamination from 1964 to 1992 by Texaco, which Chevron bought in 2001.

PRESSURE KICK

On November 7, a well drilled by Chevron using a Transocean rig 107 kilometers (73 miles) from the coast of Rio de Janeiro state, experienced a pressure "kick" after tapping into an oil reservoir in Frade.

An emergency blow-out preventer was activated, plugging the well 1,200 meters (3,937 feet) below the ocean surface. But days later, Chevron discovered oil seeps from the seafloor hundreds of meters from the plugged well. Pressure caused a breach of the well wall far beneath the seabed, allowing oil to infiltrate surrounding rock and work its way into the ocean, Chevron said.

Police and prosecutors allege that Chevron knew it was drilling in a high pressure area and that rock structures above the reservoir were fragile, factors that resulted in the spill and should have prompted more caution.

"This well could not and should not have been drilled," the Federal Police said in a December 20 report.

Chevron denies taking any undue risk and says Brazilian authorities approved its drilling plans.

"The pressure was estimated using complex modeling and the data obtained from the 50 wellbores previously drilled at the Frade project," Chevron's Glaubitz said in a statement. "However, it is not uncommon to experience different conditions or pressures during drilling operations than those previously experienced."

Chevron said it acted quickly and correctly to stanch the leak from the seafloor within four days. Its operations and spill response adhered to the "best practices" of the oil industry, the company said.

Brazilian prosecutors have independence to file criminal and civil charges against companies and their employees for environmental damages, said Gustavo Trindade, who was chief legal advisor to Marina Silva, a former Brazilian Environment Minister and presidential candidate.

These cases rarely result in convictions, large fines or prison sentences, said Novaes, a corporate law expert.

For example, state-run oil company Petrobras (PETR4.SA)(PBR.N), a partner with Chevron at Frade, is still appealing convictions and more than 100 million reais of damages resulting from an offshore oil platform accident in 2001 and a giant oil spill in Rio in 2000.

Oil from the recent Chevron leak did not reach shore and was less than 0.1 percent of BP's 4.9 million barrel Gulf of Mexico spill in 2010. The Frade leak was also much smaller than several previous spills in Brazil by Petrobras.

Petrobras owns 30 percent of Frade. Chevron own 52 percent and is responsible for field management. The rest is owned by Frade Japao, a unit of Japan's Inpex.

Brazil's oil regulator, the ANP, has suspended Chevron's drilling license at Frade. The ANP and Brazil's environmental protection agency Ibama have fined Chevron more than $50 million as a result of the spill.

Chevron says that there is no evidence the Frade leak, which prosecutors estimate was closer to 3,000 barrels, has had any impact on aquatic life or on humans.

Oil is still leaking from the sea floor, government officials said. The oil has leaked at an average rate of 1.4 liters a day for the last week and is being captured by undersea traps, Chevron said.

Recent flyovers have not detected oil on the ocean surface, Chevron added.

Brazil's newfound oil wealth - including at least 15 billion barrels of deepwater discoveries since 2007 - puts the country among the world's most promising oil frontiers. Since the new finds, the government has stopped auctions of oil concessions in its richest offshore areas.

Petrobras will be the operator and hold a minimum 30 percent stake in all future oil projects in those areas. Under a new system, oil producers must share their production with the government.

San Ramon, California-based Chevron has operated in Brazil for nearly 100 years. It has invested around $2 billion in the country and has plans to spend several billion more on future projects.

Chevron shares were up 0.37 percent at $108.10 on Thursday in New York. Transocean shares rose 3.62 percent to 44.39 Swiss francs in Switzerland.

(Editing by Todd Benson, Alix Freedman, Jonathan Leff and Bob Burgdorfer)

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