UPDATE 1-Brazil court orders suspension of Chevron, Transocean operations

Thu Aug 2, 2012 3:10am IST

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* Companies have 30 days to comply; Chevron to appeal

* Failure to comply carries fine $245 mln/day fine

* Transocean could lose $3.5 mln/day in leases on 10 rigs

* Transocean rigs about 10 pct of South America drill fleet

By Jeb Blount

RIO DE JANEIRO, Aug 1 (Reuters) - A Brazilian court has ordered Chevron Corp and Transocean Ltd to suspend all oil production and transport operations in Brazil while prosecutors investigate a November oil spill, a decision that could halt nearly 10 percent of all offshore drilling operations in South America.

In addition to preventing Chevron from restarting production at its Frade field that leaked crude off the coast of Brazil, the injunction could force state oil company Petrobras, BP Plc , and U.S. independent oil company Vanco to suspend drilling operations in nine other Brazilian fields that use Transocean rigs.

The injunction issued on Tuesday is part of controversial efforts by Brazilian independent prosecutors to get Chevron and Transocean to pay as much as $20 billion for the spill at Frade of 3,700 barrels of crude, or according to Chevron, only 2,400 barrels. Both estimates are about 1,000 times smaller than the 2010 BP Deepwater Horizon disaster in the Gulf of Mexico.

"The industry is paying for not standing up to defend Chevron and Transocean earlier," said Adriano Pires head of the Brazilian Infrastructure Institute a Rio de Janeiro energy research group.

"Petrobras' CEO has been telling investors she thinks that a lack of drill ships is the main reason for her company's failure to increase output," he added. "Now if this ruling stands, she has a big problem, she is going to have far fewer drill ships."

Transocean leases seven rigs to Petrobras, and one each to Chevron, BP and Vanco.

Failure to comply with the injunction within 30 days carries penalties of up to 500 million reais ($245 million) a day, Brazilian prosecutors and Brazil's Federal Court said.

If upheld, Transocean stands to lose $3.5 million a day in lease fees from its 10 Brazilian rigs, according to the company's July 19 Fleet Status Report. That revenue balloons to $106 million a month and $1.27 billion a year.

Transocean reported total revenue of $8.38 billion in 2011.

There are 112 offshore rigs operating in South America under contract, according to a July 27 report by IHS, a U.S.-based research company. Brazil, one of the world's most active offshore oil frontiers, is home to about three-quarters of those rigs, according to Rigzone.

The injunction, issued by the Specialized Bench of Brazil's 2nd Region Federal Court, was based on a request by the public prosecutor's office in the wake of a November oil spill in Chevron's offshore Frade Field northeast of Rio de Janeiro.

In addition to record Brazilian environmental damages being sought from Chevron and Transocean in several lawsuits over the Frade spill. Prosecutors are also pursuing criminal charges against the companies and 17 of their employees and executives, with jail terms of up to 31 years.

The decision came on appeal. Judges of the same federal court rejected the injunction request in April.

Chevron, the No. 2 U.S. oil company, said in a emailed statement that it plans to appeal the ruling.

Transocean, the world's largest offshore oil-rig operator, said it has a strong case and will use "every legal means necessary to prove it." The company added it is evaluating the ruling and continues to operate in Brazil.

Petrobras' officials were not immediately available for comment.

Chevron could have avoided the accident, Brazil's petroleum regulator ANP said in a July report on the accident.

The ANP said Chevron could resume oil drilling and production work at Frade if it can address safety concerns and improve its procedures. It did not hold Transocean responsible for the problem.

Chevron was hoping to restart the field soon. It had shut it in March after other, smaller leaks were discovered. In late 2011, the field produced as much as 72,000 barrels per day.

Chevron is confident that it acted diligently at all times and in accordance with the best practices in the oil industry, the San Ramon, California-based company said in a statement.

The leak was controlled in four days, no harm came to human or marine life and no oil ever reached Brazil's coast, the Chevron statement said. It also said its drilling plan was approved by the ANP.

Frade is operated and 52 percent owned by Chevron. Petrobras owns 30 percent of Frade, and 18 percent is owned by Japanese companies Sojitz and Inpex.

Transocean shares rose over 2 percent to $47.80 in New York. Chevron shares rose 1.4 percent to $111.10.

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