Corruption, grandstanding and total incompetence may sink Brazil's dreams of becoming an oil exporting powerhouse. Prosecutors in the country last week slapped Chevron and drilling partner Transocean with an $11 billion fine for accidentally releasing around 3,000 barrels of oil off of Brazil's coast. While the fine is clearly excessive and unlikely to stick, it has raised questions regarding the long-term safety of doing business in Brazil.
Oil spills seem to unfortunately be a fact of life when drilling and transporting oil from the ocean floor. Massive spills, like BP's disastrous four-million barrel belch in the Gulf of Mexico last year, though, are totally unacceptable. But the leaking of a few hundred barrels of oil per year seems to be par for the course when extracting millions.
In Brazil, though, one would think that such minute spills were a capital offense -- especially if the offender was a foreign oil company. US-based Chevron (CVX) was fined 50 million reals ($28 million) by Brazil's federal government earlier this month for leaking around 2,400 to 3,000 barrels from one of its offshore drilling platforms located 75-miles off the coast of Brazil's iconic beaches in Rio de Janeiro.
The fine is around double what Chevron would have had to pay if the leak occurred in U.S. waters, and only if the company were convicted of gross negligence in relation to the spill. Instead of fighting the fine, Chevron agreed to pay, accepted total responsibility for the accident and quickly began clean up. It did not want to jeopardize its place in Brazil's fast-growing oil industry. The leak has since been plugged and has disappeared from the ocean surface. There was never any risk of oil washing up on the beaches in Rio given the size of the spill and the direction of the ocean currents.
But that was not the end of the story. The oil spill quickly became politicized in the state of Rio de Janeiro, home of Brazil's burgeoning oil industry and the quasi-state-controlled oil giant Petrobras. The environmental secretary of Rio threatened to revoke Chevron's operating license over the spill, sending shivers all the way up to Houston, home to the dozens of foreign oil companies that feed Brazil's oil engine. The federal government in Brasilia quietly reassured the oil community that drilling permits were under federal jurisdiction and that they should simply ignore the howls of discontent from local officials.
But now those howls have turned into a stinging civil lawsuit. Prosecutors from Campos, a city near Rio de Janeiro, filed suit last Wednesday against Chevron and Transocean (RIG) for gross negligence in connection with the oil spill. They announced they were seeking 20 billion reals or around $11 billion in compensation for the spill. The fine was high, prosecutors say, in order to send a message that Rio was serious when it comes to environmental protection. The suit did not mention Chevron's other partners in the oil field, a Japanese financial company and Petrobras, and did not say how the fine would be divvied up between Chevron and Transocean.
