Chevron suspects drilling caused Brazil oil spill

RIO DE JANEIRO Mon Nov 14, 2011 4:55pm EST

RIO DE JANEIRO (Reuters) - Chevron Corp. said on Monday an appraisal well drilled at the U.S. company's Frade field last week might be contributing to an oil spill, in line with early assessments by government officials.

Earlier in the day, the head of the oil regulatory agency ANP said that drilling likely increased pressure on the area where the well is located, leading to the leak. The appraisal well was closed in at surface last week as a part of Chevron's precautionary suspension of drilling activities.

"There has also been significant progress on investigations into the source and cause of the oil that had been detected coming from a small number of seep lines in the vicinity of a Frade development drilling operation," the statement said.

Chevron, which previously had found no definitive evidence that the drilling could be a cause for the leak, is boosting efforts to close and abandon the appraisal well, the statement said.

Oil seeps have created a "sheen" with a volume of 400 to 650 barrels of oil on the ocean in the area, which lies 370 kilometers (230 miles) northeast of Rio de Janeiro.

President Dilma Rousseff on Friday urged a thorough investigation of the incident, which may increase scrutiny of safety in Brazil's offshore operations as it seeks to tap huge, newly found reserves and become a major oil exporter.

"What was detected is that with the drilling, there was an increase in pressure and there was a crack in the rock which caused the oil to leak to the surface," ANP Director Floriano Carvalho told Reuters.

Carvalho said the leak is continuing and that the ANP had authorized Chevron to cap the well. Chevron had previously said it suspended drilling the well, but that production was continuing. The company maintains that production activities are unrelated to the oil seeps.

Chevron said it had up to eight vessels working at the "sheen," and "continues to engage resources from Chevron Corps global response team" to control the spill.

IMPACT UNCLEAR

Adriano Pires, an analyst at the Brazilian Center for Infrastructure, said it is too early to know whether the spill will slow Brazil's plans to develop ultra-deepwater fields in the prolific region known as the subsalt, which is believed to hold more than 50 billion barrels of oil.

The Frade field is located in the Campos Basin, which produces the vast majority of Brazil's oil, in water depths of 1,200 meters (3,800 feet). The company has said Frade is not part of the subsalt.

"We have to hope that the currents don't wash the oil toward the shore, because then the issue will get politicized, we could hear people calling for future auctions to be postponed or canceled," Pires said.

"It's a warning for the government to make sure it has regulatory agencies that can minimize this sort of incident."

Last year's BP spill in the Gulf of Mexico spurred greater vigilance by regulatory authorities over Brazil's offshore operations, state oil company Petrobras has said.

New investments in the subsalt are on hold due to a political dispute over how to distribute royalties among states.

According to Chevron's website, it had drilled and completed eight development wells and four injection wells at Frade as of the end of 2010.

Chevron holds stakes in the Papa-Terra and Maromba projects in the Campos Basin. In the neighboring Santos Basin, Chevron holds a 20 percent stake in Block BS-4.

Petrobras expects output in Brazil to more than double to nearly 5 million barrels per day as it ramps up production from fields in the subsalt region.

(Writing by Brian Ellsworth; Additional reporting by Guillermo Parra-Bernal in Sao Paulo; Editing by Marguerita Choy)

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