UPDATE 2-Brazil oil regulator: Chevron leak not "negligence"

Thu Mar 22, 2012 8:10pm EDT

* Brazil regulator says Chevron well design caused oil leak
    * Offshore field not damaged beyond repair, ANP says
    * Criminal, civil charges could choke industry -senator


    By Jeb Blount	
    BRASILIA, March 22 (Reuters) - Brazil's oil regulator said
Chevron was not negligent in the drilling of a well that caused
an offshore oil spill in November, a finding that may help the
company to fight criminal charges and an $11 billion lawsuit.	
    Chevron and its drilling contractor Transocean
 committed operational and safety violations and
improperly designed the well that led to the leak, according to
a four-month investigation by the regulator known as the ANP.	
    But the accident does not appear to have irreparably damaged
the deep-sea Frade field and the mistakes did not qualify as
negligence, Silvio Jablonski, a senior ANP official, told a
Senate hearing on Thursday.	
    "Negligence is a sensitive legal term," Jablonski said. "It
needs to be reserved for things that are beyond correction and
improvement - and that's not the case here."	
    The hearing came a day after a federal prosecutor filed
criminal charges against the companies and 17 of their
employees. Both companies have denied the charges, which carry
prison terms of up to 31 years.	
    The November accident "caused no discernable damage to the
environment," Jablonski said, spilling 3,000 barrels at most -
less than 0.1 percent of BP's 4.9-million-barrel Gulf of
Mexico disaster.	
    Still, the stakes are huge for the companies and Brazil
itself, which risks scaring away international investors and
choking off an oil boom.	
       	
    Chevron shares fell 2.56 percent on Thursday to $105.35.
Transocean shares lost 2.87 percent.	
        	
    FAULTY DESIGN	
    The faulty design and reinforcement of the well shaft are
one of the main causes for the November leak, according to the
ANP report cited by Jablonski.	
    The ANP has completed its report and delivered it to Chevron
for rebuttal, said Rafael Williamson, director of corporate
affairs at Chevron, who spoke at Thursday's hearing.	
    Chevron says it acted according to accepted industry
practice, stopped the leak within four days and continues to
work at controlling any residual flow.	
    Chevron and the ANP agree that higher-than-expected pressure
in an oil reservoir caused oil to surge into the well. Before it
could rise to the drill rig on the surface, causing a dangerous
and possibly deadly gusher, a valve in the sea floor known as a
blow-out protector sealed the well.	
    The pressure trapped in the well ruptured unreinforced rock
in the bore hole far below the sea floor. The oil then flowed
through porous rock and crevices to cracks in the seabed, where
it bubbled to the surface.	
    Chevron could have prevented the accident by reinforcing
more of the bore hole with cement, Jablonski said, but the well
design did not properly anticipate actual oil pressure and rock
strength.	
    Williamson said Chevron had sufficient information to
explore and drill. The company is studying the ANP report.	
    	
    "EXCESSIVE" CHARGES	
    Eduardo Santos de Oliveira, the prosecutor who filed the
criminal and civil charges, said Jablonski and other speakers at
the hearing were trying to cloud the issue and diminish the
significance of the November spill.	
    An influential senator from President Dilma Rousseff's party
criticized the charges as "excessive" and "irresponsible" in an
interview prior to the hearing.	
    Senator Jorge Viana told Reuters the charges "create a
climate of insecurity" that could damage badly needed investment
in the oil sector.	
    If the charges, plus an $11 billion civil suit filed against
Chevron and Transocean in November, were fairly applied to other
polluters, "the industry would shut down," said Viana.	
    "Brazil is entering a phase in which we need investment from
all over," said Viana. 	
    Rousseff, a former energy minister who sat on the board of
state-controlled oil company Petrobras, has remained
mostly silent about the Chevron case.	
    She has warned that foreign companies in the oil sector need
to respect Brazilian regulations, but refrained from demonizing
the Chevron executives or the company in public.	
    Rousseff sees the case is "a legal issue, not a government
one," a senior official told Reuters on Thursday. He spoke on
condition of anonymity to be able to frankly describe her views
on a sensitive matter.
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