Chevron Brazil oil-drilling permission depends on report delivery -regulator

Thu Mar 13, 2014 10:44pm EDT

* Chevron hasn't filed full report on 2nd incident in offshore field -ANP

* Report needed before regulator can approve drilling, injection -ANP

By Jeb Blount

ANGRA DOS REIS, BRAZIL, March 13 (Reuters) - Permission for Chevron Corp to resume drilling and water injection at its Frade offshore field in Brazil is being held up by the company's failure to deliver a full report on the causes of a 2012 oil seepage, the head of Brazil's oil regulator said on Thursday.

"They can't get authorization until we get the report and analyze it," said Magda Chambriard, director general of the ANP regulatory agency.

The report is supposed to explore and explain the reasons for a second leak at Frade, Chambriard said. Frade was the site of a November 2011 accident that resulted in a spill of about 4,600 barrels into the Atlantic Ocean northeast of Rio de Janeiro.

Chevron did not immediately respond to requests for comment.

The U.S. company has spent more than $2 billion developing Frade, which was once the largest foreign-run oil field in the country. It has a projected capacity to produce about 80,000 barrels of oil and equivalent natural gas a day (boepd). That's more than 3 percent of Brazil's oil and natural gas output or 2.56 million boepd in January, according to the ANP.

The field was temporarily shut after a second leak in the area was discovered in March 2012. At the time there was speculation that a pressure "kick" that caused the original spill may have caused fractures in rock beneath the sea-bed that led to the new leaks.

Chevron said then that it was shutting the well as a precautionary measure and that there was no evidence that the March leaks of several barrels of oil was linked to the November spill. Chevron also said it did not know if the leaks were natural or the result of oil production activity.

Small, natural leaks of oil from the ocean floor are common in the Campos Basin, where Frade is located. The Campos Basin is home to more than 80 percent of Brazil's oil output. Natural oil leaks in the area prompted Brazil's state-run oil company, Petroleo Brasileiro SA, to explore for oil in the basin.

No oil came near shore and no workers or wildlife were harmed in either event at Frade. ANP officials said there was no sign of negligence by Chevron and that there was no discernable harm to the environment. The original Frade leak in 2011 was less than 0.1 percent of the giant Deepwater Horizon spill in the Gulf of Mexico in 2010.

In 2013, San Ramon, California-based Chevron was allowed to resume output at Frade, but remained under a drilling and injection ban after it explained the reasons for the initial spill and agreed to a series of new procedures and remedial actions in an "Adjustment of Conduct Agreement."

Injection of water is used to increase reservoir pressure and help increase oil production.

Frade, which was producing as much as 72,000 boepd before the November 2011 spill, churned out 21,199 boepd in January, according to the ANP.

The adjustment of conduct agreement also resulted in the closing of lawsuits seeking as much as 40 billion reais ($17 billion) in damages for the initial spill and criminal penalties against Chevron, Transocean Ltd., its drilling contractor and 18 Chevron and Transocean employees.

Frade is 52 percent owned by Chevron, which is also the field operator. Brazil's state-run oil company Petroleo Brasileiro SA owns 30 percent and 18 percent is owned by Frade Japäo, a joint venture between Japanese trading houses Inpex Corp. and Sojitz Corp.

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