RIO DE JANEIRO An injunction banning No. 2 U.S. oil company Chevron Corp and its drilling contractor Transocean Ltd from operating in Brazil was upheld by a panel of three Brazilian federal judges on Tuesday while charges over a November oil spill are being considered.
The judges voted 3-0 to reject arguments by Chevron, Transocean and Brazilian oil regulator ANP that the ANP not the courts has the statutory right to decide who operates in Brazil's oil industry.
Normally the ANP's statutory power would prevail over the courts, the judges said, but the ANP's failures as a regulator contributed to the 3,600-barrel November spill. Prosecutors argue the ban is needed to guarantee up to $20 billion in damages being sought in the courts.
As a result, the ban, published August 1 by another federal judge, was a reasonable judicial remedy to prevent new accidents while the courts consider the merits of civil and criminal charges against Chevron, Transocean and 17 of their employees.
Citing an ANP report on the spill saying Chevron had "an insufficient culture of safety," judge Ricardo Perlingeiro of Brazil's 2nd Regional Federal Tribunal said from the bench that the ANP "contributed to the accident by failing to do its job as a regulator."
"It's clear that the accidents are the result of drilling activities under the management of the concessionaire Chevron and the rig operator Transocean," he said rejecting the appeal. "The technical incapacity of the petitioners in carrying out the damage control plan and in controlling oil spills is clear."
The judges also rejected arguments that the courts cannot ban operations in Brazil as a whole but only in the Frade field.
Expected to take effect in less than a month, the Brazil ban could cost Chevron and Transocean hundreds of millions of dollars in lost business.
It will also disrupt the operations of companies such as Petrobras, Brazil's state-led oil giant, which leases Transocean rigs to explore one of the world's most promising oil frontiers. Transocean, the world's largest offshore rig operator, has 10 rigs operating in Brazil, seven leased to Petrobras, according to the company's latest fleet report.
While the decision will have little immediate effect on Chevron, which shut its only field in Brazil in March after new oil was found leaking in the area, the ANP will not decide on its application to restart operations until the ban is lifted, ANP officials with knowledge of the case told Reuters.
The ban was requested by independent federal prosecutors who are seeking nearly $20 billion in damages for the spill and have charged 17 Chevron and Transocean executives with crimes that carry jail terms of up to 31 years.
"Until the ban was granted, I really thought this case was not going to go anywhere," said Eduardo Santos de Oliveira the prosecutor who launched the civil and criminal cases and asked for the ban. "We need to make sure these companies understand that we are very serious about preventing spills."
De Oliveira spoke to Reuters in an interview on Monday.
The ANP has been informed of the decision to uphold the ban and is considering its legal options, a press spokesman said.
Chevron and Transocean have parallel appeals of the ban under review by judges in the federal courts. They can also appeal Tuesday's ruling to the main Federal Appeals Court in the capital Brasilia.
Chevron said "it was disappointed with the court's decision and is confident that at all times it acted diligently and appropriately."
Transocean said it will continue its legal battle against the ban as well as against the criminal and civil suits. The ban, which carries fines of 500 million reais ($245 million) per day, is supposed to take effect 30 days after formal notification of the companies.
Formal notification, which usually means publication in a legal announcement or serving of the ruling on the parties, has not taken place according to people with knowledge of the Chevron and Transocean cases. That means the companies could have nearly a month to appeal the ban before it takes effect.
Many federal court employees have been on strike this month for higher wages, which could have delayed publication of the notification, federal court press officials said.
Chevron and Transocean deny criminal wrongdoing and say the proposed damages are excessive. For Chevron, the spill caused no injury to humans, "no discernible environmental impact to marine life or human health" and oil never reached shore.
The amount of oil leaked was less than 0.5 percent of the giant BP Deepwater Horizon spill in the United States in 2010 and smaller than many previous spills in Brazil.
"This case is without merit and Transocean crews acted responsibly and quickly, following the highest industry standards. We have a very strong case and we will use every legal means necessary to prove it," Guy Cantwell, the director of corporate communications said in an email.
He said Transocean rigs continued to operate in Brazil.
Chevron owns 52 percent of Frade and is the operator. Petrobras owns 30 percent and Frade Japao, a group made up of Japan's Inpex Corp and Sojitz Corp, owns 18 percent.
Neither Petrobras, Frade Japao, Sojitz or Inpex have been named in any of the lawsuits.
(Additional reporting by Leila Coimbra; Writing by Caroline Stauffer and Jeb Blount; Editing by Gerald E. McCormick, Bernard Orr and Cynthia Osterman)