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Brazilian Ban on Transocean's Drilling Lifted

Chevron Ban Eased but Not Removed

Written by Swagato Chakravorty
Posted October 3, 2012 at 4:43PM

From Reuters comes news that Judge Felix Fischer of Brazil’s second-highest court—the STJ—sided with Brazilian petroleum regulator ANP and overturned a ban on Transocean Ltd.’s (NYSE: RIG) offshore drilling operations. The court also eased a closely related ban which affected Chevron Corp.’s (NYSE: CVX) Brazilian operations.

The government argued that the ban, which was instituted after an oil spill, created billions of dollars in lost revenues via taxes for the government, as well as diminished output for the state oil firm, Petrobras.

The Transocean ban effectively cuts Brazil off from 126 million barrels of oil, or almost two months of Brazilian output. The government would stand to lose almost $3.31 billion over two years.

Had the ban stood, Transocean’s 10 drilling rigs in Brazilian waters would have had to shut down. Eight of these are, in fact, under contract by Petrobras.

Brazil’s most tempting new reserves are located in ultra-deep-water zones, below 2,200 feet. Transocean owns two of the three Brazilian rigs that can successfully operate in such conditions.

Reuters reports:

"The reasons attached by the petitioner, rightly accompanied by technical data, exhaustively show that the economic damage is not restricted to the companies involved," [Judge] Fischer wrote in his decision.

Chevron, meanwhile, will only be allowed to continue activities concerning the ongoing monitoring and salvage work of a 3,600 barrel oil spill back in November into the Frade offshore field northeast of Rio de Janeiro.

In New York, Transocean shares jumped 4.3 percent when the news was announced. Petrobras preferred shares rose 1.4 percent in Sao Paulo, and Chevron rose 1 percent in New York.

Chevron was permitted to continue operations since inactivity would worsen the situation; its operations will be overseen by the ANP. Both Chevron and Transocean continue to insist on their lack of negligence in the spill, and they are protesting the lawsuit and other criminal charges.

In July, the ANP deemed Transocean free of responsibility and fined Chevron $17.3 billion, citing no real negligence but errors in drilling plans and failure to ensure safety protocols.

Brazil is trying to develop a possible subsalt geological oil bounty in excess of 100 billion barrels, but the lack of ultra-deep-water-capable drilling rigs is holding Petrobras back despite a $237 billion five-year expansion plan.

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