Chevron (NYSE: CVX) to Restart Brazil Oil Drilling

Brian Hicks

Written By Brian Hicks

Posted April 10, 2013

Brazil’s ANP directors have given Chevron Corp. (NYSE: CVX) permission to resume its crude-oil drilling operations at four wells for the next 12 months. Separately, production was also approved at two other wells for a period of two months.

All of this is conditional on Chevron taking measures to reduce flaring—a process in which excess natural gas is burned off in the event that it cannot be or is not due to be transported elsewhere.

This move marks Brazil achieving some closure to a fairly turbulent early chapter in its oil sector expansion. Late in 2011, a relatively minor incident at Chevron’s oil operations in that country caused some 2,400-3,700 barrels of crude to seep into the Atlantic Ocean.

oil barrelsBut the Brazilian National Petroleum Agency, ANP, hit Chevron with 25 citations; the company ended up paying fines in excess of $17 million. Additional civil lawsuits directed both at Chevron and at the oil rig operator, Transocean (NYSE: RIG), amount to some $20 billion.

Chevron has offered to pay $150 million as settlement, reports Fox Business.

Now that ANP—however warily—has allowed Chevron to go ahead and resume its operations on a temporary basis, it seems likely that Brazil’s oil sector will crank up production again.

The four wells are located in the Frade oil field, which is some 230 miles northwest of Rio. ANP has stated that Chevron’s activities will be subjected to close monitoring. Period reports every two weeks are expected.

After the Atlantic spill, Chevron had volunteered to stall its operations in Brazil following the detection of some apparent leaks located 1.8 miles away from the site of the first incident. Thus far, however, the Frade oil fields have not proven especially golden for Chevron. Their output averages 60,000 barrels per day.

Brazil’s Aggressive Oil Sector Expansion

Meanwhile, the Brazilian oil industry is definitely expanding. Some two years after having drilled three dry wells, Exxon Mobil (NYSE: XOM) is aiming for new oil blocks in Brazil. That puts Exxon in the company of nearly 70 other oil and gas companies registering to bid in Brazil’s May 14 and 15 oil block auctions.

Australia’s BHP Billiton (NYSE: BHP), Japan’s Mitsui & Co. Ltd. (OTC: MITSY), CNOOC Ltd. (NYSE: CEO), Hess Corp. (NYSE: HES), and various other energy companies will also take part in the auction. The sudden onrush is likely because Brazil has not gone for oil block auctions since 2008.

At the same time, Brazil holds the world’s largest oil reserves discovered this century, as Bloomberg reports. However, those pre-salt reserves are located underneath the Atlantic; the current blocks up for auction do not form part of those reserves.

As far as existing oil and gas operations in Brazil are concerned, Royal Dutch Shell Plc (NYSE: RDS.A), BP Group Plc, and Statoil ASA (NYSE: STO) already have production going on. Some nineteen domestic companies are also hoping for part of the action.

GE a Winner

In related activities, General Electric (NYSE: GE) has just been awarded in excess of $600 million in various contracts for operations that would support Brazil’s oil industry expansion.

The contracts allow for GE to supply propulsion systems that would help oil and gas operators power, propel, navigate, and operate drillships as well as other power/control systems for the oil rigs in the pre-salt oilfields off Brazilian shores. As of now, GE is engaged in developing systems for 22 out of a total of 29 such drillships. The operations are overseen by Brazil’s Petrobras (NYSE: PBR).

From GE’s press release:

“Vessel builders are coming to GE because it has proven equipment and systems, it has considerable experience in supplying equipment for use in deep domains, it is a flexible engineering partner with very strong technical credentials and has a record of supplying on time and within budget. One of our unique specialities is that we design and deliver complete integrated electrical and control systems packages in house—our single-source approach significantly relieves shipbuilders of much of the technical and commercial risk and effort associated with managing and coordinating multiple individual equipment suppliers.”

Clearly, Brazil has committed its resources to dramatically expanding the national oil and gas industry. While the recent allowance certainly offers hope for Chevron’s continued presence in these operations, the competition is heating up with most of the usual oil and gas majors trying to get their own operations going.


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