U.S. energy behemoth Chevron Corp. (CVX) has been slapped with a fine of R$50 million ($28 million) by Brazil's environmental regulator – the Brazilian Institute of the Environment and Renewable Natural Resources, or Ibama – following an oil leak 74 miles off the coast of Rio de Janeiro.
The ruling came after the super-major accepted full responsibility for the spill that began at its deepwater Frade field on November 7, about 230 miles from the beaches of Rio de Janeiro. Chevron’s multibillion-dollar Frade project, owned in partnership with Brazil’s state-run energy giant Petrobras S.A. (PBR) and a Japanese consortium, was Brazil’s eighth most productive field in September with a daily output of 75,000 barrels of oil.
Chevron’s most recent estimates put the size of the leak at approximately 2,400 barrels, or 100,800 gallons, up from earlier estimates of 400 to 650 barrels. The company has acknowledged that the accident was caused by miscalculation on its part regarding pressure and rock strength in the exploratory well.
While the leak is relatively small compared to last year’s deepwater Horizon rig disaster in the Gulf of Mexico and as claimed by Chevron, has already been contained to a great extent, it has rocked the company’s credibility in Brazil.
With Brazilian officials accusing Chevron of being slow to react to the incident, the third-largest oil producer in the country behind Petrobras and Royal Dutch Shell plc (RDS.A) could have to cough up an additional R$100 million in fines. The company may also lose the right to develop deepwater fields in the South American nation, where it has invested heavily in recent times.
San Ramon, California-based Chevron is one of the largest publicly traded oil and gas firms in the world, based on proved reserves. It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals and other energy-related businesses.
Chevron is currently a Zacks #3 Rank (Hold) stock, implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months. We are also maintaining our long-term Neutral recommendation on the stock.
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