Chevron Suspends Production in Brazil After Fresh Leak

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Chevron (NYSE:CVX) filed for a temporary suspension of production at its Frade fields in offshore Brazil after the detection of a small oil seep in the region. [1] The suspension has been described as a precautionary measure to study the company’s plans at the field and is subject to approval from regulatory agencies.

A leak at the Frade fields in November last year, resulted in the leakage of around 3,000 barrels of oil. Chevron had to face multiple fines, a $10.6 billion civil lawsuit and a temporary suspension of its drilling rights in the country. Offshore Brazil is one of the most promising regions for exploration attracting a number of other energy players such as Exxon Mobil (NYSE:XOM) and Anadarko Corp. (NYSE:APC) as well.

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Production hit

The Frade fields currently produce around 61,500 barrels of oil / day (BOD) and have a total capacity of producing around 80,000 BOD. [1] Chevron has a 51.74% stake in the fields, which entitles it to approximately half of the output.

If the state regulator accepts the suspension plans, Chevron’s total output could be hit by approximately 30,000 BOD. [2] The suspension could last for a few months according to Chevron’s director of corporate affairs in Brazil Rafael Jaen Williamson.

Exploration of deepwater resources are an important part of Chevron’s strategy to achieve a 20% increase in output by 2017. Apart from the higher costs involved, deepwater projects are also technically complex and have resulted in a couple of high profile spills over the last few years including the infamous U.S. Gulf of Mexico spill involving rival BP.

The state regulator ANP has said that the latest leakage may be because of a crack in the ocean floor. [1] Chevron has said that it has no drilling or water injection operations in the region. It has said that filed for the suspension so that it can complete a comprehensive technical review of the site and gain a comprehensive understanding of the geology of the region around the Frade fields. The output cut should have a marginal effect on the company’s global crude output figures. Earlier this week, Chevron received some positive news when the ANP announced that it could reclaim its drilling rights in the country if it can prove that it has understood the reasons for the earlier leak at Frade.

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Notes:
  1. Chevron halts Brazil production after new leak, Reuters [] [] []
  2. Chevron Requests Authorization to Temporarily Suspend Operations at Frade Field, Chevron []
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