The ban was originally imposed in July this year by a court in Rio de Janerio following two leaks in the deepwater Frade Field, which led to a spill of approximately 3,600 barrels of oil. Brazil’s National Petroleum Agency (ANP), which appealed against the original ban, believes that the suspension of the companies’ operations in the country could cause safety problems and economic harm.
A Brazilian federal district prosecutor has filed two civil lawsuits seeking $10.7 billion in damages for each of the two leaks and has also filed criminal charges against 11 Chevron employees. Further, ANP has sanctioned Chevron and said it would fine the company for any wrongdoing relating to the spill, but has cleared Transocean.
Chevron’s Brazilian operations consist of working interests in three deepwater fields in the Campos Basin. The company’s production in 2011 averaged 35,000 oil-equivalent barrels per day, composed of 33,000 barrels of crude oil and 13 million cubic feet of natural gas. This constitutes around 1.5% of its international net oil-equivalent production.
Chevron stated in its annual report that it followed all protocol in curbing the leak and that there is no evidence of any environmental impacts related to the spill. It believes that there is no basis for the damages sought by the prosecutors and will work to overturn the injunction.
The company’s international net oil-equivalent production averaged 1.97 million barrels per day for the first half of 2012, which is 60,000 barrels per day lower than a year ago. This is partially due to the shut-in of the Frade field following the second leak in March this year. The field, along with the company’s other operations in the country, will remain non-operational until some kind of settlement is reached between the companies and the Brazilian authorities.
If the ban continues over an extended period, say until the end of 2014, Chevron’s Global Liquids Production Volume will reduce by 33,000 barrels per day, and Global Natural Gas Production Volume will decrease by 13,000 mcf per day during that time period. This would have a marginally negative impact on our price estimate, assuming production resumes after 2014 and other operations are unaffected.
A bigger concern, however, would be the impact of the penalties. If Chevron is found liable to pay damages of $10 billion and settles this using its cash reserves, there would be a 4% downside to our price estimate.
We currently have a Trefis price estimate of $115 for Chevron, which is in-line with the market price.Notes: