Chevron Still Good for $109 Despite Brazil Ban for Leaks & Poor Handling

November 28th, 2011 by Trefis Team
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Chevron (NYSE:CVX) was temporarily banned from drilling in Brazil which was a setback to the company’s investment plans in the country. Brazil’s oil and gas regulation authority ANP took the decision after accusing the oil major of negligence in gathering data while preparing for the drill that resulted in the leakage. [1] [2]  The ban will be in place until Chevron clarified the reasons behind the Nov. 8th spill. Other oil majors such as Exxon Mobil (NYSE:XOM) are also planning to expand exploration in the Brazilian deepwater sector.

We have a $109 price estimate for Chevron which is at a 16% premium over its current market price.

Click here for our full analysis of Chevron.

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Chevron accepts blame

Chevron had earlier announced that it would take full responsibility for the spill off the Frade fields saying that it was caused because workers encountered unexpected pressure while drilling a well. The company had initially blamed the oil sheen on naturally occurring seepage. In front of a congressional commission, the CEO of the Chevron’s Brazil operations said that the company was at a loss at understanding how the oil had risen 173 meters after the rock they were drilling in parted. [2] The company took 4 days to control the leak which has now been reduced to the leak of a few oil droplets which is expected to stop in a few days.

Production at the Frade fields continued without any interruption. Chevron owns a 51.7% stake in the field which produces 79,000 barrels of oil a day and accounts for almost 1% of Chevron’s worldwide production. [2] Chevron risks being turned into an example for other oil firms venturing into the offshore sector in Brazil as the government tries to minimize oversights that lead to oil spills in the future. [1] Chevron has already been fined $28 million and additional penalties are expected in the future from other agencies probing the spill.

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Notes:
  1. Brazil suspends Chevron over oil spill, FT [↩] [↩]
  2. UPDATE 4-Brazil suspends Chevron’s drilling rights, Reuters [↩] [↩] [↩]