Chevron Ordered To Halt Operations; Could Impact Annual Output

CVX: Chevron logo

A Brazilian court ordered Chevron (NYSE:CVX) to halt its operations in Brazil until the investigation related to the spills at the Frade fields are complete. The oil major will have to stop operations in 30 days or face penalties as high as $250 million. [1] The ruling follows an appeal from federal prosecutors after an initial attempt to halt Chevron’s operations was denied. The ruling will delay Chevron’s plans to restart operations at the Frade fields, which contribute about 30,000 barrels/day or about 2% of its global liquids output.

We have a $115 price estimate for Chevron, which is at a 5% premium to its current market price.

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Legal backlash

Chevron has been subject to a harsh response after a seepage near its drilling operations at the Frade fields resulted in an estimated 3,000 barrels of oil leaking into the ocean. The Brazilian state regulator ANP recently concluded its investigation into the incident and blamed Chevron for 25 infractions and imposed a penalty of around $25 million on the oil major. [1] ANP’s report also raised hopes that Chevron would be allowed to resume production at the facility soon. However, the latest ruling could defer the resumption of operations by several months. The court statement orders Chevron to halt production until investigations being carried out by the federal prosecutors office, the regulator and the environmental agencies conclude in November and March.((Brazil Court Orders Chevron, Transocean to Halt Operations, Bloomberg))

Chevron has said that it will appeal against the ruling. The company maintains that it followed standard industry practices in response to the spill and that it is actively preparing to restart production at the Frade facility. The ongoing legal process could also have an impact on Chevron’s future investment plans in Brazil’s growing offshore industry. Presently, apart from its operating stake in the Frade fields, Chevron also holds non-controlling interests in Papa-Terra and Maromba fields in the Campos basin. [2]

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  1. Brazil Court Orders Chevron, Transocean to Halt Operations, Dow Jones [] []
  2. Brazil – Business Portfolio, Chevron []