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Brazil judges uphold Chevron, Transocean operating ban

Tue Aug 28, 2012 5:12pm EDT

RIO DE JANEIRO (Reuters) – An injunction banning No. 2 U.S. oil company Chevron Corp and its drilling contractor Transocean Ltd from operating in Brazil while charges over a November oil spill are considered was upheld by a panel of three federal judges on Tuesday.

The judges voted 3-0 to reject arguments by Chevron, Transocean and the ANP, Brazil’s oil regulator, saying that the ANP, and not the courts, has the statutory right to decide who operates in Brazil’s oil industry.

Normally the ANP’s statutory power would prevail over the courts, the judges said. The ANP’s failures as a regulator, though, contributed to the 3,600 barrel November spill. Prosecutors argue the ban is needed to guarantee up to $20 billion in damages being sought in the courts.

As a result, the ban, issued August 1 by another federal judge, was a reasonable judicial remedy to prevent new accidents while the courts consider the merits of civil and criminal charges against Chevron, Transocean and 17 of their employees.

Citing an ANP report on the spill saying Chevron had “an insufficient culture of safety” judge Ricardo Perlingeiro of Brazil’s 2nd Regional Federal Tribunal said from the bench that the ANP “contributed to the accident by failing to do its job as a regulator.”

Expected to take effect in less than a month, the Brazil ban could cost Chevron and Transocean hundreds of millions of dollars in lost business.

It will also disrupt the operations of companies such as Petrobras, Brazil’s state-led oil giant, which leases Transocean rigs to explore one of the world’s most promising oil frontiers. Transocean, the world’s largest offshore rig operator, has 10 rigs operating in Brazil, seven leased to Petrobras, according to the company’s latest fleet report.

While the decision will have little immediate effect on Chevron, which shut its only field in Brazil in March after new oil was found leaking in the area, the ANP will not decide on its application to restart operations until the ban is lifted, ANP officials with knowledge of the case told Reuters.

The ban was requested by independent federal prosecutors who are seeking nearly $20 billion in damages for the spill and have charged 17 Chevron and Transocean executives with crimes that carry jail terms of up to 31 years.

“Until the ban was granted, I really thought this case was not going to go anywhere,” said Eduardo Santos de Oliveira the prosecutor who launched the civil and criminal cases and asked for the ban. “We need to make sure these companies understand that we are very serious about preventing spills.”

De Olveira spoke to Reuters in an interview on Monday.

The ANP has been informed of the decision to uphold the ban and is considering its legal options, a press office spokesman said.

Chevron and Transocean have parallel appeals of the ban under review by judges in the federal courts. They can also appeal Tuesday’s ruling to the main Federal Appeals Court in the capital Brasilia.

Transocean said it will continue its legal battle against the ban as well as against the criminal and civil suits. The August 1 ban, which carries fines of 500 million reais ($245 million) a day, is supposed to take effect 30 days after formal notification of the companies.

Formal notification, which usually means publication in a legal announcement or serving of the ruling on the parties, has not taken place according to people with knowledge of the Chevron and Transocean cases. That means the companies could have nearly a month to appeal the ban before it takes effect.

Many federal court employees have been on strike this month for higher wages, which could have delayed publication of the notification, federal court press officials said.

Chevron and Transocean deny criminal wrongdoing and say the proposed damages are excessive.

“This case is without merit, and Transocean crews acted responsibly and quickly, following the highest industry standards. We have a very strong case and we will use every legal means necessary to prove it,” Guy Cantwell, the director of corporate communications said in an email.

He said Transocean rigs continued to operate in Brazil.

Chevron owns 52 percent of Frade and is the operator. Petrobras owns 30 percent and Frade Japao, a group made up of Japan’s Inpex Corp and Sojitz Corp, owns 18 percent.

Neither Petrobras, Frade Japao, Sojitz or Inpex have been named in any of the lawsuits.

(Additional reporting by Leila Coimbra; Writing by Caroline Stauffer; Editing by Gerald E. McCormick, Bernard Orr)

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