Transocean Ordered to Halt Drilling off Brazil over Oil Spill Investigation

on Sep 28, 2012
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On 28 September 2012, The Financial Times reported that the world’s largest offshore oil driller, Transocean (NYSE:RIG, FRA:TOJ), was served with a preliminary injunction by a federal court in Rio de Janeiro, ordering the company to cease operations in Brazil within 30 days. The court order is part of a criminal investigation into an oil spill in the Atlantic Ocean off Rio de Janeiro in November 2011.

As noted in a company press release, Transocean “is vigorously pursuing the overturn or suspension of the preliminary injunction, including through an appeal to the Superior Court of Justice”. Bloomberg reports that the company, a provider of offshore contract drilling services for oil and gas wells, supplies eight rigs to Petroleo Brasileiro (NYSE:PBR), which produces more than 90 percent of Brazil’s oil. Maria das Gracas Foster, CEO of the Brazilian producer, pointed out on September 20 that the rigs were crucial for meeting the company’s production targets.

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!m[](/uploads/story/485/thumbs/pic1_inline.png)“If they shut them down it’s going to hurt Petrobras, that’s why Petrobras and the Brazilian oil regulator are doing everything in their power to help them with this court issue,” notes Judson Bailey, head of oil services at International Strategy & Investment Group, as quoted by Bloomberg. “The clock is ticking. They’ll appeal and we’ll see what happens from there.”

The injunction is part of an investigation of an estimated 3,000-barrel leak in November 2011, at an offshore oilfield, operated by the US oil company Chevron (NYSE:CVX), which Transocean had been contracted to drill. The FT reports that the oil spill occurred when workers encountered unexpected pressure while digging a well. In March 2012, the incident was followed by another small leak, which is still being investigated. Chevron, which suspended operations in Brazil as early as March, was served a suspension order on September 25. Bloomberg quotes Kurt Glaubitz, a Chevron spokesman, as saying that the company will seek all legal means at their disposal to overturn the injunction. Transocean has also vowed to continue to appeal, adding that there has been no evidence of damage to human health or marine life as a result of the November spill.

The FT reports that while the leak is less than 0.1 percent the size of the infamous Gulf of Mexico oil spill, it has sparked a huge backlash in Brazil, with authorities fighting for power over the country’s newly-found oil reserves. The FT quotes the environmental lawyer Lucas Dantas Evaristo de Souza, who noted that the oil spill has had huge repercussions nationally perhaps because the authorities in Brazil “want to make an example of them to stop other foreign companies doing the same thing.”

Bloomberg reports that following the court order, Transocean slid 1.4 percent in New York. As noted in the press release, the company’s operations in Brazil accounted for approximately 11 percent of consolidated operating revenues for the six months ended June 30. The company however notes that “absent relief from the courts”, it will be required to comply with the preliminary decision.

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