(CVX) Chevron Fined $17.3 Million for Oil Spill

Energy major, Chevron Corp. (CVX) paid a fine of approximately $17.3 million (35.1 million real) for a major oil spill off Rio de Janeiro state last November. The fine was levied by Brazil’s National Petroleum Agency (ANP).

Chevron got a discount of 30% for not appealing against the charges of 24 violations out of 25 imposed by ANP. The mishap occurred during the company’s operations in Frade Field, northeast of Rio de Janeiro. During the drilling accident, around 3,700 barrels of crude oil seeped from cracks into the seabed.

Management at ANP said that Chevron could also be fined for abandonment of the well within the next two months. A further fine of $50,000 could be imposed for other items.

Transocean Ltd. (RIG), Chevron’s drilling contractor at Frade also faced civil lawsuits, but was cleared of any wrongdoing in case of this spill. Both the companies were ordered to stop their oil drilling and shipping activities by the Brazilian court within 30 days.

Chevron was also fined $33.4 million in 2011 by the Brazilian environment institute – Ibama – against charges of environmental damage and its emergency plan failure during the accident.

San Ramon, California-based Chevron Corporation is one of the largest publicly traded oil and gas companies in the world, based on proved reserves. It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.

Management made significant progress in re-balancing Chevron’s asset portfolio by divesting non-core and high-cost assets. The company’s decision to sell its marketing businesses in Kenya, Nigeria, Uganda, Western Africa and Brazil is part of that strategy. In particular, Chevron plans to exit the low profit generating business and concentrate on the discovery of oil and gas worldwide.

Chevron conducts operations in many countries. As such, the company is exposed to risks associated with doing business abroad. Such risks include embargoes and/or expropriation of assets, exchange rate risks, terrorism and political/civil sentiment, and others.

Chevron currently holds a Zacks #3 Rank (short-term Hold rating). We also maintain a long-term Neutral recommendation on the stock.


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