Brazil: Chevron Needs to Indemnify Transocean for Frade Spill Claims?

On or about November 7, 2011, an oil leak occurred  in the vicinity of a development well being drilled by Chevron off the coast of Rio de Janeiro in the Frade field with a semisubmersible drilling rig, the SEDCO 706, owned by a subsidiary of Transocean.

The incident involved the release of hydrocarbons from fissures in the seabed. The development well was killed and the oil spill, estimated by Chevron to be approximately 2,400 barrels, is being contained by Chevron. There are no reports of the oil spill reaching the shoreline.

The oil spill has given rise to investigations and a civil lawsuit by a federal prosecutor against Chevron and Transocean. The lawsuit, filed on December 14, 2011, in the federal court in Campos, Brazil, seeks damages from both companies and suspension of their activities in Brazil. Transocean has not been served with this action.

On December 21, 2011, a Brazilian federal police marshal issued a report to the federal prosecutor in Rio de Janeiro, Brazil, in connection with the release, recommending the indictment of a Brazilian subsidiary of Transocean and five of its employees along with a Brazilian subsidiary of Chevron Corporation and several of its employees.

“Transocean’s drilling services contract with Chevron for the SEDCO 706 requires Chevron, among other things, to indemnify Transocean for pollution or contamination based claims arising below the surface of the water.” said Transocean on its website.

Brazilian Federal Prosecutor recently asked the Federal Court to order Chevron and Transocean to pay a compensation of $10.6 billion for environmental damages made by the spill.

The prosecutor also asked that all the companies’ activities be banned until the matter is resolved.

According to Brazilian newspaper O Globo, the state prosecutor Eduardo Santos de Oliveira accused Chevron and Transocean of not being able to control the damage caused by the spill, and also for the lack of planning and environmental management.

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Offshore Energy Today Staff, December 26, 2011; Image: ANP Brasil