Chevron May Reconsider Brazil Exploration After Frade Headache
Brazilian prosecutors plan to allege this week that oil major Chevron (NYSE:CVX) should have refrained from drilling the well that caused the November spill. [1] According to prosecutor Eduardo Santos de Oliveira, the spill was a result of cracks in the geological structures and that the field will continue to leak until the underlying reservoir is emptied. Prosecutors are claiming $10.6 billion in damages in a civil lawsuit against Chevron, its driller Transcoean (NYSE:RIG) and 17 executives belonging to the companies including Chevron Brazil head George Buck. While observers suggest that a large fine may be improbable because of the minor nature of the spill, the aggressive stance taken by the authorities could prompt Chevron to rethink its strategy in the country.
We have a $109 price estimate for Chevron, which is in line with its current market price.
Click here for our full analysis for Chevron.
- What’s Next For Chevron’s Stock?
- Up 7% So Far, What Lies Ahead For Chevron’s Stock Post Q2 Results?
- Is Chevron A Better Integrated Oil Major Pick Over Exxon Mobil?
- What’s Happening With Chevron’s Stock?
- Up 9% Year To Date, Will Chevron’s Gains Continue Following Q1 Results?
- Down 18% Since 2023, How Will CVX Stock Trend Post Q4 Results?
Continuing spill
According to prosecutors, Chevron should not have drilling the deepwater well that lead to about 3,000 barrels of oil leaking into the waters from a crack in the ocean floor. The matter was complicated by the emergence of new sheens in the region last week prompting allegations that the drilling had resulted in irreversible damage to the reservoir. However it has not been proved whether the new leaks are related to the November incident.
Chevron is moving to stop production at the Frade fields to launch a through study of the geology in the region. The fields contribute a net of around 30,000 barrels of oil a day (BOD) to Chevron’s total output.
Analysts have warned that the severe response from authorities over the leak could result in companies taking another look at their investment plans in the country’s massive deepwater reserves. Reuters has pointed out that the larger spills by Brazil’s state owned Petrobras have not prompted such a response from state prosecutors. Petrobras also owns a 30% stake in the Frade fields. The final verdict in the case could have a major impact on Chevron’s investment strategy in the country.
Understand how a company’s products impact its stock price on Trefis.
Related articles
- Brazil Spill Gets More Complicated for Chevron (trefis.com)
- Chevron Suspends Production in Brazil After Fresh Leak (trefis.com)