Integrated energy behemoth, Chevron Corp. (CVX) recently entered into an agreement with prosecutors in Brazil for settlement of lawsuits concerning an oil spill, off the country’s coast of Rio de Janeiro.
Per the contract, Chevron is liable to pay $41.6 million as compensation for the spillage of about 3,000 barrels of crude oil in Nov 2011, during the drilling activities at the Frade oil and gas field. The field is based 370 kilometers offshore Rio de Janeiro and at a water depth of approximately 1,128 meters.
Frade field produces 60,000 barrels of oil every day and is believed to have recoverable oil of 200 to 300 million barrels. Chevron is the operator of the field with 51.74% ownership, while Brazilian energy giant Petrobras SA (PBR) retains 30% interests in it. The remaining 18.26% is owned by Frade Japá o Petròleo Ltda.
As part of the deal, Chevron will have to take precautionary measures to ensure that no such incident is repeated in the future. The closure of the deal is however, subject to the approval of the federal court.
Chevron was utilizing the rig of Transocean Ltd. (RIG), an offshore drilling giant, when the oil-spill incident occurred. However, as per the contract, Transocean will not have to pay any charges on account of the accident.
Regulatory government authorities concluded that damages owing to the oil spillage were not that grave, contrary to what they had originally thought. As a result, Chevron will have to make a payment of only $41.6 million, which is far below the Brazilian prosecutors’ initially estimated figure of $20 billion. Moreover, the aforesaid payment agreed upon by Chevron takes care of all the damage claims charged by the federal prosecutors of Brazil.
San Ramon, CA-based Chevron 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.
Chevron currently holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can have a look at integrated oil and gas firm Braskem SA (BAK) that offers value. The stock sports a Zacks Rank #2 (Buy).