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Kicking Transocean Out of Brazil May Cost Petrobras Millions in Lost Revenue

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September 18, 2012

(Bloomberg) — Petroleo Brasileiro SA’s plan to boost oil production is being threatened by a court ruling that bans drilling contractor Transocean Ltd. from operating in Brazil, said a government official with knowledge of the matter.

State-run Petrobras, which runs fields producing more than 90 percent of Brazil’s oil and gas, is affected because it hired Vernier, Switzerland-based Transocean to drill 24 wells that would boost output by 240,000 barrels a day, said the official, who declined to be named because he isn’t authorized to speak publicly about the matter. Petrobras, based in Rio de Janeiro, produced 1.95 million barrels a day last month, down from 1.97 million a year earlier, according to its website.

Transocean was banned from operating in Brazil after an oil spill at Chevron Corp.’s Frade field off the coast of Rio in November. The ban, issued by a lower court, was upheld by the Superior Justice Court in Brasilia last week and can be appealed at the Supreme Court. The rulings also affect Chevron, which operates Frade using a Transocean rig.

The court dispute is threatening Petrobras’ attempt to increase domestic production after posting a second-quarter loss of 1.35 billion reais ($665 million), the first in more than a decade. Petrobras is investing about $236 billion in the five years through 2016 to more than double oil output by 2020 and expand gasoline production.

Petrobras is closely following the legal case and awaits a final ruling to make further comments on the matter, the company said in an e-mailed response to questions.

Petrobras ‘Risk’

“There is indeed a risk for Petrobras,” said Nataniel Cezimbra, equity analyst at Banco do Brasil SA. “But we’re not reviewing our target price right now because the company hasn’t been formally notified yet and it is going to appeal the decision,” he said in a telephone interview from Sao Paulo.

Petrobras was little changed with a 0.2 percent drop to 23.25 reais in Sao Paulo trading today.

“There are still many ways for Transocean to contest the injunction decision, and we will use all available resources to prevent a shutdown,” Guy Cantwell, a Houston-based Transocean spokesman, said in an e-mailed response. “We remain confident that the facts of this event clearly demonstrate that Transocean’s crew did exactly what they were trained to do, acting responsibly, appropriately and quickly, and putting safety first.”

Brazil’s oil regulator, known as the ANP, will appeal the ruling at the Superior Tribunal, the agency said in an e-mailed response to questions.

Officials at Brazilian President Dilma Rousseff’s press office didn’t return phone calls and e-mails seeking comment.

Transocean has a total of 10 rigs in Brazil, eight of which are being used at Petrobras fields. One of them was being used by Chevron’s Frade, and another rig is under maintenance.

Transocean fell 1.7 percent to close at $45.79 in New York.

– Mario Sergio Lima and Maria Luiza Rabello, Copyright 2012 Bloomberg
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