Chevron and Transocean Agree to Play It Safe

Chevron Corp. (NYSE:CVX) and Transocean Ltd. (NYSE:RIG) have both agreed to a “change-of-conduct” accord for their offshore safety and operating procedures as a result of the November 11 Frade oil spill off the coast of Brazil, Reuters reports. The accord is part of a lawsuit filed by Brazilian prosecutors seeking nearly $20 billion in damages, the largest in Brazil’s history.

CHEAT SHEET Analysis: Will the Lawsuit Affect the Company’s Operations?

One of the core components of our CHEAT SHEET investing framework focuses on catalyst that will move a company’s stock. Both Chevron and Transocean’s stocks took a hit in November 2011 when the spill happened, but Transocean bore the brunt of it, falling over 21 percent by December. Shares of Transocean are still down over 31 percent for the two-year period ended this November.

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The field was producing about 62,000 barrels of oil per day when it was shut down ahead of the spill in March 2011. Chevron operates the site and has about a 52-percent interest. Chevron’s stock dipped nearly ten percent in November of 2011 but had pretty much fully recovered by the end of the month.

Brazil’s petroleum regulator, the ANP, reports that no one was hurt in the accident, no oil reached the shore, and there was no discernible environmental damage. Chevron and Transocean have both asserted that they will fight the civil and criminal charges associated with the case as they claim no wrong doing.

Will the Companies Have to Pay Up?

The outstanding liability here is the $20 billion in damages being sought by Brazilian prosecutors. The ANP reports that Chevron was not negligent in operating the rig and that Transocean has no responsibility for the spill. Reports indicate that about 3,700 total barrels leaked during the spill.

The details of the change-of-conduct accord will be presented at a hearing in Rio de Janeiro on December 14, where updates on how much Chevron will need to pay for damages are expected to emerge. As of yet, any settlement is still bogged down in the litigation process.

The Frade oil spill is obviously overshadowed by the Deepwater Horizon disaster for which BP (NYSE:BP) was largely responsible. However, like the Frade rig, Transocean owned the Deepwater rig. The company’s once pristine history has gained a few blemishes recently and these will likely come into play as the the safety procedures are reviewed.

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