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The Hypocrisy of Brazil's Chevron Oil Spill Example

NEW YORK ( TheStreet) -- I spent a year living in an apartment that overlooked Guanabara Bay in Rio de Janeiro. It featured the picture postcard view of Sugarloaf Mountain, but another view too: An unending, year-long parade of oil rigs being floated out into the open waters of the Atlantic Ocean.

As the pre-salt boom in Brazil's offshore oil industry took shape in 2007, I had a front row seat (literally). Local papers like O Globo had some fun with the story, too, as the eye-popping statistics came in on how much oil might be trapped beneath the ocean and Brazil came of sudden age as an oil giant: Venezuela's Hugo Chavez began referring to former Brazilian president Lula as "Sheikh Lula" and an image along those lines appeared in print.

Now the ugly side of the pre-salt Brazilian oil boom has been exposed. The spill that occurred late last year in Chevron's (CVX - Get Report) Frade field has resulted in an increasingly hostile battle pitting the oil giant and rig operator Transocean (RIG) against the Brazilian federal government.

The latest development is the barring of 17 Chevron and Transocean officials implicated in the spill from leaving Brazil as they face criminal charges.

The decision to hold the oil executives captive can't be a surprise given the rhetoric that has developed over this oil spill. The Brazilian government is already trying to exact $11 billion in penalties from Chevron for a spill that was equal to 3,000 barrels of oil.

To put the $11 billion proposed fine in perspective, it would work out to something like $4 million per barrel of oil spilled. That compares with a maximum fine -- if BP (BP) is proven to be grossly negligent -- of $4,300 per barrel in the Macondo spill. BP is looking at between $17 billion to $21 billion in total fines if it is proven grossly negligent. The BP spill has been estimated at 3.2 million barrels versus the Chevron spill at 3,000 barrels.

Western oil companies need to be held accountable for environmental violations, and flagrant disregard for good drilling practices. I don't think many people would disagree with that view, not even Chevron's CEO John Watson, who said on the company's last conference call that the best defense for an oil major operating in today's regulatory environment post-Macondo disaster is pretty simple: "Don't put oil in the water."

There were reports late last week of a new oil sheen around the Frade field, too, exacerbating Chevron's difficulties.
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