(Brazil, Chevron story, updated to include Transocean, Chevron statement) NEW YORK ( TheStreet) -- A Brazilian federal prosecutor is asking Chevron ( CVX) to pay $10.7 billion in damages related to the company's recent oil spill in its offshore Frade field.

According to a statement sent by Brazilian federal prosecutors to Bloomberg, Brazil will ask Chevron to suspend all activity in Brazil and pay a 20 billion reais fine (or $10.7 billion) through a civil suit. Brazil has already temporarily suspended all of Chevron's activity in the deepwater Brazilian fields.

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. For comparison, the Chevron spill is estimated between 2,000 and 3,000 barrels, while the BP spill has been estimated at 3.2 million barrels.

Transocean ( RIG) was also named in the lawsuit. Transocean was the rig operator in Chevron's Frade field and BP's Deepwater Horizon rig disaster.

"Chevron and Transocean weren't capable of controlling the damages from a spill of 3,000 barrels of oil, which proves a lack of environmental planning and management," the prosecutor's office said in an e-mailed statement to Bloomberg.

Chevron shares declined steeply after the Bloomberg headline, on top of the losses of 2% already booked by the energy sector on Wednesday. Its shares were down 4% after the news broke, though it ended trading down 3%, only slightly worse than the energy sector on a losing day.

Analysts on Wall Street weren't betting on this Chevron drop to last, or for the $11 billion fine to stick, either, and the wording of the Bloomberg article said that the federal prosecutor in Brazil had "asked" Chevron to pay the $11 billion.

One can imagine Chevron will say no, and that Brazil really doesn't want to stick a company with an $11 billion fine in an industry where it has been anxious to increase investment and exploration with Western partners.

"Seems very steep, pretty egregious," said Raymond James oil analyst Stacy Hudson.

"What would be the incentive for any company to stay in Brazil and drill?" asked analyst Phil Weiss of Argus Research.

Keep in mind, Brazil's pre-salt finds off the coast of Rio are among the most important global discoveries of oil. Yet Brazil and its state-run oil company Petrobras can't handle it all, and in fact, Petrobras had to head back to the capital markets last year to raise more money -- a share dilution move that caused George Soros to dump a big block of Petrobras shares.

It's possible that Brazil is aiming to make an example of Chevron and would hand out this gargantuan fine once, as a precedent for everyone else to get their act together, the analysts said, but if Brazil is trying to encourage investment in its oil business, that may not be the best way to get the message across.

For companies looking to secure and then sell assets in Brazil, this type of precedent would also be a dis-incentive. Anadarko Petroleum ( APC), for example, is currently trying to sell Brazilian offshore assets.

It seems likely, according to the analysts, that neither the $11 billion fine or the headline from Wednesday sticks to Chevron, and it settles somewhere, way below $11 billion, with Brazil.

Never say never, but Western oil companies may say never to investing in Brazil if the per barrel oil spill fine is near $4 million.

After the market close on Wednesday, Chevron responded to the suit in a statement that noted the federal prosecutor in Brazil told reporters, but not the oil company, about the civil suit. "Chevron has not received any formal notice of this action. Chevron also has not received any instruction from the regulatory agencies with oversight responsibility for our activities in Brazil regarding suspension of our operations."

The oil major continued, "From the outset, Chevron responded responsibly to the incident at its Frade Field and has dealt transparently with all Brazilian authorities. The flow of oil from the source was stopped within four days and the company continues to make significant progress in containing any residual oil. Chevron has also continued to address the surface sheen, which is now less than a single barrel. There have been no coastal or wildlife impacts."

In the case of the biggest oil spill ever pre-Macondo, Exxon Mobil ( XOM) was fined $150 million for the Valdez disaster in Alaska, the largest fine ever imposed for an environmental crime, at the time, according to the Exxon Valdez Oil Spill Trustee Council. The court forgave $125 million of that fine in recognition of Exxon's cooperation in cleaning up the spill -- Exxon Mobil estimated that it spent $2 billion in clean up. Exxon also paid $100 million in wildlife damages and $900 million in a civil suit with payments stretched over a ten-year period. The Valdez disaster was estimated to be as much as 750,000 barrels of oil, versus the less than 3,000 barrels spilled by Chevron in Brazil.

-- Written by Eric Rosenbaum from New York.

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