Why the threat of prison is another risk of oil exploration

What happens when you mix a cocktail of scandal, professional ambition, raw emotion, bungled public relations, and the dual scents of oil and money? In Brazil, you get 17 oil executives and rig hands from American companies under threat of decades of imprisonment.

In Rio de Janeiro, a federal prosecutor yesterday indicted the men — from Chevron and the oil services company Transocean — for their involvement in a small November oil spill off the Brazilian coast. This is showmanship — Chevron will probably have to pay a large fine, but these men are unlikely actually to sit in prison. Similarly, notwithstanding suggestions to the contrary by Chevron CEO John Watson, the company will take its lumps and continue working in Brazil, if it is permitted to, and most probably anywhere else it can obtain access to billion-barrel oilfields.

Yet the set of events highlights both a new world in which "any small spill is a big spill," as an oilman told me yesterday, and why the flurry of announcements of fresh discoveries around the world are only the beginning. After the find comes local politics, whether it is Russia, Mozambique or the United States.

In the case of Brazil, Chevron has been producing oil from a field called Frade since 2009. The spill occurred in November, and was largely repaired after four days with the reported spillage of about 2,400 barrels of oil (Chevron released this statement, which includes video of the well).

Two factors set the atmosphere for what happened next. The first was BP’s 2010 spill of 5 million barrels of oil into the Gulf of Mexico, which alerted observers around the world not to trust oil company assurances of complete and utter control of deepwater drilling and its risks.

The second was Chevron’s initial public relations response to the Frade spill.  Rather than learning from BP’s misery, Chevron elected to revert to the industry’s old ways. First it defensively said its drilling was not responsible for the spill before conceding that it was. Then it underestimated the extent of the spill, creating more local distrust.

After that, it was a feeding frenzy. Eduardo Santos de Oliveira, a zealous but frustrated prosecutor with a personal vow to make up for prior legal setbacks, saw an opening to strut his legal skills (read this Reuters profile).  With billions of dollars in potential royalties, the spill coincided with a struggle among Brazil’s states and the federal government for the spoils. Magda Chambriard, who was sworn in yesterday as Brazil’s new chief oil regulator and is a no-nonsense oil specialist who understands the risks of production, appears set on ensuring that foreign oil companies truly know what they are doing, rather than simply claiming to (see this PBS piece.). And President Dilma Rousseff has taken a personal interest in the case, saying yesterday that while foreign oil companies are welcome in Brazil, "it is necessary to stay within the limits of security and sometimes below the limits of security," Platts reports.

From here, local politics will be raised to geopolitics: If the issue is still boiling, Secretary of State Hillary Clinton is likely to raise it next month when she visits Brazil; President Barack Obama may do so as well when Rousseff visits Washington in April as well.

Finally it will get down to the usual: Horse-trading between Chevron and Brazil, a return to drilling, and the routine of local politics.