The talks over a possible settlement reinforce expectations of a swift resolution for Chevron , the No. 2 U.S. oil company, and its drilling contractor Transocean Ltd.
Related moves by Brazil's oil regulator, the ANP, could also lead to a quick restart of output at Chevron's Frade field, the location of the spill, which has been shut since March.
"We could have an agreement before Christmas," Gisele Porto, the prosecutor responsible for the case, said after a public hearing. "The amount is reasonable, and I don't think I could get a judge to sign off on more."
She said Chevron and Brazil's oil regulator, the ANP, suggested that the settlement include 311 million reais worth of damages and additional measures to improve the safety of offshore oil operations.
"It's our understanding that if this settlement is accepted that the civil lawsuits will be extinct," said Rafael Jaen Williamson Chevron's director of corporate affairs in Brazil.
Chevron will pay the entire cost of the settlement, Williamson said. Transocean was found to have no responsibility in the spill by the ANP.
The expected settlement amount is less than 1 percent of the nearly $20 billion in damages initially sought by prosecutors in the case, Brazil's largest-ever environmental prosecution.
"The prosecutor asked for too much and asked for it before investigations of the spill were even complete," said Porto, who took over the case earlier this year.
The proposed settlement represents between six weeks to two months of Chevron's share of output from the Frade field.
Chevron has a 52 percent stake in the Frade field, which was producing 60,000 barrels a day before it was closed on March 15. The heavy crude pumped at Frade trades at a discount to Brent crude, which has averaged $110.33 per barrel since then.
Brazil's state-led Perobras owns 30 percent of output from Frade and Frade Japan, a Japanese group controlled by Sojitz Corpand Inpex Corp , owns 18 percent.
"I'm extremely disappointed," said Eduardo Santos de Oliveira who launched the original lawsuit but handed off the case to Porto and colleagues when it was moved from Campos de Goytacazes to Rio de Janeiro in April.
"I think this sends a message that you can pollute and then escape a conviction by just paying a fine, I don't think that's right," he said in a telephone interview on Friday.
Chevron, Transocean and 17 of their employees also face criminal charges that carry jail terms of up to 31 years in the largest environmental prosecution in Brazil's history.
That case has also been shifted to Rio de Janeiro and will be handled by Porto.
OUTPUT EXPECTED TO RESUME
While smaller than the fines originally requested by Oliveira, Chevron's Williamson said the value of the proposed settlement is well above what other such cases would suggest.
Using the amounts paid to settle lawsuits in the 750,000-barrel Exxon Valdez spill in Alaska in 1989 and the 5-million-barrel 2010 Deepwater Horizon disaster the Gulf of Mexico, Chevron lawyers determined that 30 million reais would be a reasonable amount for its 3,600 barrel spill.
Chevron and the ANP proposed paying 90 million reais, or triple its baseline estimate, for environmental damages, Porto said. The rest of the settlement's cost would be to pay for equipment and measures to prevent future spills.
In a separate regulatory case, the ANP is wrapping up its investigation of the spill by checking if Chevron has taken the necessary steps to correct problems, said Raphael Moura, operational security superintendent of the ANP.
If inspections of the installations in the Frade field are satisfactory, Chevron could be given the go ahead to restart production within two months, Moura said after the hearings.
"We'd be ready to ramp up production almost immediately," Williamson said. He added that permission to drill new wells or restart water injection to boost output would require additional regulatory clearance.
No one was hurt in the Frade accident. No oil reached shore, and there was no discernable environmental damage, according to the ANP. Nor was there any measurable harm to marine animals, Chevron lawyers said at the presentation.
In the Exxon Valdez and Deepwater Horizon cases thousands of seabirds and other animals such as whales and turtles were killed and fishing grounds were polluted and disrupted.
Eleven were killed and 17 injured in the fire on BP Plc'sDeepwater Horizon drilling rig.
On November 15, BP agreed to pay a record $4.5 billion in penalties and plead guilty to criminal misconduct charges in the United States.
(Reporting by Jeb Blount; Edited by Brad Haynes and Leslie Gevirtz)