Taken together, the moves suggest the case may be coming to a quick, negotiated resolution, said Eduardo Santos de Oliveira, the federal prosecutor from the city of Campos de Goytacazes who had first filed civil and criminal lawsuits in the case.

Chevron, the No. 2 U.S. oil company, and its drilling contractor Transocean Ltd face up to $20 billion in damages and some of their executives face jail terms of up to 31 years in the largest environmental prosecution in Brazil's history.

Chevron's operational ban in Brazil was overturned by Guilherme Dienthaeler, a federal appeals court judge in Rio de Janeiro, court press officials told Reuters on Friday. Details of the ruling are unlikely until next week, they said.

The civil case had been taken away from Oliveira and moved earlier this year to Rio de Janeiro. He believes his colleagues are seeking a quick settlement and that they have accepted regulators' arguments that his proposed penalties are too harsh for the size and nature of the spill and could scare off investment in one of the world's fastest-growing oil frontiers.

"I'm disappointed. It looks like it's moving to a negotiated solution," Oliveira said in a phone interview. "I'm afraid we will lose the chance to apply a giant fine and the good that will do for preventing environmental crime."

A ban on operations in Brazil by Transocean, the world's largest offshore oil drilling rig operator, was overturned in September.

Prosecutors had won injunctions banning Chevron and Transocean in July, seeking to assure payment of the nearly $20 billion penalties sought for alleged environmental damage from a the 3,600-barrel spill in the Frade Field northeast of Rio de Janeiro in November 2011.

As long as the ban held, Brazil's oil regulator, the ANP, said it would be unable to consider a petition to restart oil output in Frade. The ban stood even though Chevron accepted a July report criticizing its drilling plan, along with fines of more than $16 million.

In a related development, Chevron and Transocean agreed to a plan to change offshore safety and operating procedures, a spokeswoman for federal prosecutors told Reuters on Friday.

If a final agreement is reached after public consultations, the plan will be presented to the federal judge hearing the suit. That could help the companies by showing their willingness to improve Brazil's oil industry, the prosecutors' office in Rio de Janeiro said.

CONDUCT-CHANGE ACCORD

The agreement, known as a "change-of-conduct accord," was drafted at the request of Chevron and Transocean with the same federal prosecutors handling the civil case, the prosecutors' office said.

It declined to give details of the accord but said they would be presented at a public hearing on December 14 in Rio de Janeiro by federal prosecutor Gisele Porto.

Porto is lead prosecutor on the civil lawsuits against Chevron and Transocean for the spill in Frade.

"Such negotiations usually indicate the desire of a prosecutor to resolve the case quickly," Oliveira said.

Chevron's press office at its headquarters in San Ramon, California, confirmed the ban had been overturned, but gave no further details and declined to comment on the change-of-conduct accord.

Transocean's press officer in Houston declined to comment. Both companies say they committed no crime and acted correctly during and after the spill.

No one was hurt in the Frade accident. No oil reached shore, and there was no discernable environmental damage, according to Brazil's petroleum regulator, the ANP.

Still, Oliveira says the spill was one of the worst environmental disasters in Brazil's history.

The Frade field was producing 62,000 barrels of oil per day when it was shut in March to examine unexplained leaks in the area around the site of the November 2011 spill. Tests determined that the leaking oil was not from Chevron's reservoirs.

Frade is operated by Chevron, which also owns 52 percent of the field. Brazil's state-led Petrobras owns 30 percent, and Frade Japão, owned by Japanese trading houses Sojitz Corp and Inpex Corp, has an 18 percent stake. Neither Petrobras nor Frade Japão is the subject of spill-related prosecutions.

Chevron, Transocean and 17 of their employees and executives also face criminal charges that can carry financial penalties and jail terms of up to 31 years.

The Frade spill was far less severe than other recent offshore accidents. More than 5 million barrels of oil were spilled in the 2010 Deepwater Horizon disaster in BP Plc's Macondo field in the Gulf of Mexico. Eleven people died in the accident, and beaches and fishing grounds were polluted.

On November 15, BP agreed to pay a record $4.5 billion in penalties and plead guilty to criminal misconduct for the disaster.

While criticizing some of Chevron's actions and levying 35.1 million reais ($16.6 million) in fines on the company, the ANP said in a July report that there was no negligence in the 2011 spill. It also said Transocean had no responsibility for the spill.

Both Chevron and Transocean have said they will challenge the civil and criminal cases against them. Chevron shares fell 0.1 percent in New York on Friday to $105.69.

(Reporting by Jeb Blount; Editing by Kieran Murray, John Wallace, Andrew Hay and Leslie Adler)

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