Bloomberg News

Conoco Defends China Spill Response in Face of Public Wrath

September 05, 2011

(Updates with comments from Conoco in eighth paragraph.)

Sept. 6 (Bloomberg) -- ConocoPhillips said it acted promptly to seal leaks at China’s biggest offshore oilfield, rejecting accusations of negligence by state media after a three-month battle to contain the spill off the northeast coast.

The U.S. company was ordered to halt output after “delays, negligence, cover-ups and cheating,” the People’s Daily, a newspaper controlled by the Communist Party, said yesterday. ConocoPhillips’s local unit is “facing the wrath of the Chinese public,” the Xinhua News Agency reported on Sept. 4.

“We have a longstanding commitment to comply with the law where we operate and to conduct all business activities with the highest ethical standards,” ConocoPhillips China Inc. said in an e-mail. “We immediately focused on sealing the source, containment and clean-up activities.”

The Penglai 19-3 field operated by ConocoPhillips has leaked 3,200 barrels of oil since June, less than 0.1 percent of the crude spilled by BP Plc’s Macondo well in the Gulf of Mexico last year. State-controlled Cnooc Ltd., co-owner of the area in Bohai Bay, slumped to the lowest in a year in Hong Kong trading after saying the halt will affect its output target.

“Unless Conoco apologizes sincerely and properly cleans up the spill, the firm has no future in China,” said Gordon Kwan, head of regional energy research at Mirae Asset Securities Ltd. in Hong Kong. “I doubt Conoco will apologize, although it’s prudent for them to do so if they understand Chinese culture.”

Shares Slide

Cnooc shares fell as low as HK$13.18, the lowest since Sept. 1, 2010, and were at HK$13.52 as of 10:03 a.m. local time. The stock has dropped 27 percent this year, outpacing the 15 percent retreat in the benchmark Hang Seng Index.

ConocoPhillips has lost 2.4 percent in New York trading this year. U.S. stock markets were closed yesterday for the Labor Day holiday.

The U.S. oil producer is “deeply regretful” and has deployed global resources to resolve the spills, China National Offshore Oil Corp., Cnooc’s parent, said in a statement on its website today, citing ConocoPhillips Chairman James Mulva.

The production halt will reduce Cnooc’s output by 40,000 barrels a day, on top of a 22,000-barrel-a-day cut since oil started to leak at Penglai’s Platforms B and C, the Beijing- based company said Sept. 4.

The loss is equivalent to 6.9 percent of Cnooc’s daily oil and gas production of 901,369 barrels last year. On Aug. 24, the company cut its full-year output target to 331 million to 341 million barrels, from a goal of as much as 365 million barrels it set in January. Oil and gas production accounts for 99 percent of Cnooc’s income.

Worst Leaks

About 870 square kilometers (336 square miles) of Bohai Bay is polluted from the spills, according to Xinhua. The leaks were China’s worst since a pipeline explosion at Xingang port in Liaoning province on July 16 last year caused about 11,000 barrels of oil to spill into the Yellow Sea.

The Penglai shutdown will have an impact on production from the field, ConocoPhillips said Sept. 2, without giving a figure. The Houston-based company pumped an average 56,000 barrels a day at the field last year, or about 3 percent of its global output.

Chinese authorities ordered ConocoPhillips to halt production at Penglai on Sept. 2 after finding it hadn’t fully plugged the leaks. That undercut a report from the company to the regulator on Aug. 31 saying it had sealed off all sources of the spill.

The leak at Platform B has stopped and there is “no indication that the small, intermittent seeps near Platform C are still active,” the company’s Chinese unit said in yesterday’s e-mail. “We have been and will continue to be a prudent operator,” it said.

Public “memory will be short, and ConocoPhillips can remain if they say the right things,” said Laban Yu, the head of oil and gas research at Jefferies Hong Kong Ltd. “But China is such a small chip for them, they may just not bother and sell their interest. China cannot afford to be too aggressive demonizing international companies because it needs them to do deepwater” drilling and extract unconventional gas onshore.

--Winnie Zhu, Guo Aibing. Editors: Amit Prakash, Ryan Woo.

To contact the reporters on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net; Winnie Zhu in Shanghai at wzhu4@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.


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