Conoco Facing Chinese 'Wrath' on Oil Leak Says It Acted Promptly - BusinessWeek

September 05, 2011, 7:28 AM EDT By Bloomberg News

Sept. 5 (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 nation’s northeast coast.

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

“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-mailed reply to questions about the reports. “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 amount 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, had its biggest decline in almost three years in Hong Kong trading after the halt cut 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.”

Cnooc fell 9 percent to close at HK$13.84, the steepest decline since a 13 percent slump on Nov. 6, 2008. The stock has dropped 25 percent this year, outpacing the 15 percent retreat in the benchmark Hang Seng Index. ConocoPhillips has lost 2.4 percent in New York trading.

Cnooc’s Production Loss

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

The loss is equivalent to 6.9 percent of Cnooc’s daily oil and gas production of 901,369 barrels last year. The company on Aug. 24 cut its full-year oil and gas production 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 its income.

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

Future in China

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

Chinese authorities on Sept. 2 ordered ConocoPhillips to halt production at Penglai after finding it still hasn’t fully stopped the leaks. That undercut a report that ConocoPhillips submitted to the regulator on Aug. 31 saying it had sealed off the sources of the leaks.

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 China unit said today’s e-mail. “We have been and will continue to be a prudent operator.”

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 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.

View the original article here