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Page added on August 26, 2011

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China to Sue ConocoPhillips Over Oil Spills

Public Policy

The Chinese maritime authority is preparing to sue ConocoPhillips, the American oil company, over two oil spills in June that engulfed large swaths of Bohai Bay in north China, according to a report by Xinhua, the state news agency.

The report, which appeared on Wednesday, said the State Oceanic Administration was aiming to set up a team of lawyers by the end of the month to sue for compensation. It cited an agency spokesman as saying that 49 Chinese law firms had applied to provide legal assistance.

The two spills, involving 3,200 barrels of oil and drilling fluids, occurred in the country’s largest offshore oilfield, called Penglai 19-3, and spread over at least 324 square miles in Bohai Bay. The Penglai field was co-developed by China National Offshore Oil Corporation, commonly known as Cnooc, and ConocoPhillips China operates it.

As with a vast spill last year from a PetroChina port facility in the city of Dalian, which lies on the edge of the Bohai Sea, environmental advocates and residents of the affected areas have expressed anger with the government over delays in getting news or accurate reports of the spills. But this time, even more fury is directed at ConocoPhillips. That complicates the response of the Chinese government, because it is in the process of luring American companies to China to drill for oil and gas in shale fields.

The Xinhua report said the oil spills had spread to beaches in the provinces of Hebei and Liaoning and were being blamed for a slowdown in local tourism and for economic damage to aquatic farming industries. The report also said “nine new oil spill sources” had been found in the bay as of Aug. 20. John Roper, a spokesman for ConocoPhillips, based in Houston, said Thursday in an e-mail message that the company had not received any notice of litigation.

“As far as compensation goes, we will listen to any requests and follow Chinese law, but we have not received any notification of claims,” he said. “Cleanup efforts are going very well. We are more than 95 percent finished with the cleanup of mineral oil-based drilling mud, and expect to reach our target of being 100 percent by the end of August.”

Mr. Roper said the nine spill seeps that Xinhua cited were not from new leaks but were residual oil and drilling mud from a June 17 spill that were now migrating to the surface. “Divers were only able to see them once the drilling mud was cleared away from the sea floor,” he said. The oil seeps are small, are clustered together and are releasing a total volume of fluids of one to two liters per day “that is being immediately contained and cleaned up.”

Mr. Roper added that there was no more oil sheen on the surface of the water.

In Hong Kong, the chairman of Cnooc, Wang Yilin, addressed the compensation issue on Wednesday.

“If Cnooc is ruled to pay any form of compensation, we will certainly fulfill our commitment and do the right thing,” Mr. Wang said at a briefing for reporters after the company announced its first-half earnings, according to Bloomberg News. “Cnooc is a responsible company and we honor our long-term commitment to the country, people and the environment.”

Georg Storaker, president of ConocoPhillips China, said Wednesday at a news conference in Beijing that the spill in Bohai Bay should not be compared with the disastrous BP spill in 2010 in the Gulf of Mexico. On Thursday, Mr. Storaker’s comments drew derision from some Chinese news organizations and commentators. The English-language edition of Global Times, a populist newspaper, published an unsigned editorial lambasting ConocoPhillips.

“ConocoPhillips is like certain Westerners who live in China,” the editorial said. “They can be quite law-abiding back home, but break the law in China. Some global corporations can even outsmart their Chinese counterparts in under-the-table deals, bribing officials and cutting employee benefits. ConocoPhillips is digging not only a hole in Bohai Bay but also a hole in China’s legal system.”

United States energy analysts say that China is following a delicate political strategy after internal debate among the Chinese authorities about how to punish the American oil company. The Chinese seem to want to show environmental concern, the analysts say, but they will not push hard enough to scare away foreign investment in energy or to embarrass Cnooc.

“China needs all the help it can get to achieve energy efficiency, so they can’t afford to play hardball,” said Fadel Gheit, a senior oil analyst at Oppenheimer & Company. “China will push, but not to the breaking point and be like Hugo Chávez. They need the capital, the technology and market know-how.”

Michal Meidan, an Asia analyst at Eurasia Group, a consultancy, noted that it took a long time for the Chinese authorities to decide on a legal strategy but that they needed to respond to public opinion, especially bloggers who expressed outrage that ConocoPhillips did not publicly reveal the leak immediately. “There is a need for the Chinese to signal caution and concern about environmental protection, but this is very much for a domestic audience,” she said.

She noted that Cnooc, which owns a 51 percent stake in the operation although the American company is the operator, might also be required to pay a fine. “It may only have a symbolic fine or a slap on the wrist officially, but it’s a pretty big deal internally.”

New York Times



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