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Conoco, Cnooc Parent Reach $160 Million Oil Spill Settlement

Jan. 25 (Bloomberg) -- ConocoPhillips and China National Offshore Oil Corp. will pay about $160 million to compensate Chinese fishermen for losses arising from oil leaks in the country’s biggest pollution settlement in at least six years.

The companies reached an agreement with the agriculture ministry to pay 1 billion yuan, Conoco, the third-largest U.S. oil company, said in a statement today. That’s more than four times the 234 million yuan ($37 million) 29 fishermen had sought in a lawsuit for the loss of clams and sea cucumbers resulting from spills at China’s biggest offshore oilfield last year.

In a sign that China is cracking down on polluters, Premier Wen Jiabao demanded a “thorough” investigation into the leaks after China’s maritime regulator ordered Conoco on Sept. 2. to shut the field. Houston-based Conoco operates and owns 49 percent of the Penglai 19-3 area in Bohai Bay, while Cnooc Ltd., the listed arm of China National, has 51 percent.

While the settlement may be one of the biggest in China, it’s a “drop in the bucket” for Conoco, said Gordon Kwan, head of regional energy research at Mirae Asset Securities HK Ltd. “I’m surprised China isn’t asking for more,” he said by telephone from Hong Kong. “This doesn’t even pay for two deepwater exploration wells in offshore China.”

Zijin, PetroChina

The compensation surpasses the 3.26 million yuan a unit of Zijin Mining Group Co. agreed to pay last year after the collapse of a tailing dam at a tin mine in 2010 killed 22 people, Xinhua News Agency said Dec. 28. China’s largest gold producer said in May an appeals court in Fujian province upheld a criminal fine of 20.4 million yuan against the company after acidic waste leak from a mine in July 2010 polluted a river and poisoned enough fish to feed 72,000 people for a year.

State-owned PetroChina Co., the nation’s largest oil producer, was fined 1 million yuan in 2005 for a toxic spill that poisoned the drinking water of about 3 million people.

The payments contrast with the $20 billion fund that President Barack Obama demanded from BP Plc to compensate victims of the worst U.S. oil spill. BP paid $7.4 billion to individuals, businesses and government entities affected by the Gulf of Mexico spill by Dec. 23, according to its website.

Conoco will also allocate about $16 million of a previously announced environmental fund to improve fishery resources, the company said in today’s statement.

Tainted Sea

The leaks tainted more than 6,200 square kilometers (2,400 square miles) of Bohai Bay, resulting in losses to the tourism and fisheries industries in Liaoning and Hebei provinces, Xinhua said in a report today. Conoco Chief Executive Officer James Mulva apologized for leaks in a Sept. 6 statement after state media accused the U.S. company of negligence and cover-ups.

China National said on Dec. 24 resuming oil production at Penglai is a priority for 2012 after the closure forced Cnooc to cut its 2011 output target.

Cnooc has declined 17 percent in Hong Kong in a year and gained 0.3 percent to close at HK$15.50 on Jan. 20, the last trading day before the city’s markets shut for the Lunar New Year holidays. Conoco has gained 4.6 percent in 12 months and rose 0.1 percent to $70.61 yesterday.

“This should be taken as a positive sign in that a settlement has been reached, which may be one of the elements needed” before the field can start, David Hewitt, an analyst at Credit Suisse Group AG in Singapore, wrote in an e-mailed response to questions today. “You could argue that a key uncertainty for the stock this year is production growth” at Cnooc, he said.

Target Cut

Cnooc, which relies on fields off the Chinese coast for 80 percent of its production, said on Jan. 19 that it aims to produce the equivalent of 330 million to 340 million barrels of oil in 2012, a gain of as much as 2.7 percent from last year.

Output was about 331 million to 332 million barrels of oil equivalent last year, compared with a revised target of 331 million to 341 million, Cnooc said. Before the leak the company had a target of as much as 365 million barrels.

Cnooc’s state-controlled parent said on Jan. 10 that 29 fishermen had sued the country’s biggest offshore energy explorer. The Tianjin Maritime Court accepted a complaint from fishermen alleging the spilled oil killed their clams and sea cucumbers, the official Xinhua News Agency reported on Dec. 30.

“The company will continue to support and assist ConocoPhillips to deal with the subsequent issues in a proper manner,” Cnooc said in a statement today.

To contact the reporter on this story: James Paton in Sydney at

To contact the editor responsible for this story: Amit Prakash at

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