Energy & Resources, Talking Point

ConocoPhillips in the dock

US oil firm under fire for poor handling of offshore spill

ConocoPhillips in the dock

In focus: the media spotlight on the Bohai Bay spill is growing

The first man-made ‘oil spill’ was probably in Turkmenistan in 329 BC, reckons company magazine Aramco World.

Blame servants of Alexander the Great, who hit a gusher while pitching the Macedonian warrior’s tent.

Oil spills today have an impact of much larger magnitude, of course. The Deepwater Horizon disaster in the Gulf of Mexico last year was one of the seminal news events of 2010, hogging the headlines for months.

By contrast, an oil drama currently unfolding in Bohai Bay in northern China has been largely ignored by the international TV networks. That may change, as coverage of events in China continues to grow.

What happened?

Oil was first discovered in the area in 1999, with ConocoPhillips subsequently exploring further for the hydrocarbon in a joint venture with CNOOC (the US firm has 49%, the Chinese oil major the remainder).

But on June 4, oil began seeping onto the ocean floor near the Penglai 19-3 drilling platform, operated by ConocoPhillips.

According to Beyondbrics, an FT blog, a second oil leak was spotted at another drilling site a fortnight later, prompting ConocoPhillips to plug up and abandon the well.

Although the US firm claims to have reported the leak promptly, no public news emerged until early July, when the accident was exposed by CBN, a Chinese newspaper.

Public anger then began to build at the seeming inactivity of the local authorities (at first, a small fine was mentioned) and in response to the (initially) unapologetic attitude of the two oil firms involved.

The mood worsened when media reported evidence of 10 further oil seepages into the sea. Local fishermen began hiring lawyers to demand compensation.

Media attacks

CNOOC quickly told CCTV that the responsibility for the spills lay with rig operator ConocoPhillips.

Meanwhile the Houston-based company estimated the spill at 3,200 barrels and said its inspection teams had patrolled 4,700km of shoreline and found only small amounts of oil.

These figures didn’t convince a sceptical public, and government officials also began to question the ConocoPhillips stance, insisting that the spill had now spread over 840 square kilometres, reaching beaches in distant Hebei province.

Last year, Obama wanted “to know whose ass to kick” over the BP spill. But strongman sound bites aren’t really Hu Jintao’s style, and the leadership initially declined to comment on events.

Instead, government frustration has been channelled through the state-run media.

The Global Times went onto the attack first, incensed that it had taken two months for ConocoPhillips to hold its first news briefing on the incident.

Nor was it happy with the firm’s insistence that there was no comparison with the BP disaster. “Why cannot ConocoPhillips be compared with BP?” thundered the newspaper, going on to accuse it of “taking it easy” and being a “troublemaker”.

There was similar editorial in Guangming Daily (“Why is ConocoPhillips so arrogant?”), while the People’s Daily weighed in with accusations of “delays, negligence, cover-ups and cheating”.

The Economic Observer at least attempted an explanation of the Conoco response. Legally- speaking, China’s Marine Environmental Protection Law exposed the company to a maximum fine of Rmb200,000. That being the case, why offer billions of dollars in compensation? “When in Rome, do as Romans do,” it concluded.

The Global Times agreed that there was a gap between business practices in China and those abroad. “ConocoPhillips is like some people from Europe and America who generally follow the rules in their home country, but in China have learned to run a red light,” it complained.


Sensing the growing disquiet, China’s State Oceanic Administration then gave ConocoPhillips an end of August deadline for cleaning up the spill. Last Friday it announced it was unsatisfied by the efforts, saying that ConocoPhillips had “not fulfilled its responsibility as a reasonable and prudent operator” and ordering a production shutdown of China’s largest offshore field. By Sunday, operations were suspended – meaning a daily loss of 62,000 barrels.

Nationalism at work?

Some now suggest that the response has become tinged with nationalism.

Says The Economist: “After so many environmental accidents involving Chinese companies (often government-linked), the government must be relieved that a foreign company is taking the heat.”

It also remains open to question whether this ranks as China’s biggest spill. Shortly after BP’s Gulf debacle last year, an oceanside pipe burst near Dalian. Greenpeace estimated that between 450,000 to 650,000 barrels of oil got into the sea, signficantly more than ConocoPhillips is saying from the Penglai rig.

But that time, the media was under orders to take a less critical approach, possibly because state-owned PetroChina was the rig operator.

But Li Chengpeng, a blogger with 3.6 million followers who rarely toes the government line, says there is more to the anti-ConocoPhillips mood. “I feel this has nothing to do with patriotism, but involves environmental protection, business moral hazard and monopoly collusion,” he writes. “The responsible party must be prosecuted. I suggest we refer to the US government’s intensity in dealing with the Gulf oil spill to punish ConocoPhillips and let it go into bankruptcy…”

So why the mood change?

Commentary on the internet and in the print media is becoming less tolerant of high-profile mistakes, whether they are committed by Chinese entities or foreign ones.

Witness the pillorying taken by the Railways Ministry in the wake of the bullet train crash in June.

Or the fact that Dalian Petrochemical Company – a subsidiary of PetroChina – has also been heavily criticised recently. When a storage tank in Dalian caught fire this summer, the second accident in as many months, there was an outcry about the plant’s safety record (a pipeline also exploded last year and another fire broke out).

Experts say that the Penglai incident shows public concern about environmental accidents is rising. Perhaps as a result, the State Council finally offered its first direct comments this week, as Wen Jiabao ordered an official probe of the spill.

Against that, authorities are cautious about being too critical in such cases, as they don’t want to see deepwater exploration labelled as too risky. Foreign partners are still needed for deepwater operations too.

And the financial impact?

CNOOC’s oil output has been reduced by the field’s shutdown, and its stock fell 9% on the day it was announced. ConocoPhillips has also seen its shares decline, given the field constitutes around 3% of its global output. More financial pain for the US firm is set to come too. The Wall Street Journal reports that ConocoPhillips will establish a compensation fund – perhaps to head off all the bad PR – although its size has yet to be confirmed.

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