ConocoPhillips in Hot Water with Chinese Gov’t Over Bohay Bay Spill

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Chinese fishermen are suing ConocoPhillips (NYSE:COP) and are seeking 490 million Yuan ($77 million) in compensation for the June oil spill in the Bohay Bay region where the company operates China’s largest offshore field. [1] The spill released 700 barrels of oil and 2,600 barrels of mineral oil into the ocean, which resulted in a huge embarrassment for ConocoPhillips as it took a drumming from the government for not adequately responding to the situation. [2] Offshore drilling has been in focus lately with competitor Chevron (NYSE:COP) being held responsible for a deepwater spill in Brazil last month.

We have a $79 price estimate for Conoco which is at a 12% premium to its current market price.

Click here for our full analysis of ConocoPhillips.

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Legal challenges

In latest twist to the story, a group of 107 fishermen from the Hebei province have sued Conoco for the spill claiming that the incident was responsible for the death of clams and sea cucumbers in the ocean. [1] The statements were made on Xinhua News Agency by a lawyer representing the fishermen. Conoco has put in place two compensation funds to award damages resulting from the spill in a ‘fair and reasonable’ manner and is working with local partner CNOOC to address environmental issues in the region. [2] Production from the leaking well was suspended in September. The Chinese  government has announced stricter controls over petrochemical projects in the Bay area in response to the incident. [3]

Conoco suffered from a steep fall in production last quarter, and offshore production is seen as one of the major areas of new discoveries in the future. However given the rising number of high profile spills recently, we could see greater oversight and costs associated with these offshore projects.

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Notes:
  1. China Fishermen Sue ConocoPhillips Unit Over Spill, Xinhua Says, Bloomberg [] []
  2. Update on Peng Lai 19-3 Incidents, ConocoPhillips [] []
  3. China eyes controls as ConocoPhillips apologizes for spill, IBTimes []