Zacks_Analysts' Blog : Conoco to Prevent Peng Lai Leak - Analyst Blog

ConocoPhillips China Inc., a Chinese affiliate of ConocoPhillips (COP) got the nod from its partner CNOOC Limited (CEO) to advance with depressurization and sealing plans to check sources of leakage in the Peng Lai 19-3 Field. These preventive measures were called for by the State Oceanic Administration of People’s Republic of China (SOA).

The latest plan was put in action after the Chinese government gave an order to halt production at the fields to stop any further environmental damage and ensure safety of the field, protection of the reservoir and reservoir pressure reduction.

The depressurization plan entails the restart of a number of wells in the field to release fluid from the reservoir. It would also reduce pressure from the wells located at the high pressure zones or near the natural fault that was to a certain extent responsible for the oil spill, which started in June.

Additional measures also include drilling activities and other related operations by the operator, ConocoPhillips, on six wells in Platform B and C.  The sealing plan involves the safety of relevant operations.

As the majority partner, CNOOC requires the operator to put in place a stricter vigilance on reservoir condition, particularly reservoir pressure during the process of fluid discharge and depressurization. The operator also needs to present these monitoring results to CNOOC at regular intervals. On its part, CNOOC will continue supporting ConocoPhillips to ensure execution of those plans.

With the implementation of this plan, ConocoPhillips can hope for some respite from public condemnation and law suits filed against it. Both ConocoPhillips and CNOOC hold a Zacks #3 Rank, which translates into a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on ConocoPhillips while an Outperform rating on CNOOC.