Case 4:12-cv-01976 Document 12-1

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Accident Investigation and Handling Report by the PL19-3 Oil Field Spill Joint Investigation Team
Source: State Oceanic Administration (SOA) Updated on: 06/21/2012 Print this Page Close Window

On June 4th and June 17th, 2011, two oil spills occurred in the PL19-3 oilfield. The relevant investigation and handling of the accidents are as follows:

I. How the Accidents Happened and the Emergency Response 1. General Information about the PL19-3 Oilfield PL19-3 oilfield is located in Block 11/05 Contract Area of central-southern Bohai Bay, and in Tan-Lu fault zone of the northeast end of the middle section of the Bonan convex belt, 3817'~3827' N, 12001'~12008' E. Within the field area, the average water depth is 27-33 meters. The oilfield was developed in two phases: in December 2002, Platform A of Phase I was put into production; from July 2007 to April 2011, Platforms B, C, D, E, F & M of Phase II were put into production in sequence, among which Platform B in May 2008 and Platform C in July 2007. Currently, the oilfield has 193 production wells, 53 water injection wells and six cuttings re-injection wells. In 2010, oil production was 7.78 million tons. In May 2011, production of crude oil was 23,000 tons per day. In accordance with the contract, the oilfield is jointly explored and developed by the China National Offshore Oil Corporation (hereinafter referred to as CNOOC) and ConocoPhillips China Inc. (hereinafter referred to as COPC) in the form of Sino-foreign cooperative venture, with CNOOC holding 51% equity and COPC 49%. The Joint Management Committee formed by both parties is responsible for reviewing and approving important matters related to the development of the oil field. 2. How the Incidents Happened and the Emergency Response At about 7 pm on June 4th, 2011, the North Sea Branch of SOA received a call from COPC, the Operator of the PL19-3 Oilfield, reporting that a small trace of oil film of unknown source was found on the water surface near northeast of Platform B. The North Sea Branch immediately required COPC to respond rapidly and make internal examination, and at the same time started emergency monitoring on the situation of the released oil. On June 12, oil fingerprinting results showed that the oil spill was from the PL19-3 oilfield, and the North Sea Branch immediately
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initiated an emergency response. COPC took several measures on Platform B, including shutting down the injection wells, conducting flow back to release the pressure, etc. On June 19th, the oil spill was basically under control. At 11:00 am on June 17th, China Maritime Surveillance Ship 22, during its emergency surveillance in PL19-3 oilfield, spotted a large amount of oil spilled around Platform C and in nearby waters. It was then confirmed that a

well overflow took place in Well C20 of Platform C, causing crude oil and oil-based mud to be released into the sea. On the same day, SOA had an emergency meeting with the main persons-in-charge from COPC and its partner CNOOC, requiring COPC to take all effective measures to control the spill source and collect the spilled oil as quickly as possible. COPC immediately sealed Well C20 with cement, and deployed a large number of emergency response personnel and equipment to fully recover and clean up the spilled oil. As a result, on June 21st, the oil spill was basically brought under control. As of June 22nd, floating oil had basically been cleaned up on the water surfaces other than those near Platforms B and C. Due to the consideration that the oil spill had not been completely controlled, and the investigation and sealing of the spill sources was making slow progress, on July 13th, SOA decided to suspend production operations in Platforms B and C. On July 20th, SOA ordered COPC to "thoroughly examine areas with spill risks and thoroughly seal the oil spill sources" ("two completes") before August 31st. On August 18th, a Joint Investigation Team was established, in which SOA took the lead. As of August 31st, COPC failed to meet the two completes set by the department in charge. Besides, considering that poor production operations may continue to cause new formation damage and oil spill risks, on September 2nd, based on the views of the Joint Investigation Team, the entire PL19-3 Field was ordered to implement the "three stops" (to stop injection, stop drilling and stop production), the "three continuances" (to continue to examine the areas with spill risks, continue to seal spill sources and continue to clean up the spilled oil) and the "two adjustments" (to adjust the Overall Development Plan and adjust the marine environmental impact report).

II. An Overview of the Investigation and Handling of the Incidents The CPC Central Committee and State Council attached great importance to the incidents, with Premier Wen Jiabao, Vice Premier Li Keqiang, Secretary Zhou Yongkang, Vice Premier Hui Liangyu, Vice Premier Zhang
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Dejiang, State Councilor Ma Kai, etc. giving important instructions on many occasions. Premier Wen Jiabao and Vice Premier Li Keqiang have separately chaired executive and thematic meetings of the State Council to study and handle the oil spills. On August 18th, 2011, a Joint Investigation Team of the PL19-3 Oil Field Spill was established, in which SOA took the lead and Ministry of Land and Resources, Ministry of Environmental Protection, Ministry of Transport, Ministry of Agriculture, Administration of Work Safety, and National Energy Administration participated. The team is primarily responsible for a thorough investigation of the spill incidents in terms of the causes, nature, responsibilities, damages, etc. The Joint Investigation Team consists of integrated, technical and evaluation teams. Besides, 15 authoritative experts in geology, oil reservoir, drilling, environment, ecology and fisheries from various Chinese research institutes and large enterprises were invited to form an advisory group and participate in the investigation work. The Joint Investigation Team has a highly responsible attitude, acts in accordance with laws and truth and cooperates closely. It has held 12 plenary meetings, studied major issues, conducted field investigations in oil spill sites and platforms twice, listened to reports from COPC and CNOOC several times, and consulted a large number of original records and related documents. Finally, it has identified the causes, nature, responsibilities and damages of the incidents.

III. Causes, Nature and Responsibilities of the Incidents 1. Cause of the Oil Spill (1) Direct Causes Re: Oil spill near Platform B. On June 2nd, when Well B23 experienced anomalies of significant increase in water injection amount and decrease in injection pressure, COPC did not suspend injection or determine the causes in a timely manner; instead, it maintained pressure and continued the water injection, resulting in high pressure in some water injection zones and the opening of an existing geological fault. Upward flows formed along the fault and finally an undersea oil spill occurred.

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Re: Oil spill near Platform C. Cuttings re-injection of Well C25 violated the provisions of the Overall Development Plan. Without reporting to higher authorities and relevant departments or giving risk warnings, COPC moved the cuttings re-injection layer upward several times until it was close to the oil layer. The cuttings re-injection layer came near the bottom of the oil layer and generated ultra-high pressure. As a result, when drilling started in Well C20, it encountered ultra-high pressure and led to well overflow. Due to pressure-bearing failure near the casing shoe on the well hole surface, a side leakage occurred and then formation breakdown and an undersea oil spill occurred. (2) Indirect Causes Re: Oil spill around Platform B. First, in violation of the Overall Development Plan, Well B-23 had been executing commingled water injection for a long time, and has not done any zonal water injection. The differences of pressure owing to multiple sets of oil layers were neglected and only the pressure supply of under-pressured layers was taken into consideration, resulting in high-pressure risks due to water injection into individual oil layers. Second, the monitoring system on the wellhead pressure of water injection wells was not fully developed, management was not appropriate, and no upper limit on safe wellhead pressure for water injection wells had been set. Third, stability pressure tests on a number of faults were not conducted, no risk warning was given, especially for 502 Babel Fault (extending up to the seabed) which contacts with several sets of oil layers, and calibration of the faults pressure limit for cracking was not given. Re: Oil spill at Platform C. First, the emergency response was improper when C20 well drilling encountered the high-pressure layer. The abnormal situation during drilling was not analyzed in a timely manner to improve emergency response capacity, nor were measures such as running intermediate casing. Drilling in Well C25 to the L100 encountered ultra-high pressure formed by the cuttings re-injection layer, causing the well kick. Lack of effective emergency response led to a continuous increase of pressure in the well and side leakage, and caused a seabed oil spill. Second, the Well C20 drilling design department did not implement the EIA report by designing in accordance with the surface casing depth, which reduced the capacity of emergency response.

2. Nature of the Oil Spill Accident Through the investigation of the Joint Investigation Team, it is determined that the oil spill was caused by COPCs
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violation of the Overall Development Plan during its operation, by its flaws in the system and management, which has no necessary precaution measures regarding risks which should have been foreseeable. The PL19-3 oilfield oil spill accident was the liability accident that caused the serious marine oil spill pollution. According to the Sino-foreign cooperation contract signed, COPC, as the operator of the oilfield, bears full responsibility for the oil spill accidents. The Joint Investigation Team announced to the public the conclusions of the investigation regarding the oil spill accidents on November 11th, 2011.

IV. Administrative Penalty for the Oil Spill Accident In accordance with relevant laws and responsibilities, the North Sea Corps of China Marine Surveillance under the State Oceanic Administration (SOA) filed a case on June 14th on alleged administrative violations involving the oil spill accidents, and then carried out its investigation and evidence collection. It confirmed that COPC, during the exploration and development operation process in PL19-3 oil field, violated the provisions of Article 50 (2) of the Marine Environment Protection Law. In accordance with the provisions of Article 85 of the Marine Environment Protection Law, on September 1st, 2011, SOA levied an RMB 200,000 Yuan administrative penalty on COPC, who accepted the penalty and paid the fine on September 9th.

V. Damage Assessment on Marine Ecology SOA organized its direct and local marine surveillance authorities in the Bohai Bay to carry out comprehensive marine environmental monitoring by means of cruise ship, aircraft monitoring, satellite remote sensor monitoring, oil spill radar surveillance, underwater robot detection, buoy monitoring, beach inspection and other means, in order to fully grasp the causes and development of the oil spill and its impact on the marine environment. Based on these efforts, the damage assessment report of the PL19-3 oil field oil spill on marine ecology took shape. 1. Seawater Environment Due to the oil spills, seawater with an area of approximate 6,200 square kilometers surrounding the PL19-3 oil field and an area northwest of the oil field was polluted (exceeding seawater quality standard for the first category), among which an area of 870 square kilometers of the seawater was seriously contaminated (exceeding seawater quality standard for the fourth category). Oil concentration peak (data was collected from stations) in seawater
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appeared on June 13th, exceeding the background level by 53 times. In late June 2011, the polluted area reached 3,750 square kilometers; in July, an area of 4,900 square kilometers was polluted; the polluted area of the seawater decreased in August to 1,350 square kilometers; in September, polluted seawater surrounding the PL19-3 oil field was significantly reduced; as of the end of December, there was still scattered oil film in waters surrounding the PL19-3 oil field. Due to the oil spill, oil concentration (average concentration during each survey voyage) in mid-level and bottom waters surrounding the PL19-3 oil field was always higher than the surface waters until the end of October 2011. The main reason is the slow release of oil in marine sediments, which had a lasting impact on mid-level and bottom waters.

Qinhuangdao

Tangshan

Dalian

Legend
June 5th-Aug 31st Polluted sea area: 6200 square kilometers Area with water quality Inferior to Grade IV: 870 square kilometers
Changdao County
Grade III Water Water Inferior to Grade IV

Penglai

Oil Platform

Scope of Sea water Polluted by PL 19-3 oil field oil spill

2. Sediments The oil spills contaminated the subsea sediments in waters surrounding the PL19-3 oil field and northwest of the oil field. From late June to the end of July 2011, the polluted area of sediments reached 1,600 square kilometers (exceeding sediment quality standard for the first category), among which an area of 20 square kilometers was seriously polluted (exceeding marine sediment quality standard for the third category); at the end of August there
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was still an area of 1,200 square kilometers of contaminated sediments (exceeding marine sediment quality standard for the first category), of which an area of 11 square kilometers was seriously contaminated (exceeding marine sediment quality standard for the third category). The maximum oil content in the marine sediments reached
7.1010-3, exceeding the background level by 71 times. As of the end of December 2011, sediments in waters

surrounding the PL19-3 oil field met the quality standard for the first category, with the exception of 0.153 square kilometers of waters surrounding Platform C in the PL19-3 oil field, which was covered by conspicuous oil fouling. However, there were still stations where oil content exceeded the background level, by a maximum of 3.9 times. 3. Shores and Beaches In mid to late July 2011, oil with an uneven ribbon distribution pattern was found in Dongdaihe River of Suizhong, Liaoning Province, which was 4 kilometers long and 0.5 meters wide. In Shallow Bay beach of Tangshan, Hebei Province, the oil formed a zonal distribution pattern. Oil fouling at the high water line was about 1-1.5 meters wide and 500 meters long, and at the low water line, oil fouling was about 1.5-2 meters wide and 300 meters long. In Changli Golden Bay of Qinhuangdao, Hebei Province, oil foul was distributed fragmentarily for 1.2 kilometers long. The oil fingerprinting of samples collected from above-mentioned areas proved to be consistent with that of the PL19-3 oil field oil spill. 4. Marine Organisms The oil spills have caused an obvious reduction of the species and diversity of the marine plankton living around PL19-3 oil field and in its northwestern polluted sea area, and has influenced the biological community structure. The density of planktonic larvae decreased by 69% within one month after the oil spill, which is signifcant damage to the development, survival and growth of the larval plankton. In comparison with the background values, the diversity and density of the roe and fry in the polluted area dropped remarkably due to the oil spills. The average density of roe in June and July 2011 declined 83% and 45% respectively in comparison with the background values, and the roe abnormality rate reached 92% in July; and the fry average density in June and July was reduced by 84% and 90% respectively compared to the background values. The oil spills resulted in an obvious increase of petroleum hydrocarbons content in the benthos living in the sediments pollution area, among which the average content of that in Oratosquilla was 4.4 times higher than the
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background value and the peak value 15.5 times higher than the background value. In July 2011, the petroleum hydrocarbons content in 30% of the sampled benthos surpassed the background value and in August, the percentage reached 95%. In December, 54% of the samples had a higher content of petroleum hydrocarbons than the background value. The oil spills caused the benthos living near Platform C of the PL19-3 oil field to be polluted or covered by oil, which destroyed the biological habitats and brought damage to the benthos. During the process of oil clean-up, the benthos in the cleaned area suffered damage as well.

VI. Claims of Damages Caused by Oil Spill Incidents After the oil spills, the Ministry of Agriculture and the State Oceanic Administration have respectively carried out work in accordance with their duties on the claims on fishery losses, natural fishery resource damage and marine ecological damage. 1. Claim of Marine Ecological Damage According to the assessment result, the total value of the marine ecological damage brought by the oil spill is RMB 1.683 billion, mainly including marine environmental capacity losses, marine ecological service function losses, expenses on marine habitat restoration and marine biology species recovery, etc. In April 2012, COPC and the China National Offshore Oil Company signed an agreement on the compensation and indemnification for marine ecological damages with the North Sea Branch of the State Oceanic Administration. COPC and CNOOC would pay RMB 1.683 billion in total, among which RMB 1.09 billion would be paid by COPC to compensate for the losses caused by the oil spills to the marine ecology. CNOOC and COPC would also designate RMB 480 million and RMB 113 million respectively to take the social responsibility of protecting the Bohai Bay environment. The payment will be used in accordance with relevant laws for marine ecological construction and environmental protection of Bohai Bay, reduction of the petroleum pollutants into Bohai Bay, restoration of the damaged marine habitat, and monitoring and study of the oil spill influences to the marine ecology. 2. Claims of Fishery and Natural Fishery Resource Damages In order to resolve the fishery claims of the PL19-3 oil field oil spills, the Ministry of Agriculture pushed ahead the administrative mediation with all its strength, after which an agreement has been reached among the Ministry of
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Agriculture, CNOOC, COPC and relevant provincial governments on compensation and indemnification issues for fishery losses in connection with the PL19-3 oil field oil spills. According to the agreement, COPC would pay RMB 1 billion to compensate for the cultured organisms and Bohai natural fishery resource losses in part of the counties of Hebei and Liaoning Provinces. COPC and CNOOC would designate RMB 100 million and RMB 250 million respectively from the marine environment and ecological protection fund to restore and conserve the natural fishery resources etc. At present, the compensation and indemnification fund for fish farming has been fully remitted on time to the accounts of Hebei and Liaoning provinces which have almost finished the investigation and verification of the farmers basic information and losses, and are publishing relevant criteria and methods of releasing funds to the public to ensure the compensation is delivered into the hands of the fish farmers on time and in full. At the same time, restoration of Bohai natural fishery resources is being fully carried out. The overall scheme and relevant management method for fishery resource conservation and fishery ecology restoration have been made following research conducted by the expert team organized by the Ministry of Agriculture, and it is planned to restore the fishery resources in the Bohai Sea polluted and damaged by the oil spills within three years of the release, by constructing an ecological restoration demonstration area, monitoring and assessing fishery resources and the ecological environment, and specific study on techniques, etc. Recently, the Bohai fishery resources restoration initiative was launched by the Ministry of Agriculture jointly with the provincial governments of Hebei, Liaoning and Shandong and the municipal government of Tianjin. In that initiative, 3.4 billion fry of various marine species were released into Bohai Bay. As of now, the water quality and sediment quality around the PL19-3 oil field and of the central Bohai Sea have been improved significantly, but the consequences of the oil spills still exist and the affected areas marine ecological environment and marine ecological service function have not recovered. Therefore, relevant government departments will utilize the compensation fund for marine ecological damage and natural fishery resources damage to organize operations such as Bohai marine ecological construction and restoration, natural fishery resources restoration and conservation, etc. In order to learn lessons from the PL19-3 oil field oil spill and prevent the reoccurrence of offshore oil spills, relevant competent government departments, upon the request of the State Council, launched an inspection on the prevention of oil spills at offshore oil exploration and terrestrial oil spill pollution risks from September to November 2011. The government departments urged relevant petrochemical enterprises to rectify and reform the
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identified potential spill sources and hidden perils and put forward measures in preventing oil spill risks. The departments also require that offshore oil enterprises should draw lessons from the incident, strengthen the safety and environmental protection management of offshore oil exploration and exploitation, enhance the risk prevention consciousness and improve safety and environmental protection management. In the meantime, relevant government departments will act in accordance with their responsibilities, to keep strengthening the safety supervision of offshore oil exploration and exploitation and coastal oil-related enterprises, to revise and complete the relevant laws and regulations, to enhance the functional zoning regulation, to perfect the system of joint-prevention and joint-control, to enhance the infrastructure on risk prevention capabilities, to remove the potential risks in time, to actively accept the publics supervision, to take effective measures to protect the marine ecological environment, to promote the healthy and stable development of offshore oil and gas exploitation and to guarantee the healthy and sustainable development of marine economy.
Copyright: State Oceanic Administration; Address: No. 1 Fuxingmenwai Avenue, Beijing; Postal Code: 100860

Website maintained and managed by: Publicity and Education Center of State Oceanic Administration; Email: soaweb@soa.gov.cn ICP:05079994 (Beijing); Site is best displayed: 1024*768, Microsoft IE 6.0 and above

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