GMI Ratings Environmental Issue: ConocoPhillips Co.

Region: North America

Sector: EnergyIndustry: Oil / Gas Refining / Marketing

Market Cap: $93,739.5mm (Large Cap)

ESG Rating: D

AGR: Average (56)

ConocoPhillips Co. and its partner China National Offshore Oil Corporation Ltd. just agreed to pay $267 million for spilling oil into China's Bohai Bay. While that fine seems large at first glance, it's not much for these mammoth companies.

ConocoPhillips, which owns the Penglai 19-3 oil field where the spill happened, will pay $173 million to the Chinese State Oceanic Administration over the next two years, and also contribute $18 million by December 2014 toward social projects benefiting the bay. CNOOC, meanwhile, will put in $76 million toward such projects. Initial programs will focus on protecting the marine environment and reducing pollutants, according to a statement from ConocoPhillips on Monday.

CNOOC called the fine for the damage caused by the oil spill "in significant progress with the great effort made by the State Oceanic Administration," according to a statement Friday.

It remains unclear how much damage the spill caused. Oil leaks were first noted in June and polluted at least 5,500 square kilometers of water, or nine times more surface area than the city of Seoul, according to a report this winter in the POSRI Chindia Quarterly. The State Oceanic Administration didn't report the accident until a month later. Since then residents in Fenglai of Shandong Province had to avoid eating fish caught near the affected waters that reeked of petroleum, and tons of fish died on a farm 89 kilometers southeast of the area, the report said.

The Chinese government finally ordered a halt in production at the oilfield in September, according to news reports. In January this year ConocoPhillips and CNOOC agreed to pay around $160 million to settle compensation claims made by fishermen.

While Chinese fishermen struggle, the penalties for causing such a mess barely dent either oil company's profits. ConocoPhillips raked in more than $12.4 billion in net income in 2011 alone, and CNOOC made nearly $11.2 billion in the same time period, according to their most recent annual statements.

Meanwhile, ConocoPhillips' CEO Jim Mulva earned $27.7 million in 2011, over three times the median for other named executive officers. In the case of CNOOC, it's more difficult to say, given differences in Chinese and U.S. compensation reporting standards.

ConocoPhillips's financial statements reflect that it has had an average AGR since March, indicating higher accounting and governance risk than 44% of comparable companies. CNOOC's financial statements reflect an aggressive AGR since June 2010, indicating higher accounting and governance risk than 69% of companies. GMI Ratings gives ConocoPhillips a D and CNOOC an F on its governance, in part due to the record these companies have on protecting the environment and compensating senior executives.

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