The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (

Trefis

) --

ConocoPhillips

(COP) - Get Report

will face a lawsuit from the China State Oceanic Administration (SOA) for the oil leak in platform B and C of the Penglai 19-3 oil field. The leak, which started in June, is estimated to have caused 2,500 barrels of oil and mud to be released in the sea and polluted 840 square kilometers of water.

According to the Chinese administration, ConocoPhillips has to date been unable to seal off the source of the leaks. However, the event has not caused any perceptible difference to the company's stock, which is presently trading at a 20% discount to our

$80 price estimate for Conoco. . The soon to be split ConocoPhillips competes with vertically integrated oil majors such as

Exxon Mobil

(XOM) - Get Report

,

Chevron

(CVX) - Get Report

,

BP

(BP) - Get Report

,

Royal Dutch Shell

(RDS.A)

and independent exploration firms such as

Anadarko Petroleum

(APC) - Get Report

.

The Penglai 19-3 field is the largest offshore oil field in China. ConocoPhillips owns a 49% stake in the field and is the operating partner while the rest of the stake is held by Chinese CNOOC Ltd. While the spill is quite minor in comparison to the BP Gulf of Mexico disaster, the Chinese Administration has been frustrated by the company's response to the situation.

In a statement the SOA criticized the measures taken by Conoco as "temporary and remedial" while asking for a complete assessment of the situation and the elimination of further spills. The company has deployed more than 900 personnel and 33 boats in response to the event. It has also pushed into service 67 divers to gather oil-based drilling mud from the sea bed using vacuum technology.

From a production standpoint, the spill has resulted in a disruption that has temporarily reduced the output from the wells by about 17,000 barrels of oil per day. Over a period of 60 days, the loss in output could exceed a million barrels of production. The company has already seen its production decline in Q2 2011 to 1,640 MBOED in comparison to its production level of 1,702 MBOED in the previous quarter. We estimate that Conoco's oil and NGL production will decline over the rest of the year before stabilizing as new exploration projects come online.

ConocoPhillips generates 49 MBOED of Crude Oil and NGL from its China operations, which is approximately 3% of its overall production. Around 33 MBOED of this output comes from the Penglai fields where the production was expected to be ramped up to 69 MBOED by 2011 with the development of the Phase II project.

However, the expansion may be temporarily set back due to the spill. The company also holds stake in the Xijiang fields where it also acts as an operator and in Panyu which is being operated by CNOOC.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.