A new distributed optical fiber sensor system for long-distance oil pipeline leakage and external damage detection is presented. A smart and sensitive optical fiber cable is buried beneath the soil running along the oil pipeline, which is sensitive to soakage of oil products and mechanical deformation and vibration caused by leaking, tampering, and mechanical impacting. The region of additional attenuation can be located based on the optical time domain reflectometry (OTDR), and the types of external disturbances can be identified according to the characteristics of transmitted optical power. The Golay codes are utilized to improve the range-resolution performance of the OTDR sub-system and offer a method to characterize the transmitted optical power in a wide range of frequency spectrum. Theoretic analysis and simulation experiment have shown that the application of Golay codes can overcome the shortcomings of the prototype based on the conventional single-pulse OTDR.