August 2006 News Stories

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Anchorage Daily News
August 31, 2006

http://www.adn.com/news/government/story/8142285p-8034601c.html

FBI raids legislative offices
By RICHARD MAUER, RICHARD RICHTMYER
and LISA DEMER
Anchorage Daily News
Published: August 31, 2006
Last Modified: August 31, 2006 at 04:32 PM

Federal agents raided Alaska legislative offices in Juneau, Anchorage, Eagle River and Wasilla today, with search warrants executed on the offices of several state legislators.

FBI spokesman Eric Gonzalez said warrants were being served at those offices, as well as an undisclosed location in Girdwood, but wouldn’t say who was being targeted, what the investigation was about or when it began.

“It’s an ongoing investigation is all I can say,” Gonzalez said.

Among the offices being searched were those of Senate President Ben Stevens, R-Anchorage, and Senate Rules Committee Chairman John Cowdery, R-Anchorage. They’re next door to each other on the fifth floor of the downtown legislative offices. Agents were also seen in the Anchorage and Juneau offices of Sen. Donald Olson, D-Nome, and the Wasilla office of Rep. Vic Kohring, R-Wasilla.

The Associated Press reports that the offices of Rep. Bruce Weyhrauch, R-Juneau, and Rep. Pete Kott, R-Eagle River, were also part of the raid.

Around noon, Cowdery could be seen being questioned by federal agents in a conference room near his office. A left the room a few minutes later and wouldn’t say what the raid was about. Asked by a reporter whether he was under criminal investigation, he said, “I don’t think so.”

Around 1:30 p.m., an agent wearing latex gloves could be seen through the blinds in Stevens’ office placing items in a box. Later, agents could be seen in Cowdery’s office searching through files.

Sen. Tom Wagoner, R-Kenai, said he had arrived for a meeting at the Anchorage office a little before noon and wasn’t allowed to enter the Senate offices.

“The place was crawling with FBI,” Wagoner said.

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Anchorage Daily News
August 31, 2006

http://www.adn.com/news/government/story/8142285p-8034601c.html

UPDATE
Federal agents raid legislative offices
By The Associated Press
Published: August 31, 2006
Last Modified: August 31, 2006 at 08:23 PM

Federal agents raided the offices of at least six Alaska lawmakers Thursday in a search for any ties between the legislators and a large oil field services company, officials said.

Tam Cook, the Legislature’s top attorney, said the company named in the search warrant was VECO Corp., an Anchorage-based oil field services and construction company whose executives are major contributors to political campaigns.

“This morning, investigators from the FBI interviewed me in my office regarding an investigation of VECO,” Rep. Vic Kohring, R-Wasilla, said in a prepared statement.

Kohring said he cooperated, and was told he was not a target of the investigation.

Two legislative aides, who spoke on the condition of anonymity for fear of reprisal from federal agents who told them not to talk to reporters, said FBI agents were looking for any ties including financial information and gifts.

One aide said agents did not show him the warrant, but said officials described what was in it. He said the warrant allowed for the search of computer files, personal diaries and other documentation: “It pretty much covered the gamut.”

The other aide said he demanded to read the warrant before allowing the search and that VECO officials Bill Allen, Rick Smith and Pete Leathard were named in the warrant.

A message left Thursday with VECO was not immediately returned.

FBI spokesman Eric Gonzalez said the FBI and Internal Revenue Service executed search warrants in Anchorage, Juneau, Wasilla, Eagle River and Girdwood.

He declined to say who was served search warrants.

The warrants had not been filed with the clerk’s office at the U.S. District Court by Thursday afternoon. A woman who answered the phone at the U.S. Attorney’s office in Anchorage said no one locally could answer questions about the raid, and referred questions to a Department of Justice spokeswoman in Washington, D.C., who didn’t answer her phone.

Agents conducted office searches in both Juneau and Anchorage belonging to Sen. John Cowdery, R-Anchorage, the Senate Rules chairman. The senator stood by in Anchorage as authorities sifted through documentation.

The offices of Senate President Ben Stevens, R-Anchorage; Kohring; Rep. Bruce Weyhrauch, R-Juneau; Sen. Donald Olson, D-Nome; and Rep. Pete Kott, R-Eagle River also were searched.

The blinds were mostly drawn and doors shut in most offices being searched at the downtown Legislative Information Office in Anchorage. Agent wearing blue rubber gloves were visible through gaps in the blinds, rifling through documents in Stevens’ Anchorage office.

Kohring, contacted at his legislative office in Wasilla, would not confirm that his office was part of the raid or what agents were searching for, saying “I can’t talk about that right now.” Agents were seen leaving his Juneau office with boxes that appeared to contain documents.

Messages left with other lawmakers and Senate Republican majority spokesman Jeff Turner were not immediately returned.

Veco is an Alaska oil field services and construction company whose executives are major contributors to political campaigns, usually Republicans

VECO Web Site:
http://www.veco.com


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http://www.adn.com/news/alaska/ap_alaska/story/8142580p-8034791c.html

DOT proposes increased inspections on oil transit pipelines
By MARY PEMBERTON, Associated Press Writer
Published: August 31, 2006
Last Modified: August 31, 2006 at 06:30 PM

ANCHORAGE, Alaska (AP) - Oil transit pipelines, including the one that led to a partial shutdown of the country's largest oil field, would have to be regularly cleaned and checked for thin spots and leaks under a federal proposal issued Thursday.

The "low-stress" lines in rural areas are largely unregulated.

The U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration has been working on a plan for several years to regulate the low-pressure lines. The agency sped up the process after two Prudhoe Bay transit lines leaked in March and August, said PHMSA Administrator Thomas Barrett.

"Quite frankly, the type of problem you have seen at Prudhoe Bay with BP on these low stress lines, we have not seen replicated elsewhere in the country," Barrett said Thursday during a teleconference with reporters.

Barrett said the problems at Prudhoe Bay indicated that BP had not exercised the standard of care usually seen in the industry.

Steve Rinehart, a spokesman for BP Alaska, said the company had not yet seen the proposed requirements for low-stress lines and therefore could not comment except to say it knew DOT was working on new regulations.

The March leak resulted in a spill of up to 267,000 gallons, the largest in the history of oil production on Alaska's North Slope. The more recent spill Aug. 6 led to the shutdown of half the Prudhoe Bay oil field. Both spills are being blamed on corrosion.

Days after the partial shutdown, the agency ordered BP to conduct more rigorous tests on its transit pipelines, which carry market-ready oil to the 800-mile trans-Alaska pipeline. DOT engineers have been at the site since Aug. 8.

BP has said it will replace 16 of 22 miles of transit lines at Prudhoe Bay.

Since then, the federal pipeline agency has ordered BP to improve its corrosion protection management at Prudhoe. An amended order issued in July directed BP to improve and speed up preparations to test the lines.

Prudhoe Bay, which normally produces about 400,000 barrels of oil, remained at half-production Thursday.

Prior to the spills the company "had a rigorous corrosion management program, which had been thoroughly reviewed by independent experts and state environmental authorities," Rinehart said. The company now is trying to do everything it can to get to the bottom of the problem, he said.

The proposal, subject to a 60-day public comment period, would cover more than 1,200 miles of pipelines in the country. It would require pipeline operators to regularly monitor the low-stress lines in "unusually sensitive areas." The agency defines those areas as non-populated areas where drinking water or endangered species, or other ecological resources, need extra protection.

Under the proposal, pipeline operators would have to develop approved plans to regularly clean and check the integrity of the lines. The lines would have to be "smart-pigged" at a minimum of once every five years. A smart pig is an ultrasound device that is run through the lines to check for areas where the pipeline wall is thin.

Pipeline operators also would have to bring the low-stress lines into their corrosion control programs, requiring "continuous monitoring and cleaning" with a scraper pig to remove scale and sediment from the lines.

Under the new requirements, lines would have to be cleaned and scraped as every few weeks or months, Barrett said.

"As you know, that is one of the issues we have on the BP lines right now, solids buildup," he said.

BP has said it last scraped the transit line that leaked in August in 1992. It had trouble getting a smart pig down the line in 1998, but a successful pigging in July uncovered numerous areas where the pipe wall was exceptionally thin.

Maria Cino, acting secretary of transportation, said the new rules are similar to those already required of high-pressure lines.

But Lois Epstein, an engineer and spokeswoman for Cook Inletkeeper, a conservation advocacy group, said the new rules are a weak imitation. They would apply to only 17 percent of unregulated pipelines, she said.

Epstein, who serves on the federal advisory committee for the pipeline safety office, said the agency was feeling the pressure from the BP mishaps and rushed through a proposal.

"It is an appallingly bad rule," Epstein said. "They should have done a broader rule and used the existing rules for high-pressure line. Now, they are saying in unusually sensitive areas we are going to give this minimally regulated treatment."

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Anchorage Daily News
August 31, 2006

http://www.adn.com/money/industries/oil/story/8142008p-8034320c.html

BP says strategy may restore Prudhoe production sooner
TOUR: Official tells Interior Secretary Dirk Kempthorne of hopes.
By H. JOSEF HEBERT
The Associated Press
Published: August 31, 2006
Last Modified: August 31, 2006 at 03:42 AM

PRUDHOE BAY -- Interior Secretary Dirk Kempthorne got his first look Wednesday at BP's pipeline corrosion at Prudhoe Bay as one of the company's senior executives said a way might be found to return to full oil production before having to replace 16 miles of pipes.

David Peattie, a vice president at London-based BP, said the company hopes to begin constructing the new pipeline system early next year and complete it in several months. But he said full production, to 400,000 barrels a day, might resume earlier than that.

The flow of Prudhoe Bay oil has been cut in half, to 200,000 barrels a day, because of the pipe corrosion that surfaced in early August. The western leg of the pipeline system has resumed production by bypassing the damaged pipes.

But Peattie, who accompanied Kempthorne to the site where corrosion caused an oil spill in early August, said a similar bypass strategy could result in production returning to normal in the eastern leg as well. He said the company also was testing the corrosion-troubled pipes to determine whether they could be patched temporarily and meet federal requirements.

Peattie declined to estimate how quickly full production might resume with the temporary fixes.

"The commitment is to do it as quickly as possible," BP Alaska spokesman Daren Beaudo said.

Kempthorne, on a three-day visit to Alaska's oil fields, toured the Conoco Phillips Alpine oil field 60 miles west of Prudhoe Bay on Wednesday and then flew to the BP facility.

He visited the pipeline site where BP in early August discovered extensive corrosion along a three-mile stretch, forcing a shutdown of production that would later partially resume. BP officials have acknowledged they did not test the pipes adequately using a pig device that is run through a pipe to gauge corrosion. The company relied on ultrasound tests.

"The most obvious gap in the system was  the lack of a consistent pigging program," Beaudo said.

Beaudo said that one leg of the pipeline system had been corrosion-tested using a pig device in 1992 and 1998. The other leg had never been tested that way, he said.

Operators of the Conoco Phillips facility told Kempthorne that its practice was to run pipeline pig tests every two years.

Later, visiting the trans-Alaska pipeline site, officials told Kempthorne that tests to monitor corrosion inside the pipe were conducted every three years and cleaning-pig devices were run through every two weeks.

"We have a very aggressive pigging program," said Jim Johnson, a vice president of the trans-Alaska pipeline system.

Conoco Phillips' Alpine field is the most modern on the North Slope and uses directional drilling to limit the surface footprint of its drilling wells. Also, while the Prudhoe Bay pipes are 30 years old, those linking the Alpine field to Prudhoe are six to seven years old.

Conoco Phillips, co-owner of the Alpine field with Anadarko Petroleum Corp., plans aggressive exploration on the North Slope, holding significant leases in the National Petroleum Reserve-Alaska, including one on the verge of production.

"We are going to be active on the exploration side," said George Storaker, vice president for North Slope operations for Conoco Phillips Alaska, Inc. He said the Alpine field, which produced 130,000 barrels a day, "is on the decline" and new resources must be developed.

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Wall Street Journal
August 31, 2006

BP Officials Optimistic On Full Flow From Prudhoe Bay
DOW JONES NEWSWIRES
August 31, 2006 5:49 a.m.
 
PRUDHOE BAY, Alaska (AP)--BP officials are growing increasingly optimistic that Prudhoe Bay oil production may be returned to normal levels earlier than expected, believing a portion of the pipeline idled by corrosion concerns may be useable at least temporarily and that other sections can be bypassed.

The flow of oil from Prudhoe Bay has been cut in half to 200,000 barrels a day as BP prepares to replace 16 miles of pipeline after discovering extensive internal corrosion that resulted in spills in March and early August.

Oil deliveries resumed earlier this month through the western half of the pipeline system by bypassing the damaged sections of pipe. But the eastern section remains idled as BP conducts extensive tests to determine whether at least some of that pipe can be used.

"The idea that there was widespread corrosion simply was not correct," David Peattie, London-based BP PLC's vice president for exploration and production told The Associated Press on Wednesday.

He said the corrosion was isolated and that ultrasound tests now being conducted - foot-by-foot in some sections of pipe - are to determine how much of the shut down pipeline might be returned to service temporarily.

BP officials emphasized that any resumption of oil flow in the closed eastern section will depend upon whether the company can convince the federal Transportation Department that such a move can be made without risk of another spill.

"We are working together with them," Kemp Copeland, BP's Prudhoe Bay field manager, said Wednesday, referring to the Transportation Department. "Neither one of us wants to see another leak at Prudhoe Bay.

With three congressional hearings scheduled for early September on Prudhoe Bay chrosion, BP officials want to avoid any suggestion that they are playing down the extent of pipeline damage, or be perceived as wanting to return pipes to use prematurely.

But in briefings given Wednesday to Interior Secretary Dirk Kempthorne, who is on a three-day tour of North Slope oil facilities, and in separate interviews, BP officials clearly were optimistic that the pipeline system can be returned to normal production of 400,000 barrels a day, using a temporary fix.

The company still plans to begin work on replacing the 16 miles of pipe with new pipe early next year.

At the same time, BP is aggressively gathering test data along a five-mile stretch of the idle pipeline. BP engineers believe the tests will show the pipe is sound enough to resume use until the new system is completed. The three-mile section where extensive corrosion was discovered in early August would be bypassed using a nearby pipeline, the officials said.

BP officials took Kempthorne to the site of the most recent spill and to areas along another section of pipe that is undergoing intensive ultrasound testing to determine its integrity.

Copeland said that 2,700 ultrasound tests and an additional 4,000 tests using other technology have been done so far along the five miles of pipe officials hope to reopen and that the most severe degradation of pipe wall found so far has been 28%. By comparison, the wall loss was 78% or more in 16 areas of extensive corrosion near the August spill that prompted the August shutdown.

While Copeland and other BP officials cautioned that more testing needs to be done, they also said the results so far suggest strongly the pipe corrosion is not as widespread as some people had thought.

The final say on whether the eastern leg of the pipeline system can be reopened will be up to the Transportation Department, said spokesman Daren Beaudo of BP Alaska, the local subsidiary of the London-based parent company. But he added, "We're getting more and more confident that the tests will show some of the pipeline now shutdown will be deemed fit for operation."

"We're doing everything we can to get the east side of Prudoe back on line," said Beaudo. But he declined to say when BP plans to make its case to the Transportation Department pipeline safety agency.

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US Interior Secy Inspects Damaged Alaska Pipeline
DOW JONES NEWSWIRES
August 31, 2006 12:25 a.m.

PRUDHOE BAY, Alaska (AP)--Interior Secretary Dirk Kempthorne got his first look Wednesday at BP's pipeline corrosion at Prudhoe Bay as one of the company's senior executives said a way might be found to return to full oil production before having to replace 16 miles of pipes.

David Peattie, a vice president at London-based BP PLC (BP), said the company hopes to begin constructing the new pipeline system early next year and complete it in several months. But he said full production, to 400,000 barrels a day, might resume earlier than that.

The flow of Prudhoe Bay oil has been cut in half, to 200,000 barrels a day, because of the pipe corrosion that surfaced in early August. The western leg of the pipeline system has resumed production by bypassing the damaged pipes.

But Peattie, who accompanied Kempthorne to the site where corrosion caused an oil spill in early August, said a similar bypass strategy could result in production returning to normal in the eastern leg as well. He said the company also was testing the corrosion-troubled pipes to determine whether they could be patched temporarily and meet federal requirements.

Peattie declined to estimate how quickly full production might resume with the temporary fixes.

"The commitment is to do it as quickly as possible," BP Alaska spokesman Daren Beaudo said.

Kempthorne, on a three-day visit to Alaska's oil fields, toured the ConocoPhillips (COP) Alpine oil field 60 miles west of Prudhoe Bay on Wednesday and then flew to the BP facility.

He visited the pipeline site where BP in early August discovered extensive corrosion along a three-mile stretch, forcing a shutdown of production that would later partially resume. BP officials have acknowledged they did not test the pipes adequately using a so-called pig device which is run through a pipe to gauge corrosion.

The company relied on ultrasound tests. "The most obvious gap in the system was a the lack of a consistent pigging program," Beaudo said.

Beaudo said that one leg of the pipeline system had been corrosion-tested using a pig device in 1992 and 1998. The other leg had never been tested that way, he said.

Operators of the ConocoPhillips facility told Kempthorne that its practice was to run pipeline pig tests every two years.

Later, visiting the Trans Alaska pipeline site, officials told Kempthorne that tests to monitor corrosion inside the pipe were conducted every three years and cleaning-pig devices were run through every two weeks.

"We have a very aggressive pigging program," said Jim Johnson, a vice president of the Trans Alaska Pipeline System.

ConocoPhillips' Alpine field is the most modern on the North Slope and uses directional drilling to limit the surface footprint of its drilling wells. Also, while the Prudhoe Bay pipes are 30 years old, those linking the Alpine field to Prudhoe are only six to seven years old.

ConocoPhillips, co-owner of the Alpine field with Anadarko Petroleum Corp. (APC), plans aggressive exploration on the North Slope, holding significant leases in the National Petroleum Reserve Alaska, including one on the verge of production.

"We are going to be active on the exploration side," said George Storaker, vice president for North Slope operations for ConocoPhillips Alaska Inc. He said the Alpine field, which produced 130,000 barrels a day, "is on the decline" and new resources must be developed.

ConocoPhillips has its eye on the NPRA, an area the government set aside in 1923 for energy development, including the potential 2 billion barrels of oil beneath an environmentally sensitive area near Lake Teshekpuk. Environmentalists want to keep the area off-limits to oil companies.

Kempthorne on Tuesday took a helicopter ride over the lake area that has become the focus of a new dispute over Alaska oil drilling. He said afterward that he's convinced a restricted drilling plan can accommodate energy development and wildlife protection.

"We're set to go forward," said Kempthorne, whose department will sell oil leases to nearly 500,000 acres north and east of Lake Teshekpuk late next month. It will probably be a decade before oil is actually taken from the area.

The lease plan includes limits on surface footprints, creation of corridors that will be off-limits to drilling to allow for caribou migration and buffers to protect geese molting areas, said Henri Bisson, the Bureau of Land Management's Alaska director.

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BP America President To Testify in Congress
By a WALL STREET JOURNAL Staff Reporter
August 31, 2006; Page A4

WASHINGTON -- BP America President Bob Malone will testify at a Sept. 12 U.S. Senate Energy and Natural Resources Committee hearing, a week after lawmakers in the U.S. House examine the BP PLC unit's pipeline failure in Alaska, a BP spokesman said.

Mr. Malone will first appear on Capitol Hill on Sep. 7 to answer the House Energy and Commerce Committee's concerns about pipeline woes in Alaska that have partially shut down the largest oil field in the nation. The following week, the Senate Energy Committee will hold a hearing to examine the impact the pipeline corrosion issues will have on U.S. oil supply.

Meanwhile, other congressional panels are planning to hold hearings as well, according to people familiar with the situation, which could again lead to Mr. Malone sitting in the hot seat in front of angry lawmakers looking to beef up pipeline safety regulations and criticize Big Oil in a time of record profits and high prices at the pump.

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Financial Times
August 30, 2006

BP faces two US probes over trading
By Rebecca Bream
Published: August 30 2006 03:00 |
Last updated: August 30 2006 03:00

BP has revealed that it now faces two investigations into its trading activities in the US, adding to its troubles following the forced shutdown of its Prudhoe Bay field in Alaska.

The oil major yesterday confirmed media reports that it was being probed over its trading of crude oil and gasoline.

The crude oil inquiry is led by the US Commodity Futures Trading Commission (CFTC), which regulates futures markets, while the US Department of Justice is looking into some of BP's gasoline trades.

BP said: "There are two investigations and we are fully co-operating [with the authorities]."

It is understood that the CFTC has sent subpoenas to BP and other energy traders in its investigation of crude oil over-the-counter trades from in 2003 and 2004.

The Department of Justice's separate gasoline investigation has been going on for more than a year, said people close to BP, and is focused on one day's trading on the New York Mercantile Exchange in 2002.

This is not the first time BP's trading activities have been the subject of investigation by the US authorities.

In June, BP was accused by the CFTC of attempting to manipulate the market for propane, a gas used by many households in the US.

BP has denied the propane-related allegations.

In 2003, BP agreed to pay $2.5m (£1.3m) to settle the allegations of improper crude oil trading on Nymex, although it did not admit to or deny any wrong-doing.

The oil major is already being investigated by several other bodies in the US.

These include grand juries probing a fatal explosion at BP's Texas City refinery in March 2005 and a serious oil spill at Prudhoe Bay, one of the biggest oil fields in the US, in March this year.

Prudhoe Bay is also only operating at half its normal output after BP admitted earlier this month that its pipelines there were badly corroded and risked leaking more oil.

BP's shares fell 12½p to 593p yesterday.

The group's stock market performance has been damaged by its recent problems in the US, and has fallen almost 7 per cent this month. As a result, BP's market capitalisation has fallen below that of rival Royal Dutch Shell for the first time in three years.

On Monday, a Texas court ruled that Lord Browne, BP chief executive, and John Manzoni, head of refining and marketing, should testify in court cases arising from the Texas City refinery explosion, which killed 15 people.

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Anchorage Daily News
August 29, 2006

http://www.adn.com/money/industries/oil/story/8132085p-8024546c.html

BP fixes compressor, restores some production
By MARY PEMBERTON
The Associated Press
Published: August 28, 2006
Last Modified: August 29, 2006 at 04:29 AM

Partial production has been restored to the Prudhoe Bay oil field after BP PLC fixed a compressor that went down last week, a company spokesman said Monday.

Production at the country's largest oil field - already cut in half because of problems found in corroded transit pipes - was further reduced last Wednesday when a mechanical problem was discovered in a compressor at one of the field's gathering stations.
The company fixed the compressor and production was restored sometime Sunday, said BP Exploration (Alaska) Inc. spokesman Steve Rinehart. BP, the world's second largest oil company, is operator of the Prudhoe Bay field.

The compressor that failed handles natural gas that is produced with the oil and water during the processing of crude. Only the western side of Prudhoe Bay is producing oil following the shutdown of the eastern half earlier this month.

After the compressor problem arose, production fell from 200,000 barrels a day to 110,000 - a little over one quarter of what Prudhoe Bay normally produces.

The Prudhoe Bay field had been producing about 400,000 barrels a day of oil - about half of all North Slope production - when workers Aug. 6 discovered a leak in a transit line on the eastern side of the field.

BP shut down the eastern side of the field but has managed to keep the western side open.

The company plans to replace 16 miles of corroded transit pipes.

It was the second leak found in a transit line, also called feeder pipelines, which transport oil to the trans-Alaska pipeline. In March, a leak in a corroded transit line pipe resulted in the spill of up to 267,000 gallons of crude - the largest spill ever on the North Slope. A bypass was put on that line to keep it operating.

BP expects to resume the removal of insulation from a western side pipeline this week, Rinehart said. That work was temporarily halted Wednesday when BP became aware that workers possibly were being exposed to materials that contain between 5 percent and 10 percent asbestos.

The asbestos issue arose as the transit line was being stripped of insulation to better examine it for corrosion, the problem that led to the east side shutdown.

Rinehart said workers are being trained on how to safely handle the material and should be back at work this week.

Daren Beaudo, a BP Exploration (Alaska) Inc. spokesman, said the material containing asbestos has not been found on pipes in the eastern half of the field, where different materials and different application methods were used when the lines were installed in the late 1970s.

For many years, the Atlantic Richfield Co. operated the eastern side and BP operated the western side of Prudhoe Bay. That changed in 2000 when BP acquired Arco and consolidated the two operating areas.

The Aug. 6 leak on the east side was discovered while workers stripped off insulation and found the material was oil stained. The leak of about 200 gallons was found a short while later, BP officials said.

The work was being done after a test indicated numerous areas where the pipe wall was exceptionally thin. The problem has since been blamed on bacterial corrosion that created pitting in the pipe.

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http://www.adn.com/money/industries/oil/prudhoe/story/8135394p-8027777c.html

Repair lets Slope output ramp up
COMPRESSOR: BP has oil flow close to
 half of normal output levels.
By MARY PEMBERTON
The Associated Press
Published: August 29, 2006
Last Modified: August 29, 2006 at 04:28 AM

Partial production has been restored to the Prudhoe Bay oil field after BP fixed a compressor that went down last week, a company spokesman said Monday.

Production at the country's largest oil field, cut in half because of problems found in corroded transit pipes, was further reduced last Wednesday when a mechanical problem was discovered in a compressor at one of the field's gathering stations.

The company fixed the compressor and production was restored sometime Sunday, said BP Exploration (Alaska) Inc. spokesman Steve Rinehart. BP is operator of the Prudhoe Bay field.

The compressor that failed handles natural gas that is produced with the oil and water during the processing of crude. Only the western side of Prudhoe Bay is producing oil since the shutdown of the eastern half earlier this month.

After the compressor problem arose, production fell from 200,000 barrels a day to 110,000, a little over one-quarter of what Prudhoe Bay normally produces.

The Prudhoe Bay field had been producing about 400,000 barrels a day of oil -- about half of all North Slope production -- when workers discovered a leak in a transit line Aug. 6 on the eastern side of the field.

BP shut down the eastern side of the field but has kept the western side open.

The company plans to replace 16 miles of corroded transit pipes.

BP expects to resume the removal of insulation from a western side pipeline this week, Rinehart said. That work was temporarily halted Wednesday when BP learned workers possibly were being exposed to materials that contain between 5 percent and 10 percent asbestos. The issue arose as the pipe was being stripped of insulation to examine it for corrosion.

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http://www.adn.com/money/industries/oil/prudhoe/story/8135395p-8027772c.html

Oil group sees no harm to Prudhoe
HALT: Short shutdown OK but more
might not be, commission says.
By KRISTEN NELSON
Petroleum News
Published: August 29, 2006
Last Modified: August 29, 2006 at 04:13 AM

The state does not expect that the Aug. 6 shutdown of half the Prudhoe Bay oil field will damage the field in a way that would lower oil production over time.

"We've asked ourselves what risks might there be to this very important reservoir ... as a result of a rather abrupt shutdown," said John Norman, chairman of the Alaska Oil and Gas Conservation Commission.

"And at this time we see no evidence a one-time, temporary shutdown of oil production from the eastern operating area of the Prudhoe Bay reservoir will damage that reservoir."

However, Norman cautioned, if shutdowns become "a repetitious pattern or cycle, then certainly it's going to become problematic."

Norman told a joint meeting of the Legislature's House and Senate Resources committees this month that BP Exploration (Alaska) Inc., which runs Prudhoe, has told the commission it plans to take action that will maintain or even enhance the pressure where the oil is underground.

That should result in a period of higher production rates when wells are brought back on line, he said.

Prudhoe Bay is the nation's largest oil field, and it accounts for nearly half of North Slope production. BP shut down more than 200,000 barrels a day of production after tests found pipeline corrosion problems, and corrosion caused a small spill Aug. 6. BP runs Prudhoe on behalf of itself and the four other oil companies with leases, including Conoco Phillips and Exxon Mobil.

Cathy Foerster, another state oil and gas commissioner, said BP has sophisticated tools for forecasting production, and the state uses production data it gets from BP to develop its own tools for predicting flows. The state can compare its predictions with actual volumes. This will enable the state "to see if the losses are recovered," she said.

Norman told legislators that while it is possible that one or more wells may not come back at the same production level as before, "we don't think that that will result in any decrease in ultimate recovery."

The commission believes, Norman said, that another potential risk to ultimate recovery from the reservoir "relates to the timing synergies of oil production and gas pipeline startup."

Producing gas for sale from the reservoir while there is still oil to be produced will put ultimate oil recovery at risk, he said. "The more oil that can be recovered before beginning major gas sales from the reservoir, the less oil then is at risk when large-scale gas off-take actually begins in the future."

Because the shutdown delays oil production in relation to future gas sales, it "could possibly have some negative impact upon total ultimate recovery."

He said he thinks that when the dust settles, "the greatest harm is going to be done to perception, particularly by those not in Alaska."

Rep. Ralph Samuels, R-Anchorage, asked if the shutdown could result in a steeper production decline curve once production is restored. Foerster said the commission would not expect that.

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http://www.adn.com/money/story/8135352p-8027774c.html

Judge orders a deposition from Browne
The Associated Press
Published: August 29, 2006
Last Modified: August 29, 2006 at 04:30 AM

GALVESTON, Texas -- A Texas judge has ordered BP's chief executive to give a deposition related to the explosion that killed 15 people last year at the company's Texas City refinery, a plaintiff attorney said Monday.

Judge Susan Criss of the 212th District Court ruled Monday that Lord John Browne and BP Global refining and marketing chief John Manzoni must give depositions in the lawsuit filed by accident survivors and victims' families, said lead plaintiff attorney Brent Coon.

A spokesman for the London-based energy company said BP will appeal the decision.

"Neither John Browne nor John Manzoni have unique knowledge of the accident at the Texas City plant," said BP Americas spokesman Neil Chapman. He said BP attorneys have granted plaintiffs access to upper-level executives with direct knowledge of the incident.

Attorneys for the plaintiffs said they have deposed about 75 company executives, including former president of BP Products North America Ross Pillari and BP Global refining vice president Mike Hoffman. Statements from Browne and Manzoni are critical, Coon said.

"We have a number of documents indicating that John Manzoni and Lord Browne had knowledge prior to March 23, 2005, of the under-investment in the facility on a number of different levels, under-investment which contributed to the explosion," Coon said.

BP has publicly accepted responsibility for the blast, which also injured more than 170 people. The oil giant has made settlements with many victims and has said it has taken steps to enhance safety at its facilities.

"We have worked very hard in order to achieve settlement, and we have done that with hundreds of cases," Chapman said. "On this occasion we have had to turn to the courts."

A jury trial is set to begin Sept. 18 in Galveston, about 50 miles south of Houston.

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LETTERS
http://www.adn.com/opinion/letters/story/8131779p-8024271c.html

Oil industry is environmentally aware, but BP presidents should step down

I worked for the oil industry for 17 years and believe that as an industry they are environmentally conscious; however, in the case of the BP oil field partial shutdown, we see a blatant case of mismanagement. I don't know Mr. Steve Marshal, president of BP Alaska, but I do know Mr. Bob Malone, president of BP America, and Marshall's boss. I know Malone to be a decent man, and I'm sure Marshall is as well. But this is not about decency, it's about being competent in one's job.

In my opinion neither Malone nor Marshall is environmentally or operationally competent and should immediately resign or be fired. This is not a case of saying "I'm sorry" and getting on with business as usual; this is about responsibility.

---- Gary Bader

Anchorage

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Wall Street Journal
August 29, 2006

BP Woes Deepen With New Probe
Public, Political Pressure May Rise
As Inquiry Looks Into Possibility
Of Manipulation in Gas, Oil Prices
By JOHN R. WILKE in Washington, ANN DAVIS in Houston

and CHIP CUMMINS in London
August 29, 2006; Page C1

Federal investigators are examining whether BP PLC manipulated crude-oil and unleaded-gasoline markets, signaling a rise in regulatory scrutiny of the British energy giant, said lawyers and traders close to the case.

BP, which has been summoned before Congress next week over problems in its Alaska pipeline operations, already faces a civil complaint filed by federal commodities regulators for allegedly manipulating much of the U.S. market for propane. The separate investigations on crude oil and gasoline could intensify public and political pressure on BP because these markets are bigger and directly affect most American households.

The Commodity Futures Trading Commission has sent subpoenas to BP and energy traders in the crude-oil probe, which is focused on possible manipulation of the global over-the-counter market in 2003 and 2004, according to lawyers and traders who have been contacted or briefed in the civil investigation. (The over-the-counter market includes trades conducted over the phone or electronically in products not listed on exchanges, or in marketplaces that regulators can't see.)

The separate gasoline inquiry, which has been under way more than a year and includes a criminal probe by the Justice Department, is examining a single day's trading on the New York Mercantile Exchange in 2002, the lawyers and traders close to the case said.

A spokesman for BP in the United Kingdom said, "We are aware of investigations being done by the [U.S.] authorities and we are cooperating fully." He didn't elaborate on the nature of the investigation. People at other firms said many trading firms had received CFTC demands for information, suggesting that the investigation went beyond BP.

A CFTC spokesman declined to comment, saying the agency doesn't confirm or deny investigations. A Justice Department spokesman also declined to comment.

In the broader civil investigation into crude-oil trading, investigators are examining, among other things, whether BP used information about its own pipelines and storage tanks at a key oil-delivery point in Cushing, Okla., to influence crude-oil price benchmarks that are set each day and influence billions of dollars of transactions. It isn't related to the propane case, in which civil claims by the CFTC are pending against BP in federal court in Chicago, as well as a criminal charge against a former BP trader in U.S. District Court in Washington; numerous civil lawsuits seeking damages are also pending. BP has denied wrongdoing in the propane case.

No charges have been brought against BP in the crude-oil inquiry, and many such investigations are ended without civil or criminal charges being brought.

Indeed, an earlier CFTC investigation into BP's crude-oil trading was closed without charges. In 2003, BP agreed to pay $2.5 million in a settlement with the New York Mercantile Exchange to resolve allegations of improper crude-oil trading. The settlement cited 10 oil violations in 2001 and 2002, which included wash trades, or simultaneous swaps of the same amount of a commodity for the same price. BP settled the matter without admitting or denying wrongdoing; the specific nature of the trades wasn't disclosed.

With gas prices soaring, and congressional midterm elections a little more than two months away, federal regulators and law enforcers have been sharpening their scrutiny of oil-company conduct.

At the same time, House lawmakers are demanding that top BP officials appear before the Energy and Commerce Committee next week to answer questions about the Alaska pipeline problems; other lawmakers are pushing to give the CFTC more authority to police the market for off-exchange energy trading.

BP operates one of the world's largest and most sophisticated oil-trading operations. In addition to trading physical oil and gas for its own operations, its traders participate in the energy-futures markets and provide risk-management services to energy producers and suppliers, refiners, shippers and other companies, much like a Wall Street commodities-trading desk. Its actions can affect the world-wide price of crude oil, natural gas, gasoline, propane and plastics.

The oil market involves the exchange of physical barrels of oil, trading on registered futures exchanges such as the Nymex, and unregulated over-the-counter markets. Barclays Capital recently estimated the nominal, annual value of all transactions -- including physical, futures and over-the-counter -- was some $40 trillion.

The key benchmark for oil trading is the futures contract for light, sweet crude oil on the Nymex, which is set for delivery at the terminal in Cushing, where BP has a dominant position.

Many oil deals in turn are directly linked to Nymex prices, while others are influenced by prices in New York trading.

While making commodity-markets trades on inside information about the company's operations isn't generally illegal, BP has warned the trading desk in the past to be careful about when it uses such information, says a person familiar with BP's oil-trading desk.

For example, last year, when BP's Texas City refinery had a deadly explosion that killed several of its workers, management immediately called the desk and warned them not to trade on the information. News that a refinery's operations are damaged can push up oil prices because reduced refinery output reduces supplies in the marketplace.

Over the past year or so, the CFTC has sent out demands for information about transactions involving BP to oil-trading firms and Wall Street commodities desks, said several traders familiar with the requests. In addition, the agency has conducted informal, voluntary meetings with traders at some of these firms as part of its interest in BP and other oil majors' trading operations, says a person involved in discussions organized for one firm.

Some of these same firms have also been contacted by the agency regarding the propane market.

It wasn't clear whether BP was the only company the agency was investigating, say some traders knowledgeable about these inquiries.

However, many of the questions focused on the market for light, sweet crude for delivery in Cushing. A BP spokesman said, "We always assist regulators and other authorities in terms of helping them understand the facts around how our supply business works." At the end of 2005, BP controlled as much as 30% of the available storage at Cushing -- with some estimates of its holdings even higher -- and its dominance of the crucial delivery point was a stumbling block to its buyout of Arco in 2000.

The Federal Trade Commission eventually forced the companies to sell certain assets at Cushing to avoid antitrust problems. But BP's dominance remains a lingering concern.

In its inquiries to traders, the CFTC asked questions about whether it was common industry practice when a trader manages storage tanks or other assets and uses those assets in trading strategies.

For example, a trader at an oil company may buy a large quantity of oil on Nymex for delivery at Cushing, knowing that his company controls a large amount of the available storage there where light, sweet crude must be physically delivered at the end of the month. The trader's identity is anonymous in such a situation.

A counterparty who decides to sell the oil may have trouble near the end of the month making actual delivery, if the oil company doesn't make its ample storage available.

This could lead the counterparty to sell the oil to someone else at a lower price just to get out of the obligation to deliver it, and lead to a lower price on Nymex.

Meanwhile, the oil company that is a buyer of the oil at a higher price on Nymex may have a simultaneous bet in the over-the counter markets that will benefit from the price drop.

But the rules in oil trading aren't as sharply drawn as in stock trading.

If a company used information available to insiders that others in the market didn't have -- such as the levels of storage at oil-storage facilities that are official delivery points for Nymex-traded crude -- but used that information only to make a profit and not to influence the price, regulators would be unlikely to allege wrongdoing.

---- Bhushan Bahree in New York contributed to this article.

Write to Ann Davis at ann.davis@wsj.com  and Chip Cummins at chip.cummins@wsj.com

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Financial Times
August 28, 2006

http://www.ft.com/cms/s/0cc8ad46-36c9-11db-89d6-0000779e2340.html

BP chief ordered to testify
By Sheila McNulty in Houston
Published: August 28 2006 20:28 |
Last updated: August 28 2006 22:59

Lord Browne, BP’s chief executive, must give sworn testimony to be used in the death and injuries cases against the UK oil giant arising from last year’s fatal explosion at its Texas refinery, a judge ruled on Monday.

State Judge Susan Criss ruled that Lord Browne and John Manzoni, BP’s chief executive for refining and marketing, had “unique and superior knowledge” requiring them to undergo questioning, under oath, by plaintiff’s attorneys in the US.

The decision comes at an awkward time for BP, which is under heightened regulatory and grand jury scrutiny for the refinery accident, as well as an Alaskan spill. It will likely spur BP to settle the 550 or so outstanding death, injury and property damage cases, rather than submit its top executives to aggressive questioning. BP has settled about 650 cases.

BP said it would appeal. “Neither Lord Browne or John Manzoni have unique knowledge of the Texas City incident on March 23 2005,” said Neil Chapman, BP spokesman. Unless BP wins that appeal, the depositions will be heard in the first group of the outstanding cases against BP, representing about a dozen people, which goes to court September 18. That includes the two outstanding death cases; 15 people were killed and an estimated 500 injured in the explosion.

Arthur J Gonzalez, an attorney with Brent Coon & Associates, said his firm had argued that Lord Browne had unique knowledge from his trip to Texas immediately following the explosion, during which he toured the facility and met with the mayor, in addition to holding a news conference in which BP took responsibility for the blast.

In addition, he said, Lord Browne had refused to sign off on a health, safety and environment report from the refinery until changes were made, and was quoted in an e-mail as saying he viewed the Texas City refinery as separate from BP’s 17 other refineries. “We have a right to know why,” Mr Gonzalez said.

He said Mr Manzoni had to give evidence because he had commissioned an “accountability investigation” of key people within BP: “We are entitled to know the underlying reason why the accountability investigation was ordered.”

¦BP has announced that partial production has been restored to the Prudhoe Bay oil field after a compressor that went down last week was repaired.

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Financial Times
August 28, 2006

http://www.ft.com/cms/s/f6ec36fc-3630-11db-b249-0000779e2340.html

US judge to rule on questioning of BP chief
By Sheila McNulty in Houston
Published: August 28 2006 03:00 |
Last updated: August 28 2006 03:00

A Texas judge is to decide today whether to compel Lord Browne, BP's chief executive, to be formally questioned before a court to decide claims against the UK oil giant arising from last year's fatal refinery explosion.

BP has refused a request by the plaintiff's attorney, Brent Coon, to question Lord Browne, forcing the decision into the court's hands.

"We are opposing the request because Lord Browne has no unique knowledge of the incident that is not available from other people within BP,'' BP said. "The head of BP's worldwide refining operations has participated in the discovery process," referring to the questioning of potential witnesses ahead of a US trial.

That "discovery process'' led Michael Hoffman, BP's group vice-president for global refining, to reveal the company is conducting an internal investigation, reaching to executive level, to determine whether to take further action over the accident, which killed 15 and injured about 500 at BP's biggest refinery.

More than a year and a half after the blast, Mr Hoffman said in a videotaped deposition that he was being scrutinised in the probe. A transcript of the deposition, taken this month by the plaintiff's attorney in the civil case against BP, was seen by the Financial Times.

The plaintiffs pressed Mr Hoffman to reveal that John Manzoni, BP's chief executive for refining and marketing, had chosen Wilhelm Bonse-Geuking, the group vice-president of BP,to investigate "whether or not there should be further disciplinary action . . . in the chain of command''.

He said Patrick Gower, refining vice-president for BP's US region, and he believed Kathleen Lucas, Texas City operations manager, had also been interviewed as part of that process.

The transcript of a videotaped deposition by Mr Gower reveals him saying he had learnt in the month or two before his May deposition that he was being investigated. Mr Gower said Don Parus, the refinery manager who has been on leave since the explosion, Ms Lucas and Willie Willis, an employee at the Texas City plant, also were being probed. BP declined to confirm the probe.


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http://www.ft.com/cms/s/297c4ec8-35f4-11db-b249-0000779e2340.html

BP chief faces court appearance
By Sheila McNulty in Houston
Published: August 27 2006 19:06 |
Last updated: August 27 2006 19:06

A Texas judge is to decide on Monday whether to compel Lord Browne, BP’s chief executive, to be formally questioned before a court to decide claims against the UK oil giant arising from last year’s fatal refinery explosion.

BP has refused a request by the plaintiff’s attorney, Brent Coon, to question Lord Browne, forcing the decision into the court’s hands.

 “We are opposing the request because Lord Browne has no unique knowledge of the incident that is not available from other people within BP,’’ a spokesman for BP said. “The head of BP’s worldwide refining operations has participated in the discovery process,” referring to the questioning of potential witnesses ahead of a US trial.

That “discovery process’’ led Michael Hoffman, BP’s group vice-president for global refining, to reveal the company is conducting an internal investigation, reaching up into its executive level, to determine whether to take further disciplinary action for the accident, which killed 15 and injured an estimated 500 at BP’s biggest refinery.

More than a year and a half after the blast, Mr Hoffman said in a videotaped deposition that he was also being scrutinised in the probe. A transcript of the deposition, taken this month by the plaintiff’s attorney in the civil case against BP that arose from the blast, was seen by the Financial Times.

The US Department of Labor found more than 300 health and safety violations at the refinery and fined BP a maximum allowable $21m before referring the explosion to the Justice Department for possible “criminal action”. A grand jury is debating whether to bring charges against BP and/or its executives.

In preparation, the plaintiffs pressed Mr Hoffman to reveal that John Manzoni, BP’s chief executive for refining and marketing, had chosen Wilhelm Bonse-Geuking, group vice-president of BP to investigate “whether or not there should be further disciplinary action? . ? . ? . in the chain of command”.

He said Patrick Gower, refining vice-president for BP’s US region, and he believed Kathleen Lucas, Texas City operations manager, had also been interviewed.

The transcript of a videotaped deposition by Mr Gower, a copy of which also was obtained by the FT, reveals him saying he had learned in the month or two before his May deposition that he was being investigated.

Mr Gower said Don Parus, the refinery manager who has been on leave since the explosion, Ms Lucas and Willie Willis, an employee at the Texas City plant, were also being probed.

A BP spokesman, declined to confirm the probe. “As a matter of policy, we don’t comment on personnel matters,’’ he said. While BP has settled most of the claims arising from the blast, Mr Coon has more than 100 cases he is to take to trial on September 16.

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Seattle Times
August 26, 2006

Seattle firm softened warnings about BP's pipeline monitoring
By Steve Miletich and Hal Bernton
Seattle Times staff reporters

Resources
Coffman documents
http://www.pogo.org/p/environment/AlaskanPipeline.html
BP corrosion Web site
http://usresponse.bp.com/go/site/1249/

BP workers use propane torches to burn off oil from an Aug. 6 leak in an oil-transit pipeline at the Prudhoe Bay oil field on Alaska's North Slope.
 
 Warnings by a Seattle-based engineering firm about problems with BP's monitoring of its Alaska oil pipelines were significantly toned down after the company complained that the report was "extremely negative," according to documents now under review by a federal grand jury.

The draft report by Coffman Engineers, published in November 2001, raised concerns about the way BP was tracking and reporting Prudhoe Bay pipeline corrosion, which this year resulted in oil spills and forced a partial shutdown of those fields.

But the final Coffman document, in its summary, had a strikingly different tone: It praised BP for a "comprehensive program of monitoring and inspections" and "steadily improving" trends in internal pipeline corrosion.

Coffman's 2001 draft report, as well as BP's critique, were made public Friday on the Project on Government Oversight Web site by Charles Hamel, a former oil broker who is a watchdog of Alaska's oil industry.

Both final and draft documents have been submitted to a federal grand jury in Anchorage, which is investigating the circumstances leading to a March oil spill of more than 200,000 gallons of oil from a west Prudhoe field pipe  known as a transit line  that carries processed crude to the start of the trans-Alaska pipeline.

The grand jury is looking into possible criminal violations of the federal Clean Water Act, which carries penalties for negligent conduct that leads to an oil spill.


The company also has cited corrosion problems as the cause of small leaks and other damage that triggered a partial shutdown of BP's Prudhoe Bay operations earlier this month. The field is currently producing less than half its normal output.

Coffman's work was done under contract with the state of Alaska, which requires the monitoring effort.

The November 2001 report  covering information from the year 2000  was the first in a series of annual reports.

Coffman officials, in interviews earlier this week, said there were numerous initial discussions about what should be included in the reports. But they said they never felt any pressure to censor their report.

"I am not aware of any coercion or otherwise that took place to get us to change that report," said Harold Hollis, a Coffman vice president in Anchorage, who declined to discuss report details because of the grand-jury investigation.

On Friday, the company said the initial Coffman report contained errors that BP pointed out in its response. "We were all working together to provide [information] that would be of value. ... We feel this kind of give-and-take is important," said Steve Rinehart, a BP Alaska (Exploration) spokesman.

Hamel, in a letter sent Aug. 22 to the federal Office of Pipeline Safety, accused BP of "whitewashing" away criticism.

The 2001 Coffman report questioned whether BP was making enough use of remote-operated devices that check for corrosion and other wear. The report described the so-called "smart pigs" as "the only inspection technique capable of looking at the whole internal and external corrosion picture."

Most of the Coffman comments about "pigging" were eliminated from the final report, published early in 2002.

In the aftermath of last March's spill, BP acknowledged that the transit lines in western Prudhoe Bay had gone without a smart-pig inspection since 1998, and it has been scrambling to make those inspections.

BP officials say workers have frequently pigged many other lines at Prudhoe Bay. But the transit lines appeared to be at low risk of corrosion compared with other lines that handled saltwater, gas and oil, and they say they thought monitoring efforts without pigging were adequate.

In the draft's summary, Coffman offered little praise to BP. Instead, it chastised the oil company for a "reporting style" that makes it difficult to understand the company's corrosion-monitoring strategy.

The draft also said BP's data were insufficient to compare the company's program to industry peers.

"No discussion of the underlying program strategy is included, other than to say, 'Our corporate goals are no accidents, no harm to people and no damage to the environment,' " Coffman reported.

That and other concerns were dropped from the final report.

The draft report triggered a sharply worded response from BP. In a memo sent to Coffman and the Alaska Department of Environmental Conservation, BP said the reviewers lacked balance and stressed problems rather than accomplishments.

"The Coffman report presents many negative findings and characterizations, and very few positive references" to information provided by BP, the company said.

Lynda Giguere, spokeswoman for the Alaska Department of Environmental Conservation, said Friday that Alaska's attorney general is also looking into why the document was revised.

Giguere said it would not be surprising if the report was changed between drafts, noting that "meetings, clarification and question-and-answer sessions" normally take place before reports are final.

Steve Miletich: 206-464-3302 or smiletich@seattletimes.com

Hal Bernton: 206-464-2581 or
  hbernton@seattletimes.com

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Wall Street Journal
August 25, 2006

BP: Prudhoe Pipeline Inspection To Resume Late Next Week
DOW JONES NEWSWIRES
August 25, 2006 7:32 p.m.
 
HOUSTON (Dow Jones)--BP PLC (BP) will resume inspecting its pipeline in western Prudhoe Bay by the end of next week, when it will have equipment in place and workers trained to handle asbestos-infused insulation material that covers the pipe, a BP spokesman said Friday.

Pipeline inspections stopped several days ago when asbestos was found to be a component of the insulation. Under the inspection process, one team of workers must strip the line of insulation before a second BP team can conduct ultrasonic inspections of the pipeline to check for corrosion.

Asbestos, which was a common insulator when the Prudhoe Bay pipeline was built in the late 1970s, can lead to cancer and other diseases when inhaled. The asbestos found in the pipeline is "non-friable," meaning it doens't easily separate into small pieces and become airborne, said BP spokesman Steve Rinehart.

BP hasn't said whether any of its workers were exposed before the asbestos was discovered.

"I don't think the actual level of exposure, if any, is precisely known," Rinehart said.

BP is putting together a program "that addresses the question of health screenings," Rinehart said.

The asbestos discovery won't affect production. But it is holding up the inspection process, which the federal government required after BP shut down the eastern half of the Prudhoe Bay oil field the week of Aug. 6, following the discovery of a severely corroded pipeline.

By Friday evening, BP had inspected 1,000 feet of pipe in the eastern Prudhoe Bay area, and 5,200 feet of pipe in the western area, a total of 1.2 miles out of a total 16 miles of pipeline that requires inspection.

Inspections on the eastern pipeline continue, as the company that built it did not use asbestos.

Rinehart declined to comment on a report in the Anchorage Daily News that state and federal regulators are investigating whether BP violated safety regulations in failing to check for asbestos before sending workers in to strip the insulation.
 
-By Brian Baskin, Dow Jones Newswires; 713-547-9202; brian.baskin@dowjones.com

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Asbestos Resin Found Around Corroded Prudhoe Pipe -Report
DOW JONES NEWSWIRES
August 25, 2006 6:43 p.m.
 
NEW YORK (Dow Jones)--Work to strip insulation off corroded pipes in the Prudhoe Bay oil field halted this week because workers may have been exposed to asbestos, the Anchorage Daily News reported on its Web site Friday.

The pipelines were originally installed in the 1970s. The above-ground pipes are wrapped in insulation to prevent hot crude oil from thawing the permafrost. The insulation has to be removed to make way for testing the steel pipes for holes using sound-wave devices, the newspaper said. The asbestos was found in a resin between the insulation and the pipe, said BP spokesman Daren Beaudo.

The asbestos-filled resin exists only on pipelines in the western half of Prudhoe, Beaudo said. A different company built and ran the eastern side before BP took control of the full field in 2000, and pipelines on that side don't have resin, Beaudo said.

The use of asbestos now is largely banned because the fibrous mineral can cause lung disease or cancer if breathed in, the Anchorage newspaper reported.

BP Plc (BP) halted the insulation removal, as well as the sonic testing, after learning that asbestos was in the resin, the newspaper quoted Beaudo as saying.

As many as 200 workers, employed mainly by contractors including Anchorage-based Veco Corp. and Canadian company Acuren, had been doing the insulation stripping and corrosion testing, Beaudo said, according to the newspaper.

The workers will be idled pending an assessment of whether the asbestos presents any health risk and what measures in terms of safety equipment and training might be needed to resume the work, Beaudo said, the newspaper reported.

Prudhoe production now stands at less than half its normal output of 400,000 barrels a day because BP is under orders from federal pipeline regulators to better test its pipes to make sure they aren't so corroded that new holes and leaks could develop, the newspaper said.

State and federal regulators are both looking into the case, as both contend employers are required to assess a workplace before disturbing suspected asbestos material, the newspaper added.

"We'll cooperate with any inquires that they might have," the newspaper quoted Beaudo as saying.

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Wall Street Journal
August 25, 2006

BP Names New Manager For Accident-Plagued Texas Refinery
DOW JONES NEWSWIRES
August 25, 2006 12:09 p.m.
By John M. Biers and Jessica Resnick-Ault
Of DOW JONES NEWSWIRES
 
HOUSTON (Dow Jones)--BP PLC (BP) Friday confirmed it has appointed a new refinery manager for the accident-plagued Texas City plant, characterizing the move as an expected transition.

Under the plan, Keith Casey, plant manager at Motiva Enterprises LLC's Norco, La., refinery, will take over the 460,000 barrel-a-day Texas City plant, with the impending retirement of Colin Maclean, who was appointed to lead Texas City in May 2005, two months after an explosion killed 15 workers and injured some 170.

BP officials called the shift a natural transition, given that Maclean, 60, is at retirement age. The company tapped Maclean to the lead the Texas plant, because of his history of turning around troubled plants.

"The company has been looking for someone to serve as a successor," said BP spokesman Ronnie Chappell. "The feeling inside the corporation is that Colin has gone down there and done a very good job."

BP has been under growing scrutiny from regulators and the press in the wake of a series of operational and governance problems in the U.S. The company's Texas City record has been among its biggest headaches.

Company-generated reports on the 2005 accident pointed to poor management and a lack of hazard awareness. Regulators have been scathing in assessing the company's record at the plant, with the Occupational Health and Safety Administration referring the case to the Justice Department for a criminal investigation.

BP tapped Maclean to replace Don Parus, who remains on BP's payroll, but was removed from his post as refinery manager after the accident. Since that time, Maclean has begun implementing a $1 billion upgrade program to improve refinery operations. The efforts include establishing a new employee services building and removing temporary trailers, the facilities that housed most of the workers who died in the accident.

While there have been no accidents on the scale of the March 2005 blast, Texas City has not been free of troubles during Maclean's tenure. A "near-miss" fire occurred at the plant last July, but caused no injuries. A contract worker died a month ago when he became pinned against a pipe; the accident is still under investigation, a BP spokesman said Friday.

The plant, BP's largest U.S. refinery, is also still running at only about half its normal capacity. BP shut Texas City down last fall due to Hurricane Rita, but the plant's restart is being closely monitored by OSHA. The company has said it wanted to reach 400,000 barrels per day by the end of 2006, but people familiar with the plant said this week that BP would fall short of that goal.

Although the July fatality was a "tragic accident," the incident "shouldn't impugn the entire effort to refurbish" the giant plant, said BP spokesman Scott Dean.

In picking Casey, BP has recruited the head of a facility that also has a history of troubles - albeit a somewhat more distant history.

The Motiva refinery, a joint-venture of Royal Dutch Shell PLC (RDSB) and Saudi Aramco, (SOI.YY), suffered a major explosion in 1988 that killed 7 workers. The plant was also under criminal investigation in 2000 for clean air violations, ultimately settling the issues as part of a $400 million settlement that covered nine refineries operated by Shell and Motiva.

 
-By John M. Biers, Dow Jones Newswires; 713-547-9214; john.biers@dowjones.com 

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Wall Street Journal
August 25, 2006
Report Criticizing BP's Controls
Is Investigated After Alterations
By JIM CARLTON
August 25, 2006; Page A2

Federal investigators are probing changes made to a report commissioned by Alaska state officials on BP PLC's operations there. The changes were made after the oil giant complained the report was overly negative.

The London company, which runs the massive Prudhoe Bay oil field on behalf of a consortium of oil companies, is under scrutiny by U.S. and state agencies for how it handled corrosion and potential leak issues at pipelines there. Concerns about corrosion led BP to shut down part of the field earlier this month, sparking a surge in oil prices. Separately, BP said late Wednesday that it would further reduce input from the hobbled field because of equipment failure.

Copies of the original and final versions of the 2002 report by Coffman Engineers, which was commissioned by and filed with a state agency to evaluate BP's pipeline management, show several instances in which critical commentary is deleted or replaced with positive comments. For example, the original version, reviewed by The Wall Street Journal, said BP's corrosion-monitoring program "makes it difficult to develop a qualitative understanding of the basis for their corrosion strategy." That reference was replaced by this: "BP has demonstrated a clear commitment to corrosion control."

That and other changes were made to the document after BP officials submitted a critique of the original version, calling it "biased and unduly negative," according to documents viewed by the Journal.

BP spokesman Daren Beaudo said the company tried to point out errors they discovered in the first version and wasn't trying to pressure anyone. "We pointed them out as part of the normal review process," he said.

Coffman changed the report after BP "explained some things we didn't know," said Dan Stears, manager of Coffman's corrosion-engineering department, who added the firm wasn't pressured by BP or anyone else to make changes. The changes were made after the first draft version was reviewed for input by state and industry officials, he said.

A spokeswoman for the Alaska Department of Environmental Conservation, which contracted with Coffman to file the report, said the agency couldn't comment because of an investigation by the state attorney general's office into the 2002 report. A spokesman for the attorney general's office said he couldn't make an immediate comment.

BP officials have defended their corrosion-control programs but have acknowledged the need to do more following the recent discovery of more severely corroded lines. The findings followed a March spill that has revealed widespread internal-corrosion problems at the oil field, the largest in the U.S.

The documents were obtained by Charles Hamel, a critic of the oil industry's conduct in Alaska, who said he turned the information over to the Environmental Protection Agency and the Department of Transportation's Office of Pipeline Safety. The two agencies have launched investigations into BP's operations at Prudhoe Bay. Mr. Stears said the EPA, which is conducting a criminal probe, has subpoenaed its BP corrosion reports, including the one in 2002. An EPA spokesman declined comment.

The final draft of Coffman's 2002 report was submitted to the Alaskan state agency in November 2001. It contained a number of criticisms. For example, it said that without certain details, it was hard to judge the effectiveness of BP's program to use chemicals to fight corrosion inside pipes.

In a document titled "BP response to Coffman Final Draft," BP said specifics on the overall corrosion trend were of "limited utility" because the program's success had been demonstrated by low corrosion rates, among other things. The final version of the Coffman report excised that reference, along with several others.

BP late Wednesday said it would reduce the field's output by about 90,000 barrels of oil a day from the previous level of about 200,000 barrels a day because of an equipment failure that would take several days to fix. Before the partial shutdown of the field earlier this month, Prudhoe Bay produced about 400,000 barrels of oil a day, equal to just less than 2% of daily U.S. consumption.

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Financial Times
August 24, 2006

http://www.ft.com/cms/s/115591f6-3324-11db-87ac-0000779e2340.html

BP further cuts Prudhoe Bay output
By Sheila McNulty in Houston
Published: August 24 2006 05:10 |
Last updated: August 24 2006 05:10

BP, the UK oil giant, was forced to further reduce production from its Alaskan oil field on Wednesday, after it had to shut down a gathering centre due to a mechanical failure in a compressor.

That cut daily production from 200,000 barrels to 110,000 barrels, which is likely to have repercussions in the tightly-balanced oil market, which was rattled when BP last cut production from the field.

BP normally produces 400,000 barrels per day at the Prudhoe Bay oil field, but was forced several weeks ago to shut half the production after discovering ”severe corrosion” in an oil transit line.

In addition to the compressor problems, Daren Beaudo, BP spokesman, said BP had been forced to stop stripping insulation off one of its transit lines, as part of a weeks-long search for further corrosion, after discovering the material contained asbestos. The insulation, applied some 30 years ago when Prudhoe Bay first began production, is found to contain mastic, which contains 5 to 10 per cent asbestos.

Mr Beaudo said BP tested insulation samples after an expert suspected presence of asbestos, and the tests came back positive. He said the asbestos was tightly bound and not the type to easily release airborne fibres. But the company had, nonetheless, stopped the removal of insulation while it investigated if additional protective gear was needed for the workers.

Regulators had ordered BP to perform the corrosion checks after a massive spill in March at Prudhoe Bay from a corroded pipeline.

Mr Beaudo said there were no related safety issues with regard to the mechanical failure in the compressor, but the compressor handles gas and, without it, BP cannot produce oil. Mr Beaudo suspected it would take several days to complete the repairs.

The additional problems at Prudhoe Bay come while a grand jury is investigating whether to bring criminal charges against the company.

BP’s Alaska problems followed a fatal explosion last year at its Texas City refinery, which also is under grand jury investigation. These major incidents, along with a string of smaller incidents in the company’s US operations, have raised questions about BP’s safety culture.

The company insists the incidents are not reflective of a broader problem, but it recently appointed Bob Malone as the new president of BP’s Americas operations to work to improve the US safety record.

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Wall Street Journal
August 24, 2006

U.S. Officials Are Investigating
Changes Made to Report on BP
By JIM CARLTON
August 24, 2006 6:14 p.m.

Federal investigators are looking into how and why changes were made to a report filed with Alaskan state regulators that was initially critical of BP PLC's operations there after the oil giant complained it was overly negative.

The London-based oil giant, which runs the massive Prudhoe Bay oil field on behalf of a consortium of oil companies, is under scrutiny by U.S. and state agencies for how it handled corrosion and potential leak issues at pipelines there. Concerns about corrosion led BP to shut down part of the field earlier this month, leading to a surge in oil prices. Separately, BP said late Wednesday it would further reduce input from the hobbled field due to an equipment failure.

Copies of the original and final versions of the 2002 report by Coffman Engineers, which was commissioned by and filed with a state agency to evaluate BP's pipeline management, show several instances in which critical commentary is deleted or replaced with positive comments. For example, the original version, reviewed by The Wall Street Journal, said BP's corrosion-monitoring program "makes it difficult to develop a qualitative understanding of the basis for their corrosion strategy." That reference was replaced by this: "BP has demonstrated a clear commitment to corrosion control."

That and other changes were made to the document after BP officials submitted a critique of the original version, calling it "biased and unduly negative," according to documents viewed by the Journal. "The Coffman report presents many negative findings and characterizations, and very few positive references," BP officials said in the response.

The documents don't indicate who altered the report.

Officials of BP said they were trying to point out errors they discovered in the first version and weren't trying to pressure anyone. "We pointed them out as part of the normal review process," said Daren Beaudo, a spokesman for the company in Anchorage, Alaska.

The Environmental Protection Agency and Department of Transportation's Office of Pipeline Safety have launched investigations into BP's operations at Prudhoe Bay, following a March spill that has revealed widespread internal corrosion problems at the largest U.S. oil field. The London-based company has since closed more than half the production at Prudhoe Bay after it ran into more corrosion and other mechanical problems.

Documents related to the matter were obtained by Charles Hamel, a critic of the oil industry's conduct in Alaska, who said he turned the information over to the two agencies. An EPA official declined to comment. A spokesman for the Department of Transportation said the agency was reviewing the matter.

A spokeswoman for the Alaska Department of Environmental Conservation, which contracted Coffman to file the report, said the agency couldn't comment because of an investigation by the state attorney general's office into the 2002 report. The attorney general's office couldn't immediately be reached. Officials of Coffman, an engineering consulting firm based in Seattle, said they couldn't comment on the specific details of the report because of the pending investigations as well as the fact that the work was done for a client. "I will say Coffman wasn't coerced or pressured to change the report," said Harold Hollis, a Coffman general manager based in Anchorage.

The final draft of Coffman's 2002 report was submitted to the Alaskan state agency in November 2001. It contained a number of criticisms. For example, in a discussion on BP's report of increasing internal corrosion rates at Prudhoe Bay, it said: "The actual magnitude of the corrosion increase is not reported and subsequent damage to the pipe wall due to increased corrosivity is not quantified." Without those details, the report said, it was hard to judge the effectiveness of BP's program to use chemicals to fight corrosion inside pipes.

But in a document entitled "BP response to Coffman Final Draft," BP officials took exception with that characterization, saying specifics on the overall corrosion trend were of "limited utility" because the program's success had been demonstrated by low corrosion rates, among other things. The final version of the Coffman report excised that reference, along with several others.

BP late Wednesday said it would reduce the field's output by about 90,000 barrels of oil a day from the previously level of about 200,000 barrels a day because of an equipment failure that would take several days to fix. Before the partial shutdown of the field earlier this month, Prudhoe Bay produced about 400,000 barrels of oil a day, equal to just below 2% of daily U.S. consumption.

Write to Jim Carlton at jim.carlton@wsj.com 

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UK PRESS:
BP Sought Lenient Assessment Of Alaska Oil Ops
DOW JONES NEWSWIRES
August 24, 2006 6:14 p.m.
DOW JONES NEWSWIRES

BP Plc (BP) persuaded Alaskan regulators to get a lenient independent assessment of its corroded Alaskan oil field, five years before it was forced to shut it down, the Financial Times reported on its Web site Thursday, citing documents it had obtained from a BP workers advocate.

In November 2001, independent assessor Coffman Engineers wrote a report complaining that BP's reporting style and corrosion metrics "make it difficult to develop a qualitative understanding of the basis and underlying strategies employed by BP Alaska."

BP's external corrosion program "may not be receiving the appropriate resources," Coffman's assessment said, adding that BP had to report details of the chemicals used to inhibit corrosion over time, and reporting aggregate averages "does not allow for technical analysis of the program merits."

The assessment also said BP had to replace metal slips that had been removed to check for corrosion "in a statistically representative number of locations," and it also had to address its "sagging" pipelines, FT reported.

Coffman's November 2001 assessment had been marked "final."

BP complained that the Coffman assessment was "biased and unduly negative" and should be rewritten. In January 2002, Coffman released a toned-down report, which included only one of the original criticisms, according to the documents cited by the FT.

"First generation of the report contained errors and we pointed them out as part of the normal review process," said BP spokesman Ronnie Chappell. "Coffman has made it absolutely clear that findings published are theirs and that BP nor the state censored or changed their findings."

An advocate for BP workers in Alaska had obtained all three documents and submitted them to U.S. environmental criminal investigators who are working with a grand jury to see if criminal charges should be brought against BP.

"The replacement report whitewashes away all the criticism of the original versions and praises BP's corrosion monitoring program," said the advocate, Chuck Hamel, according to the FT.

 
Newspaper Web site: http://www.ft.com  

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Anchorage Daily News
August 24, 2006

http://www.adn.com/money/industries/oil/prudhoe/story/8116808p-8009220c.html

BP's problems intensify
Oil producer, Alaska lose millions of dollars as processing plant fails, cutting output
By WESLEY LOY
Anchorage Daily News
Published: August 24, 2006
Last Modified: August 24, 2006 at 04:16 AM

Prudhoe Bay was staggered again Wednesday when a major processing plant went on the blink, dropping production from the nation's largest oil field to its lowest level since the Prudhoe crisis began early this month.

The breakdown knocked out 90,000 barrels of oil production per day, driving down overall Prudhoe output to 110,000 barrels per day, said Daren Beaudo, a spokesman for field operator BP Exploration (Alaska) Inc.

Normally the field makes about 400,000 barrels per day, or 8 percent of total U.S. production.

Wednesday's trouble marks another big setback for BP, which on Aug. 6 startled petroleum markets by announcing its intent to shutter Prudhoe entirely because of oil leaks from corroded pipelines.

As it turned out, BP and federal pipeline regulators deemed some of the pipes safe to operate and BP didn't need to carry out the full shutdown, stabilizing output last week at just more than 200,000 barrels per day.

Then came Wednesday's glitch at a plant called Gathering Center 2, which separates the raw stream coming in from wells into oil, water and natural gas.

A compressor that handles the gas went down, and fixing it could take several days, Beaudo said Wednesday evening.

"It was a mechanical failure," he said. "I don't have any more detail about what caused it."

Prudhoe is one of London-based BP's top-producing global assets. BP runs it on behalf of itself and four other owners including Exxon Mobil and Conoco Phillips.

Ninety thousand barrels of oil is worth $6.3 million a day at Wednesday's closing price of $70.06 per barrel on the West Coast spot market.

The new production loss will cost the state roughly $1.5 million per day in oil taxes and royalties until pumping resumes.

For BP, Wednesday's breakdown adds new pressure to a company that surely must be feeling snakebit.

Its troubles began in early March when a leaky pipeline released an estimated 201,000 gallons of oil onto the frozen tundra. It was the largest North Slope oil spill in nearly three decades of production there, and the event attracted scrutiny from federal pipeline regulators, members of Congress and criminal investigators.

The troubles intensified after another, smaller leak prompted BP's Aug. 6 shutdown announcement.

Critics said BP neglected key pipelines at the core of the vast oil field, allowing sludge to build up inside the lines and corrosion to go unchecked. BP executives have apologized and said the corrosion caught them by surprise.

Since the partial shutdown, BP has had also to shut down a pipeline carrying 20,000 barrels of crude when the above-ground line suddenly surged and fell off its mounting rack.

And on Wednesday, BP said workers testing the insulated pipes for corrosion had to stop work due to asbestos contamination.

Daily News reporter Wesley Loy can be reached at wloy@adn.com or 257-4590.

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http://www.adn.com/money/industries/oil/prudhoe/story/8116808p-8009221c.html

Asbestos found in corroded pipe
PRUDHOE: Toxic substance found in resin; insulation removal stopped.
By WESLEY LOY
Anchorage Daily News
Published: August 24, 2006
Last Modified: August 24, 2006 at 04:16 AM

State labor regulators are investigating possible asbestos exposure among workers stripping insulation off corroded pipelines in the hobbled Prudhoe Bay oil field.

Discovery of asbestos along the pipelines originally installed in the 1970s adds to field operator BP's considerable troubles in Prudhoe, the nation's largest oil field partially shut down this month because of leaks and corroded pipelines.

Use of asbestos now is largely banned because the fibrous mineral can cause lung disease or cancer if breathed in.

Since a major oil spill was discovered March 2, and particularly since BP began the emergency field shutdown Aug. 6, as many as 200 workers have swarmed over the pipelines, stripping off a thick layer of insulation to make way for testing the steel pipes for holes using sound-wave devices. The above-ground pipes are wrapped in insulation to prevent hot crude oil from thawing the permafrost.

This week, BP halted the insulation removal, as well as the sonic testing, after learning that asbestos was in the tarlike resin between the insulation and the pipe, said BP spokesman Daren Beaudo.

As many as 200 workers, employed mainly by contractors including Anchorage-based Veco Corp. and Canadian firm Acuren, had been doing the insulation stripping and corrosion testing, Beaudo said.

The workers will be idled pending an assessment of whether the asbestos presents any health risk and what measures in terms of safety equipment and training might be needed to resume the work, Beaudo said.

The asbestos problem complicates efforts to fully restore Prudhoe production, which now stands at less than half its normal output of 400,000 barrels a day, or 8 percent of total U.S. production.

BP is under orders from federal pipeline regulators to better test its pipes to make sure they're not so corroded that new holes and leaks could develop. Keeping the oil flowing depends on completing those tests.

The asbestos-infused resin is present only on pipelines in the western half of Prudhoe, Beaudo said. A different company built and ran the eastern side before BP took control of the full field in 2000, and pipelines on that side don't have the resin, he said.

The resin has an asbestos content of 5 percent to 10 percent, Beaudo said. He added that the asbestos is not friable, meaning it doesn't easily break up and fly around in the air in such a way that workers can breathe it in.

Steve Standley, acting chief of enforcement for the Alaska Occupational Safety & Health office, said Wednesday he had assigned an officer to look into the case.

Generally, he said, employers are obliged to suspect and check for the presence of asbestos before beginning work on older structures, and the officer will be checking for a possible violation.

Nonfriable asbestos can become a hazard, he said, "if the removal of that material is aggressive enough" to disturb it, sending fibers into the air.

Workers removing insulation on the Prudhoe pipelines sometimes have to use lots of muscle power to peel off the insulation and resin and then buff the pipe to prepare for a good sonic corrosion test.

Grey Mitchell, director of the state Division of Labor Standards & Safety, said a 5 percent to 10 percent asbestos content is "pretty high." Generally, a content level of 1 percent or more constitutes an asbestos material, he said.

Federal regulations adopted by the state require employers to assess a workplace before disturbing suspected asbestos material, Mitchell said.

State investigators will seek oil-field workers who might have been exposed and ask them about the kinds of work they were doing and what exposure training they had received.

BP is working with the regulators, Beaudo said.

"We'll cooperate with any inquiries that they might have," he said.

Veco did not respond to a call seeking comment Wednesday.

Daily News reporter Wesley Loy can be reached at wloy@adn.com or 257-4590.

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http://www.adn.com/money/industries/oil/story/8113917p-8006382c.html

Prudhoe Bay production down again
By MARY PEMBERTON
Associated Press Writer
Published: August 23, 2006
Last Modified: August 23, 2006 at 07:11 PM

Production at the Prudhoe Bay oil field was further reduced Wednesday when a mechanical problem was discovered in a compressor, according to a spokesman for BP PLC, operator of the country's largest oil field.

The problem cut oil production at Prudhoe Bay from an already reduced 200,000 barrels to 110,000 barrels, said BP Alaska spokesman Daren Beaudo. It likely would take several days to complete the repairs, he said.

The compressor that failed at a gathering center handles natural gas that is produced with the oil and water during the processing of crude. Only the western side of the field is producing oil following the shutdown of the eastern half earlier this month.

In a separate event, work to remove insulation from a transit line on the western side of the field was temporarily halted Wednesday. BP wants time to evaluate the potential for workers to be exposed to materials that contain between 5 and 10 percent asbestos before continuing the work, Beaudo said.

The insulating material is a mastic or adhesive that was applied when the line was originally installed in the late 1970s.

Beaudo said the line will continue to operate while BP assesses how to safely handle the material.

The Prudhoe Bay field had been producing about 400,000 barrels a day of oil - about half of all North Slope production - when workers Aug. 6 discovered a leak in a transit line on the eastern side of the field.

The leak, which spilled about 200 gallons of oil, was found while workers stripped off insulation to get a better look at the line after a test indicated numerous areas where the pipe wall was exceptionally thin. The problem has since been blamed on bacterial corrosion that created discrete pitting in the pipe.

The company plans to replace 16 miles of corroded transit pipes.

It was the second leak found in a transit line, also called feeder pipelines, which transport oil to the trans-Alaska pipeline. In March, a leak in a corroded transit line pipe resulted in the spill of more than 200,000 gallons of crude - the largest spill ever on the North Slope. A bypass was put on that line to keep it operating.

BP initially said it would shut down the entire field after the discovery of the second leak. However, the company later decided it could keep the western side open while it increased inspections on its transit lines. The removal of insulation on the western transit line was part of a stepped-up inspection program following the Aug. 6 spill.

Beaudo said inspections are continuing on the eastern side of the field.

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Wall Street Journal
August 24, 2006

Consultant Warned BP
Of Pipe-Network Corrosion
By MATTHEW DALTON and JOHN M. BIERS
August 24, 2006; Page A3

Federal investigators probing BP PLC's operations in Alaska are reviewing two-year-old documents from an engineering firm that included warnings of accelerated corrosion in its pipeline network, an indicator of the same type of conditions that forced the partial shutdown of the giant Prudhoe Bay oil field this month.

While the London oil company has acknowledged some responsibility for the corrosion problem, BP has defended its overall pipeline maintenance as robust and characterized the incidents as unforeseeable. Environmental Protection Agency investigators are presenting evidence to a federal grand jury investigating criminal charges against BP related to its pipeline-maintenance program in Alaska. An EPA spokesman declined to comment.

Separately, a BP spokesman said late yesterday the company, which operates Prudhoe Bay on behalf of a consortium, has had to curtail remaining production at the field by almost one-half because of a mechanical failure in an oil-processing facility. The spokesman, Daren Beaudo, said the move would reduce production to 110,000 barrels a day from the 200,000 barrels a day that it had been able to continue. He said repairs could take several days. At full strength, the field produced 400,000 barrels of oil a day.

 
BP's own regulatory reports on its pipeline maintenance and analysis of these reports prepared in 2004 by an engineering consulting firm, Coffman Engineers, don't show a direct cause for the problems that led to the shutdown of the pipelines. But they portray a pipeline system vulnerable to localized corrosion, with large blind spots where problems would be difficult to detect. They also show that Coffman flagged isolated incidents of "accelerated corrosion" as early as 2004 based on 2003 data from BP.

Coffman's work for BP is being examined by the EPA, said Dan Stears, manager of Coffman's corrosion-engineering department. "Our reports were quite accurate as far as the corrosion mechanism that BP needs to address," Mr. Stears said, adding that Coffman suggested BP needed to take measures to prevent corrosion over its entire pipeline network.

BP and Alaska officials have pointed to other language in the Coffman reports praising BP's practices. Company spokesman Steve Rinehart said the Coffman reports were concerned with pipelines different from the ones that proved problematic. Coffman said its work encompassed the pipelines in question.

BP Alaska President Steve Marshall said at a hearing before state lawmakers last week that the Coffman reports didn't flag the lines that proved problematic because they were seen as less vulnerable to corrosion.

At the same hearing, Alaska Department of Environmental Conservation Commissioner Kurt Fredriksson cited the praise for BP's program and said the reports focused concern on lines different from the ones that proved problematic. (See article.)

BP is under fire from state and federal investigators for a maintenance program that led it to shut part of Prudhoe Bay, the largest oil field in the U.S., after finding severe corrosion in a pipeline. Problems with the pipeline system first publicly surfaced when a pipeline spilled over 200,000 gallons of oil in March.

One of BP's primary methods for detecting corrosion inside its pipelines involves the use of pieces of metal, called coupons, inserted into the pipeline flow and then inspected to determine whether corrosion has occurred. BP then injects into its pipelines chemicals that inhibit corrosion based on the monitoring data.

BP's monitoring reports show the company used few coupons on its transit pipelines, where the oil leaked in March and severe corrosion was found at the end of July. Out of a total of 1,495 locations monitored using coupons, only five were placed over the 22 miles of transit pipelines, which carry oil from processing facilities to the 800-mile-long Trans-Alaska Pipeline.

Mr. Rinehart said in hindsight the company should have placed its coupons in different locations.

BP's maintenance reports show the company detected very low rates of pipeline corrosion throughout its system since 1997. Still, the heavy reliance on coupons and similar techniques raises questions about how confident the company could have been in the integrity of its pipeline as a whole.

The company didn't run a standard industry test on the corroded pipeline using a "smart pig" -- a mechanical device that runs along the inside of the pipeline to detect corrosion. "If you want to find this type of random, spotty corrosion, you've got to do 100% ultrasonic scanning from the outside, or the smart pig approach," said Larry Tatum, an anticorrosion specialist with the National Association of Corrosion Engineers.

BP has said, looking forward, its anticorrosion programs will strongly feature the use of smart pigs.

--Jim Carlton contributed to this article.

Write to Matthew Dalton at Matthew.Dalton@dowjones.com   and John M. Biers at john.biers@dowjones.com

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Financial Times
August 24, 2006

http://www.ft.com/cms/s/115591f6-3324-11db-87ac-0000779e2340.html

BP further cuts Prudhoe Bay output
By Sheila McNulty in Houston
Published: August 24 2006 05:10 |
Last updated: August 24 2006 05:10

BP, the UK oil giant, was forced to further reduce production from its Alaskan oil field on Wednesday, after it had to shut down a gathering centre due to a mechanical failure in a compressor.

That cut daily production from 200,000 barrels to 110,000 barrels, which is likely to have repercussions in the tightly-balanced oil market, which was rattled when BP last cut production from the field.

BP normally produces 400,000 barrels per day at the Prudhoe Bay oil field, but was forced several weeks ago to shut half the production after discovering ”severe corrosion” in an oil transit line.

In addition to the compressor problems, Daren Beaudo, BP spokesman, said BP had been forced to stop stripping insulation off one of its transit lines, as part of a weeks-long search for further corrosion, after discovering the material contained asbestos. The insulation, applied some 30 years ago when Prudhoe Bay first began production, is found to contain mastic, which contains 5 to 10 per cent asbestos.

Mr Beaudo said BP tested insulation samples after an expert suspected presence of asbestos, and the tests came back positive. He said the asbestos was tightly bound and not the type to easily release airborne fibres. But the company had, nonetheless, stopped the removal of insulation while it investigated if additional protective gear was needed for the workers.

Regulators had ordered BP to perform the corrosion checks after a massive spill in March at Prudhoe Bay from a corroded pipeline.

Mr Beaudo said there were no related safety issues with regard to the mechanical failure in the compressor, but the compressor handles gas and, without it, BP cannot produce oil. Mr Beaudo suspected it would take several days to complete the repairs.

The additional problems at Prudhoe Bay come while a grand jury is investigating whether to bring criminal charges against the company.

BP’s Alaska problems followed a fatal explosion last year at its Texas City refinery, which also is under grand jury investigation. These major incidents, along with a string of smaller incidents in the company’s US operations, have raised questions about BP’s safety culture.

The company insists the incidents are not reflective of a broader problem, but it recently appointed Bob Malone as the new president of BP’s Americas operations to work to improve the US safety record.

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FRONT PAGE
http://www.ft.com/cms/s/40e4c8e0-330d-11db-87ac-0000779e2340.html

BP's troubles in US deepen with chemical plant lawsuit
By Sheila McNulty in Houston
Published: August 24 2006 03:00 |
Last updated: August 24 2006 03:00

BP is embroiled in a legal battle in Illinois that, against the backdrop of a big spill in Alaska and a fatal explosion in Texas, could enter the debate over whether the UK oil giant has a problem with its US safety culture.

The lawsuit arises from BP's sale for $225m of an Illinois chemicals plant in 2004 to Flint Hills Resources, which is suing the UK company for more than 50 misrepresentations about the plant's environmental compliance, mechanical integrity and production capacities.

BP initiated a federal lawsuit in Chicago last year after Flint Hills, a subsidiary of Koch Industries, claimed the oil group had breached the sale agreement. BP sought a declaration by the court that it had done nothing wrong.

"They had ample time to conduct due diligence prior to their purchase," said Scott Dean, BP spokesman.

Yet Flint Hills has counter-sued, seeking compensatory damages - with preliminary estimates of about $200m (£106m) - as well as other legal expenses.

"The plant that BP promised was not the plant that Flint Hills got,'' the Koch Industries subsidiary alleged.

"Instead of receiving an environmentally compliant, mechanically sound plant ready to immediately increase production capacity, Flint Hills received a plant that required tens of millions [of dollars] to comply with environmental laws and permits, tens of millions to repair substandard mechanical integrity, and tens of millions to address multiple bottlenecks that constrain production."

Flint Hills alleged the plant had illegal emissions of air pollutants; corroded tanks that leaked chemicals, including acid; and badly leaking sewer lines that BP had buried unrepaired ahead of the sale.

Mr Dean said: "At the time of the sale, the plant was operating under the necessary emissions permits. The buyer is a sophisticated petrochemical company that knew they were buying a 1950s vintage chemical plant that had ongoing maintenance requirements consistent with its age."

The case, which is set to go to trial in late 2007, will play out amid BP's recent problems in the US, which have resulted in heightened regulatory scrutiny and two grand jury investigations that could bring criminal charges against the UK oil major.

In addition, an independent panel imposed by the US Chemical Safety and Hazard Investigation Board is investigating other BP refineries to determine if the group's safety culture is flawed.

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MSN Money
August 23, 2006

http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=AP&Date=20060823&ID=5967591

Feds Review Firm's Report on BP Pipeline

NEW YORK (AP) - Federal investigators probing BP PLC's operations in Alaska are reviewing two-year-old documents from an engineering firm warning of "accelerated" corrosion in its pipeline network -- a harbinger of the crisis that forced the partial shutdown of the giant Prudhoe Bay oil field this month.

While the British oil company has admitted some responsibility for the corrosion problem, which first publicly surfaced when a pipeline spilled over 200,000 gallons of oil in March, BP has defended its pipeline maintenance as robust, characterizing the crisis as surprising and unforeseeable. The Environmental Protection Agency is presenting evidence to a federal grand jury investigating criminal charges against BP related to its pipeline maintenance program in Alaska.

But BP's own regulatory reports on its pipeline maintenance and analysis of these reports prepared in 2004 by a consultant, Coffman Engineers, portrays a pipeline system vulnerable to localized corrosion, with large blind spots where problems would be impossible to detect. Coffman's work for BP is being examined by the EPA in its investigation of BP's maintenance program.

Don Stears, manager of the corrosion engineering department at Coffman Engineers, said his company predicted BP's current situation. "Our reports were quite accurate as far as the corrosion mechanism that BP needs to address," he said. Stears added that from assessing the Prudhoe Bay system, Coffman suggested BP needed to take measures to prevent corrosion over its entire pipeline network.

BP is under fire from state and federal investigators for its maintenance program that forced it to shut part of Prudhoe Bay, the largest oil field in the U.S., after finding severe corrosion in a pipeline. BP America President Bob Malone will appear on Capitol Hill on Sept. 7 before legislators who are questioning the energy titan's commitment to pipeline safety.

BP has prepared annual maintenance reports for the Alaska environment department as a condition of the state's approval for BP's acquisition of rival oil producer ARCO in 1999. The state then hired Coffman Engineers to review BP's annual corrosion report.
Alaska state officials and BP have pointed to language in the Coffman reports praising BP as evidence of the company's diligence. While the reports do include praise of BP, they show that Coffman flagged "accelerated corrosion" as a concern as early as 2004 based on 2003 data from BP.

Larry Dietrick, head of the Alaska Department of Environmental Conservation's spill prevention and response program, said the onus for maintaining the pipeline was on BP. The Coffman recommendations "must be carefully evaluated in conjunction with safety, access, operating conditions and other factors," said Dietrick. "The operator is ultimately responsible for safety and corrosion performance management and must consider the risks of all aspects of their operation."

Coffman's reports show, among many things, that BP didn't run a standard industry test using a robot called a "smart pig," and that the company didn't place "coupons" in proper locations. Coupons are pieces of metal inserted into the pipeline flow, and then inspected to determine if corrosion has occurred.

BP said it scheduled a smart pig test for the western line of Prudhoe Bay for the summer of 2006 after ultrasonic testing last fall pointed to the highest rate of corrosion in six years. But the line, which remains open, suffered the March oil spill before the test could be conducted.

BP executives say the corrosion on the pipelines was surprising, because those lines carried oil processed to remove the impurities that cause corrosion. "With that situation, we did not expect the severe corrosion we found," said Steve Marshall, president of BP Exploration, at a legislative hearing in Anchorage last week.

Coffman Engineering had a five-year contract with the state that expired June 30. Alaska awarded it a new contract after a competitive bidding process in which Coffman was the only bidder, said Lydia Miner, exploration, production and refinery section manager the Department of Environmental Conservation.

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Seattle Weekly
August 23, 2006

http://www.seattleweekly.com/news/0634/prudhoe.php

One Crude Dude
With Big Oil reeling from the Prudhoe Bay shutdown,
Chuck Hamel can finally say 'I told you so.'
By Tony Hopfinger

In the summer, caribou often saunter amidst Prudhoe Bays maze of pipes Last December, Chuck Hamel and his wife celebrated the holidays as they always do, at their home in Marysville. They ate Christmas dinner, sipped wine, took long walks, and watched their goddaughter's children play. It was pleasant and calm, unlike Hamel's racing mind. His thoughts were jumbled with tales of oil, corruption, and conspiracy. As the holidays wound down, Hamel returned to what he does best: sniping at one of the world's most powerful industries, Big Oil.

On New Year's Day, he drove to Sea-Tac and boarded a jet bound for Anchorage, Alaska. When he arrived, Hamel went to a "safe house," as he describes it a friend's place where nobody would find him. There, he met with one of his informants, an employee of oil giant BP. They talked about how the London-based company was neglecting its pipelines in Alaska, which are literally rusting away on the tundra. While BP has spent hundreds of millions of dollars trying to prevent corrosion, some oil workers claim the company has skimped dangerously when it comes to maintaining the aging equipment that supplies crude to the West Coast.

Hamel, who lives for such gossip, assured the BP informant his identity wouldn't be revealed. That sealed the deal. Together, they phoned a criminal investigator at the U.S. Environmental Protection Agency's Seattle division and gushed. This exchange, coupled with numerous allegations made by Hamel and his moles in recent years, would foreshadow the biggest meltdown in Alaska's oil industry since the Exxon Valdez tanker ran aground in 1989. Last March, one of BP's corroding pipes leaked 267,000 gallons of oil at Prudhoe Bay, the nation's largest oil field. On Aug. 6, BP shut down its Prudhoe Bay facility which accounts for 8 percent of the country's domestic oil production after discovering that another corroding pipe, this one peppered with small holes, was oozing crude onto the spongy tundra. BP has since restored production to just over half of Prudhoe Bay and plans to replace 16 miles of worn pipeline at an estimated cost of $170 million.

For Seattle and other Northwest cities that depend on Alaska crude, BP is making up the shortfall by shipping oil from West Africa to its Cherry Point Refinery in Blaine, Wash. Time will tell if the company's troubles will show up at the gas pump.

Meanwhile, two federal agencies both spurred by Hamel and his whistle-blowers are probing BP's conduct, and the U.S. Justice Department confirms its own investigation. The company has been hit with a slew of federal and state subpoenas to surrender internal documents on its corrosion program. And a congressional committee plans a hearing Sept. 7 to question BP executives about Prudhoe Bay's mishaps.

Hamel looks like your grandfather. He's 76, short and stocky, with fluffy white hair and bushy eyebrows. He and his wife, Kathy, split their time between a townhouse in Alexandria, Va., and her childhood home on Seventh Street in Marysville, which Kathy inherited from her folks. This modest, three-bedroom abode north of Seattle is a retreat from Hamel's ongoing war with BP. If it weren't for the recent spills at Prudhoe Bay, you'd probably find the Hamel's strolling along Potlatch Beach or watching the Mariners lose to Oakland.

Instead, Hamel sits in his Virginia den overlooking the Potomac River, telling anybody who'll listen that he and his band of BP whistle-blowers long warned company officials and government regulators that Prudhoe Bay was falling into perilous disrepair. If you haven't heard of Hamel, it's because he's not the typical activist. You won't find him whining about Starbucks or protesting WTO summits. He doesn't represent any environmental groups. Rather, his cause is personal, fueled by pride, vindictiveness, and a profound loyalty to whistle-blowers who risk their livelihoods by sharing stories of Big Oil misconduct. This one- man show delivers a powerful punch, particularly when it comes to the issue of oil exploration in the Arctic National Wildlife Refuge. Environmentalists have argued that if Prudhoe Bay has problems, then oil companies should not be trusted to drill on ANWR's coastal plain.

Hamel, in short, is the Ralph Nader of Alaska oil, a determined watchdog who once owned oil leases and shipped crude. When he suspected that a supplier lied to him about water in his oil shipments, he turned on the industry. He anointed himself the unpaid voice for fed-up oil workers a whistle-blower for whistle-blowers. Just as General Motors hired private detectives to discredit auto industry critic Nader in the 1960s, Hamel found himself a target of an industry-engineered sting. During the 1980s and the 1990s, he revealed years of neglected maintenance and pollution in the oil industry. His delving prompted companies to spend hundreds of millions of dollars patching things up.

Some government regulators and oil executives claim Hamel is nothing more than an attention-seeking gadfly, a bully with a chip on his shoulder. They speculate his true motive is to extort money from the industry, a decades-old accusation that Hamel firmly refutes. Other critics argue that he spins half-truths to reporters hungry for a conspiracy.

"To say that he's predicted something bad's going to happen at Prudhoe Bay is like somebody constantly saying the stock market's going to crash," says Larry Dietrick, a director at the Alaska Department of Environmental Conservation. "Sure, if you say it all the time, you'll be right some day the market will crash. But does that mean you predicted it?"

Perhaps Dietrick's envious of Hamel because he's feeling left out. While his environmental agency comes under attack for allegedly going soft on BP and its corrosion problems, reporters from London to Los Angeles have lionized Hamel as a sort of David vs. Goliath folk hero. A week after BP closed Prudhoe Bay, Hamel was beaming devilishly in the spotlight.

"The only break I've gotten [from reporters] was when those bombers got caught in London," he says. "If it hadn't been for them, I'd have been a wreck. Speaking of which, you didn't give my cell number to Anderson Cooper, did you?"

I met Chuck Hamel in the fall of 2001, when I was covering the oil industry for the Anchorage Daily News. He swung by the newspaper's office carrying a worn leather briefcase, trolling tales of corporate cutbacks at Prudhoe Bay.

BP runs Prudhoe Bay on behalf of itself, ConocoPhillips, ExxonMobil, and others. The field, a sprawling maze of crisscrossing pipes, flow stations, and manifold buildings, sits on one of the most forbidding perches in the world, just south of the Arctic Ocean. In summer, waterfowl fill the sky, and you often see caribou sauntering between the pipelines. In winter, Prudhoe Bay is cast in several months of absolute darkness. Workers watch their backs for polar bears, but more often they're worried about frostbite. Temperatures sink to minus 40 or colder. Prudhoe Bay's oil production has been rapidly declining for the last 16 years, and Hamel and his insiders contend that BP doesn't want to spend money to maintain the dying oil field, instead treating Prudhoe Bay like an old car. Why spend money fixing a leaking transmission when you know you're going to have to buy a new car eventually?

When asked about Hamel's accusations, BP officials claim they were aware of the issues and were already addressing them by the time he'd blown his whistle. Still, there were instances when BP was caught off guard. In early 2002, for example, managers discounted a faulty valve on a Prudhoe Bay oil line. When Hamel's insiders proved it was leaking and made it public through their protector BP was forced to shut the pipeline down and repair the valve. That incident alone cost BP tens of thousands of dollars.

In press maven mode, Hamel can be tiresome, especially when he calls on deadline. If a reporter turns down his story of the day, he'll sometimes snap, "Fine, if you don't want it, then I'll give it to The Wall Street Journal." A few days later, there the article will be, sometimes on the front page.

Raised in the small community of Watertown, Conn., Hamel led a life of political hobnobbing and international shipping before tangling with the oil industry. He likes to say that U.S. Sen. Hubert H. Humphrey helped him land his first job in politicspart-time elevator operator at the nation's Capitol. Hamel progressed to intern for Humphrey's future boss Lyndon Baines Johnson, when the president was still a Texas senator. In the early 1970s, Hamel served as executive assistant to then U.S. Sen. Mike Gravel of Alaska, who's recently re-emerged as a Democratic candidate for the 2008 presidential election. While working for Gravel, Hamel met his wife, Kathy Morgan, who was a secretary for Henry "Scoop" Jackson, the beloved Washington senator.

As a businessman, Hamel brokered international shipments of corn, wheat, and oil. He oversaw ships hauling American grain to India, Bangladesh, and Pakistan. After they made their deliveries, crews flushed out the holds, then picked up oil in Saudi Arabia and delivered it to Texas. Hamel says he earned up to $100,000 a month and owned a condo in Florida and a ski chalet in Sun Valley, Idaho.

Hamel's time with Sen. Gravel introduced him to Alaska and the 1970s oil boom. Wildcatters had struck oil at Prudhoe Bay a few years earlier. Alaska, once considered a backwoods territory, suddenly was sitting on top of America's biggest oil deposits. Thousands of roughnecks, pipe fitters, and laborers descended on the state, constructing the 800-mile-long Trans-Alaska Pipeline and a tanker terminal in the coastal town of Valdez. Hamel acquired interests in oil leases and began brokering crude to the Lower 48. He was an anomaly a small fish competing with the biggest oil companies in the world. And it wasn't long before the industry wished him gone.

In 1979, Hamel was dumbfounded when he learned that one of his Alaska oil shipments contained too much water. His clients felt like they'd been served a bourbon and water, sans bourbon and consequently told Hamel to stick it. It was a frustrating ordeal that Hamel says cost him millions.

He began to suspect that the Alyeska Pipeline Service Co. purposely diluted his crude. Alyeska is a consortium of oil companies led by BP that operates the Trans-Alaska Pipeline and the Valdez tanker terminal. In the early 1980s, Hamel went to Valdez, where many Alyeska employees lived and worked. His life's course turned on a dime. He checked into a hotel and got word out that he was looking for insider information on Alyeska's operations. Oil workers called and knocked on his door at all hours, and they told him Alyeska had doctored records to hide the water in his oil, an allegation Alyeska denied and Hamel never proved. But when they unveiled another claim that the industry was excessively polluting the water and air around Alaska's Prince William Sound Hamel gushed with anger. The oil companies were not only cheating him, he surmised, they were cheating Alaska.

Over time, Hamel became the go-to guy for oil workers too fearful of industry retaliation to talk publicly, yet too worried for the environment and their safety to remain silent. For the next 15 years, Hamel and his insiders called attention to weak pollution oversight and a host of problems with the pipeline and tanker terminal. As a result, Alyeska would spend hundreds of millions of dollars reducing vapors and oily discharges and upgrading the pipeline but not before trying to catch Hamel at his own game.

Alyeska management believed Hamel was dogging them in anticipation of a big pay out. To wit, in the mid-1980s, Hamel told the company he'd walk away from the imbroglio if compensated for the $12 million in losses he claimed to have suffered. But at the time, then Alyeska executives wanted to squash him.

In 1990, Alyeska launched a $200,000 sting operation to try to lure Hamel into divulging the names of his whistle-blowers, as well as revealing how he was obtaining internal company documents. For this, Alyeska hired Wackenhut Corp., which assigned detectives to rummage through Hamel's trash and eavesdrop on his phones calls and snatch his mail. They spied on his wife and even his father-in-law, who lived in Marysville.

Instead of discrediting Hamel, Alyeska leaders bruised their own reputations when the snooping became public a year later. A federal judge described the spying as "reminiscent of Nazi Germany," and Congress cracked the whip, calling for stiffer industry oversight and a government review of pipeline operations, which yielded thousands of problems. Hamel sued Alyeska over the spying and won an undisclosed settlement.

At the same time he was fighting Alyeska, Hamel was enmeshed in a dispute with Exxon, which he accused of cheating him out of lucrative oil leases in Alaska. After he sued the oil giant and lost, he was forced to file for bankruptcy in 1998. Hamel claimed he was nearly $2.3 million in debt, which included more than $850,000 in legal fees from the Exxon case. On top of that, Exxon lawyers managed to make public that he earned no income and had no bank accounts, and that his wife paid all of his living expenses, according to court filings.

Broke and battered, Hamel nonetheless felt compelled to continue helping oil grunts. Alyeska insiders still came to him with concerns, as did a new crop of whistle-blowers.

In the late 1990s, workers at BP began groaning about problems at Prudhoe Bay. Citing corroding pipelines, leaky valves, faulty fire-detection systems, and other equipment problems, the employees claimed BP leaders had allowed the oil field to slip into ill repair as they slashed maintenance budgets, reduced staffing levels, and stopped inspecting crucial systems that control and prevent oil spills and explosions. The workers told Hamel that their attempts to discuss these concerns with BP managers and state regulators fell on deaf ears.

"When somebody asks you to help them reveal the malfeasances going on at the country's biggest oil field, how do you say no?" explains Hamel. "I had to help these guys."

He re-entered the battlefield with fresh ammunition: BP was on probation, stemming from an incident in which a contractor dumped thousands of gallons of toxic material underground at a BP oil field in Alaska during the late 1990s. It was one of the worst environmental crimes in the history of Alaska oil development. BP pleaded guilty to a single felony in connection to the incident, admitting that it took too long to notify federal regulators about the dumping. The company paid $6.5 million in civil penalties and agreed to set up a vast environmental management program, which ultimately cost about $40 million.

BP was placed on five years probation, beginning in 2000. When the company's executives reported to their probation officer in Anchorage, they had to wait in the same lobby as convicted drug felons. Hamel passed further allegations to the P.O., who investigated them. These included a claim that a Prudhoe Bay valve shown to leak in 1998 wasn't repaired until four years later. Further allegations included faulty fire-detection systems and delays in installing a system to spot oil leaks in huge trunk lines.

Hamel's claims drew international media coverage, leaving people wondering just how committed BP was to the environment. At the time, marketers were reshaping the corporation's image. They developed the moniker, "Beyond Petroleum," and began portraying BP as a green company supportive of alternative energy. The company ran ads in glossy magazines with slogans like, "It's time to think outside the barrel."

In 2001, Hamel scored when BP took the unusual step of conducting an internal assessment of how its workers felt about the company, then released the results publicly. The audit, among other things, found that employees believed "management's top priority was controlling costs and achieving short-term budget targets"not safety and regulatory compliance.

After a 2002 explosion seriously injured a BP employee, Alaska regulators fined the company $1.3 million. The next year, a federal judge ordered the company to allow government regulators unrestricted access to its oil facilities and records to verify it was complying with environmental and safety laws. Still, BP successfully completed its probation last year. Hamel couldn't claim a clear victory not yet.

Last March, a worker was driving around Prudhoe Bay when he saw the frozen tundra drenched with several thousand barrels of oil. Unbeknownst to BP management, one of the company's transit pipelines had become corroded and had been leaking for days. What resulted was the biggest spill ever recorded in an Alaska oil field. Then, after another corroded pipeline caused a small spill this month, BP temporarily shut down Prudhoe Bay. BP has been slowly restoring oil production to the 400,000-barrel-a-day field.

The oil industry has been fighting rusting machinery for decades in northern Alaska. Until this year's spill, state regulators often lauded BP for running an exceptional program to monitor and prevent corrosion. In general, the company has combated rust by flushing pipes with inhibitors, using ultrasonic testing to look for weak spots in the pipeline walls, and by sometimes running what are called "pigs"bullet-shaped machines through the lines to remove sludge and to check for corrosion.

But after the most recent spill, BP leaders acknowledged their program wasn't up to snuff. They admitted the company hadn't "pigged" the corroded pipeline since 1992. They believe an acid-producing bacteria ate holes in the steel. "We realize our [corrosion] monitoring program wasn't good enough, and we will adjust the program to make it better," says BP spokesperson Neil Chapman.

Not surprisingly, Hamel believes BP could have prevented the spills and presents correspondence with BP executives, in which he warned the company in 2004 that corrosion was out of control at Prudhoe Bay. In one letter, Hamel tells Dr. Walter E. Massey, chairman of BP's environmental committee, that workers were worried that corrosion and cutbacks would lead to a "catastrophic event." Massey and other BP officials pressed Hamel for specifics, but Hamel claims all they wanted were the names of his informants. When asked whether BP looked into Hamel's claims, Chapman responds, "It's not about individuals, it's about safely producing energy and protecting the environment." Last year, Hamel took his whistle-blowers' accusations to the EPA, which, he says, has launched an ongoing probe. EPA officials neither confirm nor deny the investigation. Federal pipeline regulators are also looking into BP's practices, and the Justice Department is conducting its own grand-jury investigation.

Hamel's opponents are hobbled and embarrassed. BP shareholders have sued company leaders, alleging they knew corrosion was out of hand. Some workers are openly criticizing their employer. "They were playing Russian roulette," said Marc Kovac, a longtime BP employee who lives in Alaska, in an e-mail last week. "They increased the risk to our workers. They damaged BP's business. America's greatest energy asset was managed into the ground, literally." Even U.S. Sen. Ted Stevens of Alaska a staunch supporter of oil drilling in ANWR is infuriated, publicly demanding that BP executives explain themselves.

Hamel, meanwhile, is delighted. He says 60 Minutes and Good Morning America have been hounding him: "60 Minutes wants to do two shows on me. Two shows! Can you believe that?" Recharged after a few days of rest, Hamel's ready to drop another bomb on BP, but he isn't ready to share details. "You'll find out soon enough," he snickers.

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Houston Chronicle
August 22, 2006

http://www.chron.com/disp/story.mpl/business/energy/4132296.html

BP denies rigging pipeline data
Report says EPA probing allegations by employees of energy giant
Associated Press

LONDON - British oil company BP on Monday denied allegations that it manipulated data from inspections of Alaska pipelines that were partially shut down earlier this month because of corrosion problems.

The Financial Times reported that the U.S. Environmental Protection Agency was probing allegations by BP workers that the company manipulated data to avoid replacing pipelines in the Prudhoe Bay, Alaska, oil field.

Robert Wine, a BP spokesman in London, said the company has been working with the Department of Transportation and the EPA since it notified them of the original leak two weeks ago. BP would provide any information requested by the investigators, Wine said, and referred other questions to BP's operation in Alaska.

Alaska Attorney General David Marquez told a special hearing of the state Legislature being held in Anchorage on Friday that the state had served subpoenas to BP and other Prudhoe Bay leaseholders to preserve all documents related to the Aug. 6 event and pipeline corrosion dating to 1996.

The Financial Times quoted unidentified workers as claiming that BP inspected more areas of known good pipe than bad, creating the impression that the pipeline was in better shape than it really was.

Days after the shutdown, the Transportation Department's Pipeline and Hazardous Materials Safety Administration ordered the company to conduct more rigorous tests on the so-called transit pipelines, which carry market-ready oil to the 800-mile trans-Alaska pipeline.

Acting U.S. Transportation Secretary Maria Cino toured BP's facilities in Alaska on Friday and said she was surprised and disappointed by what she had seen of the company's maintenance procedures.

"When we look at other operators, this problem has not been found," Cino said. "I think this problem is unique to BP."

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Fortune Magazine
August 21, 2006

http://money.cnn.com/2006/08/18/magazines/fortune/bp_qa.fortune/index.htm

What went wrong at Prudhoe Bay
In his first interview since early in BP's Prudhoe Bay pipeline crisis, new BP America president and chairman Robert Malone speaks with Fortune's Abrahm Lustgarten.
By Abrahm Lustgarten, Fortune reporter
August 21 2006: 3:00 PM EDT

(Fortune Magazine) -- In his first interview since early in BP's Prudhoe Bay pipeline crisis, new BP America president and chairman Robert Malone took time out with Fortune's Abrahm Lustgarten to talk about what went wrong in Alaska and whether BP's string of problems mean the world's second largest oil company has widespread operational difficulties in North America.
You're two months into your job as head of BP America and it seems to be more hornet's nest than welcome wagon. How's it going?
I had a lot of candid conversations with John Browne about what I was walking into. Alaska is the part that I didn't anticipate. That first week was probably the most difficult in my career. Now we are out of crisis mode and into managing this for safety and integrity.

You shocked the markets with an announcement to shut-in a full 8% of US production then moderated a few days later by only shutting one line. Was there pressure to keep Prudhoe Bay open despite concerns?

I did not feel any pressure to make that decision, internally or externally. We had positive data by that Monday morning that the west pipeline may be different but we were not satisfied until Friday. By then we felt comfortable that there was sufficient data to make a good risk-based decision.

You didn't run pigs - a device that inspects the inside of the pipeline - because conventional wisdom held that your ultrasonic method was better. Is what happened challenging your maintenance assumptions company-wide?

Absolutely. Normally smart pigging identifies inclusions or corrosion spots and then you come back with UT technology later. UT is the highest level of assurance that you can get - much more accurate than pigging. Now we know that there is a gap, and pigging will become part of our procedures.

Is BP (Charts) neglecting worker safety and maintenance to cut costs?

I've visited a number of facilities and I not only test the management, I also get out on the shop floor. I have not had an employee tell me that they were concerned to raise a safety issue, or an employee tell me they would not hesitate to shut down an operation they thought was unsafe.

On Prudhoe Bay; there has been an 80% increase on our spending on the corrosion management year over year since 2000. Our corrosion experts said they felt that they were spending the money that they needed. We do have got to go back and do the in-depth review, which we are going to do, into the failure mechanism to really understand what happened there.

BP has weathered a litany of problems recently besides this latest - from the Texas fire to a gas commodities trading scandal, and an oil spill. Isn't it getting harder to view them each as isolated events?

Texas City was a tragedy; a lot of lessons were learned. And when I listen to the trader tapes there is no doubt in my mind, what happened may not have broken the law, but it broke our values.

In my visiting facilities across the country and talking to employees and management though I cannot draw a systemic problem in BP America. What I've seen is refineries and facilities and plants that are operating to the highest level of safety and integrity standards.

But I also don't believe in bad luck. There is a foundation that we need to understand and address at the facilities, and then translate the lessons across all operations.

What does BP's green branding mean in light of its problems in North America?

I understand if people want to say "how can you have something like this happen and you are supposedly a green company?" But I would say if you shut down for environmental reasons you are a pretty green company.

We are going to need to communicate our value system. If you look at the facts, we're investing heavily in alternative energy and we are putting our money where our mouth is. (BP announced acquisition of a $98 million wind energy company last week)

What comes next for you, and for BP?

The majority of my time right now is spent working to get our operations back in business. Then I will continue to go out and communicate the importance of operational safety to our sites.

That's an absolute priority. The U.S. holds 40% of BP's employees, its assets, its shareholders. This [is] a huge piece of our business. And part of my job is to grow it. As we come though this we'll be a better and stronger company for it. But its not what I say, its what we do - how we perform, how we operate.
 

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Bloomberg News
August 21, 2006

http://www.bloomberg.com/apps/news?pid=20601109&sid=adARbdjLfRBA&refer=home

Oil May Rise as BP Shutdown Shows Industry Distress (Update1)
By Tom Cahill and Sonja Franklin

Aug. 21 (Bloomberg) -- BP Plc's shutdown of the largest U.S. oil field may be the first of many, as decaying pipelines threaten to add 20 percent to energy prices in the next decade.

``We'll look back on this event as the Pearl Harbor Day in energy,'' said Matthew Simmons, chairman of energy investment bank Simmons & Co. International in Houston. The chance that the leaks and corrosion found at Prudhoe Bay by BP, Europe's second- largest oil company, are an isolated occurrence is ``zero,'' said Simmons, who's writing a book on aging oil infrastructure.

A growing minority of analysts, oil executives and government officials say the current system for producing and transporting crude will be unable to deliver the energy needed in the next 10 years. Repairs and replacement of pipes, valves and refineries will help push oil to $93 a barrel by 2015, from a high of $72.08 today, says Barclays Capital analyst Kevin Norrish in London, the most accurate price forecaster in a survey by Bloomberg News last year.

Internal corrosion is the biggest reason for pipeline spills in the U.S. this year, causing 16 percent of all accidents through Aug. 9, according to U.S. Department of Transportation's Office of Pipeline Safety. Since 1990, the portion of oil lost because the inside of a pipe has been eaten away has grown to 78 percent from 4.7 percent, with 68,624 barrels spilled this year, the agency said.

`Incredible' Neglect

London-based BP's admission that some pipes in Prudhoe Bay hadn't been inspected internally for corrosion in more than a decade was ``incredible,'' said oil analyst Charles Maxwell at Weeden & Co. ``They are in deep trouble.'' BP may face criminal charges in the U.S. over an oil spill in Alaska in March, which prompted inspections that found the Prudhoe Bay corrosion.

Repair of the oil-production facilities built in the 1970s is part of the $6 trillion that needs to be spent by 2030 to meet global oil and gas needs, according to the Paris-based International Energy Agency.

Record oil prices are encouraging producers throughout Europe and the U.S. to keep old rigs running rather than shut them down. BP's leaky pipeline, built to last 25 years, is now in its 29th year. The average pipeline in the U.S. is about 50 years old, according to NACE International, formerly the National Association of Corrosion Engineers.

``What we have is an entire generation of oil infrastructure that more or less came on stream at the same time,'' said Deborah White, an analyst at Societe Generale in Paris, who helped plan the Prudhoe Bay field development in the 1970s. ``It's now all of a certain age, fragile, and can't be pushed quite as hard.''

Norway's Leaks

In the Norwegian North Sea, 8 percent of wells have weaknesses that disrupt production, according to a study for the nation's Petroleum Safety Authority.

A similar amount of offshore oil and gas output probably is being lost worldwide because of faulty wells, said Jan Andreassen, an author of the Norwegian study. Russia's pipeline monopoly, OAO Transneft, estimates its program to improve its pipeline system will take almost three decades to complete.

Oil consumers depend more than ever on regions such as Alaska and the North Sea that were developed in the 1970s, after the Arab oil embargo led the U.S. and Europe to seek alternative supplies. Oil prices have more than doubled in the past three years as demand accelerated.

Benchmark New York crude oil futures jumped 3 percent on the day BP revealed the extent of corrosion in the Prudhoe Bay pipeline, which caused leaks and ate away as much as 81 percent of the steel. They fell 4.3 percent last week to $70.14 a barrel on the New York Mercantile Exchange.

North Sea Shutdowns

Stavanger, Norway-based Statoil ASA, the country's largest oil and gas provider, said production this year may be as much as 25,000 barrels a day below forecast because of extensive maintenance and lower output from older North Sea fields. Andreassen's study, published in June, found that 18 percent of 406 wells tested in Norway's section of the North Sea had weaknesses and 8 percent had faults that demanded they be shut.

``This is a subject people don't like to talk about,'' he said in an Aug. 16 phone interview. ``This is not particular to Norway. This is an industry problem.''

The U.K. and Norway combined pump 4 million barrels a day, most from the North Sea, more than every OPEC member except Saudi Arabia.

BP increased its training for management and monitoring of North Sea wells, Jan Erik Geirmo, a spokesman for the company's Norwegian subsidiary, said in an Aug. 18 e-mail. Andy Corrigan, a spokesman for Royal Dutch Shell Plc of The Hague, said maintenance spending has been ``stepped up significantly in recent years.'' He wasn't more specific.

`Fragile' Pipes

``Corrosion is a complicated business,'' said Lois Epstein, senior engineer and oil industry specialist at Cook Inlet Keeper, an environmental group in Anchorage, Alaska. Programs to detect and prevent corrosion can keep it in check, she said. ``It can be done well, and they weren't doing it well,'' she said of BP.

The company had judged that internal surveillance wasn't needed because the pipelines on Alaska's frozen North Slope are above ground, allowing for direct inspection.

``We thought it was an adequate program,'' BP America President Robert Malone told a press conference in Anchorage on Aug. 7. ``Clearly it is not.'' BP said it spent $72 million combating corrosion in North Slope pipes this year, up from $60 million in 2005.

Proper Maintenance

A U.S. grand jury is investigating the pipeline spill BP discovered in March, which dumped about 270,000 gallons of crude oil onto Alaska's tundra, according to an e-mail BP Alaska President Steve Marshall sent to employees.

Decades-old pipelines can be productive and safe ``with proper corrosion control maintenance,'' said Cliff Johnson, director of public affairs for NACE International in Houston. ``That's not a problem.''

BP employees reported the company to criminal investigators at the U.S. Environmental Protection Agency, accusing it of intentionally misrepresenting data relating to its Alaskan pipeline network to indicate its pipelines were in better shape than they were, the Financial Times reported today, citing an unidentified worker at Prudhoe Bay.

``We are aware of these claims and have a process in place to look into every concern that comes our way, given enough specificity to direct us to a place to look for answers,'' Robert Wine, a BP spokesman in London, said today by phone.

U.S. pipelines nationwide may be subject to increased inspections or maintenance requirements as BP's failings in Alaska attract the attention of regulators and lawmakers.

`Chronic Neglect'

The shutdown showed ``chronic neglect,'' Joe Barton, the Texas Republican who chairs the U.S. House Energy and Commerce Committee, said in an Aug. 11 letter to BP Chief Executive Officer John Browne. He has scheduled a hearing on the matter next month.

Oil companies may end up spending more as they combat corrosion, patch pipelines and try to extend the life of wells, according to Tina Vital, an energy analyst at Standard & Poor's in New York, who worked as a refinery engineer for Exxon Mobil Corp. in the early 1980s.

BP said on July 25 that it will spend between $15.5 billion and $16 billion this year on maintenance and new oil and gas projects, up from a previous forecast of $15 billion. Browne at the same time cut his production forecast by about 2.3 percent.

Shell in February said its capital spending will rise 27 percent this year to $19 billion. The company, the world's second-largest oil company by market value, last month said production will be lower than expected.

Skeptics

Some analysts and investors said the corrosion at BP's Prudhoe Bay field doesn't mean all equipment the same age will fail. The lifespan of a pipe, valve or storage tank can vary.

``Within any mature field there's going to be a mix of brand new and old,'' said Patrick Gibson, a global oil-supply analyst at consultants Wood Mackenzie in Edinburgh. ``It really depends how it's been maintained.''

Oil infrastructure ``is certainly vulnerable because it is aging,'' Weeden analyst Maxwell said in a phone interview from his office in Greenwich, Connecticut. Still, he said he doesn't expect the failures seen at Prudhoe Bay to crop up elsewhere. The situation there is probably a ``one-off,'' he said. ``I've been in this business for 40 years and we have never had a scare like this before.''

Slow Repairs

Shutdowns continue to occur. Russia's Transneft, the world's biggest pipeline operator, in July closed the Druzhba-1 line connecting Russia with Lithuania because of a leak, cutting supply to the only refinery in the Baltic states. The 42-year- old pipeline was beyond its expected lifespan, Deputy Chief Executive Officer Sergei Grigoryev said in an Aug. 16 telephone interview in Moscow.

The Druzhba pipeline will be permanently closed, according to a report in the Moscow Times. Grigoryev wouldn't comment on whether the pipeline will be shut.

Transneft spends $1.2 billion a year maintaining its network. The company replaces 600 to 1,000 kilometers of its 50,000 kilometers (31,075 miles) a year.

``Going at the same rate as we are now, the last station will have its upgrade completed 28 years from now,'' Semyon Mikhailovich, president of Transneft, said in an interview posted this month on the company's Web site. ``It should have been yesterday.''

To contact the reporters on this story: Tom Cahill in Paris at tcahill@bloomberg.net ; Sonja Franklin in Calgary at at sfranklin6@bloomberg.net 

Last Updated: August 21, 2006 08:39 EDT

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Fairbanks News Miner
August 21, 2006

http://newsminer.com/2006/08/21/1615/

BP North Slope repairs will provide test of new oil tax system
By Dermot Cole
Published August 21, 2006

OIL TAXES: One of the first big political tests for the new state oil tax plan is whether the cost of replacing the damaged pipes and other equipment at Prudhoe Bay will be financed in part by state tax credits or deductions.

Juneau Sen. Kim Elton raised the issue at a legislative hearing Friday, asking BP Exploration Alaska President Steve Marshall if BP will commit to not using the tax system to help offset its costs.

“Money is not the object here,” Marshall responded. “We are going to backstop and fund whatever it takes to get this production back onstream, through whether it’s maintenance expense or capital costs for replacement lines. We will take care of that.”

“Quite frankly, I have not even addressed what the tax implications are. We are just going to work in the existing system of putting right the situation, making changes where we need to and installing new equipment, replacement equipment wherever we possibly can,” he said. “I have not really spent a lot of time thinking about the implications of that.”

Elton followed up by saying, “I have been thinking about it. I’d appreciate it if BP would think about it.”

One of the frequently asked questions on a list released by the governor’s office this weekend is “Can an oil company write off its regular maintenance costs?”

“No,” the state contends. “The oil companies can not write off the first 30 cents per barrel of revenue. This 30 cents represents the cost of basic field maintenance that an owner will have to invest to keep a field up and running. As such, it should not be subject to a tax break.”

One of the questions missing from the FAQ is what are the tax credits and deductions available under the new law for the Prudhoe Bay repairs?

The Anchorage Daily News on Sunday quoted Dan Dickinson, a former state tax director now working as a Murkowski administration consultant and proponent of the new law, as saying that BP won’t get tax breaks because the law says that costs caused by “gross negligence” can’t be counted.

The oil companies and the state, however, will have different ideas about what constitutes “gross negligence.”

BP is saying there was a “gap in our corrosion inspection system,” which is hardly the way state and federal officials talk about the situation.

This seems destined for the courts, perhaps the first fight over what are allowable costs in determining oil company profits.

The oil companies are to make their first payments under the new tax law next year. The Murkowski administration predicts “a billion plus” difference from 2006 taxes will become due on March 31, 2007.

The oil companies have an obligation to their shareholders to keep that number as low as possible.

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Financial Times
August 21, 2006

http://www.ft.com/cms/s/5ec3df8a-30b1-11db-9156-0000779e2340.html

FRONT PAGE
BP faces claims of tampering with data on Alaskan pipeline
By Sheila McNulty in Houston
Published: August 21 2006 03:00 |
Last updated: August 21 2006 03:00

US environmental investigators are examining allegations by employees that BP manipulated inspection data to avoid replacing pipelines at Prudhoe Bay, its 30-year-old Alaskan field, the Financial Times has learned. BP denies the allegations.

At the same time, in a separate move, Alaska's attorney-general, David Marquez, has issued subpoenas to BP, as operator and an owner of the field, and its co-owners, "to preserve all documents that may be relevant to corrosion at Prudhoe Bay", to conduct an investigation.

The parallel investigations into BP's credibility as operator of North America's largest oil field are yet another blow to the company, which already is under heightened regulatory scrutiny in the US after major lapses at its Alaskan and Texas operations within the past two years.

Lord Browne, BP's chief executive, might yet be drawn into the growing controversy over whether BP mismanaged parts of its US operations.

A Texas court is to decide next week whether to require Lord Browne to give sworn testimony about how much he knew of the dilapidated state of the Texas City refinery, where there was an explosion last year which killed 15 people and injured an estimated 500.

The spill in Alaska in March raised questions about whether BP's problems were symptomatic of a broader deficiency in its safety culture in the US.

In Alaska, BP workers told the FT they have reported to criminal investigators at the US Environmental Protection Agency that the company was negligent in maintaining its pipelines, ultimately leading to spills along the Prudhoe Bay oil transit lines.

The investigation of those charges is tied to a grand jury probe into whether to bring criminal charges against BP and/or its executives. BP also is being investigated by a grand jury in Texas.

BP denies any wrongdoing, insisting the explosion in Texas was a one-off and that it only discovered "unexpectedly severe corrosion'' in Alaska after regulators forced it to do high-tech monitoring tests after the spill of more than 200,000 gallons of oil at the field in March.

Ronnie Chappell, BP spokesman, said the company was co-operating with the grand jury investigation. "We believed our previous programme of ultrasonic inspections, corrosion coupon monitoring and the use of corrosion inhibitors in these transit lines was adequate," he said, adding, "We now know that was not the case."

The separate, civil court proceedings in Texas have been instigated by Brent Coon, the lead plaintiff's attorney in the civil case against BP, after the company refused to permit Lord Browne to give a sworn deposition.

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http://www.ft.com/cms/s/afbee868-30b0-11db-9156-0000779e2340.html

BP claim on extent of Alaskan corrosion under scrutiny
By Sheila McNulty in Houston
Published: August 21 2006 03:00 |
Last updated: August 21 2006 03:00

As federal and state investigators inspect BP's Alaska operations, the company's insistence that it had no knowledge corrosion was rampant in its Alaskan oil transit lines is under scrutiny.

A veteran worker at Prudhoe Bay told the Financial Times that he and others had presented US criminal investigators at the Environmental Protection Agency with accusations that BP intentionally misrepresented corrosion data over the years to indicate its pipelines were in better shape than they were, even as it cut back on corrosion monitoring and prevention efforts.

The FT also spoke with a contract worker who has been in contact with the investigators.

"We are aware of all of these claims and have a process in place to look into every concern that comes our way, given enough specificity to direct us to a place to look for answers,'' said Daren Beaudo, a BP spokesman.

In the meantime, the EPA is investigating the complaints, along with documents the workers have submitted to back up their claims.

Separately, the state of Alaska said at the weekend it had subpoenaed BP, as operator and an owner of the field, as well as its partners - ExxonMobil and ConocoPhillips, each of which own 36 per cent and even Chevron, which owns just over 1 per cent and Forest Oil, which owns less than 1 per cent.

David Marquez, Alaska's attorney-general, ordered all of them to preserve all documents, including letters, messages, answering machine recordings, informal memoranda of any oral communications that relate to pipeline monitoring, inspections or maintenance, corrosion control and spills.

He ordered that they allow these documents to be inspected by the Alaska Department of Environmental Conservation and turn over those designated by the inspector.

The state order broadens the possible fallout from the investigation to the co-owners of the field, who had left operation of Prudhoe Bay to BP in spite of whistleblower complaints over the years that BP was mismanaging operations.

ConocoPhillips said it would co-operate, while ExxonMobil said it was "reviewing the subpoena". BP declined to comment on the subpoenas.

As operator of the field, the company is responsible for its upkeep.

BP workers have taken to the federal investigators accusations that the company skewed findings by inspecting more areas of known good pipe than bad, creating blended data that left the impression that the pipeline was in better shape than it was.

The company said it did blend data, not to determine if action needed to be taken on the pipeline but rather to determine concentration levels of chemical inhibitors.

The veteran worker said that, starting in the late 1990s, BP reduced corrosion chemical injection, or even stopped injection altogether during the final months of the year, to enable it to meet budget figures. Ronnie Chappell, a BP spokesman, said it was difficult for BP to investigate this claim because "the 1990s started 16 years ago. The people and the programme have changed. The chemicals have changed. So have the ways we use them".

The worker said BP started using digital radiography film, which does not show the detail that ordinary film would show.

Digital was cheaper and while the quality has since improved the early corrosion problems were hidden, the worker said.

Mr Beaudo said radiography was the newest generation of imaging technology and enabled BP to acquire images without using chemicals or producing the physical waste of using film.

"It's faster and allows us real time information and we can actually detect anomalies in the field, rather than hauling film back and forth for processing,'' he said.

While the worker agreed it was more convenient, he insisted that radiography still was not as accurate in revealing small detail.

"Our contract inspectors placed a digital shot and a film shot of the same pipe anomaly side by side. The digital shot did not show the small pinholes as revealed in the film shot.''

In addition, he insisted that BP had stopped using high-technology pigging equipment to clean and maintain is oil transit lines because management did not want to pay for the pigging, given a managerial environment in which "production was everything".

"The responsibility was left for the next management group, which would have come in every three to four years. Then the next management would do the same thing,'' the worker said.

Regulators ordered BP to resume pigging the oil transit lines, which it stopped as long as 14 years ago on one line and eight years ago on the other, after March's biggest ever spill, from a corroded transit line, at Prudhoe Bay.

Mr Beaudo said the corrosion in BP's oil transit lines was not a function of budget or resource "but of an asyet unexplained corrosion mechanism that we continue to study".

BP has said the corrosion was microbiologically produced; it had not expected the bacteria to multiply in the lines.

"We believed the programme we had in place worked and the low-risk nature of crude oil transit lines made corrosion unlikely in these lines,'' Mr Beaudo said.

The veteran worker disputed that, however.

"BP was well aware ofthe damage,'' he insisted. "They were well awareof corrosion due tobacteria, which is always present.''

Mr Beaudo said, however, that "the indiscriminate method in which it hasmanifested itself was asurprise".

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Fairbanks News Miner
August 19, 2006

http://newsminer.com/2006/08/19/1593/

Young’s panel to study corrosion
By Staff Report
Published August 19, 2006

Rep. Don Young, R-Alaska, will have the House Transportation and Infrastructure Committee look at the Prudhoe Bay pipeline corrosion problem at a Sept. 13 hearing in Washington, D.C.

Young said the hearing will explore ways to prevent corrosion in low-stress pipelines.

The Transportation committee, of which Young is chairman, oversees the U.S. Department of Transportation, the parent agency of the Pipeline and Hazardous Materials Safety Administration. The pipeline administration this year has issued three orders to BP Exploration Alaska to correct problems at Prudhoe Bay.

Young’s announcement Friday means three congressional committees now plan to investigate the issue. The House Energy and Commerce Committee will hold a hearing Sept. 7.

The Senate Energy and Natural Resources Committee will hold a hearing Sept. 12.

The Transportation hearing will begin at 7 a.m. Alaska time. The committee Web site, http://www.house.gov/transportation , will offer a live webcast.

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Wall Street Journal
August 19, 2006

US Official Calls BP's Pipeline
Mgmt 'A Disappointment'
DOW JONES NEWSWIRES
August 18, 2006 6:53 p.m.
 
PRUDHOE BAY, Alaska (AP)--Acting Transportation Secretary Maria Cino said Friday that BP PLC's (BP) pipeline corrosion management at the U.S.' largest oil field was a disappointment, as she assessed the company's progress following federal orders to improve.

"It was a surprise and a disappointment the way BP maintained these pipelines," she said.

Cino's half-day visit to Alaska's North Slope came almost two weeks after the U.K. oil giant launched a partial shutdown because of leaks and corrosion in low-pressure pipe found on the eastern side of the colossal field. London-based BP operates Prudhoe Bay for itself and other owners.

"We came here to ensure the safe operation of the pipelines and continue working with BP," Cino said from the field about 650 miles north of Anchorage.

Days after the shutdown, the Transportation Department's Pipeline and Hazardous Materials Safety Administration ordered the company to conduct more rigorous tests on the transit pipelines, which carry market-ready oil to the 800-mile trans-Alaska pipeline.

That Aug. 10 order is the third involving Prudhoe that has been issued to BP since a March oil spill from a corroded transit line on the western half of the field. Up to 267,000 gallons of crude leaked for days into the snow-packed tundra before it was noticed. The spill was the largest ever on the North Slope and prompted the federal pipeline agency to order BP to improve its corrosion protection management at Prudhoe.

An amended order issued in July directed BP to improve and speed up preparations to test the lines.

Under the latest order, BP must conduct four surveys daily on the 22 miles of transit lines. It must visually inspect the pipe by foot, car, or plane, as well as use heat-seeking infrared equipment to detect leaks.

Pipeline regulators allowed the company to keep operations going in the western half, which has undergone thousands of recent ultrasound inspections. But BP will have to strip insulation from the pipeline there and continue to conduct ultrasonic testing.
Ultimately, 16 miles of transit line will be replaced.

Cino on Friday watched as workers removed the galvanized steel covering on the pipeline and then insulation. Workers then buffed sections of the pipe to ready it for ultrasonic testing foot by foot.

Yellow-suited workers used propane torches to burn oil that remained on tundra grasses. The state said 23 barrels of oil reached the tundra, and 176 barrels of oil were captured by tanks placed under the pipeline.

Before the shutdown, daily production at Prudhoe was 400,000 barrels, 8% of the domestic production and half the current output by North Slope fields. The current production is more than 200,000 barrels daily, BP Alaska President Steve Marshall said Friday in Anchorage.

The federal order requires BP to pass a series of tests before restarting the eastern operation.

The Prudhoe corrosion crisis also has prompted the pipeline agency to ramp up plans to strengthen federal requirements and standards for operating such pipelines, which are exempt from federal regulations.

Since the shutdown, BP officials have repeatedly acknowledged the lack of upkeep, saying they believed the millions the company spent yearly on corrosion control was adequate.

The eastern side of the oil field never had a high-tech inspection called "smart pigging" before July. That inspection gave officials their first indication of the problems that forced the shutdown. The western side had the check in 1998 and was scheduled for the test this summer.

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BP Raises Prudhoe Bay Oil Output,
Gets Subpoena
DOW JONES NEWSWIRES
August 18, 2006 6:39 p.m.
(Updates with subpoena news, comments from regulator, additional detail and background)
By John M. Biers and Anna Raff
Of DOW JONES NEWSWIRES
 
NEW YORK (Dow Jones)--Crude oil output from Prudhoe Bay has been restored to more than 200,000 barrels a day as of Friday, two weeks after BP PLC (BP) said it would shut in the largest producing field in the U.S. after finding severe pipeline corrosion.

BP's problems in Alaska have attracted worldwide attention at a time of nervousness over global oil supplies. They've also led to scrutiny of the London-based energy major's pipeline maintenance program, which failed to gauge how much the route had deteriorated. BP's U.S. unit is already facing probes into safety at a Texas refinery and alleged manipulation of the propane market.

On Friday, the Alaska attorney general issued subpoenas to all companies in the Prudhoe Bay consortium for documents related to pipeline maintenance. An Alaskan regulator called for more state oversight of oil facilities.

In addition to BP, Prudhoe Bay leaseholders are Exxon Mobil Corp. (XOM), ConocoPhillips (COP), Chevron Corp. (CVX) and Forest Oil Corp. (FST).

BP produced 207,000 barrels a day from Prudhoe Bay on Wednesday and 217,000 on Thursday, Steve Marshall, president of BP Exploration Alaska, told Dow Jones Newswires. Marshall on Friday testified before the Joint Alaska Senate and House Resources Committee.

"I would expect us to be around the same level for the next week or so," Marshall said.

Some wells in the eastern half, including the Point McIntyre satellite field, are producing at a rate of about 18,000 barrels a day, he added.

"We are continuing to inspect the condition of the eastern transit lines and are looking at ways we might be able to safely bypass trouble areas," Marshall said in prepared remarks to the committee, which were posted on BP's Web site.

BP on Aug. 6 said it would shut down the entire field, but additional tests later showed that pipelines transporting oil from the western section were in good enough condition to continue operating.

Marshall, however, said he "won't speculate on when we will be able to safely resume full production from Prudhoe Bay."

Analysts have said it will take BP months to get the field's hydrocarbons output fully back on line. BP said it will replace 16 miles of transit lines. The neeeded pipes have already been ordered and are scheduled to arrive in Alaska in the fourth quarter of 2006.

BP has said its programs to monitor pipeline integrity had failed to reveal the extent of corrosion.

"Clearly, recent events have shown that there was a gap in that program and we are examining and analyzing it closely," Marshall said. "We will reanalyze our entire corrosion management program for North Slope facilities. It is happening already and if more changes are needed, we will make them."

 Subpoenas From Alaska
 
Alaska's attorney general on Friday issued subpoenas to BP and the other partners in the Prudhoe Bay venture as part of a broader campaign to recover lost revenues related to the partial shutdown. The state maintains that the venture should compensate the state for lost money if company negligence is found to be the cause of severe pipeline corrosion that led to last week's shutdown.

The subpoenas demand "all documents" that relate to oversight of the Prudhoe Bay infrastructure that experienced recent oil spills due to corrosion. The two units that have experienced problems are the flow station 2 transit line, the site of a spill discovered early this month, and gathering center-2 transit line, the site of a major spill discovered in March.

The subpoenas relate to ongoing efforts to preserve Alaska's "rights and holding fully accountable those parties responsible for any losses," state Attorney General David Marquez said in a letter released Friday at a legislative hearing.

"These are normal parts of the process of investigating events such as these," said BP spokesman Scott Dean. "BP will continue to assist and work with the authorities to understand this incident."

ExxonMobil confirmed receiving a subpoena from Alaska's Department of Environmental Conservation regarding Prudhoe Bay pipeline operations. ConocoPhillips couldn't confirm.

Alaska is seeking documents related to the spill, "pipeline monitoring for the transit line since 1996" and "inspections or maintenance on the transit line since its construction."

Alaska is heavily dependent on revenues for oil operations on its territory for revenues. As the largest oil field in the state, Prudhoe Bay provides the single largest share of oil revenues for the state's $7.6 billion budget, which began the fiscal year with a $200,000 surplus.

 'Wake Up Call' For Alaska
 
Calling the partial shutdown of Prudhoe Bay a "wake up call for all of us in Alaska," a state oil regulator Friday called on legislators to step up oversight of the industry.

Testifying before a legislative committee, John Norman, Chair of the Alaska Oil and Gas Commission, said Alaska's oversight of its aging oil infrastructure suffers from major "gaps" that impede environmental and state resource protection.

"We have never managed the routine design, installation, operation and maintenance of a producers' infrastructure," Norman said. "Rather we have assumed that it was in the producers' best interests to build and maintain that infrastructure themselves. Recent events cast doubt on the validity of that assumption."

Norman cautioned that new oversight needs to extend beyond pipelines to include gas plants and separation facilities.

 -By John M. Biers, Dow Jones Newswires; 713-547-9214; john.biers@dowjones.com 
-By Anna Raff, Dow Jones Newswires; 201-938-4426; anna.raff@dowjones.com 
(Angel Gonzalez in Houston contributed to this article.)

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Alaska Regulator: Prudhoe Crisis
 "Wake Up Call" For State
DOW JONES NEWSWIRES
August 18, 2006 6:14 p.m.
By John M. Biers
Of DOW JONES NEWSWIRES
 
ANCHORAGE, Alaska (Dow Jones)--Calling the partial shutdown of Prudhoe Bay a "wake up call for all of us in Alaska," a state oil regulator Friday called on legislators to step up oversight of the industry.

Testifying before a legislative committee, John Norman, Chair of the Alaska Oil and Gas Commission, said Alaska's oversight of its aging oil infrastructure suffers from major "gaps" that impede environmental protection and state resource protection.

"We have never managed the routine design, installation, operation and maintenance of a producers' infrastructure," Norman said. "Rather we have assumed that it was in the producers' best interests to build and maintain that infrastructure themselves. Recent events cast doubt on the validity of that assumption."

Norman cautioned that new oversight needs to extend beyond pipelines, the infrastructure that broke down in Prudhoe Bay. Tighter oversight must also include gas plants, separation facilities and other infrastructure, he said.

The implications of Norman's testimony were unclear. During back-and-forth questions with lawmakers, Norman seemed to beckon off a lawmaker who wanted his commission to take the lead on a reform.

Norman told the lawmaker, "I'm not convinced we're really the best agency." Norman noted that the Alaska Departments of Natural Resources and Environmental Conservation both already have some oversight. Both agencies were scheduled to testify later on Friday. Norman said his agency is adequately funded and has enough workers to do its job, which centers on the oversight of some oilfield operations.

In a move that reverberated through global energy markets, BP said on Aug. 6 it was shutting down the giant Prudhoe Bay field after finding severe corrosion in a pipeline and a small spill. The company has since partially reversed that decision and is maintaining production on the western half of the field, pumping 200,000 barrels a day.

 
-By John Biers, Dow Jones Newswires; 713-547-9214; john.biers@dowjones.com 

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Anchorage daily News
August 19, 2006

http://www.adn.com/money/industries/oil/prudhoe/story/8096656p-7989107c.html

2 more hearings set in BP probe
INVESTIGATION: They'll focus on how to prevent transmission-line corrosion.
By LISA ZAGAROLI
McClatchy Newspapers
Published: August 19, 2006
Last Modified: August 19, 2006 at 02:39 AM

WASHINGTON -- Public scrutiny of BP's pipeline maintenance intensified this week, with lawmakers pledging two more congressional hearings to examine how to prevent transmission lines from corroding to the point of failure.

Rep. Don Young, R-Alaska, on Friday scheduled a hearing of the House Transportation and Infrastructure Committee, which he chairs, for Sept. 13.

He said in a statement that the panel will call in officials from BP along with federal and state regulators to consider ways to prevent further corrosion problems on low-pressure lines to the trans-Alaska pipeline.

Sen. Pete Domenici, R-N.M., who chairs the Senate Energy and Natural Resources Committee, said he will hold a hearing, tentatively scheduled for Sept. 12, because he was concerned about the impact on the U.S. oil supply.

"I am particularly worried about what the loss of this oil will mean if the nation faces another difficult hurricane season or a harsh winter," Domenici said Thursday.

They join a growing chorus of government officials who want to know what went wrong on the North Slope.

In March, an estimated 201,000 gallons of oil seeped out of a hole in a corroded low-pressure line, which unlike high-pressure lines are exempt from federal regulation. BP told lawmakers and federal regulators that it had a monitoring system that should have prevented the leak.

This month, BP shut down some production on Prudhoe Bay because of another leak and concern that the problem could multiply.

Soon after, the House Energy and Commerce Committee announced that it would hold a hearing Sept. 7.

Sen. Ted Stevens, R-Alaska, said at a news conference Thursday that he plans to convene the Senate Commerce, Science and Transportation Committee to discuss the matter as well, though a hearing hasn't been formally scheduled.

Lawmakers are considering a reauthorization of a 2002 pipeline-safety act and regulations for low-pressure lines.

Officials at the Pipeline and Hazardous Materials Safety Administration are planning to set testing and maintenance rules for low-pressure lines.

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http://www.adn.com/money/industries/oil/prudhoe/story/8096656p-7989108c.html

Prudhoe owners face subpoenas
INQUIRY: BP and its four partners in the oil field confront a widening scrutiny.
By WESLEY LOY and RICHARD MAUER
Anchorage Daily News
Published: August 19, 2006
Last Modified: August 19, 2006 at 02:39 AM

State officials have hit BP and four other oil companies with subpoenas for decades of records pertaining to pipeline maintenance and two oil spills this year in the troubled Prudhoe Bay field.

The subpoenas add to a growing list of government inquiries into how the nation's largest oil field is run, and widen scrutiny beyond just BP to include a broader stable of industry players in Alaska's Arctic oil fields.

BP previously had received a federal grand jury subpoena in connection with an estimated 201,000-gallon crude spill from a corroded pipeline on the western side of the vast oil field. The early March oil spill was the largest on the North Slope since oil production began there in 1977.

Late Thursday, state lawyers for the Alaska Department of Environmental Conservation served BP and its four partners in the Prudhoe field with subpoenas in connection with the March spill as well as an Aug. 6 spill from another pipeline.

The second spill, estimated at 966 gallons, coupled with an alarming inspection report showing runaway pipeline corrosion, prompted BP managers to order an emergency partial shutdown of Prudhoe, a move that spooked global oil markets and sparked fears of higher gasoline prices.

Normally, Prudhoe produces an average of 400,000 barrels of crude per day, or almost 8 percent of U.S. production.

On Friday in Anchorage, BP's Alaska president, Steve Marshall, testified at a joint meeting of the state House and Senate resources committees that production had been restored to more than 200,000 barrels per day, and that 340 engineers and pipeline inspectors were working to bring Prudhoe back to normal.

Marshall admitted that BP had "a gap in our corrosion inspection system" that allowed key low-pressure pipelines, known as transit or sales lines, to corrode and develop holes through which oil could escape and tar the tundra. He said the company "deeply regrets" the problems.

Federal and state investigators and regulators are looking beyond regrets and have hit BP with subpoenas for reams of data, documents, photos, maps, notes and even pieces of leaky pipe. Meantime, state and federal lawmakers are scheduling hearings to look into spills and the oil industry's North Slope pipeline-maintenance practices.

BP owns about a quarter of Prudhoe, but it runs the entire field on behalf of all five owner companies, which share the field's costs and profits.

BP had already received a state subpoena for information on the March oil spill. On Thursday, the state extended its investigative net and served subpoenas on BP's four Prudhoe partners. They include Exxon Mobil and Conoco Phillips, each of which owns a 36 percent share of the field; Chevron, which owns just over 1 percent; and Forest Oil, which owns less than 1 percent.

The state subpoenas command them to not destroy and to make available all documents and computer records that "relate in any way" to the March spill. The subpoenas also ask the companies to make available maintenance and corrosion records spanning the life of the leaky western Prudhoe pipeline, records on pipeline monitoring dating back 10 years and records on the discovery of and response to the spill.

All five Prudhoe owners Thursday also received a second state subpoena for the Aug. 6 spill.

The state subpoenas are known as civil or administrative subpoenas. The federal grand jury subpoena BP received is criminal in nature, BP spokesmen have said.

In a Thursday letter to BP's Marshall, Alaska Attorney General David Marquez said the state served subpoenas on all the Prudhoe owners, and not just operator BP, because "the state is unwilling to make assumptions at this time where liability may ultimately lie." The letter mentions "potential civil or criminal actions."

BP has said it is cooperating fully with state and federal investigations.

Spokesmen for Exxon, Chevron and Forest Oil did not respond to requests for comment Friday.

Conoco spokeswoman Dawn Patience said her company plans to cooperate.

BP discovered numerous holes or weak spots in the transit pipeline that leaked Aug. 6 after running a test probe known as a "smart pig" through it. The U.S. Pipeline and Hazardous Materials Safety Administration ordered such probes after the March spill.

BP managers have admitted they didn't run pigs through the Prudhoe transit lines for many years, allowing sludge to build up and bacteria-based corrosion to break out.

BP's Marshall has sent messages to the company's employees telling them of federal and state investigations into the large March leak from a pipeline known as the Gathering Center 2 or GC-2 line.

"The investigations may include consideration of whether any criminal laws were violated," according to an April 14 staff e-mail from Marshall. He told employees that the company planned to cooperate fully, and that all employees were free to talk with investigators.

"BP will not take any disciplinary action against any employee" for talking, the e-mail said.

Cynthia Magnuson, a Justice Department spokeswoman in Washington, D.C., confirmed the department has a criminal and civil investigation under way related to the March spill. She offered little more detail.

Aside from voluminous records, the federal grand jury wants the section of the GC-2 pipe with the hole in it delivered to Anchorage as evidence, said BP spokesman Daren Beaudo. Cutting out several feet of the pipe, which is 34 inches in diameter, is an expensive job that still hasn't been done, he said.

BP already has a felony environmental record in Alaska.

In 1999, the company pleaded guilty to violating federal law by failing to immediately report that its drilling contractor, Doyon Drilling, had illegally dumped hazardous material down a well at the Endicott oil field. BP was fined $500,000 and put on probation for five years. The company was released from probation in February 2005.

During its probation, BP was required to prepare and adhere to an environmental management system designed to require employees and the company to comply with "best environmental practices" in all of its U.S. operations.

Did BP fail to adequately inspect and repair its North Slope transit pipelines during its probation?

"I think everybody's asking that question," said Mary Barnes, the federal probation officer in Anchorage on the case.

Even if the government didn't formally regulate the transit pipes, the monitoring program required BP to engage in sound practices, said Ridgway Hall, a private Washington, D.C., attorney specializing in environmental law. The federal court appointed Hall to oversee BP's management system.

"Part of the management system was paying careful attention to equipment, equipment maintenance, preventive maintenance, wherever there is a risk of environmental releases, because part of the management system was to try to maximize environmental compliance, including both regulatory requirements and minimizing releases," Hall said Friday.

U.S. Sen. Ted Stevens said Thursday he learned that BP employees routinely recorded measurements over the years that should have led to questions about conditions.

Told of Stevens' remarks, Hall said the monitoring system was designed specifically to eliminate complacency. "If somebody flags a problem, it's designed to get it corrected," Hall said.

Daily News reporter Wesley Loy can be reached at wloy@adn.com or 257-4590. Reporter Richard Mauer can be reached at rmauer@adn.com or 257-4345.

Ongoing Prudhoe Bay investigations

• SUBPOENAS: State officials are investigating two oil spills from leaky pipes and have issued subpoenas to BP and four other companies.

• march spill: A federal grand jury in Anchorage has been investigating a major March oil spill and is seeking extensive records from BP plus a section of a leaky pipeline.

• congress: Three congressional committees plan hearings on BP's pipeline maintenance practices and the recent partial shutdown of the Prudhoe field.

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http://www.adn.com/money/industries/oil/prudhoe/story/8096656p-7989109c.html

Over half of Prudhoe output is back, BP boss tells hearing
ANCHORAGE: Severity of corrosion surprised company, official says.
By DAN JOLING
The Associated Press
Published: August 19, 2006
Last Modified: August 19, 2006 at 02:39 AM

BP on Friday said it had restored more than half of the production from Prudhoe Bay, nearly two weeks after threatening to shut the entire field down because of leaks from corroded pipelines.

"The western operating area has now been restored to production of over 200,000 barrels per day," BP's Alaska president Steve Marshall told a joint Alaska Senate and House Resources Committee conducting a hearing on the shutdown.

Alaska Attorney General David Marquez also outlined the state's investigation into the partial shutdown for the committee.

"A thorough fact-finding investigation of BP's management of the North Slope oil field is taking place," Marquez said. "After the investigation is complete, appropriate legal action will be taken to protect Alaska's interests."

The discovery of leaks and corroded pipe prompted the company to begin shutting down the nation's largest oil field on Aug. 6, threatening to take 400,000 barrels -- about half the current output by all fields on Alaska's North Slope and 8 percent of domestic production -- out of production.

Marquez also said the state has served subpoenas on BP and other Prudhoe Bay leaseholders to preserve all documentation related to the Aug. 6 event and pipeline corrosion dating to 1996.

The wholesale shutdown of Prudhoe Bay was averted when testing of pipelines on the western side of Prudhoe Bay prompted the British operator to keep that side open. It had been producing about 150,000 barrels before production reached 207,000 barrels Wednesday and 217,000 barrels Thursday, Marshall said.

Marshall said the company remains convinced it made the correct decision to start an orderly shutdown of the field because of the potential for a major spill.

The shutdown was the culmination of the discovery of a leak in March on the western field and two more this month on the east side.

BP conducted a "smart pig" inspection of the eastern transit line this summer. After discovering indications of corrosion, the company was confirming that data with ultrasonic inspections when it found stains on the insulation surrounding the pipe at one location and a leak at another section.

What surprised the company, Marshall said, was the severity of corrosion in the fields' transit lines, the pipes that move oil from gathering stations to the pump stations that will push it through the trans-Alaska oil pipeline.

Oil is pulled from the ground by a well and moved to a flow station, which removes natural gas, plus impurities that can cause corrosion -- water, gases such as carbon dioxide, hydrogen sulfide and oxygen, and solids. With those corrosive materials removed, Marshall said, the company did not expect corrosion to be so severe in the transit lines.

Rep. Jay Ramras, R-Fairbanks, asked if the company considered the leaks an act of God, physical deterioration or a result of deferred maintenance.

"We're still in the middle of an investigation," said Bill Hedges, the company's manager of corrosion strategy and planning, but bacteria in the line is a suspect.

The answer will come from laboratory testing, Marshall said.

State Sen. Kim Elton, D-Juneau, said not much new information was revealed at the hearing.

Elton said the company should not have been surprised that corrosion and leaks might be found, and he questioned why it took spills for BP to discover it had a gap in its corrosion program.

BP has offered repeated apologies.

"The other way of saying that is, 'We made a terrible mistake,' " Elton said.

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http://www.adn.com/money/industries/oil/prudhoe/story/8096656p-7989099c.html

DOT boss visits site to give BP check-up
PRUDHOE BAY: "I think this problem is unique to BP," Cino said.
By RACHEL D'ORO
The Associated Press
Published: August 19, 2006
Last Modified: August 19, 2006 at 02:39 AM

PRUDHOE BAY -- Acting Transportation Secretary Maria Cino toured Prudhoe Bay on Friday to assess BP's progress in following federal orders to improve its pipeline corrosion management at the nation's largest oil field.

"It was a surprise and a disappointment the way BP maintained these pipelines," Cino said after viewing the sites where oil leaked this year from the corroded pipeline, including a spill on fragile tundra discovered earlier this month.

The half-day visit to Alaska's North Slope came almost two weeks after the British oil giant launched a partial shutdown because of leaks and corrosion in low-pressure pipe found Aug. 6 on the eastern side of the colossal field. London-based BP operates Prudhoe Bay for itself and other owners.

Days after the shutdown, the Transportation Department's Pipeline and Hazardous Materials Safety Administration ordered the company to conduct more rigorous tests on the transit pipelines, which carry market-ready oil to the 800-mile trans-Alaska oil pipeline. DOT engineers have been on-site since Aug. 8.

"When we look at other operators, this problem has not been found," Cino said after the 650-mile flight back to Anchorage Friday afternoon. "I think this problem is unique to BP."

The Aug. 10 order is the third involving Prudhoe that has been issued to BP since the March spill from a corroded transit line on the western half of the field. Up to 267,000 gallons of crude leaked for days into the snow-packed tundra before it was noticed March 2 by a worker who smelled the oil. The spill was the largest ever on the North Slope and prompted the federal pipeline agency to order BP to improve its corrosion protection management at Prudhoe.

An amended order issued in July directed BP to improve and speed up preparations to test the lines.

Under the latest order, BP must conduct four surveys daily on the 22 miles of transit lines. It must visually inspect the pipe by foot, car or plane, as well as use heat-seeking infrared equipment to detect leaks.

Pipeline regulators allowed the company to keep operations going in the western half, which has undergone thousands of recent ultrasound inspections. But BP will have to strip insulation from the pipeline there and continue to conduct ultrasonic testing.

Ultimately, 16 miles of transit line will be replaced.

"We came here to ensure the safe operation of the pipelines and continue working with BP," Cino said during her tour.

The transportation secretary and her entourage, including congressional staffers, huddled against light, frigid winds as they watched workers remove the galvanized steel covering and insulation on part of the pipeline. Workers then buffed sections of the pipe to ready it for ultrasonic testing foot by foot.

Cino also saw the last phase of the cleanup of this month's spill as yellow-suited workers used propane torches to burn oil that remained on tundra grasses. Besides the oil spilled, more than 7,000 gallons of oil were captured by tanks placed under the pipeline, BP and state officials said.

The final stop was the site of the March spill. The oil has been cleared away, leaving clumps of dirt, tinged green in places where tundra grasses are regrowing.

Before the shutdown, daily production at Prudhoe was 400,000 barrels, 8 percent of the domestic production and half the current output by North Slope fields. The current production is more than 200,000 barrels daily, BP Alaska president Steve Marshall said Friday in Anchorage.

The federal order requires BP to pass a series of tests before restarting the eastern operation. BP also is looking at the possibility of building bypass lines before the targeted transit pipe is permanently replaced, said David Peattie, a London-based vice president of exploration and production.

"BP is working on all options to restore production as fast and safely as possible," he said Friday.

The Prudhoe corrosion also has prompted the pipeline agency to ramp up plans to strengthen federal requirements and standards for operating such pipelines, which are exempt from federal regulations. Cino said her agency has statuary authority in issuing the Prudhoe Bay orders.

The eastern side of the pipeline had not had a high-tech inspection called "smart pigging" until July. The western side had the check in 1998 and was scheduled for it this summer, but those inspections were delayed by the shutdown and are now planned for fall.

Alaska Attorney General David Marquez told a special hearing of the Legislature held in Anchorage on Friday that the state has served subpoenas on BP and other Prudhoe Bay leaseholders to preserve all documentation related to the Aug. 6 event and pipeline corrosion dating to 1996.

"After the investigation is complete, appropriate legal action will be taken to protect Alaska's interests," he said.

 

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Anchorage Daily News
August 18, 2006, afternoon update

http://www.adn.com/money/story/8094096p-7986565c.html

State subpoenas Prudhoe owners over oil spills
By WESLEY LOY
Published: August 18, 2006
Last Modified: August 18, 2006 at 02:37 PM

State officials have hit BP -- as well as four other oil companies -- with subpoenas ordering them to produce documents related to two spills and pipeline maintenance in the troubled Prudhoe Bay field.

BP, which runs the field, previously had received subpoenas from the state as well as a federal grand jury investigating possible civil or criminal violations related to an estimated 201,000-gallon oil spill in early March. It was the largest North Slope oil spill since production began there in 1977.

Investigators now are casting a wider net in the wake of BP’s startling partial shutdown last week of Prudhoe Bay, the nation’s largest oil field.

Late Thursday, lawyers for the Alaska Department of Environmental Conservation hit BP’s four Prudhoe partners with subpoenas in connection to the March spill. Those four include Exxon Mobil and Conoco Phillips, each of which owns a 36 percent share of the field; Chevron, which owns just over 1 percent; and Forest Oil, which owns less than 1 percent. BP owns 26 percent and runs the field on behalf of all the owner companies.

All five companies share the costs of running the field.

The state subpoenas are known as civil or administrative subpoenas. The federal grand jury subpoena BP received is criminal in nature.

The state subpoenas served Thursday -- identically worded for each of the five companies -- command them to not destroy and to make available to state inspectors all documents and computer records that “relate in any way” to the March spill from a major crude oil pipeline at the heart of Prudhoe. The subpoenas also ask the companies to make available maintenance and corrosion records from over the life of the pipeline; records on pipeline monitoring dating back 10 years; and records on the discovery of and response to the spill.

All five Prudhoe owners Thursday also received a second state subpoena for a smaller oil spill, estimated at 966 gallons, from another pipeline Aug. 6.

That spill, with a new report showing rampant corrosion within the pipeline, prompted BP to begin an emergency shutdown of about half of Prudhoe. The field remains hobbled at roughly half its normal output of 400,000 barrels of oil per day. Normally, Prudhoe accounts for up to 8 percent of U.S. crude oil production.

BP executives along with state Attorney General David Marquez are testifying today in Anchorage before a joint meeting of the state House and Senate resources committees. For more information, go to www.akrepublicans.org/senres.

Daily News reporter Wesley Loy can be reached at wloy@adn.com   or 257-4590.

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http://www.adn.com/news/alaska/ap_alaska/story/8094206p-7986640c.html

Federal DOT head tours hobbled Alaska oil field
By RACHEL D'ORO, Associated Press Writer
Published: August 18, 2006
Last Modified: August 18, 2006 at 05:48 PM

PRUDHOE BAY, Alaska (AP) - Acting Transportation Secretary Maria Cino toured Prudhoe Bay on Friday to assess BP PLC's progress following federal orders to improve its pipeline corrosion management at the nation's largest oil field.

"It was a surprise and a disappointment the way BP maintained these pipelines," Cino said after viewing the sites where oil leaked this year from corroded pipeline, including a spill on fragile tundra discovered earlier this month.

The half-day visit to Alaska's North Slope came almost two weeks after the British oil giant launched a partial shutdown because of leaks and corrosion in low-pressure pipe found Aug. 6 on the eastern side of the colossal field. London-based BP operates Prudhoe Bay for itself and other owners.

Days after the shutdown, the Transportation Department's Pipeline and Hazardous Materials Safety Administration ordered the company to conduct more rigorous tests on the so-called transit pipelines, which carry market-ready oil to the 800-mile trans-Alaska pipeline. DOT engineers have been onsite since Aug. 8.

"When we look at other operators, this problem has not been found," Cino said after the 650-mile flight back to Anchorage Friday afternoon. "I think this problem is unique to BP."

The Aug. 10 order is the third involving Prudhoe that has been issued to BP since the March spill from a corroded transit line on the western half of the field. Up to 267,000 gallons of crude leaked for days into the snow-packed tundra before it was noticed March 2 by a worker who smelled the oil. The spill was the largest ever on the North Slope and prompted the federal pipeline agency to order BP to improve its corrosion protection management at Prudhoe.

An amended order issued in July directed BP to improve and speed up preparations to test the lines.

Under the latest order, BP must conduct four surveys daily on the 22 miles of transit lines. It must visually inspect the pipe by foot, car, or plane, as well as use heat-seeking infrared equipment to detect leaks.

Pipeline regulators allowed the company to keep operations going in the western half, which has undergone thousands of recent ultrasound inspections. But BP will have to strip insulation from the pipeline there and continue to conduct ultrasonic testing.

Ultimately, 16 miles of transit line will be replaced.

"We came here to ensure the safe operation of the pipelines and continue working with BP," Cino said during her tour.

The transportation secretary and her entourage, including congressional staffers, huddled against light frigid winds as they watched workers remove the galvanized steel covering on part of the pipeline and then insulation. Workers then buffed sections of the pipe to ready it for ultrasonic testing foot by foot.

Cino also saw the last phase of the cleanup of this month's spill as yellow-suited workers used propane torches to burn oil that remained on tundra grasses. Beside the oil spilled, more than 7,000 gallons of oil were captured by tanks placed under the pipeline, BP and state officials said.

The final stop was the site of the March spill. The oil has been cleared away, leaving clumps of dirt, tinged green in places where tundra grasses are regrowing.

Before the shutdown, daily production at Prudhoe was 400,000 barrels, 8 percent of the domestic production and half the current output by North Slope fields. The current production is more than 200,000 barrels daily, BP Alaska President Steve Marshall said Friday in Anchorage.

The federal order requires BP to pass a series of tests before restarting the eastern operation. BP also is looking at the possibility of building bypass lines before the targeted transit pipe is permanently replaced, said David Peattie, a London-based vice president of exploration and production.

"BP is working on all options to restore production as fast and safely as possible," he said Friday.

The Prudhoe corrosion crisis also has prompted the pipeline agency to ramp up plans to strengthen federal requirements and standards for operating such pipelines, which are exempt from federal regulations. Cino said her agency has statuary authority in issuing the Prudhoe Bay orders.

Since the shutdown, BP officials have repeatedly acknowledged the lack of upkeep, saying they believed the millions the company spent yearly on corrosion control was adequate.

The eastern side of the pipeline had not had a high-tech inspection called "smart pigging" until July. The western side had the check in 1998 and was scheduled for it this summer, but those inspections were delayed by the shutdown and now expected for fall.

Alaska Attorney General David Marquez told a special hearing of the state legislature being held in Anchorage Friday that the state has served subpoenas on BP and other Prudhoe Bay leaseholders to preserve all documentation related to the Aug. 6 event and pipeline corrosion dating to 1996.

"After the investigation is complete, appropriate legal action will be taken to protect Alaska's interests," he said.

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Anchorage Daily News
August 18, 2006

http://www.adn.com/money/industries/oil/prudhoe/story/8092888p-7985301c.html

BP failure 'shocked' Stevens
SPILLS: The senator lambasts the North Slope operator for careless oil production.
By RICHARD MAUER
Anchorage Daily News
Published: August 18, 2006
Last Modified: August 18, 2006 at 02:05 AM

U.S. Sen. Ted Stevens said Thursday he was "shocked" by BP's failure to maintain its North Slope pipelines and for not living up to the image the company has cultivated of a careful environmental steward.

Expressing his displeasure through words and an occasional thump on the lectern, Stevens told reporters at a news conference in Anchorage that BP's assurances to high-level officials have proven hollow in light of two recent spills and the company's emergency shutdown of a huge portion of Prudhoe Bay.

"I am disturbed not only by the fact that over the years, when I've taken members of Congress up there -- particularly senators and people from the administration -- we've been briefed that this is the safest area in the world, and how it's been maintained, and how they've got special procedures to check for corrosion and erosion and any sludge inside the pipeline.

"As a matter of fact, it just wasn't done. And somehow or other, the regime for management failed to recognize it hadn't been done."

Stevens said he was even more disturbed when he learned at a recent briefing by company officials and government regulators that BP unknowingly allowed corrosion to eat away 81 percent of the steel shell in portions of one of its major transit pipelines.

"We should've known every time there was 1 percent gone," Stevens said. BP's normal policy is to replace pipe when corrosion has reduced its walls by 60 percent, he said.

BP's director of media relations in Alaska, Daren Beaudo, said he didn't hear Stevens' remarks, but said that like Stevens, BP was surprised by the extent of the corrosion. "We will also learn (what happened) from a root cause analysis and apply our learnings here in Alaska and around the world."

BP is working to replace 16 miles of pipe, he said.

The lines in question are largely unregulated because they operate at low pressure, carrying supposedly refinery-ready petroleum from processing plants that remove water and sludge. The pipelines deliver oil to the first pump station on the trans-Alaska pipeline, which operates under pressure and is highly regulated.

On March 2, one of the transit lines was responsible for the largest North Slope oil spill ever, dumping an estimated 201,000 gallons of hot petroleum onto frozen tundra and an iced-over lakeshore. On Aug. 6, BP began shutting down Prudhoe when it discovered another leak, though much smaller, in a transit line in another section of the giant oil field.

The decision to shut down the entire field was scrapped amid cries by some officials that the measure was extreme. But Stevens said he agreed with the shutdown.

"I gotta tell you, I think it was necessary," Steven said. "Two spills, and something's causing it. Shut it down till we can examine it and find out we can operate it without great risk." Since then, the company has decided that the western half of the field, where the March leak occurred, can operate "without great risk," Stevens said.

The 82-year-old senator, who has been dealing with oil matters for nearly his entire public career, said the fact that the byproducts of bacteria colonies in the pipe may be responsible for the corrosion indicate that BP was sending substandard oil down the line.

"Bacteria only exist in these pipelines in water. It's not there in oil, it's not there in gas, it has to be in water," Stevens said. "The oil that went in, that should be of the quality it doesn't have any water." BP's monitoring system was deficient because it failed to look for water in that oil, he said.

After the March spill, Stevens said, he received a private briefing from the government regulators and prosecutors investigating civil and criminal charges against the company. He said he was obligated to not disclose what he learned, but he said, "BP's got a big problem -- let's face it. They've got a grand jury that's subpoenaed a portion of that pipe. They've got criminal potential against their company and some of the members of it."

Stevens brought up that investigation in a call he made in June to Robert Malone, the former trans-Alaska pipeline chief, when Malone took over as head of BP's U.S. operations. "I told him, 'I can't tell, Bob, what they've told me, but I can tell you this: you're in the hot seat. You've just come on board and this is just going to get worse before it gets better.' "

Stevens said he hopes the problems with BP don't become ammunition against the effort to open the Arctic National Wildlife Refuge to drilling. But, he acknowledged, the safety record here was overplayed.

Stevens likened BP's image of Prudhoe to that of the Maytag washer repairman -- it works so well, there's never a repair call.

"They sold us the fact their processes would perform. And they didn't."

Stevens said he plans to conduct hearings this fall to explore BP's record and the need for new laws on pipeline safety.

Daily News reporter Richard Mauer can be reached at rmauer@adn.com   or 257-4345.

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Fairbanks News Miner
August 18, 2006

http://newsminer.com/2006/08/18/1574/

Prudhoe options eyed
By Sam Bishop
Published August 18, 2006

Another congressional committee has scheduled a hearing on the Prudhoe Bay oil field’s corroded pipes.

The U.S. Senate Energy and Natural Resources Committee will hold its hearing Sept. 12 in Washington, D.C., the committee chairman said Thursday.

Sen. Pete Domenici, R-N.M., said he wants the committee to “explore some options for easing the impact this problem could have on American consumers and businesses.”

He also wants to see what the committee might do, within its jurisdiction, to prevent future troubles of this sort. The Senate Commerce Committee, led by Sen. Ted Stevens, R-Alaska, has primary jurisdiction over pipeline issues.

The U.S. House Energy and Commerce Committee earlier announced it will hold a hearing Sept. 7. The Alaska Legislature’s House and Senate resources committees also scheduled a joint hearing for today in Anchorage.

Sen. Lisa Murkowski, R-Alaska, said Thursday in an interview that she is not happy with BP Exploration Alaska’s maintenance record on the Prudhoe lines.

“That’s not the level of care and due diligence that we expect of a major operators like BP,” she said.

BP for years has been treating aggressive corrosion in Prudhoe Bay lines that carry untreated oil, water, sediment, carbon dioxide and natural gas pumped from the wells. It spent $50 million in 2004 and $60 million in 2005 and had expected to spend more than $70 million this year prior to the spills.

BP officials, who acknowledge that their efforts were inadequate, say they didn’t regularly run scouring pigs or corrosion-detecting pigs through the oil lines that leaked last winter and this summer because they were downstream of oil cleaning centers and weren’t expected to have serious problems.

Also, the company had been spot-checking the lines and monitoring metal inserts that gauge thinning rates, but neither technique detected the site-specific bacterial corrosion that probably caused the leaks.

Critics say the company had plenty of warnings that the gathering lines were corroding.

Murkowski said it is her impression that the company assumed the gathering lines did not need greater scrutiny as they approached their fourth decade of service. That “is not rational,” she said.

The senator said the corroded pipes could undermine her claim that Prudhoe Bay field is the “best in the world,” a claim made often on the Senate floor when advocating for oil drilling in the Arctic National Wildlife Refuge’s coastal plain.

“I continue to the believe that,” she said. “But when we are looking at replacing 16 miles of pipe, I have to say some of my confidence in that statement has been eroded.”

The spills affected just a few acres, she acknowledged. “But I don’t want us to have the potential to have an environmental disaster that is due to negligence,” she added.

Domenici, in his news release, said Prudhoe Bay’s production could be down 200,000 barrels per day “for a year or more.”

Scott Dean, a BP Alaska spokesman, said the company has avoided specific estimates of how long the eastern operating area’s transit line will be shut. The line carried about 200,000 barrels per day, half of Prudhoe’s production.

BP plans to replace the line and expects the pipe to arrive by the end of the year.

The company has not decided if or how to restart the eastern area’s oil flow before then. Doing so would require approval of the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration.

“We are evaluating all options for safely restoring East Prudhoe Bay production as soon as possibleincluding bypass options,” Dean said.

The company is welding sleeves around weak spots in the eastern line to corral the oil sitting inside, said Greater Prudhoe Bay field manager Kemp Copeland last week during a media tour.

Whether those sleeves, combined with inspections and additional pigging, will provide enough confidence to allow a restart is not clear.

“Maintenance pigging and smart pigging of any lines in East Prudhoe Bay would require a resumption of production and the approval of DOT,” Dean said. “That could only happen if BP and DOT are satisfied, after rigorous inspection of those lines and implementation of enhanced surveillance program, that it is appropriate to do so.”

Staff writer Sam Bishop can be reached at 459-7504 or sbishop@newsminer.com.

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Wall Street Journal
August 18, 2006

Valdez Port Sees Fewer Tankers After Prudhoe Problems
DOW JONES NEWSWIRES
August 18, 2006 7:33 a.m.
 
VALDEZ, Alaska (Dow Jones)--The Valdez crude export terminal has seen a modest decline in the number of crude tankers in recent weeks, as oil companies reduce shipments in light of the problems in Prudhoe Bay oil production, the Valdez terminal manager said Thursday.

The Valdez terminal, the crude export facility at the end of the 800-mile Trans-Alaska Pipeline System, will receive four tankers this week and about the same number next week. That's a drop-off from last week's level and from typical traffic levels, said Tom Stokes, Valdez Marine Terminal Manager for Alyeska Pipeline Service Co.

"On average, it is a little lower than where we are normally," Stokes told Dow Jones Newswires.

The Valdez Terminal usually has about 360 tanker visits per year, or almost one tanker each day. The tankers vary in size, with the smaller vessels carrying 300,000 barrels, and the largest ones carrying 1.4 million barrels.

The drop-off comes on the heels of BP PLC's (BP) move earlier this month to shut down half the giant Prudhoe Bay oilfield on the North Slope of Alaska due to pipeline corrosion. That decision has limited TAPS throughout to about 600,000 barrels of crude per day, instead of the normal range of at least 800,000 b/d.

Stokes said Alyeska has been making up for the lower throughput with some of the stored oil kept at Valdez. The Valdez terminal has a capacity to store more than 14 million bbls of oil, but rarely runs at that level. Alyeska doesn't disclose exact inventories, citing security concerns.

"We're at kind of a normal operating band, but we're on the low end of that band," Stokes said.

 By John Biers, Dow Jones Newswires; john.biers@dowjones.com 

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Sakhalin Protesters Switch Focus To BP, Exxon In Sep -NGO
DOW JONES NEWSWIRES
August 17, 2006 12:43 p.m.
 
LONDON (Dow Jones)--The indigenous people of Russia's Sakhalin Island are to target ExxonMobil Corp. (XOM) and BP PLC (BP) in protests next month, diverting their attention away from Royal Dutch Shell PLC (RDSB.LN), the leader of lobby group Sakhalin Environment Watch said this week.

In an e-mail, Dmitry Lisitsyn, who heads the group, didn't explain why it had opted to target ExxonMobil and BP. He couldn't be contacted by telephone.

The planned protests, including the blockage of a road used by ExxonMobil, will take place on the side of an oil and gas conference due on the island Sept. 27-28.

ExxonMobil operates an integrated oil project in the north of the island and BP is in an oil exploration and production venture with Rosneft (RNT.YY).

Many local inhabitants have criticized the impact on their livelihoods, such as fishing, from multibillion dollar oil and gas projects underway offshore the island in Russia's far east.

Campaigners have previously focused on the Shell-led consortium running the huge integrated oil and gas project Sakhalin II.

But Lisitsyn said there had been good progress with its partners, which are to contribute $300,000 a year for the cultural and economic development of Sakhalin's indigenous population.

Still, the agreed contribution "is a good idea, but the implementation is very bad til now," he said.

Limiting environmental damage is critical for Sakhalin II as it seeks about $500 million in loans from the European Bank for Reconstruction and Development.

A spokesman for the bank reiterated Tuesday that a decision on whether or not to back Sakhalin II is due in September.

Turning the spotlight on the corporate responsibility of BP would be unwelcome news for the London-based energy giant.

Many things have gone wrong for the company over the past 16 months. Its Texas City refinery exploded in March 2005, killing 15 workers, injuring 170 and spawning a series of government investigations questioning BP's environmental risk management practices.

One of its pipelines on Alaska's North Slope sprung a leak in March due to corrosion, spilling over 200,000 gallons of crude oil, the largest amount ever, onto the Alaskan tundra.

Then last week the company shut down over half of its production from the Alaskan Prudhoe Bay field after discovering severe corrosion in large stretches of its pipeline network.

-By Benoit Faucon, Dow Jones Newswires; 44 20 7842 9266; benoit.faucon@dowjones.com    

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Financial Times
August 18, 2006

http://www.ft.com/cms/s/c6d880f2-2e55-11db-93ad-0000779e2340.html

US speeds up regulation of BP in Alaska
By Sheila McNulty in Houston
Published: August 18 2006 03:00 |
Last updated: August 18 2006 03:00

The US government said it was "accelerating" efforts to impose additional regulatory controls on BP's Alaskan oilfield, half of which has been shut due to severe corrosion.

Tom Barrett, administrator of the Department of Transportations (DOT) Pipeline and Hazardous Materials Safety Administration, said in an interview that he would issue a notice within one to two weeks laying out new rules to guide safe operation of BP's oil transit lines. His office said they could come within days.

"We're moving to bring them under more federal oversight," Mr Barrett said. "If they had maintained the lines properly, we would not be in this situation."

That the government feels the need to move quickly to take regulatory control over the pipelines is not only embarrassing for BP but underlines the conclusion regulators have reached that BP cannot be depended upon to take responsibility for its pipelines.

"Companies have the first obligation to operate safely," Mr Barrett said.

That DOT believes BP was not doing so led it immediately to order the UK oil giant to conduct four daily surveys of all its low-pressure lines at Prudhoe Bay, North America's largest oil field. Among other measures, BP must also use heat-seeking infrared equipment to spot leaks and conduct visual walking, driving or flying surveys up and down the entire 22-mile length of the system.

But those are short-term, emergency measures.

The DOT's new regulations would be for day-to-day operation of the pipelines in the long-term.

Mr Barrett's office said those new requirements, which could be out by the end of the week, will be open for public comment and possible revision by the DOT before it makes the rules final "as soon as possible".

The rules are designed to bring BP's low-stress, oil transit lines under regulatory oversight - its high-stress pipelines already are under regulatory control.

The low-stress ones came under heightened scrutiny following a March spill of more than 200,000 gallons of oil from a corroded pipeline.

The DOT, which regulates US pipelines, was slowly moving toward bringing the lines under control when the spill took place. It immediately imposed a Corrective Action Order on BP following the spill, requiring the company to clean its lines and use high-tech equipment to check for corrosion.

Given the "severe corrosion" BP admits it has since uncovered, the DOT is eager to bring all low-stress pipelines under control, which would heighten oversight over BP's problematic oil transit lines.

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Wall Street Journal
August 17, 2006

North Slope Pdtn Up 20,000 B/D In Next 2 Wks -Pipeline Co
DOW JONES NEWSWIRES
August 17, 2006 7:32 a.m.
(This article was originally published Wednesday)
By John M. Biers
Of Dow Jones Newswires
 
ANCHORAGE (Dow Jones)--The Trans Alaska Pipeline System expects throughout to edge up by about 20,000 barrels per day to about to about 620,000 b/d in the next few days and to hold at that level for a couple of weeks before possibly rising further, pipeline officials said Wednesday.

"We're anticipating it rising to 620,000 or 625,000 over the next few days and then staying in that range over the next two weeks," Mike Joyner, Oil Movements Manager for Alyeska Pipeline Service Co., told Dow Jones Newswires.

Alyeska, which manages the 800-mile pipeline that transports crude from the North Slope to an oil export terminal in Valdez in South Alaska, was averaging a throughput of 597,000 b/d Wednesday morning, Alyeska officials said. Throughput is well below typical rates due to BP PLC's (BP) shutdown of the eastern half of the giant Prudhoe Bay field. Throughput is also typically lower now than in the winter months because summer is the preferred time to conduct field maintenance.

Alyeska officials think throughout could rise further beyond the 620,000 b/d level if BP is successful in rerouting some of the eastern production through other pipelines, but they said they aren't intimately familiar with BP's plans. Although BP is the oil company with the biggest stake in Alyeska and rents space to Alyeska in BP's Anchorage office tower, the two companies have independent management teams.

"We only know the sketches of what their plans are," said Joyner.

BP officials have said as much as 100,000 b/d could be revived from the Eastern fields under some alternative piping scenarios, although those changes would probably require 6-8 weeks to effect.

The TAPS line would normally flow about 800,000 b/d this time of year, edging up to about 900,000 b/d in the winter months. The line was flowing about 760,000 b/d prior to BP's Aug. 6 announcement that it would shut down Prudhoe Bay because of corrosion to a series of smaller pipelines that flow into TAPS. Throughput got as low as the low-500,000 b/d range soon after the Aug. 6 announcement, Alyeska officials said. BP has since said it would keep open the western half of Prudhoe.

Alyeska has told regulators at the Joint Pipeline Office that it expects to reach a flow-rate of 650,000 b/d soon, said Jerry Brossia, an authorized officer from the Bureau of Land Management who works at the JPO's downtown Anchorage office.

"They think they'll have it up to 650,000 barrels per day in the near-future," said Brossia, adding that Alyeska officials have avoided hard specifics on the time-frame for that ramp-up.

 -By John Biers, john.biers@dowjones.com, 713-582-5070; john.biers@dowjones.com

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Financial Times
August 17, 2006

http://www.ft.com/cms/s/812ee3b2-2d8c-11db-851d-0000779e2340.html


BP suffers new pipeline accident at Alaskan oilfield
By Sheila McNulty in Houston
Published: August 17 2006 03:00 |
Last updated: August 17 2006 03:00

BP, the UK oil group, has suffered another accident at its troubled Alaskan oilfield after a pressure surge jolted an above-ground pipeline off its steel mount and on to the delicate tundra.

The accident came as BP was attempting to increase production at the field.

It had been drastically reduced after the discovery of severe corrosion had forced the company to shut half of Prudhoe Bay, North America's largest oilfield, slightly more than a week ago.

In starting up a section of the field that had been cleared to operate after being closed for routine maintenance, a pressure surge jolted the flow line so violently that it fell to the ground.

The aluminium casing and insulation appear to have burst open but BP said there was no visible damage to the pipeline, which is back up on mounts and being tested for "stress damage".

The accident will bring further embarrassment to BP, which has been under heightened scrutiny since the biggest spill at Prudhoe Bay in March.

Since then, regulators have forced BP to perform tests, which have uncovered severe corrosion in oil transit lines and led the company to shut half the 400,000-barrel-a-day field.

BP had wanted to add 20,000 more barrels a day to the current 150,000 barrels being produced daily, to get the half of the field cleared for operation up to capacity.

This latest accident has forced it to abort that effort.

Meanwhile, shareholders have filed a suit against BP executives and board members, including Lord Browne, chief executive, whom it charges took no steps to improve the 30-year-old pipelines, despite becoming aware of corrosion years ago.

BP does not comment on pending litigation.

But Ronnie Chappell, speaking for BP, said the company had a $72m (£38m)-a-year corrosion inspection and prevention programme that it had believed was adequate.

"We now know that was not the case," Mr Chappell added.

Shareholders are seeking unspecified monetary damages. "Despite their awareness of the dangerous effect of the corrosion in the pipeline, defendants repeatedly failed to fund the work necessary to correct the problem, opting instead to squeeze out every last penny in current profits - $7.3bn last quarter - atthe expense of properly and safely maintaining the pipeline and the company's future profitability,'' the lawsuit, filed in New York, said.

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Anchorage Daily News
August 16, 2006

http://www.adn.com/money/industries/oil/prudhoe/story/8085224p-7977875c.html

Pipeline survey to begin after oil is removed
TRANSIT LINE: Crews will start draining an unknown volume on Thursday.
The Associated Press
Published: August 16, 2006
Last Modified: August 16, 2006 at 04:05 AM

Oil trapped inside a transit line where leaks led to the partial shutdown of the nation's largest oil field will be removed starting Thursday.

It's not known how much oil is trapped inside the Prudhoe Bay transit line, officials with BP and the Alaska Department of Environmental Conservation said Monday.

The state said a complete line survey would be conducted after the pipe is emptied, a process expected to take several days.

An inspection of the line Aug. 6 found leaks and corrosion in 16 parts of the line. That prompted BP to begin shutting down the oil field over fears of severe pipeline corrosion.

BP decided Friday to continue supplying oil out of one side of the field after reviewing hundreds of ultrasound inspections on five miles of the pipeline and discussing the matter with federal and state regulators. The company also will replace 16 miles of pipeline.

As of Monday, 150,000 barrels of crude and natural gas were flowing from the western side of the field. BP spokesman Daren Beaudo said there is no timetable in place, but the company intends to ramp production up to about 200,000 barrels, half of normal production.

The state said 23 barrels of oil spilled on the tundra, and 176 barrels of oil were captured by tanks placed under the leaks. Ed Meggert, the state's on-scene coordinator, said most of the spilled oil has been collected, and the state will burn off what oil has collected on tundra grasses.

Fifteen sleeves have been placed over the pipe to cover the leaks, and the remaining sleeve must be fabricated for a leak near a junction. That must be completed before oil is taken out of the pipe.

BP is considering a number of options, including routing oil through bypass lines, for the eastern field, but no timetable has been set, Beaudo said.

Beaudo would not address published reports of alternative pipeline routes that might allow production on the eastern side of the field to resume as early as October.


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http://www.adn.com/money/industries/oil/prudhoe/story/8085219p-7977834c.html

BP twice avoids pipe calamity
POINT MCINTYRE: 20,000 barrels a day of output lost when line hits the tundra.
By WESLEY LOY
Anchorage Daily News
Published: August 16, 2006
Last Modified: August 16, 2006 at 05:27 AM

Map of Area:
http://www.adn.com/ips_rich_content/508-16PrudhoePipe.gif

Twice late last week, a major pipeline in the hobbled Prudhoe Bay oil field came close to being smashed or broken open -- once when a drilling rig nearly tipped over onto it, and again when a sudden surge inside the line caused it to twitch like a live wire, knocking the elevated pipe off its support mounts and onto the tundra below.

In the end, the pipeline stayed intact, no oil leaked and no one was hurt, BP spokesman Daren Beaudo said.

But BP, the British oil giant that runs Prudhoe, has been forced to take the pipeline out of service, halting its flow of 20,000 barrels of oil per day.

That's contributing significantly to Prudhoe's overall production woes.

Normally, the field averages 400,000 barrels per day, or nearly 8 percent of total U.S. production. On Monday, its output stood at an estimated 150,000 barrels because of pipelines and processing plants BP has taken out of action because of severe corrosion or some other problem.

The pipeline involved in the two near misses carries a mixture of crude oil, natural gas and water out of the Point McIntyre field, north of Prudhoe, to a western Prudhoe separation plant, Beaudo said. The western side of Prudhoe is producing oil while the eastern half remains idle because of corroded pipelines.

A long length of the Point McIntyre line -- perhaps 200 feet, judging from photographs of the scene -- remains on the tundra pending a close check for damage, he said. At one point, the pipe's steel jacket and thick insulation were gashed open in the fall.

Many North Slope pipelines are elevated to prevent hot liquids from melting the permafrost, or to allow wildlife to walk underneath.

The Point McIntyre pipe, 36 inches in diameter, conceivably could have broken open after slamming several feet to the ground, but it didn't, Beaudo said.

"I can't speculate what would have happened," he said.

Ed Meggert, a spill response coordinator with the Alaska Department of Environmental Conservation, confirmed the pipeline didn't spill any oil. He said DEC officials who enforce rules requiring oil companies to be ready and able to clean up spills were looking into the incident.

Beaudo laid out this chain of events:

On Thursday afternoon, as BP moved to shutter much of Prudhoe in a corrosion crisis that rattled global oil markets last week, a huge drilling rig was lumbering down a gravel road alongside the Point McIntyre pipe, heading to a new drill site.

Some tires sank in a soft spot in the road and the rig, operated by contractor Schlumberger, tilted toward a rack of pipelines, among them the Point McIntyre line.

Fearful the rig might topple over onto the pipes -- it never did, as it turns out -- BP decided to shut down the big oil line and depressurize it as a precaution. Workers brought in a giant vacuum truck to pick up any oil in case of a spill.

After the rig was righted and went on its way, oil-field workers tried shortly after midnight Friday to restart the pipeline, but something went wrong. Pressure and liquids surged through the pipe with such force that a length was heaved off support mounts and onto the tundra.

It happened near an expansion joint, a point where the pipe makes a zigzag. An expansion joint allows a pipe to give a bit when oil sometimes surges through unevenly in gulps. This irregular flow is known as slugging.

Slugging has knocked pipes off their mounts before, though it's not a common occurrence, Beaudo said.

BP will check stress points to see if the pipeline is OK before lifting it back into place and restarting the flow of oil, he said.

The company also plans to investigate whether workers used correct procedures in restarting the pipeline, Beaudo said.

BP has come under a hailstorm of criticism from regulators, congressmen and others over the last week for failure to clean and inspect key pipelines in the Prudhoe Bay field, some of which are severely corroded and have leaked. Those pipes are different from the Point McIntyre line, however, in that they carry pure oil, not a mix of oil, gas and water.

BP owns about 26 percent of the Prudhoe and Point McIntyre fields and runs them on behalf of itself and partners including Exxon Mobil and Conoco Phillips, which each own 36 percent stakes in the two fields.

Daily News reporter Wesley Loy can be reached at wloy@adn.com   or 257-4590.

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Wall Street Journal
August 16, 2006

BP Closes Pipeline In Prudhoe Field After Mishaps -Report
DOW JONES NEWSWIRES
August 16, 2006 9:06 a.m.
 
NEW YORK (Dow Jones)--A pipeline in the hobbled Prudhoe Bay oil field has been taken out of service after coming close to being smashed or broken open twice last week, according to a report in the Anchorage Daily News Wednesday.

The newspaper, citing a spokesman for BP PLC (BP), said the pipeline remained intact, no oil leaked and no one was hurt after the two incidents.

In one incident, a drilling rig nearly tipped over onto the pipeline, and the other occurred when a sudden surge inside the line caused it to twitch like a live wire, knocking the elevated pipe off its support mounts and onto the tundra below, the Anchorage Daily News said.

BP, the U.K. oil giant that runs Prudhoe, has been forced to take the pipeline out of service, halting its flow of 20,000 barrels of oil per day, the newspaper said.

Normally, the field averages 400,000 barrels per day, or nearly 8% of total U.S. production. On Monday, its output stood at an estimated 150,000 barrels because of pipelines and processing plants BP has taken out of action due to severe corrosion or some other problems, according to the Anchorage Daily News.

It said the pipeline involved in the two incidents carries a mixture of crude oil, natural gas and water out of the Point McIntyre field, north of Prudhoe, to a western Prudhoe separation plant. The western side of Prudhoe is producing oil while the eastern half remains idle because of corroded pipelines.

BP owns about 26% of the Prudhoe and Point McIntyre fields and runs them on behalf of itself and partners, including Exxon Mobil Corp. (XON) and Conoco Phillips (COP), which each own 36% stakes in the two fields.

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Shareholders Sue BP Over Prudhoe Bay Maintenance
DOW JONES NEWSWIRES
August 16, 2006 8:13 a.m.

ANCHORAGE, Alaska (AP)--Senior executives at BP PLC (BP) face a lawsuit filed by shareholders who claim the oil giant's poor maintenance practices at Prudhoe Bay led to the partial shutdown of the nation's largest oil field.

The suit alleges that BP has known for years about the severe pipeline corrosion that led to last week's shutdown but took no substantial steps to properly monitor and repair the transit lines that ferry oil straight into the 800-mile trans-Alaska pipeline.

The closure has more than halved the field's daily 400,000-barrel output. Oil from Prudhoe Bay makes up about 8% of domestic oil supply.

Chief Executive John Browne and more than a dozen other top BP executives were named as defendants in the suit filed Monday in New York District Court.

The suit, which seeks unspecified monetary damages, was brought by investor Sue Pincus on behalf of BP shareholders "to remedy the severe harm caused to the company by its senior officers' and directors' mismanagement and neglect."

BP spokesman Daren Beaudo said Tuesday that the company doesn't comment on pending litigation.

A call late Tuesday to Jules Brody, the plaintiffs' attorney in New York, wasn't immediately returned.

A March spill from pipelines operated by BP was the largest ever on the North Slope. The spill was estimated to be up to 267,000 gallons. Further testing, as well as a smaller spill in July, prompted the company to call for the shutdown.

BP estimates the costs for repairing leaks and corrosion along 16 miles of pipeline will reach about $170 million. The British company has not disclosed how costs will be shared by the field's other owners, ConocoPhillips (COP) and Exxon Mobil Corp. (XOM).

The British oil giant also is facing federal scrutiny. A congressional committee has scheduled a Sept. 7 hearing to examine BP's management practices on the field near the edge of the Arctic Ocean.

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Conoco To Ship Crude Oil To US From S Korea - Shipbrokers
DOW JONES NEWSWIRES
August 16, 2006 12:39 a.m.
 
SINGAPORE (Dow Jones)--ConocoPhilips (COP) has booked an Aframax tanker to ship crude oil from South Korea to the U.S. West Coast, shipbrokers said.

The tanker Desh Rakshak will load around the end of this month, but the type of crude oil to be shipped wasn't clear.

 An Aframax tanker typically has a capacity of 80,000-119,999 deadweight tons.

A Seoul-based crude oil trader said Conoco is likely moving Omani or Norwegian Oseberg crude, which South Korea stores under joint stockpiling deals with foreign oil companies.

Medium sour Oman crude is often compared to Alaska North Slope crude produced at Prudhoe Bay, which is also medium sour, and South Korea stores a large volume of Norwegian crude, which includes light sweet Oseberg crude, under its joint stockpiling deal with Norway's Statoil ASA (STO).

Statoil accounts for about 11.3 million barrels of the 20 million barrels of crude oil stored in South Korea, according to Korea National Oil Corp., which oversees joint crude oil reserves in South Korea.

Separately, another cargo of Oseberg crude stored in South Korea was earlier sold to U.S. refiner Tesoro Corp. (TSO) in the aftermath of a loss of 200,000 b/d in production due to an unexpected partial shutdown at BP PLC's (BP) Prudhoe Bay oil field in Alaska.

From China, Royal Dutch Shell PLC (RDSB.LN) has booked a Panamax tanker to ship crude oil, likely Omani crude, to the U.S. West Coast.

In addition, a Very Large Crude Carrier has been booked and is likely to ship crude oil to the U.S. West Coast from the Middle East, shipbrokers said without further details.
 
-By Jun Yang, Dow Jones Newswires; 65-6415-4064; jun.yang@dowjones.com 

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Financial Times
August 16, 2006

http://www.ft.com/cms/s/8bd2b182-2cc3-11db-9845-0000779e2340.html

US investor sues BP chiefs over Prudhoe Bay
By Rebecca Bream in London and Daniel Pimlott in New York
Published: August 16 2006 03:00 |
Last updated: August 16 2006 03:00

BP executives are facing a lawsuit in the US following the group's sudden shutdown of corroded oil pipelines in Alaska.

A US shareholder has filed a lawsuit in federal court in New York against Lord Browne, BP's chief executive, and all of the company's directors. The suit accuses BP management of harming the company by allowing the Prudhoe Bay oilfield in Alaska to run into problems.

"Despite their awareness of the dangerous effect of the corrosion in the pipeline, defendants repeatedly failed to fund the work necessary to correct the problem," the complaint says.

"BP now faces hundreds ofmillions of dollars in costs to remedy the damage, lost earnings, significant civil and criminal liability, regulatory scrutiny and action, and the wrath of customers nationwide."

Shareholders' lawsuits are common in the US and it is unclear how seriously this one will be taken by the courts.

The suit is filed by Stull, Stull & Brody, a leading New York litigation firm specialising in shareholders' complaints which has recently filed suits on behalf of shareholders in Rambus, Mattel and Novellus, all companies caught up in the stock options back-dating scandal.

In the case against BP, the complaint is made in the name of a shareholder called Sue Pincus. BP said last night that it was aware of the reports of the lawsuit but would not comment further. It is understood that Lord Browne and other executives had not yet been served with the lawsuit last night.

The Prudhoe Bay field was the site of a serious oil spill in March and, earlier this month, BP was forced to shut down production after admitting that serious corrosion had been found during an inspection.

BP said last week that it would continue to pump crude oil from the western half of the field while it replaces the pipeline.

The group has estimated that repair and replacement costs at Prudhoe Bay could reach $200m. The problems at Prudhoe Bay are the latest blow for BP in the US. Earlier this year, it was accused of price-fixing in the propane market, and last year 15 BP workers were killed in an explosion at the group's Texas City oil refinery. BP, which gets 40 per cent of its sales from the US, has pledged to raise spending on safety and maintenance.

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http://www.adn.com/money/industries/oil/prudhoe/story/8082465p-7974264c.html

BP 'chronic neglect' to be probed by congress
CONGRESS: A hearing has been called regarding the shutdown.
By LISA ZAGAROLI
McClatchy Newspapers
Published: August 15, 2006
Last Modified: August 15, 2006 at 01:04 PM

WASHINGTON -- A congressional committee that oversees pipeline safety has scheduled a Sept. 7 hearing on last week's partial Prudhoe Bay oil field shutdown, and the chairman vowed to examine deeply the company's "chronic neglect."

Rep. Joe Barton, R-Texas, wrote in a Friday letter to BP's London-based chief executive, John Browne, that the firm for months had repeatedly assured the committee that a pipeline breach and a large tundra spill in early March were just an anomaly. The discovery of extensive corrosion that led to the shutdown "contradicts everything the committee has been told," Barton wrote.

"The consequent disruptions to energy production and delivery and resultant adverse impacts on American consumers and the American economy are not excusable, particularly in light of substantial evidence that BP's chronic neglect directly contributed to the shutdown," Barton wrote.

Barton, the chairman of the House Energy and Commerce Committee, joins a growing chorus of BP critics including Rep. John Dingell of Michigan, the committee's ranking Democrat, who has been pushing federal pipeline regulators all year to crack down on BP.

Barton said the hearing would cover why BP hadn't operated and maintained its facilities "up to U.S. industrial standards" and why it waited until the federal Department of Transportation issued a corrective action order before inspecting corroded pipes after the March spill, which left an estimated 201,000 gallons of oil on the tundra.

In addition, Barton said lawmakers would question BP on whether it had a "market strategy component" to shutting down the field this month, an apparent reference to allegations of price manipulation practices in the propane gas market.

A BP spokesman Monday denied any suggestions of price manipulation.

"The field was shut down because we had unexpectedly severe corrosion that we couldn't explain and that caused us to question the condition of transit lines," said Tom Mueller, a company spokesman in Anchorage. "It was the only decision we could take."

Mueller said the company was working hard to keep Congress informed.

"The congressman (Barton) has questions, and we will cooperate fully in answering whatever questions he and (other) committee members may have," he said.

It was unclear Monday whether the Alaska lawmakers with jurisdiction over the issue would hold congressional hearings.

Rep. Don Young, R-Alaska, chairman of the House Transportation and Infrastructure Committee, which shares oversight of federal pipelines with Barton's committee, has been traveling in remote areas of the state and was difficult to reach, spokeswoman Meredith Kenny said.

Sen. Ted Stevens, R-Alaska and chairman of the Senate Commerce, Science and Transportation Committee, was in China last week and difficult to reach in Alaska this week as well, spokeswoman Lindsay Hayes said. Stevens planned to hold a news conference Thursday in Anchorage to discuss the issue.

Lawmakers need to get more precise about how pipelines should be maintained as they plan hearings, a pipeline safety watchdog said Monday.

"There's a lot of arbitrariness and gray areas in the regulations right now," said Carl Weimer, executive director of the Pipeline Safety Trust, an independent group set up after a 1999 disaster killed three children in Bellingham, Wash.

Weimer said that until BP's Prudhoe shutdown, Congress seemed content to go along with what the U.S. Pipeline and Hazardous Materials Safety Administration, an agency within the DOT, was drafting in collaboration with the oil industry.

Now, he said, Congress will be "taking a much firmer look" at whether it wants specific provisions from the agency.

Congress this year has been writing legislation to reauthorize the 2002 pipeline safety act, and Dingell said he wants the reauthorization to explicitly cover low-pressure lines such as the transit lines that have created the problems within the Prudhoe field.

Federal regulators have been working for nearly two years to develop rules for such unregulated lines.

The proposal, which would be subject to public comment and further regulatory review, is likely to be published in the next several weeks.

Thomas Barrett, head of the pipeline safety administration, has said the new regulation would consider corrosion control, damage-prevention programs, operator qualifications, integrity assessments and management.

Weimer said the BP incident underscored the need for better definitions of what should be covered under the law. For example, he said, standards need to be defined better for internal as well as external corrosion. And he said much of inspectors' time is wasted arguing over whether certain lines even fall within regulation.

Another pipeline watchdog, Lois Epstein, senior engineer at Cook Inletkeeper in Anchorage, said that in addition to removing the exemption for low-pressure pipelines, she wants to end the exemption for lines that aren't in a commercially navigable waterway.

"I don't think it can pass the laugh test that pipelines not be regulated for corrosion prevention," Epstein said.

Arjun Makhijani, president of the Institute for Energy and Environmental Research, a nonprofit think tank that does technical studies, said the DOT needs to put pipeline inspectors in the field instead of letting the oil industry police itself without oversight.

"That doesn't work in the absence of some kind of hands-on audit and, in the case of bad problems, big fines and accountability," he said.

Prudhoe Bay is the nation's largest oil field, normally producing an average of 400,000 barrels of crude per day. BP said last week that pipes in the western half of the field were closely checked and deemed safe to operate, meaning Prudhoe will produce at about half capacity until corroded pipes are replaced or somehow bypassed.

BP owns about 26 percent of Prudhoe and runs the field on behalf of itself and other owners including Exxon Mobil and Conoco Phillips, each with a 36 percent stake.

Ely Portillo of the McClatchy Newspapers Washington bureau contributed to this story.

Legislative hearing

• WHAT: A joint meeting of the state Senate and House resources committees to consider the Prudhoe Bay pipeline corrosion crisis.

• WHEN: 9 a.m. Friday.

• WHERE: Room 220 of the Anchorage Legislative Information Office, 716 W. 4th Ave.

• TESTIMONY: The meeting is open to the public, but testimony is by invitation only. Committee members expect to receive presentations from BP, the company that operates the vast Prudhoe Bay oil field; state Natural Resources Commissioner Mike Menge; and representatives from the Alaska Oil and Gas Conservation Commission, the Department of Environmental Conservation, the Department of Revenue and the state attorney general's office.

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Wall Street Journal
August 15, 2006

BP Considers Alternative Routes
For Moving Oil From Prudhoe Bay
By JOHN M. BIERS
August 15, 2006; Page A14

PRUDHOE BAY, Alaska -- BP PLC officials are considering alternative pipeline routes from the closed portion of the giant oil field here, a move that might allow production to resume by October.

The eastern portion of the field -- closed last week after the London-based energy giant found corrosion in transit pipelines and a small leak -- accounts for about half of the field's production, which totals 400,000 barrels a day. BP said late last week that it would keep pumping from the western half of the field, which helped push oil prices lower on commodity markets yesterday. Crude for September delivery fell 82 cents, or 1.1%, to $73.53 a barrel on the New York Mercantile Exchange. (See related article on page C4.)

Reopening the eastern half of the field sooner than the January 2007 date projected by some observers would further reassure markets, especially on the U.S. West Coast, which depends heavily on Alaskan oil. While the field satisfies less than 2% of U.S. crude-oil demand, that margin has become more important amid growing world demand for petroleum-based fuels like gasoline and supply constraints elsewhere in the world.

BP, which operates the field on behalf of a consortium that includes Exxon Mobil Corp. and ConocoPhillips, could boost output from the eastern half of the hobbled field by tying some of the eastern Prudhoe production into the nearby Endicott pipeline, which it operates. Though built for 110,000 barrels a day, Endicott is currently flowing at just about 20,000 barrels because of field decline, said Craig Wiggs, a field manager for BP Alaska.

Routing into Endicott would require some modest modifications to infrastructure, as well as approval from state and federal regulators, Mr. Wiggs said. But if that works out, Endicott could lift Prudhoe's production to more than 300,000 barrels a day. "You're going to be well into October before I could see the construction completed" to allow the Endicott alternative, he said.

BP recently has had some failures in identifying gaps in its pipeline before they cause oil spills. In March, the company suffered the biggest spill in nearly 30 years of North Slope oil production when 200,000 gallons of oil coated the arctic tundra. Last week's discovery of a far smaller spill, along with numerous weak points in the eastern Prudhoe gathering lines, prompted the decision to shut the field.

"We clearly missed something," said Kemp Copeland, BP Prudhoe field manager, on a tour of the spill site. "It's personally disappointing that we missed something."

Mr. Copeland oversees a work force of 4,000 who toil on 300 square miles of arctic tundra. His operation will be under a microscope for the foreseeable future as federal and state officials monitor conditions at the field.

The company described extraordinary measures in its announcement to keep open western Prudhoe, including 24-hour visual and infrared surveillance of a key five-mile stretch of pipeline. In keeping with orders from federal regulators, BP's pipeline-maintenance program will by November include using "smart pigs" to test the lines -- an invasive testing process that monitors corrosion.

BP shut down the eastern field last week after a run by a smart pig, a droid usually shaped as a cylinder, which when pushed through a pipeline can detect abnormalities.

Write to John M. Biers at john.biers@dowjones.com

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Financial Times
August 15, 2006

http://www.ft.com/cms/s/8f91b990-2bfa-11db-a7e1-0000779e2340.html

The dramatic knock-on effects of BP's
Prudhoe shutdown
Published: August 15 2006 03:00 |
Last updated: August 15 2006 03:00

When BP announced a shutdown of production at Prudhoe Bay oilfield in Alaska, the impact was not just felt in the oil market.

Shipping freight costs have since rose sharply, extending a dramatic surge from lows touched this year.

The loss of output from the largest oilfield in North America forced BP to look for additional vessels to keep deliveries flowing to refiners on the US west coast.

"The shutdown of a significant part of US crude production reinvigorated confidence and rates have shot up for all destinations as a result," says Ole-Rikard Hammer, analyst at PF Bassoe, the Norwegian shipping broker.

The Baltic Freight Dirty Tanker index, which measures the costs of hiring ships able to transport crude, rose 10.2 per cent last week, and is 42.8 per cent higher than last year. The index is up by an even sharper 51 per cent from April lows.

Shipping brokers reported last week that BP was enquiring about the availability of a wide range of ships from the Middle East, the Gulf, West Africa, the Mediterranean and the Caribbean.

Clarksons reported a 33 per cent surge last week in the average earnings of Very Large Crude Carriers to $93,229 a day compared with the previous week. Rates for VLCCs sailing between the Gulf and the US Gulf of Mexico soared by 44 per cent to $74,483 a day.

Analysts say it would require 12 VLCCs to transport crude from the Gulf or West Africa to fully meet Prudhoe Bay's 400,000 barrels of daily production over a 60-day period. That is a significant increase in a market served by 400 to 450 comparable vessels worldwide.

BP said during the weekend it is producing about 150,000b/d and will bring that up to 200,000b/d after completing maintenance planned before the recent leak. That is about half Prudhoe's total output. But conditions remain tight.

The strength spilled over last week into the Suezmax market (the largest vessels that can negotiate the Suez canal - typically 150,000 tonnes). Clarksons reported that earnings for a Suezmax vessel built in the 1990s rose by 27 per cent last week to $61,012 a day as charters rushed for cover. Earnings for a Suezmax sailing between West Africa and the US Atlantic coast jumped by 41 per cent to $61,665 a day.

Mr Hammer says the shipping market was enjoying an unusually strong summer run even before the Prudhoe Bay news.

"From a shipping perspective, growth in oil demand has proved much stronger than expected, and we have also seen the increase in fleet capacity take a breather this year, with few VLCCs coming to market in 2006," he says.

China's oil demand growth has risen by an estimated 8 per cent to 10 per cent this year, significantly above the level for last year. Demand growth for refined products appears to be accelerating, with an increase of 11.2 per cent year-on-year in the second quarter from 6 per cent in the first quarter.

In the US, refineries also have been hit by a spate of production problems, leading to higher US imports of refined products. This has pushed up rates for clean tankers as a result.

Clarksons reported a 7 per cent increase in clean tanker average daily earnings last week to $31,595. The Baltic Freight clean tanker index has been rising since April and is currently 45 per cent higher than last year and 68 per cent above March lows.

Chinese steel mills have been delaying imports of iron ore from Brazil due to the surge in freight rates.

Taiwan Maritime Transport also has chartered and put aside several big dry bulk carriers while taking out long positions in the growing market for freight derivatives, known as Freight Forward Agreements.

"The fourth quarter is typically a very active and strong period in the tanker market," says John Wright, senior wet freight broker at AMC/GFI Group.

"The FFA forward curve for the fourth quarter generally trades at a premium to the rest of the year. However, the knock-on effect of Prudhoe across all classes of vessels has tightened the availability of ships and is driving up chartering rates."

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Fortune Magazine
August 15, 2006

http://money.cnn.com/2006/08/11/magazines/fortune/pluggedin_murphy.fortune/index.htm

Beyond Prudhoe: Why BP should go back to being an oil company
Forget the good guy image. BP's recent history of mismanagement tells us it needs to focus on running its oil business.
By Cait Murphy, Fortune assistant managing editor
August 15 2006: 5:46 AM EDT


(Fortune) -- Since 2000, BP has sought to brand itself as the nice guy of Big Oil, touting its investments in renewable energies and commitment to the environment, complete with a cute little sunflower-ish logo. However improbable or even absurd it was for the world's second-largest oil company to adopt "Beyond Petroleum" as a slogan (Fortune cast a skeptical eye at the effort in 2002) to a large extent, the strategy worked. Last year alone, BP was named the Financial Times "most respected energy company" and Fortune's "most admired company in Britain." Business Week ranked it the second-greenest company of the decade (after du Pont). "They have nailed their colors very firmly to the environmental mast," Patrick Barrow, managing director of the Public Relations Consultants Association, told Fortune last year. Those colors are fading fast.

Last week, the company was forced to shut down its largest U.S. oil field, in Prudhoe Bay, Alaska, because of corroded pipelines. That was bad enough, but then it turned out that BP had been warned back in 2004 of potential problems. Worse, some of the pipelines had not been cleaned since before Bill Clinton was president. One effort to do so was abandoned because there was too much sediment; in other words, the company failed to clean it because it was too dirty.

The Prudhoe Bay fiasco comes on the heels of a long string of miscues and blunders. Consider:

* The Thunder Horse platform, damaged in last year's hurricanes, will not be reopened until 2007 at the earliest, much later than originally forecast.

* In June, the federal government charged Houston-based BP traders of manipulating the price of propane in the Midwest and northeast in 2004.

* In April, BP was fined by the Department of Labor for unsafe operations in an Ohio refinery.

* In March, corrosion in a Prudhoe Bay pipeline caused a leak of more than 200,000 gallons of crude.

* Worst of all was Texas City, the site of one of the country?s largest refineries. A fire in March 2005 killed 15 workers and injured 170 more. In its investigation, federal regulators called the tragedy "completely preventable" and questioned BP's entire safety culture.

The Department of Labor found more than 300 safety violations, and the Department of Justice is looking into the possibility of criminal charges. BP conceded in its own report that Texas City was a disaster waiting to happen: "Over the years, the working environment had eroded to one characterized by resistance to change, and lacking of trust, motivation, and a sense of purpose."

This list could go on, but the point is clear: This is not the stuff of which most admired companies are made. And no, these problems cannot be shrugged off as the kind of isolated incidents that are bound to crop up in a $255 billion global company. The U.S. accounts for more than a third of BP's assets and staff; it is not a marginal market, nor an unsophisticated one. And yet in the last 18 months, BP has suffered serious breakdowns in exploration, refining and pipelines - the heart of what it does.

It's too soon to know what has been going wrong and why, but it's worth pointing out that when it comes to corporate social responsibility, the first duty of any oil company is to run its oil operations to a high standard. And in this BP has fallen far short of the mark in the U.S. The costs are high; billions in improvements and claims at Texas City, for a start, and more than a $1 million a day in lost profits from Prudhoe Bay. There may also be consequences when it comes to future project approvals. BP's good-guy image has to be tarnished.

As a slogan, Beyond Petroleum was always beyond precious. Instead of trying to be the non-oil oil major, BP would be better served by trading in the sunflower ethos for a steely-eyed rigor in running its core business. Because in the end, the best thing it can do for the environment is to be a good oil company, not to pretend it is something else. "Our commitment to responsibility has to be expressed not in words, but in the actions of the business, day-in and day-out, in every piece of activity and every aspect of behavior," CEO John Browne (the world's sixth most-admired CEO, according to the Economist Intelligence Unit) told the London Business School last year.

That is exactly right - and exactly what BP has been getting wrong.

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CNN Money
August 14, 2006

http://money.cnn.com/2006/08/14/news/economy/bp_fix/index.htm?postversion=2006081417

BP's hard road ahead
The company's got to do a lot of work to fix its corroding Alaska pipes, and a lot of explaining as to how it happened.
By Steve Hargreaves, CNNMoney.com staff writer
August 14 2006: 5:50 PM EDT

NEW YORK (CNNMoney.com) -- BP estimates it will cost $100 million to replace the 16 miles of corroding pipeline at its giant oilfield in Prudhoe Bay, Alaska.
As if that weren't enough, the company must also face tough questions about why the $200 million a year it says it spent in maintenance wasn't enough to keep the 400,000 barrel per day field, the country's largest, running smoothly.

BP now faces the task of explaining what went wrong and just when it knew of the problem, and it must complete the difficult job of bringing the field back to full capacity.

The maintenance failure led BP to shut down most production after pipeline walls were found to have corroded by as much as 80 percent.

Originally the company said all 400,000 barrels per day would be offline for months. But last Friday, after inspecting the pipes, BP said half the field will remain open, at least for now.

The cost of the project is staggering. That $100 million dollars to replace 16 miles of pipe works out to more than $6 million a mile, far higher than the average pipeline construction costs that Raymond Paul, a spokesman for Association of Oil Pipelines, estimated at around $1 million a mile.

But, of course, building pipelines in the Arctic presents particular challenges.

The first is getting the stuff there.

BP says it has placed orders for all 16 miles of pipe. But the materials are being made at mills in the lower 48 states. From the mills they must be transported via truck to Seattle before being loaded on a barge for the trip to Anchorage.

In Anchorage the pipes, measuring up to 34 inches in diameter, will be put on rail cars up to Fairbanks, then transferred back to trucks for the final leg to Prudhoe Bay, which sits on Alaska's North Slope on the edge of the Arctic Ocean. More than 50 tractor trailers are expected to take part.

"You gotta work with the trucking companies, the rail companies, the barge companies, and that's just to get it to the North Slope," said Neil Chapman, a BP spokesman.

Then the real work begins.

The pipes aren't expected to arrive in Alaska until as late as December, which is of course the dead of winter. Not to mention, it's a time when the state is in near total darkness.

But the frozen ground is better for construction. The heavy equipment doesn't get stuck in the soft tundra.

Finding workers for the project will also be hard.

"There's not a welder free north of the 49th parallel," said Barbara Shook, a senior analyst with Energy Intelligence Group, referring to the border between the continental U.S. and Canada They are all busy working on Canada's massive tar sands project in Alberta. "This is going to be a huge challenge."

Pigless in Alaska?
But why did all this happen in the first place? And why did BP take so long - and have to take such drastic measures - to fix the problem?

The company will, after all, lose an awful lot of revenue on the 200,000 barrels per day that is shut in.

BP's take on those 200,000 barrels is only about 50,000 barrels. The rest is split between the field's other owners, ExxonMobil (Charts) and ConocoPhillips (Charts), or must be used to pay the Alaska tax. But at $70 a barrel, 50,000 barrels still translates into $3.5 million a day.

BP now says the corrosion is believed to have been caused by microbacteria that became trapped under sludge in the bottom on the pipes.

Chapman said it wasn't a mater of money but a problem with BP's overall strategy of relying on chemicals to protect against corrosion. The chemicals couldn't kill the bacteria that were buried under the sludge.

"What we thought was a good program wasn't good enough," said Chapman.

But several questions have been raised as to why the company hadn't cleaned some of its lines for up to a 14-year period until recently.

Government regulators suspected sludge buildup was a possible cause of the corrosion and said BP hadn't cleaned some of the lines since 1992, according to a June 5 letter from the Department of Transportation, which regulates pipelines.

The agency said the 800-mile-long Trans-Alaska pipeline, which carries oil from the North Slope to its terminus at the sea in Valdez, is cleaned every two weeks.

The DOT noted that BP hadn't cleaned the lines, which is done using a device called a scraper pig, after a previous attempt to clean them was abandoned when the pig encountered too much sediment and almost became stuck.

But the letter went on to say that the DOT had "not received a reasonable explanation why BP has not scraper-pigged these lines over an approximate 14-year period," and that "this length of time does not represent sound management practices for internal corrosion control."

BP has not responded to questions regarding the "scraper pig" issue.

BP's bigger problems

The company has consistently defended its maintenance program at Prudhoe Bay and elsewhere, saying it put the safety of its workers first and noting its maintenance budget in the North Slope is $200 million a year, an 80 percent increase since 2001. And BP officials have made explicit apologies since the news broke Monday.

But It's difficult to tell much from that $200 million figure, as it includes maintenance for the entire facility - well heads, pumping stations, landing strips - and not just the pipelines.

And BP, like other oil companies, doesn't break down its maintenance budget in its annual report.

The company, which made a profit of $22 billion in 2005, has recently suffered a string of mishaps.

A 5,000-barrel leak from pipes in the Prudhoe Bay field is what prompted the DOT to order the inspection that resulted in the most recent shutdown.

BP's massive Thunderhorse platform in the Gulf of Mexico has been plagued with problems, pushing its start-up until 2007, a delay of more than two years.

And then there was the Texas City refinery explosion last year that killed 15 workers and injured 170.

All of these have caused some to question BP's overall commitment to maintenance and safety.

"You don't have Exxon and Conoco facilities blowing up," said Shook of the Energy Intelligence Group.

On the $200 million spent per year in Prudhoe Bay, no matter how it breaks down, much thinking went along the lines expressed by Brian Hicks, co-manager of the Global Resources Fund at U.S. Global Investors.


"Clearly," said Hicks, "it wasn't enough."

 

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Cox News Service
August 14, 2006

http://www.oxfordpress.com/business/content/shared/news/stories/OIL_BP13_COX_A9672.html


BP pipeline shutdown blamed on poor maintenance, little oversight
By BOB KEEFE
Cox News Service

BP is one of the world's biggest and most advanced oil companies. Like other oil industry giants, last year it made record profits, thanks to record-high prices it charged consumers and refiners for its gas and oil.

So how could a giant conglomerate that's got plenty of cash have most of its Alaska oil business effectively shut down by something as seemingly simple as corroded pipes?

The full answer may become clearer in coming weeks as Congress and regulators take turns grilling the company about how its pipes got so worn out that it forced the Aug. 6 shutdown of much of the Prudhoe Bay oil field that supplies about 8 percent of the nation's oil.

But experts say the simple answer is this: BP did a poor job of pipeline maintenance, used the least-thorough pipeline inspection procedures and had little government oversight.

BP also is accused of largely ignoring - or at least not properly addressing - warnings about its rotting pipes from critics and even its own employees.

Two years ago, a retired oil man-turned-industry watchdog wrote a letter warning BP director Walter Massey - who also is president of Morehouse College in Atlanta - of serious corrosion problems in the very pipeline that was shut down last week.

Watchdog Charles Hamel said he was writing on behalf of BP employees who had told him they had firsthand knowledge of widespread corrosion problems at Prudhoe Bay. But Massey and BP apparently did little to address them.

"He didn't do right," Hamel said in a telephone interview Thursday (Aug. 10), referring to Massey. If he had, Hamel suggested, the corrosion problems would have been fixed before BP had to shut down its pipeline.

Massey did not respond to a reporter's phone calls and e-mail last week. An assistant at his office in Atlanta said he was referring calls to BP.

There, spokesman Neil Chapman said that BP reviewed the concerns that were brought to Massey's attention back in 2004, but found that they lacked specifics that could be addressed.

Like other BP officials, however, Chapman acknowledged that the company now realizes it made some major mistakes when it came to maintenance and corrosion control.

"There was a gap in our program," he said. "Obviously we're disappointed in that, and sorry."

HISTORY OF PROBLEMS

BP has known for a long time that its Prudhoe Bay pipelines, which began operating in the late 1970s, were in bad shape.

In 1992, when BP's predecessor tried to clean out the pipelines, it flushed out so much residue and sludge that it clogged the strainers going to the massive Trans Alaska Pipeline System. That could have caused a major disaster.

So what did pipeline operators do?

They apparently quit cleaning the lines.

Typically, oil pipelines are cleaned using "pigs," torpedo-like tools that are forced down the pipeline, cleaning and scrubbing it along the way. Afterwards, "smart pigs" - similarly-shaped but much more advanced devices that test for corrosion, harmful chemicals or other problems - are usually forced down the line.

Federal regulations require operators of high-pressure pipelines to regularly "pig" their lines. But low-pressure pipelines, like the ones BP operates in Prudhoe Bay, aren't subject to the same rules.

Last week, BP officials acknowledged that the company's Prudhoe Bay pipelines haven't been "pigged" since 1992.

Instead, BP used less expensive - and less thorough - inspection methods like ultrasounds and "couponing," in which strips of metal are inserted into the pipeline at various points and removed a few months later and examined for signs of corrosion. To address its corrosion problems, BP used corrosion-inhibiting chemicals. But apparently those weren't enough.

In a conference call with Wall Street analysts last week, BP officials said they suspected the source of the corrosion problems was microorganisms that were able to survive in the mix of sludge and remnants of water at the bottom of the pipeline.

Because the sludge and gunk was so thick in the dirty pipelines, BP officials suspect, the microbes were shielded from the corrosion-inhibiting chemicals that might have otherwise killed them.

Either way, "the issue is whether or not there was adequate or even regular maintenance," said Art Smith, CEO of John S. Herold Inc., an energy industry research and consulting firm.

"I would tend to say somebody in the BP organization ... did not go to the extent of maintenance and supervision that they should have," he said.

BP's corrosion problems caught up to it five months ago.

In March, a corroded portion of pipe at Prudhoe Bay sprung a leak, spilling more than 200,000 gallons of oil onto the tundra.

Two weeks later, the federal Pipeline and Hazardous Materials Safety Administration ordered BP to clean and "smart pig" its lines, and otherwise make a thorough inspection of them.

It was during that inspection that BP workers found spots where the corrosion was so bad that nearly 80 percent of the pipe was gone and oil was beginning to leak into the insulation around it.

If they didn't shut down the majority of the lines quickly, BP officials knew, they faced another leak that could have been much worse than the one in March.

OTHER PIPES IN DANGER?

Corrosion is a big problem not just for BP, but for every oil pipeline operator.

Since 1986, the vast majority of failures in pipelines have been caused by corrosion, according to federal estimates. Nothing else - not natural disasters, not excavation damage, not bad welding - even comes close.

The culprit is water, according to Srdjan Nesic, who studies such things as director of Ohio University's Institute for Corrosion and Multiphase Flow Technology.

When oil is pumped out of the ground, it usually comes with water, Nesic explained. Drillers try to separate as much water from the oil as they can before sending it down steel pipelines, but it can be next to impossible to get rid of it all.

As a result, corrosion "is something that's inevitable ... although you can probably do much better than" BP did in Prudhoe Bay, said Nesic, whose institute gets most of its funding from a group of 15 oil and gas companies, including BP. "You can't stop it, but you can slow it down."

Nesic said steel oil pipelines are typically built to last at least 50 years. After that, corrosion doesn't really matter because an oil field would typically be tapped out or a new pipeline would be installed.

But if BP's pipes lasted less than 30 years, what's to keep all the other pipelines built in the 1970s along with the development of the Trans-Alaska Pipeline System from facing similar problems?

"Nothing," said Nesic. "This is a problem that's very widespread. It's something companies are finding on a daily basis, left and right."

The difference is that other companies are addressing corrosion problems differently than BP did in Prudhoe Bay.

For one thing, many of the pipelines in Alaska are high-pressure systems that are required to be regularly "pigged," and therefore shouldn't face the same sorts of problems as the BP pipes.

Many pipelines also are smaller and less indispensable than BP's pipelines in Prudhoe Bay, the nation's biggest oil field, which means they can be more easily maintained.

"I just don't have the sense that this (BP's Prudhoe Bay problem) is really reflective of the broader situation, based on the data and the overall spill records," said Raymond Paul, spokesman for the Association of Oil Pipe Lines, a trade group. BP is not a member of the group.

Regulators are taking steps to improve pipeline maintenance and stave off future problems like BP's.

In reaction to BP's March spill, the Pipeline and Hazardous Materials Safety Administration is in the middle of drafting new rules that would require operators of low-pressure lines to "pig" and clean their lines just like operators of high-pressure lines.

Last Thursday (Aug. 10) it also revised its earlier "corrective action order" to BP, stipulating it can keep the Western half of its Prudhoe Bay operation running at least for now, but requiring that it fix the corroded pipes in the Eastern half and conduct thorough inspections of all the pipes.

Congress is getting involved too. Last week, (Aug. 10) House Energy and Commerce Committee Chairman Joe Barton, R-Texas, scheduled a Sept. 7 hearing to focus on BP's shutdown and pipeline corrosion control problems.

In a letter Friday to Sir John Browne, BP's chief executive in London, Barton noted that the company had previously assured his committee that its inspection methods were adequate. "The fact that BP's consistent assurances were not well grounded is troubling and requires further examination," Barton wrote.

Other lawmakers are urging the pipeline safety administration to thoroughly investigate pipeline corrosion issues. New Mexico's senator, Republican Pete Domenici and Democrat Jeff Bingaman, specifically called on the agency to launch a full investigation into why BP didn't use "smart pigs" at its Prudhoe operations.

For its part, BP is promising changes and has said it will keep portions of its Prudhoe Bay pipeline shut down until problems are fixed the right way.

Company officials say they've already placed orders for enough steel pipe to replace at least 16 miles of corroded pipe, although it might not arrive in Alaska until November.

Whenever it does fix the broken pipelines, it plans to start "smart pigging" them regularly and also implement other maintenance improvements.

"Going forward, we will ensure that these pipelines are fully pigged to remove all solids, which will allow the chemicals to get to the entire surface of the pipeline, kill the bacteria and this problem should go away, as it has gone away in all our other pipelines," Bill Hedges, BP's corrosion strategy and planning manager told analysts on a conference call.

Chapman, the BP spokesman, said the company is also looking at other ways to overhaul its pipeline maintenance program.

"We're looking at new techniques, new technologies - we're looking at everything," he said.

Bob Keefe is a west coast correspondent for Cox Newspapers.

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Associated Press
August 14, 2006

http://www.adn.com/news/alaska/ap_alaska/story/8079387p-7972277c.html

Oil will be removed from BP transit line starting Thursday
The Associated Press
Published: August 14, 2006
Last Modified: August 14, 2006 at 05:42 PM

ANCHORAGE, Alaska (AP) - Oil trapped inside a transit line where leaks led to the partial shutdown of the nation's largest oil field will be removed starting Thursday.

It's not known how much oil is trapped inside the Prudhoe Bay transit line, officials with both BP PLC and the Alaska Department of Environmental Conservation said Monday.

The state said a complete line survey would be conducted after the pipe is emptied, a process expected to take several days.

An inspection of the line Aug. 6 found leaks and corrosion in 16 parts of the line. That prompted BP to begin shutting down the oil field over fears of severe pipeline corrosion.

BP decided Friday to continue supplying oil out of one side of the field after reviewing hundreds of ultrasound inspections on five miles of the pipeline, and discussing the matter with federal and state regulators. The company also will replace 16 miles of pipeline.

As of Monday, 150,000 barrels of crude and natural gas were flowing from the western side of the field. BP spokesman Daren Beaudo said there is no timetable in place, but the company intends to ramp production up to about 200,000 barrels or half of normal production.

The state said 23 barrels of oil spilled on the tundra, and 176 barrels of oil were captured by tanks placed under the leaks. Ed Meggert, the state's on-scene coordinator, said most of the spilled oil has been collected, and the state will burn off what oil has collected on tundra grasses.

Fifteen sleeves have been placed over the pipe to cover the leaks, and the remaining sleeve must be fabricated for a leak near a junction. That must be completed before oil is taken out of the pipe.

BP is considering a number of options, including routing oil through bypass lines, for the eastern field, but no timetable has been set, Beaudo said. Any decision will be made with the approval of state and federal regulators.

"We're proceeding as expeditiously as we can," he said. "We'll put options into place as soon as we can safely do so."

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USA Today
August 14, 2006

http://www.usatoday.com/money/industries/energy/2006-08-14-bp-cover-usat_x.htm

BP spill highlights aging oil field's increasing problems
By Chris Woodyard, Paul Davidson and Brad Heath,
USA TODAY

DEADHORSE, Alaska  At a smelly site just off a gravel road, workers in oil-drenched coveralls tote vacuum hoses and thick towels across a patch of blackened tundra. A lone caribou grazes in the distance.

This cold, desolate expanse is where more than 735 gallons of crude spewed from a corroded pipeline earlier this month. As the oil migrated over a soggy half-acre, so, too, have troubles for operator BP (BP).

The petroleum giant has cut in half the field's production of 400,000 barrels of oil a day after finding other weak spots in its lines, raising the specter of higher gasoline prices nationwide. At full production, the field supplies about 8% of total domestic output.

The latest spill, along with one in March of 267,000 gallons, calls into question BP's management and the problems that surround the decline of Prudhoe Bay, part of the Alaska North Slope that is America's most productive and environmentally sensitive oil land.

With the field producing past its projected life, Prudhoe Bay is showing its age. Snow and ice, along with bitter cold at the site 7 miles from the Arctic Ocean, allow water to seep underneath insulation and rust pipelines from the outside. Corrosion is attacking from within. Environmentalists and activists charge BP has failed to manage these issues. They say the company is unwilling to sink millions more into an oil field that is producing an average of 3.5% less every year.

"The North Slope corrosion problem is simply the latest example of a pattern of neglect and less-than-adequate maintenance through the years," says Richard Fineberg, a Fairbanks economic and environmental consultant and former oil analyst for the state.

BP denies cutting corners. The company is replacing 16 of 22 miles of pipeline. It announced Friday that it hopes to maintain half of Prudhoe Bay's production during repairs by pumping from the side of the field unaffected by the latest leak. Spending to quell corrosion has increased to an estimated $71 million this year, up 80% since 2001, the company says.

BP officials acknowledge that they should have found the leaks in the so-called transit lines, which gather oil from wells to feed into the main Trans-Alaska Pipeline for the 800-mile journey to Valdez.

"Clearly in hindsight, we would have been doing some things different with those old transit lines," says Kemp Copeland, BP's greater Prudhoe Bay field manager, during a bumpy bus ride with a company-hosted press entourage to the spill site Friday.

The problem stems from the oil field's advancing age, he says. Crude oozes through pipelines at a rate of 30 feet a minute now, a fraction of its speed in 1989 when the lines carried nearly four times as much. Lower flow rates allow sludge to build up on pipeline walls, trapping corrosion-causing contaminants.

The pipes are supposed to be swabbed clean of sludge by plastic cylinders called "maintenance pigs" that are run through the pipes.

The company acknowledges it had not cleaned the insides of lines in the eastern half of the field, where the latest spill occurred, since 1992. The western half was "pigged" in 1998. The cleaning efforts were suspended out of fears that too much sludge was being pushed into the Trans-Alaska Pipeline.

"If we had to do it over again, we would have been maintenance-pigging the lines," Copeland says.

Explanation sought

In a June letter to U.S. Rep. John Dingell, D-Mich., the Transportation Department said it has "not received a reasonable explanation" for why the lines had gone so long without cleaning, and that the delay "does not represent sound management practices."

The sludge buildup also prevented BP from sending a probe called a "smart pig" through the lines to detect spots where the metal was corroding.

Regulators ordered the tests after the March spill, then complained publicly that BP wasn't conducting them fast enough.

The company says it has increased its efforts to clean and inspect lines. The recent spill was discovered at the same time as a probe found 16 thin spots in pipeline walls, prompting the shutdown. Since then, BP workers have found five small holes in the transit line. In some places, as much as 80% of the pipe's interior wall was gone.

A federal grand jury in Anchorage is investigating the March spill. Justice Department and Environmental Protection Agency officials declined to comment on the case.

The pipelines are largely unregulated because they are low pressure and above ground. Neither Alaska nor the federal government required any specific steps to control or check for corrosion. Only recently has the Bush administration announced plans to regulate them.

Environmentalists say the state Department of Environmental Conservation has broad authority to monitor the lines under rules designed to prevent oil spills.

"The state has chosen not use their authority to enforce corrosion" prevention, says Alaska environmental lawyer Peter Van Tuyn. Regulators say the state isn't indifferent. "You don't get ahead economically, or in any way, by shortchanging the environment," says Lynda Giguere, a spokeswoman for the state Department of Environmental Conservation.

Oil taxes fund 86% of Alaska's budget, and when Prudhoe Bay shut down, the governor ordered a state hiring freeze.

Lax corrosion controls have taken their toll, environmentalists say. At least 100 spills of oil and other hazardous waste on the North Slope from 1996 to 2004 were corrosion-related, says Pamela Miller, a coordinator for the Northern Alaska Environmental Center.

In 2003, 6,000 gallons of oil and water leaked from an underground BP pipeline at a caribou crossing, prompting state and BP officials to promise to work together to determine whether corrosion problems were mounting.

The company's Alaska operation has had other environmental lapses. It has been cited by the EPA for eight violations since 2001, federal records show. All of the violations were reported to regulators by the company, and none appeared to be linked to its pipelines. In 1999, BP paid $6.5 million in civil penalties for illegally dumping hazardous waste at an oil field. And in 2005, BP was fined $1.3 million after an explosion and fire seriously injured a worker.

Past problems

Environmentalists say BP's record lays bare a company keenly aware of the corrosion problem. In 1999, as a condition for approving BP's merger with Arco, which previously operated part of the Prudhoe Bay field, state officials called for twice-yearly meetings with BP to review the company's corrosion monitoring.

That year, BP workers approached Chuck Hamel, a retired oil broker and advocate for oil workers, with concerns that, to hold down costs, the company was skimping on use of a corrosion-prevention chemical, Hamel says.

In a May 2004 letter to Walter Massey, chairman of the BP board's environmental committee, Hamel warned of "cost cutting, causing serious corrosion damage" to lines and worker fears of "a catastrophic event."

After company executives did not take action, Hamel says, he went to EPA officials. BP says it wants to investigate those allegations but Hamel hasn't provided specifics.

Indeed, BP still has a lot at stake in the Alaskan tundra. The London-based oil giant, once known as British Petroleum, manages the Prudhoe Bay field and owns 26%. Two partners, ConocoPhillips and ExxonMobil, have 36% each. A host of others own the remaining 2%.

The spills are a black eye for a company that touts its nature-friendly focus. They could bolster environmental groups' case against drilling in the Arctic National Wildlife Refuge, about 100 miles east of Prudhoe Bay. BP is also angling to build a $20 billion pipeline that could carry natural gas from Prudhoe Bay to the upper Midwest.

Miller says the latest spill should be a "nail in the coffin" for plans to drill in the refuge. "They smashed the pickup, and they're looking for the keys to the Mercedes," she says.

For now, Alaska's North Slope is all about oil  or what's left of it. Only about a quarter of the liquid pulled out of the ground is oil nowadays. The rest is water.

"We're actually a water field that produces oil," quips Gary Crawford, corrosion detection team leader for BP in Prudhoe Bay. "Back in the '80s, they didn't have any water, so you didn't have to worry about corrosion."

Prudhoe Bay's pipeline problems are another sign that its best days are behind it. It was never expected to last this long. When production began in 1977, the oil was expected to give out after 25 years, Crawford says. Its economic life has been prolonged by technology advances, such as computer-controlled drill bits that make it possible to reach pockets of oil that were unfeasible to suck up before. Soaring oil prices make even low-quality or marginal wells profitable. "We'll be producing there for the next 50 years," predicts Craig Wiggs, who manages three BP production sites on the North Slope.

Prudhoe Bay's productive life is pegged to increasing workloads. "It's like your car," Wiggs says. "If you do regular maintenance, it will last forever. Pipelines are the same way. But you have to be on top of your game. You have the elements fighting you."

Life at Prudhoe Bay

Perhaps it's fitting that the whole Prudhoe Bay complex, about a third the size of Rhode Island, feels as if it's stuck in a 1970s time warp.

Boeing 737s fly workers in daily to Deadhorse, basically a glorified work camp. Even the Prudhoe Bay Hotel looks like a double stack of trailers.

Inside BP's gates, the base camp has all the charm of a truck stop. About 3,000 workers labor for 12-hour shifts for two or three weeks. Signs direct workers to the cafeteria or a recreation hall with pool tables and foosball. Fox News drones on overhead TV sets.

Friday, the temperature hung at 38 degrees  30 degrees when the wind chill is factored in. At 50 degrees below zero in winter, crews work only 20 minutes at a time. At 80 below, they don't go outside.

Besides cold, workers must contend with strict rules. No liquor. Required seat belts on buses. No wandering onto the tundra, home to the area's abundant wildlife. Migrating herds of caribou can bring vehicles to a halt. Visitors are warned about bears and rabid Arctic foxes.

The attraction is good pay. BP workers can make $100,000 to $150,000 a year. For that money  and up to two weeks off a month  many have stayed on the job since the pipeline opened. More than 60% of BP's workers are 50 or older.

Contractors say they're compensated well, too. The pay was enough to lure Billy Bunch, 34, a married father of four, from a valve company in Bastrop, La.

"I came up here for $22 an hour," says Bunch, foreman of an crew removing pipe insulation for contractor Veco. Now, he flies home to Missoula, Mont.

He's one of more than 150 workers involved in looking for leaks or weak spots. More are coming.

Some are involved directly in the cleanup of this month's spill, which is expected to be finished in less than four weeks. The affected area has been cordoned off with orange plastic. Oil is sucked up into a truck.

Amanda Stark, the on-scene representative of the state Department of Environmental Conservation, says the final step will probably be to burn off the remaining oily tundra, above the permafrost. New grass will grow back next year. Copeland says BP is committed to the cleanup. And he says he hopes to speed up the oil through the pipes, reducing chances for corrosion, by replacing the questionable sections with smaller-diameter pipe. He says the cost will run into the millions, but cost isn't an issue.

Repairing the pipeline won't be half as hard as repairing BP's image. Officials are sanguine. Nothing, they say, is fundamentally wrong.

"Sometimes bad things happen to good companies," says Copeland, a 22-year BP veteran.

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Seattle Post Intelligencer
August 14, 2006

http://seattlepi.nwsource.com/business/281090_gasprices14.html

Blame BP for latest increase in gas prices
Prudhoe Bay closure pushes oil costs up
By RACHEL BECK
THE ASSOCIATED PRESS

NEW YORK -- Should you see rising costs next time you fill up your car with gas, send your thanks to BP, which just shut down half of one of its largest oil fields.

This mess didn't have to happen. BP, whose earnings topped $22 billion last year, has acknowledged slacking off on maintenance of feeder pipelines at the Prudhoe Bay field in Alaska that accounts for 8 percent of U.S. oil output.

That closure is already bumping up oil prices, which could mean higher costs at the gas pump. And as Americans' wallets get further pinched, don't expect the same for BP -- it's expected to walk away virtually unscathed.

"Drivers will pay through the nose for this very preventable emergency, while oil companies will boost their already record profits even further," said Judy Dugan, research director at the Foundation for Taxpayer and Consumer Rights, a consumer watchdog group.

BP began shutting down the nation's largest oil field Aug. 5 after an inspection detected heavy corrosion and a small leak in a critical pipeline in Prudhoe Bay. It plans to replace 16 miles of feeder pipelines in the coming months at the largest producing oil field in the United States.

That news pushed crude markets sharply higher, given that supplies were already tight. And many analysts expect gasoline prices to shoot higher in the final month of the peak summer driving season. Since the shutdown was announced, the national average for unleaded gas has hovered around $3.036 a gallon, though bigger increases are already being seen on the West Coast and diesel fuel prices are topping records in some markets. It is too early to tell where they go from there, but some of the most pessimistic talk has included predictions of $4-a-gallon gas in California.

A more conservative view from Tom Kloza, chief oil analyst with Oil Price Information Service in Wall, N.J., forecasts the national average price for regular unleaded gasoline will rise 5 cents or more, which could put it in reach of the record of $3.057, set after Hurricanes Katrina and Rita hit in September.

That could sting already strapped consumers, who are dealing with worries over huge debt burdens, a moderating housing market and a weak employment outlook. Should they crimp their spending much more, it could rock the overall economy, which derives two-thirds of its activity from consumer spending.

The irony here is that BP might not walk away as financially bruised, relatively speaking. Sure, this is a full-fledged public relations disaster for the company, but it may not be a wrecking ball to its bottom line.

Big gains in oil prices have offset lower output, and have helped profits surge to record levels. In the second quarter that ended June 30, BP's profits grew by 30 percent from a year earlier to $7.3 billion, with revenue topping $73 billion.

But those soaring profits have also opened BP up to much criticism over why it hasn't dedicated ample funds toward safety and maintenance -- yet has plunged about $36 billion into stock buybacks since 2000.

Last week's news comes on top of what many have chided the company for lately: an explosion last year at BP's Texas City, Texas, refinery that killed 15; a large oil spill at Prudhoe Bay earlier this year that has become part of a criminal investigation; and allegations of energy-market manipulation by BP traders this summer. BP has said it will fight that in court.

Last month, BP Chief Executive John Browne promised to add $1 billion to the $6 billion that had already been earmarked to be spent over the next four years to improve safety at its U.S. refineries and upgrading Alaskan pipelines. The company also created a new advisory board that will be responsible for monitoring BP's U.S. operations, with a particular focus on compliance, safety and regulatory affairs.

But even with all the money that BP has had to shell out to deal with its recent troubles, its profits have soared -- and that's something that probably won't change anytime soon.

While much rests on how long and to what extent the pipeline remains shut down, analysts on Wall Street don't seem too concerned about whether it will really hurt the company's business over the long term. Many analysts are still recommending investors buy the stock.

That shows that BP has -- and had -- the means to fix this situation. Too bad it didn't take some initiative to do so before it became everyone else's problem.

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Financial Times
August 14, 2006

http://www.ft.com/cms/s/c8f884c2-2b30-11db-b77c-0000779e2340.html

Pipeline leak proves 'extremely embarrassing' for industry
By Sheila McNulty
Published: August 14 2006 03:00 |
Last updated: August 14 2006 03:00

On the eastern side of BP's Alaskan oilfield, the air is thick with the smell of oil. It has leaked out of a corroded pipeline just yards from a lake, where Arctic swan swim. A caribou grazes nearby.

This is an environmentally sensitive area across Alaska's vast plains and the home to unique wildlife, including Arctic foxes and polar bears.

The animals will not come near, however, as since the leak was detected a week ago, BP has had workers in white, disposable, plastic suits out here attempting to contain the leak and clean it up.

Before BP was able to place an emergency clamp over the hole a few days ago, 15 barrels had leaked, most of it into lined, fold-a-tanks, used in emergencies such as this.

But five barrels hit the tundra, spreading more than 6,200 square feet. The men use rope mops, which the oil adheres to, as a tiny generator powers them to snake through the matted grass.

The mops are pulled back over an oil drum, where they are squeezed, like one would a towel, so that the oil drops into the drum. One man is pushing around a vacuum hose that is sucking oil into a nearby tank truck.

Fred McAdams, operations manager of Alaska Clean Seas, an oil spill clean-up co-operative in the North Slope region of Alaska, says the work by 12-man day crews and eight-man night crews will take several more weeks.

BP has placed an orange, inflatable buoy around the spill site and plans to flood the area to force a separation between the oil and water to make it easier to get the oil off the ground. Then the water will be sucked off and the grass burned.

All of this could have been avoided if BP had used the state-of-the-art, high technology pigging cleaning and corrosion-testing equipment on all of the 1,500 miles of pipeline that winds its way, several feet above ground, around the more than 200,000-acre field just seven miles from the Arctic Ocean.

The UK oil giant has regularly used pigging equipment on its water-injection lines, as well as its three-flow lines, which hold oil, gas and water.

But it says it did not deem them necessary on the oil transit lines that carry only crude oil because BP did not consider them a risk for the microbial corrosion it believes weakened the pipelines.

Kemp Copeland, the Prudhoe Bay field manager, says: "In hindsight, we should have been pigging. We clearly intend to learn from these events and improve our system going forward."

Yet BP's critics are unwilling to let the company off with a mea culpa.

Whistleblowers have for years issued warnings about ineffective corrosion monitoring through Chuck Hamel, a retired oil industry executive who has become their advocate.

Congressional sources say the company was put off pigging these lines after a pig got stuck back in the 1990s. The pig, which runs 16 to 34 inches in diameter, depending on the size of the pipeline, can get stuck if the lines are pigged too infrequently, as sludge builds up along the sides.

And industry experts argue that for BP to say it did not suspect microbial bacteria in its transit lines is just not credible. Microbiologic influenced corrosion, or MIC as it is known in the industry, has been something companies have guarded against for decades.

"Any prudent operator is going to be sure it does not have MIC and is going to periodically run cleaning pigs to sweep out colonies if they do form," says Rick Kuprewicz, president of Accufact, a pipeline energy consulting firm. "MIC is not something that space science invented last year."

He notes that the oil transit lines are like the main arterials on an oilfield: "If you're not looking at this stuff, what's going on here?"

BP says it was using other corrosion-detecting tools, such as sticking metal coupons into the pipeline and watching them for corrosion, as well as putting in corrosion-inhibiting chemicals and then using ultrasonic technology to listen for weak spots. But each of these has its weakness.

The coupons and the ultrasonic technology only reveal the state of the pipeline in the exact area where they are placed, and the chemicals never reach the sides of the pipeline if they are too filled with sludge, as in this case. Maintenance pigging, which actually scrapes the sides of the entire pipeline with metal bristles, is considered the best way to get rid of corrosion-causing agents.

BP had not pigged the pipeline with the leak still being cleaned - the eastern transit line - since 1992. It had not pigged the one on the western side of the field since 1998.

In contrast, Alyeska, which runs the trans-Alaska pipeline that carries BP's oil 800 miles across Alaska to Valdez on the Pacific, where it is put on tankers, pigs its line every two weeks.

BP insists regulations did not require pigging. Indeed, as low-pressure lines, they were considered low risk for leaks.

Federal regulators did not even provide oversight, unless corrective action was required, as after a more than 200,000-gallon spill in March became the biggest ever at Prudhoe Bay. And state regulators say they do not require pigging.

"It is one tool that is valuable," admits Lydia Miner, a manager at the Alaska Department of Environmental Conservation, adding: "A good monitoring programme has many different pieces."

Mr Kuprewicz is, nonetheless, surprised a company of BP's stature - one of the biggest in the world - did not routinely pig its oil transit lines.

"Most companies understand that federal regulations are a minimum," he says. "This is extremely embarrassing to the oil industry."

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http://www.ft.com/cms/s/43eef1d4-2b31-11db-b77c-0000779e2340.html

No letting down guard as regulators make 'pigging' demands
By Sheila McNulty

Published: August 14 2006 03:00 |
Last updated: August 14 2006 03:00

That state and federal regulators have allowed BP to keep the western side of its Alaskan oilfield open does not mean the US authorities are letting down their guard.

BP-operated Prudhoe Bay is considered such high risk for potential leaks that regulators are demanding that the UK oil company continue heightened inspections of the lines until they can be cleaned of sludge that has been building for 14 years in some parts and tested with state-of-the-art "pigging'' equipment for corrosion that has caused leaks in recent months.

BP has for months put off the cleaning and monitoring tests, saying it had no place for the sludge that would be excreted, and first had to remove a section of the pipe for a criminal grand jury inquiry of its corrosion system. It said the earliest it could finish the pigging was the first quarter of next year.

But the main regulator, the US Department of Transportation (DOT), warned BP just weeks ago that it could take the matter to the attorney general for civil enforcement if it felt BP was not more responsive.

"Clearly that wasn't fast enough for the DOT,'' says Craig Wiggs, a BP Alaska executive.

So BP is building a bypass line to where it has three tanks, each capable of holding 500 cubic yards, which the company believes will be more than adequate to hold the waste. It has also ordered parts needed to help it cut out a chunk of pipeline for the grand jury to see the corrosion in its pipelines.

Now BP expects to have completed pigging maintenance and testing by the end of November.

In the meantime, however, the DOT is requiring four daily surveys of all BP's low-pressuring lines, which have caused two recent leaks to spill oil on to the tundra.

It also wants BP to bring up to federal standards the eastern part of the field, which is now shut, and provide within 30 days plans to get it safely up and running.

To comply, BP is stripping insulation from the key transit line still in operation and conducting ultrasonic tests, using technology similar to a sonogram, to obtain a complete picture of the line's conditions.

It is also performing daily flights over the field, using infrared cameras, as well as hand-held infrared cameras on the ground, which can detect leaks by sensing changes in pipeline surface temperatures.

Two vehicles, equipped with spill response equipment, are patrolling the line 24 hours a day. Workers are also walking the pipeline, doing visual inspections 10 times daily.

Four thousand BP and contract workers man the oilfield in two week stints, which means there are 2,000 on site at any time. BP says it is constrained by bed space from bringing in any more.

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http://www.ft.com/cms/s/db92ce80-2b30-11db-b77c-0000779e2340.html

BP vows to keep open half of stricken oilfield
By Sheila McNulty in Prudhoe Bay
Published: August 14 2006 03:00 |
Last updated: August 14 2006 03:00

BP, the UK oil giant, said at the weekend it would keep open half of Prudhoe Bay, North America's largest oilfield, after agreeing withregulators to launch round-the-clock surveillance of its key oil transit line.

The decision comes after congressmen questioned whether the company's decision a week ago to shut the 400,000 barrels-a-day field in Alaska was an attempt to manipulate the oil market. Prices had immediately risen on the closure as fears grew that the already tight oil market would lose 8 per cent of US production for weeks, if not months.

On Friday, in a strongly-worded letter to Lord Browne of Madingley, BP's chief executive, Joe Barton, the chairman of the House of Representatives energy committee, suggested that the Alaska shutdown could be part of a wider strategy by BP to influence the market, particularly in light of recent allegations by US regulators that the company engaged in illegal trading in the propane gas market. The company has denied those allegations.

Mr Barton, a Republican from Texas, attacked BP's "chronic neglect" of the pipeline. He plans a hearing on BP's corrosion management next month.

BP had said it would shut the entire field after corrosion data on a leak that has since grown to 15 barrels of oil indicated its pipelines were far more corroded than it had expected. That information followed the biggest-ever leak at Prudhoe Bay in March, which brought heightened regulatory scrutiny over the field and prompted a grand jury to begin investigating BP for possible criminal charges.

Yet Kemp Copeland, the Prudhoe Bay field manager, told the Financial Times that ultrasonic testing on 700 spots along the crucial five miles of pipeline in the past week, coupled with about 800 since the March spill, had indicated the western half of the field could continue to operate safely.

"The results have been encouraging and have increased our confidence in the operational integrity of this pipeline,'' said Bob Malone, the new BP America president. BP is now producing about 150,000 barrels a day and will bring that up to 200,000b/d after completing maintenance planned before the recent leak.

Yet regulators, who have grown impatient with BP since it failed to meet key deadlines arising from the March spill to use high-tech pigging equipment to clean and perform corrosion tests on lines, have ordered the company to take additional precautions to continue operating half the field.

"Our first priority is the continued safe operation and reliability of all BP lines located on the North Slope [of Alaska]," said Thomas Barrett, head of the US Pipeline and Hazardous Materials Safety Administration.

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Anchorage Daily News
August 13, 2006

http://www.adn.com/money/industries/oil/prudhoe/story/8074677p-7967519c.html

Regulators were told in 1992 to beef up pipeline scrutiny
MANDATE: After two spills in Alaska, federal agency works faster to set standards.
By H. JOSEF HEBERT
The Associated Press
Published: August 13, 2006
Last Modified: August 13, 2006 at 03:51 AM

WASHINGTON -- Fourteen years ago Congress urged the Transportation Department to start regulating low-pressure pipelines such as those blamed for shutting down Alaska's North Slope oil production.

But it didn't happen. And only now, after questions about pipe maintenance and two damaging oil spills in Alaska, are officials pushing hard to establish federal rules and standards for such lines.

Congress, as part of a pipeline safety law passed in 1992, included among a number of directives that the Transportation Department pay closer attention to low-stress oil and other hazardous liquid pipelines, which still today are exempt from federal regulations.

Over the years, the department's Office of Pipeline Safety had other priorities, including a growing concern about natural gas pipeline accidents where leaks had caused several high-profile explosions and fatalities, and getting industry to give closer scrutiny to the high-pressure long-distance oil lines.

Only after one of the low-stress feeder lines belonging to BP sprung a leak last March, dumping an estimated 201,000 gallons of oil onto the tundra, did the issue move to the front burner at the Pipeline and Hazardous Materials Safety Administration, a successor to the pipeline safety office.

The agency's chief, Thomas Barrett, said in an interview Wednesday that the agency began working on possible regulation of low-stress pipes about 18 months ago, but he acknowledged now "we've accelerated this process."

Barrett said he expects a formal notice for regulations in a few weeks and possibly a final rule before the end of the year.

"It's gotten a lot of attention," said Barrett, a retired vice admiral who in May became the agency's first administrator.

At a congressional hearing last April, Transportation Department officials acknowledged that increased federal oversight of the low-stress feeder lines had been last on the priority list when dealing with directives Congress had issued to improve pipeline safety, some dating back to 1992.

"Now we are working on our last outstanding mandate," Stacey Gerard, the agency's chief safety officer, told the lawmakers, referring to the low-stress pipeline rules.

The Alaska spill in March grabbed everyone's attention and brought new focus on regulating the industry's low-stress federal pipelines.

"The importance of completing and finalizing this rule cannot be overstated," Theodore Alves, a senior assistant in the DOT inspector general's office, told the lawmakers a few weeks after the spill. He too noted that dealing with the gathering lines and low-stress pipes was the remaining mandate from 1992.

On Wednesday, Rep. John Dingell of Michigan, the ranking Democrat on the Energy and Commerce Committee, which held the April hearing, said "the law needs to be changed to explicitly cover low-pressured pipelines" and enforcement of federal rules and standards needs to be toughened.

Barrett acknowledged that scrutiny over low-stress feeder lines in remote areas, such as the ones in question on the North Slope, had been given a relatively low priority as the agency saw a greater potential danger, possibly to life as well as the environment, from high-pressure pipelines and natural gas lines that cut through urban areas. The agency focused on those issues.

Also, the feeder, low-stress pipes "frankly have a good record ... even on Prudhoe Bay there (was) no history of spills," said Barrett, although he added that it's clear now that their maintenance and operation require greater federal scrutiny.

Lois Epstein, a consultant for Cook Inlet Keeper, a conservation advocacy group in Alaska, said the spill last March made it clear the lines need to be more closely regulated.

"While low-stress lines may release hazardous liquids at a rate less than other transmission lines, this winter's spill shows that they pose comparable environmental hazards," she testified during the congressional hearing last April.

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http://www.adn.com/money/industries/oil/prudhoe/story/8074677p-7967523c.html

Technology, regulation could help avert future fiascos
PIPELINES: Routine care, inspections also key to avoiding leaks.
By ALLISON LINN
The Associated Press
Published: August 13, 2006
Last Modified: August 13, 2006 at 03:51 AM

Technological improvements could help avert the severe corrosion and leaks that forced the partial shutdown of the nation's largest oil field, experts say, but the best way to prevent such problems in pipelines is to simply take better care of them.

BP, which operates the Prudhoe Bay oil field, has conceded it made a mistake by not more closely inspecting the interior of the 29-year-old pipeline.

Before its inspections in July, the company had last run a high-tech tool called a "smart pig" on the western side of the field in 1998.

Spokesman Ronnie Chappell on Saturday said it had never previously done so on the eastern side where a leak was discovered a week ago.

"They didn't do a good job of corrosion prevention. That's a big, big embarrassing problem with enormous implications not only for them but also for customers and other oil companies that use the line," said Lois Epstein, senior engineer with Cook Inletkeeper, a conservation advocacy group.

One side of the Prudhoe Bay oil field will be shut down while BP replaces 16 miles of the pipeline because of the leaks and corrosion, officials said.

The pipelines normally carry 400,000 barrels of oil daily, or about 8 percent of domestic output. With the partial shutdown, the field is currently producing about 150,000 barrels of oil and natural gas daily.

An oil spill discovered at the same time as the corrosion is three times as large as originally estimated, BP said Saturday. About 750 gallons of oil have been recovered, and the cleanup was nearing completion, Chappell said.

Experts say some technological advances could make it easier to maintain existing pipelines and ensure that new pipelines, such as a proposed $25 billion natural gas pipeline that would run from Alaska into Canada, last longer.

For example, technology for smart pigs and maintenance machines called cleaning pigs -- both of which are pushed through pipelines by the pressure of the oil or gas they carry -- has improved significantly in the decades since the pipeline was built, said Rick Kuprewicz, a pipeline expert with Accufacts Inc.

The ability of steel mills to produce higher quality pipe also has gotten better, and such pipe has gotten cheaper, he said.

But those improvements will only help if companies inspect and clean the pipes, and are vigilant about checking for corrosion. Not doing that, Kuprewicz said, is like buying a new car and never changing the oil.

"Pipe can wear out, too, if you don't pay attention to it, but in most cases its age is many hundreds of years. But, again, you gotta respect it," he said.

He finds it extremely unusual that BP thought it would be OK to go without regular smart pig checks.

"The whole thing -- it sounds embarrassing," he said.

Epstein blames government regulators for not forcing the industry to do better. To avoid future problems, she said, federal and state regulators need to adopt stricter oversight.

"The industry will often say a well-designed and maintained and operated pipeline can last a very long time, and to a large extent I agree with that. But, of course, it needs to be well-maintained and operated," she said.

Chappell said the company has a substantial corrosion detection program at Prudhoe Bay. He noted it had regularly used other methods including ultrasound to test the condition of the pipelines, and at the time thought such inspections were sufficient.

The company expects to spend about $72 million this year on corrosion control.

"I think it's clear in retrospect that the program as it related to these transit lines wasn't sufficient, wasn't adequate," he said.

Under orders from federal regulators, BP has stepped up inspections of the western side of the pipeline that continues to run, but it has only promised the more reliable smart pig tests by the end of November.

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http://www.adn.com/money/industries/oil/prudhoe/story/8074677p-7967520c.html

Pigs keep pipelines running smoothly
INSIDE JOB: Some scrape debris from pipe, others sniff out potential corrosion.
By KRISTEN HAYS
The Associated Press
Published: August 13, 2006
Last Modified: August 13, 2006 at 03:51 AM

HOUSTON -- Of all the technologies available to maintain the nation's 2 million miles of pipelines, one of the most critical devices evokes images of a muddy farm animal -- the pig.

Now erase the image. The earliest, primitive pipeline pigs may have squealed as they scraped wax, mineral deposits, sand or other corrosion-causing debris from the insides of the nation's energy highways, but even that similarity is long gone.

The importance of so-called "pigging" leaped to center stage this past week after BP shut down part of the Prudhoe Bay oil field on Alaska's North Slope, raising questions about the integrity of the country's pipelines and how more than 3,000 pipeline operators keep them running.

Metal, foam, plastic or gel, ranging in size from a few inches to seven feet tall and wide as a tree -- or however big they have to be to fit snugly inside a pipe -- some pigs are simple scrapers. Others, known as "porcupine pigs," sport scrubbing wire brushes.

Propelled by the pressure of oil or other contents running through the pipeline, these devices dislodge debris and clean the interior pipe walls.

More sophisticated "smart pigs" carry instruments that gather images and other data inside the pipeline that allow operators to pinpoint trouble spots.

"I've heard so many people say 'If you could make one for arteries, you'd be rich,' " said Gary Smith, president of Inline Services Inc., a Houston-based pig manufacturer and distributor.

BP ordered the Prudhoe Bay shutdown after discovering a leak and severe corrosion in 16 miles of aging "transit" pipes that feed into the 800-mile trans-Alaska pipeline.

BP had relied mostly on exterior ultrasound to monitor those pipes' integrity, believing the risk of corrosion was low because they carried market-ready crude or processed oil that had been stripped of harmful water, gas and solids.

BP now says it will use pigs to maintain and inspect all its transit lines.

Even pipes that sit unused will corrode, said Steve Arrington, global operations manager for Houston-based oil services conglomerate Halliburton Co.'s pipeline and process services group.

"Corrosion is just a fact of life. Corrosion of metal alloys occurs all the time. All that man can do is minimize that or reduce it, but we cannot stop it completely," Arrington said.

Legend has it that early pigs, made of stuffed burlap bags or other material, would squeal as they scraped through a pipe, hence the name. But Smith said the name is an acronym for pipeline inspection gauge.

Smith said all kinds of debris can build up in a pipeline, everything from sand left over from fabrication of the pipe to condensation from natural gas to saltwater from oil extracted offshore. And even simple bacteria can corrode the metal, he said.

However, many operators resort to pigging only when a problem is apparent. By then the pipe is usually already damaged, which can cause safety and environmental risks as well as jeopardize a multimillion-dollar pipeline.

Regular pigging is good business, said Kirk Langford, head of transmission pipeline inspection for oil services firm Baker Hughes Inc. "The better pipeline operators have always done this."

Other technologies help assess pipe integrity, such as measuring the flow of an electrical current, said Tom Miesner, a Houston-based pipeline consultant. Increased resistance means the pipeline wall is thinning.

However, smart pigging is the ideal, said Miesner, who worked 25 years with Conoco before its merger with Phillips Petroleum.

A five-year study by the Association of Oil Pipe Lines found the use of smart pigs can help reduce pipeline spills. The study, which covered 1999-2004, showed the overall number of spills on pipeline segments tested with smart pigs dropped approximately 50 percent.

"They are about the only thing you can run through a pipe in order to find anomalies," Miesner said.

Associated Press business writer Steve Quinn in Dallas contributed to this report.

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Fairbanks News Miner
August 13, 2006

http://newsminer.com/2006/08/13/1498/

BP and ANWR
Published August 13, 2006

Opponents of oil development in the Arctic National Wildlife Refuge wasted little time spouting “we told you so” and drawing a 30-mile arrow directly from the coastal plain to BP’s woes in Prudhoe Bay this week.

But that arrow should curl right back around and point to ANWR as a place that should have been producing oil for years.

Especially now, critcs argue, petroleum industry irresponsibility should not be rewarded with the opening of ANWR. BP especially, touting a greener-than-others approach, should be rewarded least of all.

But ANWR exploration and development is not a reward for BP or any other oil company. It is something that is important for Alaska and for the United States, no matter what companies ultimately purchase the leases.

For its part, BP is no more environmentally responsible than any other oil company. It is exercising the wisdom of advancing natural gas production and exploration of alternative fuel sources, which some would say is environmentally responsible. It also simply seems like good business practice for an energy company. BP recognizes the need to diversify, so should our country.

Recent history, the 250,000 gallon BP spill in March and the Prudhoe shutdown included, demonstrates the need to diversify our domestic energy sources in terms of oil, natural gas, and development of so-called alternative energy. ANWR reserves should be a part of that diversification.

Critics are saying that oil companies have shown they cannot be trusted on the Slope. BP’s problems demonstrate why ANWR can’t be developed in an environmentally responsible manner. The majors have argued “trust us” in the past, and they always fail.

Blind trust in oil companies has never been a desired approach. The people of this state do not have that approach to resource development of any kind and are acutely aware of the risks that come with development. Those who lived through the Exxon Valdez spill need no lectures on the topic. Mistakes can be made, and they can be dire.

Blind trust in oil companies has never been a desired approach. The people of this state do not have that approach to resource development of any kind and are acutely aware of the risks that come with development. Those who lived through the Exxon Valdez spill need no lectures on the topic. Mistakes can be made, and they can be dire.

As with the Exxon spill, we will come through the BP spill and this shutdown with heightened awareness and undoubtedly stricter state and federal monitoring practices. The pipes that leaked and were shut down were some of the oldest on the Slope. We will emerge from this episode with better-regulated, better-understood, and better-managed pipelines.

But still, opponents have argued, ANWR is not worth the risk because, in terms of national supply from a world market, its potential reserves amount to “a drop in the bucket.”

That’s a lot of drops in a lot of buckets, and a lot of dollars from individual wallets.

Still, critics argue, the fragile Arctic cannot sustain the kind of damage wrought by careless development.

No, it can’t. No place can.

That’s why development of a 2,000-acre footprint on ANWR’s 1.5-million-acre coastal plain should be no less responsible than development that could take place on 8.3 million acres in the eastern Gulf of Mexico where, two weeks ago, the Senate voted overwhelmingly (71-25) to lift the Gulf drilling moratorium.

This vote came to pass a full four months after the BP spill in Prudhoe. Only now, with the pipeline shutdown illustrating the need for diversification, are ANWR opponents spinning the arrow back four months to the March spill and the corroded pipe.

The 250,000 gallon spill in Prudhoe in March was a disaster but, as it acted quite literally like molasses in January, it was contained and has been scraped up. Our country should be no more willing to risk development in the oceans we share with the world than we are our own tundra. Yet, our Senate was much more willing to pass the Gulf measure than it ever has been with ANWR.

Why did they do it? The need to diversify our fuel sources is more and more apparent to our country’s leaders and because the Gulf borders more than one state that can benefit from the revenue; that’s why.

And now the Prudhoe shutdown has come as a stark illustration of just how Alaska’s oil impacts our nationwide economy and how urgent it is that the US increase its domestic energy resources.

All signs point to ANWR as a logical part of that picture.

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Houston Chronicle
August 13, 2006

http://www.chron.com/disp/story.mpl/business/energy/4112505.html

A weakness exposed
Pipe corrosion in Alaska takes the
issue off the back burner
By TOM FOWLER
Copyright 2006 Houston Chronicle

Nothing can make an issue a priority quite like a crisis.

Take BP's discovery of severe internal pipeline corrosion at its Prudhoe Bay, Alaska, oil production site last week.

  The oil and gas industry has long known internal corrosion was a concern, but it was on the back burner for years, said Rick Eckert, a corrosion expert with CC Technologies Services and author of Field Guide for Investigating Internal Corrosion of Pipelines.

"There hadn't been a lot of problems with leaks from internal corrosion," Eckert said. "This was particularly true on low-pressure systems like BP's."

But then there was the August 2000 rupture of an El Paso Corp. natural gas pipeline in Carlsbad, N.M., that killed 12, which the National Transportation Safety Board said was linked to corrosion. Two years later, Congress passed legislation that pushed both regulators and the industry to develop tougher standards.

Maintenance guidelines and rules for large oil transmission lines and natural gas pipelines were given priority, while far less has been done to address the problem of low-pressure oil lines like BP's.

That started to change in March, however, when a corroded portion of the pipeline leaked up to 270,000 gallons of oil onto the tundra.

Inspections with more thorough tools than BP used previously on most of the pipeline led the company to announce last week it would need to shut down the field  the biggest in the country, with 400,000 barrels a day of production  to repair corroded lines. The company revised its plan Friday, saying it will be able to maintain half the usual output during repairs.

Federal and state officials reignited efforts to gain jurisdiction over low-pressure pipelines, and engineering standards groups are expected to speed up efforts to finish drafting guidelines.

Corrosion in Alaskan oil pipelines is hardly a new phenomenon.

Don Deaver, an independent pipeline consultant in Houston, said during the 1980s in Alaska he and other engineers saw internal corrosion problems.

Warning signs
Just a decade after the 800-mile Trans-Alaska Pipeline started carrying oil from Alaska's North Slope to the port of Valdez, higher-than-expected levels of corrosion were found.

"We were all talking about it in working groups and other meetings," Deaver said. "It's something you had to battle really, really hard."

BP was notified of corrosion problems at Prudhoe Bay from more than one source.

Letters written to a board member in 2004 by independent consultant Charles Hamel on behalf of BP employees warned of shortcomings in the corrosion-monitoring program.

And in a 2003 BP survey posted on the company's Web site, employees and others in the community expressed concerns over the thoroughness of corrosion monitoring. One employee said, "My concern, however, is that they are not taking a look at every piece of pipe that they need to be."

The company said it responded to the concerns like those raised by Hamel and at the time felt comfortable with its monitoring program.

The problems went undetected, BP officials said, because they didn't anticipate the conditions in the pipes that allowed corrosion.

Uncommon problem
The most common kind of internal corrosion occurs when water settles along the bottom of a pipeline in low lying areas and bends, even as oil flows through pipes. When the water eats through the steel, it first appears as long streaks along the bottom of the pipe's exterior.

The corrosion that has occurred in BP's Prudhoe Bay lines is a bit different.

Sediments that are mixed in with oil drop to the bottom of the pipeline at random spots, creating a safe harbor for microbes to grow, producing waste that eats through the steel. The corrosion locations are harder to predict, and corrosion-inhibiting chemicals, which were a major component in BP's anti-decay program in Alaska, often can't reach those areas protected by debris.

Eckert said the effect is similar to the decay that happens to enamel when plaque builds up on teeth. But while the American Dental Association has long-standing guidelines about how often people should brush their teeth to fight plaque (twice a day), only in recent years has the oil and gas industry made similar recommendations about how to clean out the "plaque" in pipelines.

The best way to clear debris from within the pipes is through the use of "pigs," cylindrical devices that are pushed through a pipeline. Maintenance pigs have brushes or scrapers to knock loose sediment and debris while "smart pigs" use magnetic fields or ultrasonic technology to detect corrosion and other problems.

Jack Smart, a Houston consulting engineer who specializes in pigging, said there were few, if any, guidelines before 2002 that said how often pigs should be run through pipelines.

"But most companies would consider using pigs regularly good operating practice," Smart said.

Eckert agreed that using maintenance pigs on a regular basis was a common-sense measure, but he conceded there was not widespread literature about the problem before 2002.

In the 1980s there was some study of microbial corrosion in natural gas pipelines by the Gas Research Institute and even some limited guidelines published about the use of pigs, Eckert said, but those were exceptions.

Halted maintenance
BP officials said they did not run maintenance pigs through parts of their system for many years because they didn't believe they needed to.

Arco, the former operator of the eastern side of the field BP now manages, stopped running maintenance pigs in 1992 after operators of the Trans-Alaska Pipeline complained about the large amounts of debris flowing into that system, BP spokesman Ronnie Chappell said.

BP continued to use maintenance pigs until 1998 on the western side of the field, but it stopped then because it believed its inspections would suffice.

The company relied most heavily on chemical inhibitors injected into the oil stream to prevent corrosion, according to the most recent corrosion monitoring report BP filed with Alaskan officials in March.

And since most of the pipeline is above ground, the company used external scanning technology and "coupons," pipeline inserts designed to show how much the inside of the pipeline was corroding.

Chappell said that the state had to give its seal of approval to its program every year since 2000. In March, days after the major leak, Alaska Department of Environmental Conservation officials said that in 2004, engineers it hired "concluded that BP's corrosion management program is effective and exceeds common industry practice."

But observers say the company should not have relied so heavily on external observation and corrosion inhibitors.

"Pigging is really the No. 1 way of removing debris and preventing internal corrosion," Eckert said.

tom.fowler@chron.com

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Wall Street Journal
August 13, 2006

UPDATE:
BP Reiterates Western Prudhoe Bay Pdtn Continuing
DOW JONES NEWSWIRES
August 12, 2006 6:12 p.m.
(Updates with comments from Alaska governor on the timing for the ramp-up of western Prudhoe production)
 
HOUSTON (Dow Jones)--BP PLC (BP) reiterated Saturday that Prudhoe Bay's Western Operating Area will continue producing oil and natural gas liquids at a rate of 150,000 barrels a day, and increase to 200,000 b/d a day after the completion of a planned maintenance shutdown in a section of the pipeline system.

In an e-mailed statement, the U.K.-based oil and gas giant said that it has completed 2,200 ultrasonic inspections in western Prudhoe Bay since March. Surveillance of the line will continue around the clock, the statement said.

Clean-up of an oil spill in the East Operating Area continued Saturday, with more than 17 barrels of oil recovered. BP "is now using water flood techniques to lift remaining amounts of oil from the tundra," the statement said.

Seven out of 10 metal sleeves required to cover corroded sections of the Eastern Operating Area pipeline have been installed. The remaining three will be installed on Saturday, the company said.

No disruptions of crude or fuel supplies in BP West Coast operations "are expected at this time," BP said. The company has acquired more than 4.5 million bbls of crude to supply its refineries, and "additional crude oil and refined products will be acquired as necessary," BP said.

On Aug. 6, BP initiated a phased shutdown of the 400,000 b/d Prudhoe Bay field, the largest in the U.S., following the discovery of extensive corrosion in its pipeline system there. The company decided to keep the western part of the field in operation after consulting with Alaskan state and U.S. government officials on Friday. As part of its plan to overhaul the 29-year-old pipeline system, the company said it will replace 16 of the transit system's 22 miles of pipeline, with project completion expected early 2007.

Alaska Gov. Frank H. Murkowski said in a statement Saturday that he received assurances that western Prudhoe production could be ramped up to 190,000 b/d by the end of August, up from the current level of 120,000 b/d.

The governor welcomed news of continued flow in the western operating area, but said the state was still affected by the shortfall of eastern Prudhoe's production of 200,000 b/d.

"My administration continues its review of how funds can be carefully managed and be phased to avoid any shortfall in revenue that would cause a reduction in public services," Murkowski said in the statement.

 -By Angel Gonzalez, Dow Jones Newswires; angel.gonzalez@dowjones.com  

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BP Western Prudhoe Bay Output Welcome Boon For Refiners
DOW JONES NEWSWIRES
August 12, 2006 4:08 p.m.
By Angel Gonzalez
of DOW JONES NEWSWIRES
 
HOUSTON (Dow Jones)--Refiners welcomed BP PLC's (BP) decision to maintain production in the western part of the giant Prudhoe Bay field in Alaska, easing supply worries in the West Coast and in global energy markets.

The U.K.-based oil major, which initiated a phased shutdown of the largest U.S. oilfield in the U.S. last Sunday following the discovery of extensive corrosion in its pipeline system there, said late Friday that it would keep the western operating area running. The continued flow of a portion of Prudhoe Bay is a boon to West Coast refiners, which rely on the Alaska North Slope crude oil grade extracted there to produce gasoline and other fuels.

"Having that additional crude production from the western Prudhoe Bay could only be seen as a plus for the overall supply situation," said Marie Rose Brown, a spokeswoman for Valero Energy Corp. (VLO) in an e-mailed statement. San Antonio-based Valero, the U.S. largest refiner, operates a 144,000 barrels-a-day plant in Benicia, Calif.

That processes 65,000 barrels a day of the grade of oil produced at Prudhoe Bay. The company had previously stated that it won't be affected by the shut-in, as it can recur to alternative sources of crude.

"It's good news for the industry," said Tesoro Corp. (TSO) spokeswoman Natalie Silva. San Antonio-based Tesoro's two West Coast refineries run about 24,000 barrels of ANS crude, less than 10% of their throughput. The company had stated earlier that it would remain unaffected by the shutdown.

In the days following BP's initial announcement, oil companies and refiners scrambled around the world to find similar grades of crude to replace the 400,000 barrels a day of ANS produced at Prudhoe Bay, responsible for 8% of U.S. output. ConocoPhillips (COP) and Exxon Mobil Corp. (XOM), both of which own 36% of the field, declared force majeure on their Alaska crude deliveries, a clause in a contract that frees one or both parties from liability when an extraordinary event outside of its control takes place. BP purchased 4.5 million barrels of crude oil in the global market to keep supplying its refineries and clients.

Now, with western Prudhoe producing 150,000 barrels of oil and natural gas liquids a day, the gap is narrower. After planned maintenance is completed, output will be ramped up to 200,000 barrels a day in the west, BP said.

The company decided to keep part of the field open after consulting with Alaskan state and U.S. government officials Friday. As part of its plan to overhaul the 29-year-old pipeline system, the company said it will install 16 miles of new oil transit line at Prudhoe Bay, with project completion expected early in 2007.

BP is also evaluating options for restoring partial production at the eastern side of the field while repair work is conducted there. Such a restart would be subject to approval of the federal agencies including the U.S. Department of Transportation, which oversees pipeline safety.

To ensure against any leaks, BP will continue ultrasonic inspections along the western pipeline and plans to complete additional inspections in coming weeks. The company vowed to evaluate test results daily to determine whether repairs are needed and whether "continued operation of the line is appropriate."

The company, which has come under fire for infrequent use of "smart pigs," cylindrical robots that travel through pipelines loaded with sensors that detect cracks and corrosion, said it would run smart pigs through the pipeline only before the end of November.

BP also plans daily overflights with infrared cameras, which can detect small leaks, and round-the-clock monitoring by vehicles equipped with infrared leak detection and spill response equipment.

-By Angel Gonzalez, Dow Jones Newswires; 214-477-0342; angel.gonzalez@dowjones.com , 
 
"Having that additional crude production from the western Prudhoe Bay could only be seen as a plus for the overall supply situation," said Mary Rose Brown, a spokeswoman for Valero Energy Corp. (VLO) in an e-mailed statement. San Antonio-based Valero, the U.S. largest refiner, operates a 144,000 barrels-a-day plant in Benicia, Calif.

 (In the item, "BP Western Prudhoe Bay Output Welcome Boon For Refiners," that ran at 3:02 p.m. EDT, the name of the Valero spokeswoman was misspelled.)

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Wall Street Journal
August 12, 2006

BP's Alaska Woes Are No Surprise For One Gadfly
Charles Hamel , a Conduit For Issues Raised by Workers, Had Alerted EPA of Problems
By JIM CARLTON
August 12, 2006; Page B1

ALEXANDRIA, Va. -- When the giant oil company BP PLC announced a week ago it would shut down its massive Prudhoe Bay oilfield in Alaska because of corrosion problems, the news surprised many. It surprised the energy markets, which sent oil prices up $2 a barrel. It surprised Wall Street, which pushed BP shares down.

But it didn't surprise Charles Hamel.

Long before the closure of Prudhoe Bay, America's largest oil field, 76-year-old Mr. Hamel had sounded the alarm. As one of the oil industry's pre-eminent gadflies, Mr. Hamel last year provided information on Prudhoe Bay's corrosion problems to the Environmental Protection Agency, prompting a criminal investigation. Mr. Hamel also spurred a Department of Transportation investigation into complaints that some safety valves weren't working at the field last March.

One indicator of the impact of the Prudhoe Bay closure: It was enough to knock BP off the pedestal as Europe's largest oil company. That spot is now held by Royal Dutch Shell PLC, after BP's stock-price declines erased a big chunk of BP's market value over the past week or so.

 
Charles Hamel's pals include Sissy Spacek, while his enemies have spied on him.
"Chuck Hamel has provided important leads to Congress over the years, and he has served as a trusted outlet for many concerned workers," says U.S. Rep. John Dingell, a Michigan Democrat who has long looked at Alaskan oil issues.

For almost 20 years, Mr. Hamel, close family friend of actress Sissy Spacek and also a great-grandfather, has served as the spokesman for a network of disgruntled workers in the Alaskan oil fields. Operating from a three-bedroom home overlooking the Potomac River in suburban Washington, D.C., the former oil broker is a conduit for worker complaints from 5,000 miles away. In particular, he has focused on safety issues at Prudhoe Bay -- which provides 8% of U.S. crude-oil production -- and the 800-mile Trans-Alaska Pipeline.

Mr. Hamel has used his proximity to the Washington power corridor to instigate numerous government investigations into oil workers' complaints. All told, investigations prompted by Mr. Hamel have forced BP and Alyeska Pipeline Service Co., which operates the Alaska pipeline on behalf of BP and other companies, to undergo safety-related improvements estimated at more than $1 billion, government officials say.

Mr. Hamel has also gotten Alaskan state agencies, long criticized by oil workers for not scrutinizing the industry enough, to ramp up their oversight. "I kept getting calls from workers telling me about the problems up there," Mr. Hamel says. "They didn't have any other place to go, so I felt responsible for them."

But Mr. Hamel's actions have sometimes raised the ire of federal officials, regulators and others. Some federal officials gripe that Mr. Hamel creates a ruckus on issues that are far from calamitous. The officials and some regulators add that he also sometimes won't provide specifics on where alleged problems are located, making it tougher for companies and agencies to quickly respond.

Mr. Hamel is persona non grata with the oil industry. John Browne, BP's chief executive officer, for one, declines to answer questions on what he thinks of Mr. Hamel. "It would be so good if everyone used the process we have to tell us what's wrong," Lord Browne said in an interview while visiting Prudhoe Bay last week.

Mr. Hamel's relationship with the industry wasn't always bitter. Born and raised in Watertown, Conn., the Korean War veteran once favored oil exploration in the Arctic. In the 1960s, Mr. Hamel worked as a broker in the ocean-shipping business, connecting foreign buyers with U.S. sellers of commodities like grain. He also brokered shipments of Alaskan crude oil to the lower 48 states, a job that earned him fees as high as $100,000 a month.

In 1979, Mr. Hamel met his future nemesis, Mr. Browne, at a BP office in Cleveland. Mr. Hamel says he asked Lord Browne, who was then a lower-level BP executive, to reduce the Alaskan crude shipping fees for a client Mr. Hamel felt was being overcharged. Mr. Browne and another oil executive declined, he says. Lord Browne says he remembers meeting Mr. Hamel, but declined to elaborate further.

Mr. Hamel's relations with the oil industry soured in the 1980s. Around 1975, he had acquired an interest in a field at Prudhoe Bay, but later sold out to Exxon Mobil Corp., which hit a gusher at the field in 1989. Mr. Hamel accused Exxon of neglecting to tell him about how large the oil deposits were, a charge Exxon denied.

His industry relationships worsened in 1979 when a supertanker he had brokered took shipments of Alaskan oil laced with water. Mr. Hamel accused Alyeska of intentionally allowing the oil to be diluted with water; Alyeska denied the assertion. The incident triggered a years-long legal dispute over the origins of the tainted oil involving the tanker owner, the oil buyer and pipeline operator Alyeska. Mr. Hamel says the high-profile case -- which was never resolved -- forced him out of the tanker business.

During that time oil workers started calling him, Mr. Hamel says, with stories of safety problems along the pipeline, such as leaking valves or unsafe electrical gear. Mr. Hamel pressed state and federal officials to investigate. Alyeska responded by hiring a private security firm, Wackenhut Corp., to ferret out Mr. Hamel's sources.

In 1992, Mr. Hamel filed suit against Alyeska and Wackenhut over the spying; the parties later settled for an undisclosed amount. Alyeska also apologized in full-page newspaper ads. A congressional hearing was called to examine the spying case.

That hearing cemented Mr. Hamel's status among disaffected worked after he refused repeated attempts by industry lawyers to disclose the names of his sources. "What he did was turn the light on, up where, before, any oil company was allowed to operate in the dark," says Rob Brian, a former operator at Prudhoe Bay who used to be one of Mr. Hamel's sources of information.

Since the late 1990s, Mr. Hamel has worked full-time on oil-worker complaints. That pro bono work has cost him financially, friends say. Mr. Hamel has spent so much money on phone bills, travel and other expenses related to the work that he has exhausted much of his savings, says Stan Stephens, a tour-boat captain in Valdez, Alaska, and close friend of Mr. Hamel's. "He told me once he didn't have enough money to go out to dinner," says Mr. Stephens, who worked with Mr. Hamel on oil issues related to the port of Valdez. "At least now he's finally getting the credit he deserves."

Ms. Spacek, who says she views Mr. Hamel like an uncle, adds: "Honest, loyal, trustworthy and courageous, Chuck has time and again put himself in great personal jeopardy defending his ideals and the ideals of those who are unable to speak out for themselves."

Mr. Hamel says he doesn't consult for energy companies and lives mostly on loans and Social Security income. He once was a millionaire, he says, but filed for bankruptcy after he lost his tanker business and the Prudhoe Bay lease. But "when these [oil workers] come to you, how can you say no?" he says. "You can't."

Write to Jim Carlton at jim.carlton@wsj.com

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Anchorage Daily News
August 12, 2006

  http://www.adn.com/money/industries/oil/prudhoe/story/8069583p-7962355c.html

Total shutdown averted
Western portion will be vigilantly monitored, company says
By WESLEY LOY
Anchorage Daily News
Published: August 12, 2006
Last Modified: August 12, 2006 at 07:05 AM

BP executives on Friday abandoned plans to completely shut down the vast Prudhoe Bay oil field for fear of pipeline leaks, saying a closer look at key pipes showed the western half of the field could keep pumping safely.

That means Prudhoe -- normally averaging 400,000 barrels a day, a big component of total U.S. oil output -- will produce at only about half capacity in coming weeks as BP moves to tighten up pipeline maintenance.

BP executives laid out extraordinary measures to prevent leaks from a key 5-mile section of pipe, known as a transit line, on the field's west side. The precautions include continuous ground and air patrols by crews looking for leaks.

The company came up with the plan to keep Prudhoe at half strength after consulting Friday with state and federal regulators. They pored over 1,400 ultrasonic inspections -- tests that can reveal thinning or holes in steel pipeline walls -- conducted along the pipe and concluded that western Prudhoe could keep running safely.

"With greatly enhanced surveillance and response capability, I am confident we can continue to safely operate the line," said Bob Malone, president of BP America.

Friday's announcement means BP's startling original plan, announced last Sunday, to close the nation's largest oil field entirely will not be played out.

Through the week, the company had gradually closed down the hundreds of wells and processing plants across Prudhoe's eastern side, but left the western side up for the most part.

BP executives had said a leak from an east-side pipeline Sunday had shaken their confidence in the integrity of pipelines elsewhere in the field, especially on the western side. Right after finding the leak, BP started a shutdown of the field, a move regulators said they didn't order.

In a statement Friday, the company said it intends to replace 16 miles of transit lines by early next year. It also said it's possible engineers can find safe ways to boost Prudhoe's production to more than half capacity.

The transit lines are major arteries within Prudhoe, feeding crude oil from across the field into the mouth of the trans-Alaska pipeline, which runs 800 miles south to the Valdez tanker port.

Pending the pipeline replacements, the company vowed to keep a much closer eye than normal on the 5-mile westside transit line. The pipe links to another, shorter segment that failed this spring, allowing 201,000 gallons of oil to spill onto the tundra. It was the largest oil spill ever on the North Slope.

Among the monitoring measures BP announced Friday:

• The company will fly over the western transit line daily, looking for leaks with infrared cameras. Oil coming out of Prudhoe wells is hot, and the infrared can detect small leaks from the heavily insulated lines by sensing changes in a pipe's surface temperature.

• Two vehicles equipped with spill response equipment and infrared gear will patrol the line 24 hours a day. Also, pipeline walkers will inspect the line by sight 10 times a day.

The company also vowed that by the end of November it would run devices known as pigs through its western transit line to clean out sludge and test for corrosion-related wall thinning or holes.

Regulators have criticized BP for not using these pigs for many years on the transit lines, allowing sludge and bacteria to build up, a recipe for corrosion that can eat through the steel. BP now is under orders from the U.S. Pipeline and Hazardous Materials Safety Administration to do so.

BP spokesmen have conceded the company should have used the pigs, though they note that transit lines aren't high corrosion risks because of the waterfree oil they carry and that the outbreak of corrosion caught them by surprise.

Aside from regulators, BP's pipeline maintenance practices are under scrutiny from members of Congress as well as a federal grand jury, which has issued BP a sweeping subpoena for documents.

In another development Friday, BP spokesmen and state Department of Environmental Conservation officials said the east-side transit line leak last Sunday, which triggered BP's field shutdown, was bigger than originally thought.

They said 15 barrels, or 630 gallons, of crude oil had been collected off the grassy tundra alongside the pipeline. The recovered oil is triple the amount BP initially indicated had spilled, and the final tally on the spill volume could go slightly higher, DEC officials said.

BP owns about 26 percent of the Prudhoe Bay field and operates it on behalf of itself and partners including Exxon Mobil and Conoco Phillips, each of which own about 36 percent.

At normal output, Prudhoe Bay's 400,000 barrels a day is almost half of overall North Slope production, 8 percent of U.S. production, and 2.6 percent of total U.S. crude oil supply counting imports.

Prudhoe's output stood Friday at 155,000 barrels per day.

After BP announced its shutdown, market prices for crude oil spiked higher temporarily on fears the field shutdown could last weeks or months, creating shortages for refineries and higher gasoline prices at retail pumps.

On Friday, the price of North Slope crude for delivery to West Coast spot markets closed at $73.05 a barrel, up 35 cents from Thursday but well off the near-record $75.68 closing price on Monday, the first trading day after BP announced the shutdown.

Crude oil prices are extremely important not only to refiners and consumers, but to the state government. State officials had estimated that a full shutdown of Prudhoe Bay would cost the state $6.4 million per day in royalty and tax collections and would run the state budget into the red in about 60 days.

Daily News reporter Wesley Loy can be reached at wloy@adn.com   or 257-4590.

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http://www.adn.com/news/alaska/ap_alaska/story/8067242p-7960016c.html

BP to keep oil flowing from Prudhoe Bay
By ALLISON LINN, AP Business Writer
Published: August 11, 2006
Last Modified: August 11, 2006 at 07:00 PM

ANCHORAGE, Alaska (AP) - BP PLC said Friday it would keep one side of the nation's largest oil field open as it replaces 16 miles of pipeline, averting a total shutdown that could have put a larger crimp in the nation's oil supply.

The decision will allow BP to keep funneling up to 200,000 barrels of oil and natural gas from Prudhoe Bay. BP, which operates the oil field, had previously said it would have to fully shut down the oil field after discovering leaks and severe corrosion on the eastern side of the pipeline nearly a week ago.

BP said it decided to continue supplying oil out of the western side of the field after reviewing 1,400 ultrasound inspections on five miles of the pipeline, and discussing the matter with federal and state regulators.

BP said it will monitor the pipeline around the clock and use infrared cameras from the sky and the ground to detect small leaks. It will run a high-tech "smart pig" device through the line by November to search for weaknesses in pipe walls.

"With greatly enhanced surveillance and response capability, I am confident we can continue to safely operate the line," BP America Chairman and President Bob Malone said in a statement.

The company said it is currently producing about 150,000 barrels of oil and natural gas per day from the western side of the field, but hoped to eventually increase to about 200,000 barrels per day.

The natural gas accounts for between 11,000 and 12,000 barrels of the total. Before the discovery of the leaks, BP was pumping as much as 400,000 barrels out of the entire field daily.

BP also said it was looking at ways to restore some production from the eastern side of the field, subject to approval by federal regulators. The company is hoping to complete installation of the new 16 miles of pipeline by early next year.

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Fairbanks News Miner
August 12, 2006

http://newsminer.com/2006/08/12/1481/

BP offers close-up look at Prudhoe Bay
By Sam Bishop
Published August 12, 2006

Workers searching for leaks and weak spots stripped urethane foam and metal sheathing from a pipe on the west side of Prudhoe Bay on Friday, while a few miles east another crew sopped up crude oil from a hole that formed despite tens of millions of dollars spent annually by BP to prevent such messes.

BP Exploration Alaska Inc. officials escorted reporters around the oil field, illustrating the company’s extensive anti-corrosion program as well as the evidence of its past inadequacythe aromatic quarter-acre patch of oiled marshy tundra discovered on Sunday.

“We led ourselves to believe there wasn’t a corrosion risk there,” Kemp Copeland, manager of the Greater Prudhoe Bay area, said..

That belief is gone. And within a few months, so, too, could be the pipelines that suffered from it.

By early next year, BP will replace at least 16 miles of oil transit lines, the pipes that serve as the Prudhoe Bay field’s final connection to the trans-Alaska pipeline. In the meantime, the company shut down more than half the field, which produces 8 percent of the nation’s domestic oil.

BP in recent days has doubled the number of workers tearing into the sheathing and inspecting the pipes. Such efforts, and the reconstruction and rebuilding of the lines, will create extra economic buzz around the oil field and Alaska for months to come.

The urethane foam insulation, for example, comes in large part from a Fairbanks company, ATS, said Gary Crawford, a BP corrosion manager.

“I think this winter we’re going to keep a lot more guys than we usually do,” said Nicholas Russell, a 20-year-old Veco employee from Nikiski who was cutting metal sheathing off the western oil transit line Friday afternoon.

Russell’s crew is told where to cut by analysts who scrutinize the line’s elevationlow spots are suspectand data from past detection work.

“Once in awhile you’ll see some corrosion,” Russell said. But that’s on the outside of the warm brown pipe. What’s really troubling this line are the bacteria on the inside, according to Crawford.

If the line were crosscut and fitted with a clock face, the trouble would lie between the hours of 4 and 6, Crawford said. There, water and solids have gradually collected as the volume and, consequently, the speed of oil from Prudhoe Bay declined during the past 15 years.

It’s a friendly environment for anaerobic bacteria, which are everywhere: in the natural field water that exceeds oil recovery by a 3-1 ratio, in the seawater that is pumped into the field to keep up pressure and in the tanks and pipes that store and carry it all, Crawford said. The bacterial waste is highly corrosive, even to the carbon steel pipe wall.

A few yards down the line, Charlotte Foley and Mark Oradei rubbed small metal transducers on the belly of the brown metal that had been exposed and buffed smooth by Russell’s crew. The transducers, which produce sound waves, send data on the echoes to a display screen box.

A strong spike indicates a solid pipe, Oradei explained as he rubbed the 9-foot span in half-inch increments. He and Foley reported no “indications” from it.

Oil companies have been fighting corrosion in Prudhoe’s lines for years.

“We do hundreds of (maintenance) pigging operations every year,” Crawford said.

They also had run annually a half-dozen “smart pigs,” electromagnetic data-gathering devices that cost up to $700,000 each.

Before this year, though, they expected no problems from the western and eastern transit lines. The lines are downstream of the gathering centers (on the west side) and flow stations (on the east) that strip out the main factors in corrosion: sediments, water and carbon dioxide. The finished crude oil is supposed to be clean enough to put into the trans-Alaska pipeline at Pump Station 1.

That means it is no more than 0.35 percent water and sediments.

Also, thousands of metal “coupons” inserted into pipes between 1995 and 2005 showed only microscopic loss of thickness, Crawford said.

So BP, which operates the Prudhoe Bay field, had run neither cleaning pigs nor smart pigs through the lines, according to spokesman Daren Beaudo, who led Friday’s tour. The west side line last saw a smart pig in 1998; the east side, 1992 when Arco Alaska operated that half of the field.

When the western line squirted at least 5,000 barrels onto the tundra in March, the cause was as obvious as it was startling, officials said.

“We were surprised to find microbiological activity in our oil transit lines,” said Copeland, the field manager.

The metal coupons used to monitor the problem probably hadn’t corroded much because they poked vertically into moving oil where exposure to bacterial products was much less, Crawford said. BP now uses coupons that sit flush with the pipe wall, he said.

After months of confirming the corrosion problem and struggling with the sediment problem, it was much less surprising when inspectors found the eastern transit line leaking on Aug. 6. The event prompted the field’s partial closure, BP officials say.

Critics have said the BP officials could not have been shocked at the corrosion and resulting leaks.

Richard Fineberrg, a Fairbanks oil analyst who often consults for environmental groups, said Beaudo in March acknowledged that BP ran the western line at reduced pressure due to corrosion problems.

“Under the circumstances, it is difficult to take his professed surprise seriously,” Fineberg wrote in a March 15 preliminary report on the western line leak. “What is more surprising is that BP was not inspecting that pipeline daily for leaks, as recommended by (the Alaska Department of Environmental Conservation) in 2003.”

In the most recent leak, about 15 barrels dripped out and spread across a watery marsh west of the massive Flow Station 2.

On Friday, just across a gravel road to the south of the spill, a bull caribou in velvet antlers fed on grasses. A pair of swans, a few dozen white-fronted geese and hundreds of phalaropesshore birdsfloated on a shallow unnamed lake.

In 38-degree temperatures, workers in white plastic suits and yellow raingear tended a loop of absorbent rope sliding over the blackened marsh.

Electric-powered machines atop metal drums at each end of the loop simultaneously winched the rope and wrung out the oil.

The ropes are efficient, though not fast, said Fred McAdams, who was directing the clean-up work Friday for the oil companies’ firm Alaska Clean Seas.

Another worker sucked oil, using a four-inch hose, into a Veco truck parked on the road.

A strong gasoline-like odor blew about in the 15-mile-per-hour north wind. The cleanup team, which includes state and federal agency personnel, started by actually pumping more water into the marsh. That lifted the crude further above the sensitive roots of the grasses.

After most of the oil has been removed, the area will be burned.

“By next year, you won’t know it was here,” McAdams said.

Amanda Stark, the state Department of Environmental Conservation’s on-scene coordinator, predicted much the same.

“Next year, you’ll see quite a bit of recovery,” she said. No soil will need removal, she predicted.

Staff writer Sam Bishop can be reached at 459-7504 or sbishop@newsminer.com.

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Wall Street Journal
August 12, 2006

BP to Keep Some Prudhoe Oil Flowing
By JESSICA RESNICK-AULT
DOW JONES NEWSWIRES
August 12, 2006 10:40 a.m.

HOUSTON -- BP PLC said late Friday it would keep some crude oil flowing at its giant Alaska field, five days after oil markets began bracing themselves for a complete shutdown.

The London-based energy titan said it would maintain production in the western part of Prudhoe Bay, the largest producing oil field in the U.S., because it was confident of the integrity of the pipeline there.

In addition, the company pledged to continue rigorous inspections of the route and implement unprecedented oil-spill response measures.

"Over the last five days we have doubled spot inspections over a key five-mile segment of the oil transit pipeline serving the western side of the field," BP America President Bob Malone said in a press release. "The results have been encouraging and have increased our confidence in the operational integrity of this pipeline. With greatly enhanced surveillance and response capability, I am confident we can continue to safely operate the line."

BP began a phased shutdown of Prudhoe Bay's 400,000 barrels a day of crude oil output Aug. 6 after discovering severe pipeline corrosion and a small oil spill last week.

The western operating area currently produces about 150,000 barrels per day of oil and natural gas liquids, and after planned maintenance is completed, output will be ramped up to 200,000 barrels per day.

BP's original announcement sent shudders through oil markets already nervous from production outages in Nigeria and Iraq and the threat of curtailed oil flow from the Middle East due to hostilities between Israel and the Hezbollah militia in Lebanon. Monday, futures prices gained more than $2 a barrel on the New York Mercantile Exchange.

Refiners on the U.S. West Coast were especially nervous, as Alaska provides that region of the U.S. with about a quarter of its crude oil, and scrambled to find alternative crude supplies. Unique environmental regulations in California, combined with logistical hurdles to gasoline transportation into the state, raised fears of a supply shortage that could occur if U.S. West Coast refineries were forced to slow their rates or shut down.

BP operates Prudhoe Bay, which it owns jointly with Exxon Mobil Corp. and ConocoPhillips. This week, ExxonMobil and ConocoPhillips both said they won't be able to fulfill all contractual obligations to provide customers with Alaskan crude, owing to the fields' shutdown.

BP, however, has said that its West Coast refining and marketing operations are well-supplied and that it had purchased 4.5 million barrels of crude on the global market to ensure supply to these operations, as well as to another company's California refinery ordinarily supplied from Prudhoe Bay.

BP decided to keep part of the field open after consulting with Alaskan state and U.S. government officials Friday. As part of its plan to overhaul the 29-year-old pipeline system, the company said it will install 16 miles of new oil transit line at Prudhoe Bay, with project completion expected early in 2007.

BP is also evaluating options for restoring partial production at the eastern side of the field while repair work is conducted there. Such a restart would be subject to approval of the federal agencies including the U.S. Department of Transportation, which oversees pipeline safety.

BP Vows To Reopen Safely

BP has been under pressure from U.S. regulatory agencies following an explosion killing 15 at its Texas City, Texas, refinery and a probe alleging that it manipulated the propane market.

The company's U.S. operations have had a poor safety record, which newly hired Mr. Malone was expected to remedy. And pipeline problems in Alaska have plagued the energy giant for months. In March, BP discovered an oil spill, later determined to be the largest ever in Alaska's North Slope oil province, at a Prudhoe Bay pipeline. Lawmakers have already said they will investigate BP's pipeline maintenance practices.

To ensure against any leaks, BP will continue ultrasonic inspections along the western pipeline and plans to complete additional inspections in coming weeks. The company vowed to evaluate test results daily to determine whether repairs are needed and whether "continued operation of the line is appropriate."

"We will ensure that our inspection and surveillance programs meet or exceed the requirements of ... the Department of Transportation," BP Exploration President Steve Marshall said in the press release.

The company, which has come under fire for infrequent use of "smart pigs," cylindrical robots that travel through pipelines loaded with sensors that detect cracks and corrosion, said it would run smart pigs through the pipeline before the end of November.

BP also plans daily overflights with infrared cameras, which can detect small leaks, and round-the-clock monitoring by vehicles equipped with infrared leak detection and spill response equipment.

In a related development, U.S. House Energy Committee Chairman Joe Barton (R., Texas) suggested that BP PLC's partial shutdown of its Prudhoe Bay, Alaska, oilfield could be part of a wider strategy to influence the market.

In a letter sent Friday to BP chief executive Lord Browne, Mr. Barton suggests the Alaska shutdown could be part of a wider strategy by BP to influence the market.

The letter comes after U.S. regulators have alleged that BP illegally manipulated the propane market. The company has denied those allegations.

Mr. Barton has already scheduled a Sept. 7 hearing on the BP Alaskan pipeline and Prudhoe Bay shutdown. The panel says the hearing will focus on the company's management of its corrosion control in its oil-transit lines.

Witnesses for the hearing have not yet been announced.

In March, an estimated 200,000 gallons spilled onto the ground from a pipeline about 250 miles above the Arctic Circle. The shutdown has triggered alarm in the U.S. and led to questioning of how such a severe problem could have arisen.

Write to Jessica Resnick-Ault at jessica.resnick-ault@dowjones.com   

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UK PRESS:
US Rep Accuses BP Of Mkt
Manipulation In Alaska Move
DOW JONES NEWSWIRES
August 12, 2006 12:44 a.m.
 
HOUSTON (Dow Jones)--U.S. House Energy Committee Chairman Joe Barton, R-Texas, suggested that BP PLC's (BP) partial shutdown of its Prudhoe Bay, Alaska, oilfield could be part of a wider strategy to influence the market, according to The Financial Times.
In a letter sent Friday to BP chief executive Lord Browne, Barton suggests the Alaska shutdown could be part of a wider strategy by BP to influence the market, according to the FT.

The letter comes after U.S. regulators have alleged that BP illegally manipulated the propane market. The company has denied those allegations.

Barton has already scheduled a Sept. 7 hearing on the BP Alaskan pipeline and Prudhoe Bay shutdown. The panel says the hearing will focus on the company's management of its corrosion control in its oil-transit lines.

Witnesses for the hearing have not yet been announced.

In March, an estimated 200,000 gallons spilled onto the ground from a pipeline about 250 miles above the Arctic Circle. The shutdown has triggered alarm in the U.S. and led to questioning of how such a severe problem could have arisen.

-By Jessica Resnick-Ault, Dow Jones Newswires; 713-547-9208; jessica.resnick-ault@dowjones.com

(John Godfrey in Washington contributed to this article)

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USWC Refiners Say Impact From
Alaskan Cutbacks Minimal
DOW JONES NEWSWIRES
August 11, 2006 7:26 p.m.
By Jessica Resnick-Ault
Of DOW JONES NEWSWIRES
 
HOUSTON (Dow Jones)--U.S. West Coast refiners maintain that their crude supplies are sufficient, despite two major suppliers of Alaskan North Slope crude declaring force majeure on some of their contractual obligations.

BP PLC (BP) on Sunday said it would begin a phased shutdown of Prudhoe Bay's 400,000 barrels a day of oil output after discovering severe corrosion and a small leak along a transit pipeline.

Since then, however, BP has said it's possible that half of the field could remain on line, subject to the approval of state and federal officials. A final decision on the fate of the western operating area of the field is expected later Friday.

The fields' co-owners, ConocoPhillips (COP) and Exxon Mobil Corp. (XOM), have declared force majeure. Force majeure is a clause in a contract that frees one or both parties from liability when an extraordinary event outside of its control takes place. BP serves only its own two West Coast refineries, and one small California refinery. It has assured that refinery's owner, Alon USA Energy Inc. (ALJ), that it will continue to supply the refinery with about 7,000 barrels of crude a day.

Tesoro Petroleum Corp. (TSO) said early on that it has sufficient supplies on hand to keep operating its Anacortes, Wash., and Martinez, Calif., refineries for about 35 days. However, the company declined to respond to the decision by suppliers to declare force majeure.

Royal Dutch Shell PLC (RDSB.LN) has said it has adequate crude on hand to supply its 145,000-barrel-a-day Anacortes, Wash., refinery. The refinery ordinarily runs about 72,500 to 101,500 b/d of ANS crude, which is a blend that includes crude oil from Prudhoe Bay.

"We continue to work to source alternate crude," spokesman Stan Mays said Friday, adding that the refinery doesn't anticipate any supply issues in the foreseeable future.

U.S. Oil and Refining, which operates a 44,000-b/d Tacoma, Wash., refinery, says its facility may face crude supply challenges, because it receives 95% of its crude from ANS producers.

Valero Energy Corp. (VLO) said it is able to substitute similar crude oils and doesn't anticipate any near-term operational impacts, spokeswoman Mary Rose Brown said in a statement.

Chevron Corp. (CVX) wasn't immediately available for comment.

Refiners attempting to bring in substitute products or crude may face significant hurdles, said refining analyst John Thieroff of Standard and Poor's in New York.

To import products, California refiners must face the state's stringent gasoline specifications. California-grade gasoline can be made at few refineries worldwide, and only at three in the U.S., Thieroff said.

Those wishing to import products face either a lengthy 45-day journey from Middle East or overcome hurdles to obtain South American crudes that are mainly under existing contracts with refiners, he added.

The following table reflects data collected from refining companies and crude oil traders.

Refinery---------------Total Throughput----------ANS Throughput
CALIFORNIA:
BP Carson--------------------265,000 b/d-----------130,000 b/d
Valero Benicia---------------144,000 b/d----------- 65,000 b/d
ConocoPhillips Rodeo ------ 73,200 b/d----------- 15,000 b/d
Tesoro Martinez ------------ 166,000 b/d ---------- 14,050 b/d
(Prudhoe Bay Only)
Alon Paramount-------------- 66,000 b/d----------- 13,000 b/d
Chevron Richmond--------- 243,000 b/d-----------<10,000 b/d

WASHINGTON
BP Cherry Point ------------ 230,000 b/d----------- 115,000 b/d
Shell Anacortes-------------- 145,000 b/d---------- 72,500-101,500 b/d
ConocoPhillips Ferndale----- 96,000 b/d---------- 75,000 b/d
U.S. Oil Tacoma-------------- 44,000 b/d---------- 41,800 b/d
Tesoro Anacortes ------------ 115,000 b/d--------- 14,050 b/d
(Prudhoe Bay Only)
ALASKA
Flint Hills North Pole--------- 220,000 b/d---------- 220,000 b/d
Petrostar Valdez -----------------48,000 b/d---------- 48,000 b/d
Petrostar North Pole-------------17,000 b/d----------- 17,000 b/d

By Jessica Resnick-Ault, Dow Jones Newswires; 713-547-9208;
jessica.resnick-ault@dowjones.com

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Financial Times
August 12, 2006

http://www.ft.com/cms/s/d53b9d24-299f-11db-9dcc-0000779e2340.html

BP faces fresh US probe over decision to shut Alaska field
By Stephanie Kirchgaessner inWashington and
 Rebecca Bream in,London
Published: August 12 2006 03:00 |
Last updated: August 12 2006 03:00

BP is facing a congressional probe in Washington over whether its decision to shut down production at its Prudhoe Bay field was a "market strategy" designed to manipulate the oil market.

In a scathing letter sent to Lord Browne, BP chief executive, yesterday, Joe Barton, the powerful chairman of the House energy committee, suggested the Alaska shutdown could be part of a wider strategy by BP to influence the market, particularly in light of recent allegations by US regulators that the company engaged in illegal trading in the propane gas market. The company has denied those allegations.

Mr Barton this week said he would hold a September 7 hearing to examine BP's management of severe corrosion in its oil transit lines. In his letter, Mr Barton says evidence of BP's "chronic neglect" of the pipeline, and the subsequent damage that the shutdown has imposed on American consumers and the US economy is "not excusable".

Although Mr Barton, a Texan who is seen traditionally as a staunch defender of the oil industry, has not indicated whether he would call on Lord Browne to testify, the seriousness of the shutdown at a time when Congress wants to be seen as responsive to high petrol prices means that either the BP chief or another senior BP executive will probably have to face Mr Barton's wrath personally.

The lawmaker is understood to be incensed particularly by the shutdown because staff at the energy committee received reassurances from BP just a few months ago that a March oil spill, the result of a corroded pipeline, was "an anomaly".

"Following on the heels of the BP refinery disaster that killed 15 people in Texas City in 2005, and the oil spill . . . this latest incident once again calls into question BP's commitment to safety, reliability, and the responsible stewardship of America's energy resources," Mr Barton said.

BP said it would assist the committee in its inquiry. The letter represents the latest sign that pressure is growing on the company in the US capital.

Apart from Mr Barton's committee, BP is under investigation by the Department of Justice, Department of Transportation and the Environmental Protection Agency. The probes and heightened criticism by lawmakers fly in the face of attempts by BP to craft carefully its image in the US as a responsible and eco-friendly oil company, in contrast to US oil giants.

Separately, BP said it would make a decision later in the day on whether to close the western portion of the Prudhoe Bay field after the transportation department found it was not necessary.

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http://www.ft.com/cms/s/00b7e990-299f-11db-9dcc-0000779e2340.html

Oil price cuts the downside for BP
By FT Reporters
Published: August 12 2006 03:00 |
Last updated: August 12 2006 03:00

BP may find much of the cost of shutting its Prudhoe Bay oilfield in Alaska will be met by the rise in the price of oil that followed. But, one week after thedecision to close north America's largest field, that is the extent of the good news.

The company's stock has been hit, Alaska's governor wants compensation for lost taxes and royalties, and the Republican chairman of the House committee on energy and commerce is asking uncomfortable questions.

BP's shares have fallen4 per cent over the past week, forcing its market capitalisation to fall below Royal Dutch Shell's for the first time in three years.

The fact that shares in ExxonMobil and Conoco­Phillips fell less than BP's, even though their shareholding in Prudhoe Bay is greater, suggests that BPis not being hit purelyfor the impact the closure will have on its profits.

BP has suffered more because it operated the field and so is more likely to see its reputation suffer.

"The direct financial consequence of the Prudhoe Bay shutdown is likely to be very limited indeed," says Colin Smith, oil analyst at Dresdner Kleinwort. "There is clearly a degree of reput­ational damage, the cost of which is difficult to assess. But it is unlikely to be suff­icient to warrant the recent underperformance of BP's shares."

BP's reputation in the US was already vulnerable. Last March, explosions at its Texas City oil refinery killed 15 people and injured hundreds. In June, BP was accused of price-fixing in the US propane market.

Samantha Lacey, analyst of responsible shareholding at Co-Operative Insurance Society, says BP had marketed itself as an ethical leader in the oil industry.

"But there have been a number of issues that are cause for concern. It is important to use [Prudhoe Bay] as a prompt to invest­igate other pipelines around the globe. Given that BP takes such a strong ethical stance, it needs to make sure its own house is in orderand that there are no more problems."

YouGov, the online research company that daily tracks UK consumer views on different brand aspects, found BP's overall score had dipped from +11 to +7 since August 6, when the Alaskan closure was announced.

BP has invested heavilyin its brand to improve its environmental credentials, rebranding itself "Beyond Petroleum". Its brand is believed to be the world's 76th most valuable, worth an estimated $4bn (£2.1bn) according to Interbrand, the consultancy.

Jan Lindemann, global managing director of Interbrand, says: "The reason why Alaska is becoming a bigger issue now is high oil prices. Otherwise, it would have been a scandal but it would have disappeared over time. Any shortage now has an instant impact on market prices, and that can alter perceptions.

"But the audiences that are really relevant for this brand are the regulators and the other forces that can ensure BP's future access to resources," Mr Lindemann says.

Joe Barton, chairman of the House energy and commerce committee, has written to Lord Browne, BP's chief executive, saying he wants to explore whether BP maintains its US facilities properly, why the company waited for regul­atory pressure to inspect the pipeline adequately, and if there was a market strategy component to BP's decisions.

Chuck Hamel, an advocate for BP whistleblowers, says the company had been warned for years about the problems and its failure to act sooner was "all caused by budget constraints".

He has provided the FT with copies of correspondence outlining years of workers' complaints. These include a 2004 letter to Bob Malone, the man BP recently appointed to improve the company's safety record, as well as letters to Greg Coleman, then BP vice-president of health, safety and environment, and Walter EMassey, chairman of the environment committee of BP's non-executive board of directors.

BP's response, he says, was to try to get him to reveal his informants instead of thoroughly investigating the allegations.

BP has long dismissed Mr Hamel as a troublemaker. Ronnie Chappell, BP spokesman, says: "I know there have been concerns raised about the adequate corrosion inspection programme raised by Hamel over time. We have looked into those."

The company is steadfast in denying a corrupt corrosion programme, saying instead that the models it was using to determine corrosion were flawed.

Instead of using high technology "pigging equipment", now forced upon it by regulators, BP had been using ultrasound, which it said failed to detect the corrosion. Yet the group counters that state regulators had signed off on its corrosion control programme every year.

Mr Hamel also has sharp words for the regulators. "Why didn't the Alaska regulators catch this?" he asks. "Because the administration benefits by the cost-cutting by BP, and they just hoped that the Russian roulette that was going on would not blow a hole in what they were doing."

The political pressure is likely to increase as environmentalists also speak out against BP. Some have used the discovery of corrosion in the Prudhoe Bay pipeline to argue afresh against theproposed exploitation of oil reserves in the Arctic National Wildlife Refuge (ANWR).

Greenpeace says it is "extremely concerned" at what happened. "This istestament to the fact that America's largest oilfield has huge problems," says Melanie Duchin, a Greenpeace energy specialist.

The political backlash will grow bigger still if Alaska's oil-dependent economy unravels and drivers in California, who rely on Alaskan oil, find their refineries running dry and the price at the pump edging higher.

"Consumers on the West Coast certainly will be affected adversely, partic­ularly in California - the extent to which retailers will be able to pass through increases into a market that is already the highest-priced in the US will determine how much," analysts at Standard and Poor's, theratings agency, said in a note.

At a time when US lawmakers are debating increasing energy companies' taxes and drivers are blaming oil majors for making record profits at their expense, BP can ill afford such criticism.

ExxonMobil shows it is possible to turn disaster into triumph. In 1989, after the ExxonValdez tanker spill in Alaska's Price William Sound, the company revamped its entire approach to safety, the way it managed its diverse businesses and how it communicated everything from financial prudence to physical caution to its employees. This has flowed through to ExxonMobil's reputation and share price.

BP has already made a start. Lord Browne has announced a $1bn increase in spending on health and safety in the US and said the company would appoint an independent board for its operations there.

BP's workers remain pessimistic. "With large fanfare, BP will announce many changes and new managers dedicated to change BP's old ways," a veteran Alaska worker says. "BP will promise a brighter, more focused company dedicated to safety and the environment but . . . managers' compensation is still based on meeting short-term budgets.''

Reporting by Carola Hoyos, Rebecca Bream, Fiona Harvey, Kate Burgess and Carlos Grande in London and Sheila McNulty in Houston

Xxxxxxxxxxxxxxxxxxxxxxxx

From: Energy and Commerce Press
Sent: Friday, August 11, 2006 1:29 PM
To: Committee on Commerce News
Subject: Barton Questions BP's Commitment to Safety,
Stewardship of U.S. Resources

 Friday, Aug. 11, 2006                                                                                                                   

FOR IMMEDIATE RELEASE                                                                       
Press Office     
CONTACT:
202-225-5735

Barton Questions BP's Commitment
To Safety, Stewardship of U.S. Resources

WASHINGTON - U.S. Rep. Joe Barton, R-Texas, today sent a letter
to Sir John Browne, chief executive of British Petroleum, calling into
question BP's commitment to safety, reliability, and responsible stewardship
of America's energy resources.

Barton has scheduled a hearing for Sept. 7 on the BP Alaskan pipeline
shutdown. The hearing will focus on the company's management of its
corrosion control in its oil-transit lines.

August 11, 2006

Sir John Browne
The Lord Browne of Madingley, FREng
Group Chief Executive
British Petroleum
London, England

Dear Lord Browne:

The Committee on Energy & Commerce has legislative and regulatory
responsibility for protecting pipeline safety and ensuring energy supply
reliability. Accordingly, the Committee has been closely examining
BP's Alaska pipeline operation and maintenance, particularly since the
BP oil spill five months ago at Prudhoe Bay. From then until this week
BP has repeatedly assured the Committee that the condition of the pipeline
that failed in March was an anomaly, and that BP's corrosion control
program was an effective means to monitor and maintain pipelines and
infrastructure on Alaska's North Slope.  

News that BP production of roughly 400,000 barrels per day of crude oil
at Prudhoe Bay has been shut down due to excessive corrosion of its oil
ransit lines contradicts everything the Committee has been told. The fact
that BP's consistent assurances were not well grounded is troubling and
requires further examination.

The consequent disruptions to energy production and delivery and resultant
adverse impacts on American consumers and the American economy are
not excusable, particularly in light of substantial evidence that BP's chronic
neglect directly contributed to the shutdown. At a time when supply and
demand are already constrained due to geopolitical and global market pressures,
and at a time of already record high oil prices driving record high profits for
your company, this additional disruption jars an already constrained domestic
and global market.

Following on the heels of the BP refinery disaster that killed 15 people in
Texas City, Texas in 2005, and the BP oil spill in March, this latest incident
once again calls into question BP's commitment to safety, reliability, and
 responsible stewardship of America's energy resources.  

Among the questions we will plan to explore are these:

* Why does BP not operate and maintain its U.S.-based facilities up to
U.S. industrial standards?

* Why did BP wait for the U.S. Department of Transportation to issue a
corrective action order against it before taking steps to adequately inspect
the corroded pipeline?

* Was there a market strategy component to BP's decisions that led up to the
oil shutdown, particularly in light of the allegations of BP's propane gas market
manipulation practices?
 

We will pursue answers to these and other questions as long as it takes to secure
credible answers that the American people await and deserve.

 Sincerely,

Joe Barton
Chairman

cc:     The Honorable John D. Dingell, Ranking Member

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Bellingham Herald
August 11, 2006

http://news.bellinghamherald.com/apps/pbcs.dll/article?AID=/20060811/BUSINESS/608110340/1005

BP pipeline problem sends out good and bad ripples
Work will be a boon for repairers; long shutdown would impact refiners
ALLISON LINN
ASSOCIATED PRESS

ANCHORAGE, Alaska - The leak that is causing the shutdown of the nation's largest oil field this week could have a ripple effect on everyone from steel pipe makers to oil industry workers - and even perhaps the price Americans pay at the pump.

BP PLC, which operates the Prudhoe Bay oil field on Alaska's North Slope, was forced earlier this week to begin shutting it down after discovering a small leak and extensive corrosion in one part of the oil pipeline. The company is now taking steps to replace 16 miles of pipeline.

The company said Thursday it was producing approximately 120,000 barrels of oil per day from the site, down from about 400,000, as it works on the gradual shutdown. BP is simultaneously evaluating whether it can continue to supply the oil at a lower capacity during the repairs, and hopes to make a decision in the next few days.

The shutdown and repairs could be a benefit to steel pipeline makers that must supply replacement materials, and to the workers that BP is bringing in to assess damage and complete the job. But it could hurt refiners dependent on Prudhoe Bay supplies, and the psychological impact of a shutdown also could cause a spike in gas prices.

BP spokesman Scott Dean said Thursday that the company had signed contracts with United States Steel Corp. and Nippon Steel Corp. to supply pipeline for about 10 of the 16 miles of pipeline it intends to replace.

Dean said it was too early to say exactly how much the total project will cost, but insisted BP is not looking to pinch pennies.

"We are committed to sparing no expense to make this pipeline safe and reliable," he said.

Dean said that includes rounding up engineers and other workers, in Alaska and elsewhere, to help with the project.

BP also has not said exactly how it might divide costs with ConocoPhillips Co. and ExxonMobil Corp., which also share ownership of the Prudhoe Bay site.

"We're still working it out with the partners," Dean said. "We're the operator but everyone's got a share in the field."

Chuck Bradford, an analyst with Soleil Securities, which covers pipe companies, said the BP orders, while not huge, will nevertheless be a boon for those companies.

Bradford said he also expects the pipeline shutdown to have a longer term effect, because it may prompt others in the industry to rush to replace their decades-old pipeline, in the hopes of averting similar troubles.

"There's just an awful lot of old pipe out there that needs to be replaced," he said. "The problem's going to be that nobody has the capacity to make the pipes. Everybody's full."
A burst of new orders could extend an already strong period for the steel pipe industry, he added.

For oil refineries which normally get supplies from Prudhoe Bay, analysts say the shutdown is unlikely to cause short-term problems because most have a stockpile that stretches 30 to 45 days. But if the shutdown stretches for several months, analyst John Thieroff with Standard & Poor's said it could create further difficulties as those refineries struggle to get crude oil from other parts of the world.

Refiners Tesoro Corp. and Valero Energy Corp. have both said they don't anticipate any immediate problems. ConocoPhillips said it was working to arrange for alternative supplies for its Ferndale, Wash., refinery if there are any potential shortfalls.

But ConocoPhillips spokesman Bill Tanner said Thursday that the company had invoked a "force majeure" clause in the contracts it has with customers who receive oil from Prudhoe Bay. Such an action alerts those customers that it may not be able to supply all the crude oil it has promised because of an unforeseen emergency, and allows them to seek alternative sources.

BP said it had no similar plans because the oil it gets from Prudhoe Bay is processed by the company itself. ExxonMobil said it was monitoring the situation.

Petroleos Mexicanos, Mexico's state-owned oil monopoly, offered on Thursday to speed up oil deliveries to the U.S. to help offset supply shortages caused by the pipeline shutdown, though the level of exports wouldn't be increased.

A longer-term shutdown at Prudhoe Bay also could cause a spike in gas prices on the West Coast, Thieroff said, where many of the refineries that process the oil from Prudhoe Bay are located. That's because it can be difficult to get crude oil into that part of the country, which is served by fewer pipelines than other parts of the country.

"Anything that takes gasoline off the market is likely to result in really, really sharp spikes in prices in parts of the country that already pay the highest prices," Thieroff said, referring to the West Coast.

But Mark Gilman, analyst with The Benchmark Co., said the shutdown should have little impact on overall U.S. gas prices, because there are plenty of other sources of crude oil that could compensate for any potential shortfall. Still, he said the psychological impact of the shutdown could cause prices across the country to go up, if people become scared that there won't be enough gas to go around.

The average U.S. retail gasoline price rose a couple of cents soon after BP's announcement on Sunday that a leak would require it to shut down the oil field, but has hovered around $3.036 a gallon for regular unleaded since then. Unleaded gasoline prices on the West Coast, where refiners get about 30 percent of their oil from Alaska, have risen more than in the rest of the country, but the bigger jumps have been in diesel fuel.

In Washington and Oregon, diesel fuel prices were at the states' record highs, at $3.347 a gallon and $3.245 a gallon, respectively.

Retail fuel prices could drop in the coming days, though, as gasoline futures on the New York Mercantile Exchange fell 9 percent Thursday to a four-month low.

For BP, the shutdown could prove both a blessing and a curse. While the company could certainly be hurt by the expense and image problems raised by the leak and repairs, it also stands to benefit if oil prices surge because of uncertainty over the shutdown.

"This is, at worst, a very small fraction of their worldwide output, so that (means) any price benefit, which would relate to their entire production stream, would more than offset the relatively small volume loss," Gilman said.

Still, Gilman said it's not yet clear how much BP's reputation has been hurt by the fiasco, which critics argue may be a result of lax government oversight and a corporate unwillingness to perform high-level maintenance. The shutdown may be especially troubling because it comes on the heels of a major incident in March, when corrosion in another BP transit line in Prudhoe Bay caused a spill of up to 267,000 gallons.

"The risk is more, I think, associated with the public image of the company," Gilman said.

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Houston Chronicle
August 11, 2006

http://www.houstonchronicle.com/disp/story.mpl/front/4109628.html

Aug. 11, 2006, 1:05AM
BP wins approval for partial flow
Government agency orders more inspections
Copyright 2006 Houston Chronicle

BP may keep pumping oil through feeder pipelines in the western part of Alaska's Prudhoe Bay field, though it must undertake further tests to gauge the safety of its conduits, the Department of Transportation said Thursday.

BP must conduct four daily surveys of all its low-pressure feeder lines at Prudhoe Bay using heat-seeking equipment to spot leaks and conducting visual surveys of the whole 22-mile transit line network, according to a safety order from the department's Pipeline and Hazardous Materials Safety Administration.

 London-based BP earlier this week said that corrosion it found in the lines, which feed the Trans Alaska Pipeline System with as much as 400,000 barrels of oil a day, would force it to shut all of Prudhoe Bay.

BP said it plans to make a decision by next week on whether the western part of the field, where corrosion was found to be less severe than in the eastern part, may be able to maintain production. The western part of Prudhoe Bay produces as much as 137,000 barrels of oil a day.

Craig Wiggs, a performance unit leader for BP, said the company had initially decided to shut down the entire field because the leak on the eastern side made officials question their earlier inspections throughout the pipeline. But now, Wiggs said, the company was rethinking whether it could keep the western line open.

BP also said it takes full responsibility for the lack of upkeep that led to the severe corrosion and shutdown.

BP has a contract with Canadian company Acuren to provide corrosion inspections. The area had not undergone a high-tech inspection called "smart pigging" since 1992.

Acuren officials could not be reached for comment.

BP's pipeline woes will be the focus of a hearing Sept. 7 before the House Energy and Commerce Committee.

Lawmakers plan to examine the company's efforts to control corrosion in its oil pipelines, said Rep. Joe Barton, R-Ennis, chairman of the panel.

Leaders of the Senate Energy and Natural Resources Committee said Thursday they were "deeply troubled" by BP's problems.

In a letter to the head of the pipeline safety agency, Chairman Pete Domenici, R-N.M., and ranking Democrat Jeff Bingaman, also of New Mexico, called on regulators to investigate why BP did not use smart pigs to check the line more regularly.

BP spokesman Scott Dean said the company had signed contracts with United States Steel and Nippon Steel to supply pipeline for 10 of the 16 miles of pipeline it will replace.

BP and its partners in Prudhoe Bay will have to spend about $170 million inspecting and repairing the corroded pipeline system, said Kemp Copeland, a field manager for BP.

BP has not said exactly how it might divide costs with Houston-based ConocoPhillips Co. and Irving-based Exxon Mobil Corp., which also share ownership of the Prudhoe Bay site.

Chronicle reporter David Ivanovich contributed to this report.

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http://www.chron.com/disp/story.mpl/business/energy/4109633.html

Aug. 10, 2006, 10:09PM
ConocoPhillips issues delivery warning
By JOHN C. ROPER
Copyright 2006 Houston Chronicle

ConocoPhillips has informed its crude oil customers that because of a shutdown of the pipeline in Prudhoe Bay, Alaska, deliveries may come up short.

In declaring a force majeur, Conoco is telling its customers an event out of its control could cause it to breach its contracts. Thus, ConocoPhillips avoids incurring financial penalties when it can't fulfill its deliveries.

 A ConocoPhillips spokesman said only one of its three West Coast refineries would be affected by the pipeline shutdown and that the company should be able to get ample supplies for the facility elsewhere.

BP, ConocoPhillips and Exxon Mobil jointly own the massive oil field.

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Wall Street Journal
August 11, 2006

'Smart Pig' Plays Starring Role In BP's Alaska Saga
DOW JONES NEWSWIRES
August 11, 2006 7:31 a.m.
By Anna Raff
Of DOW JONES NEWSWIRES
 
NEW YORK (Dow Jones)--If there's one lesson BP PLC (BP) should take away from the Prudhoe Bay debacle, it's this: Never doubt the smart pig.

The "smart pig" has taken center stage in the media spotlight as the London-based energy major grapples with oil pipeline corrosion that forced it to begin a phased shutdown of the huge Alaska deposit, the largest producing oil field in the U.S.

On Sunday, BP said it made the decision to shut in Prudhoe Bay's 400,000 barrels a day of output after receiving data from a late-July smart pig run and the discovery of a pipeline leak on Friday.

"The unexpected results of this most recent smart pig run have called into question the condition of the oil transit lines at Prudhoe Bay," BP America President Robert Malone said in a press release.

This may well stir images that a pig of the more intelligent variety was let loose into the pipeline to sniff out the cracks, and that's sort of true.

A "pig" is oil industry jargon for a droid, usually shaped as a cylinder, pushed through a pipeline. Utility, or "clean," pigs are used to scrape and push debris through a pipeline, while "smart" - in the U.K., they're referred to as "intelligent" pigs - use magnetic fields or ultrasonic technology to detect corrosion.

Utility pigs have been around since the advent of oil pipelines in the late 1880s, said Jack Smart, a Houston-based technical consultant to the Pigging Products & Services Association. The original pigs were burlap sacks wrapped with barbed wire, which emitted a squealing sound when scraping against the inside of the pipeline.

"The story goes that two workers were standing next to each other after sending it through the pipeline, and one says to the other, 'Gosh, that sounds like a pig,'" Smart said. "The name just kind of stuck."

It's not only stuck but morphed into other parts of speech, such as the verb: to pig. And pigs aren't called "pigs" everywhere. In many countries with predominantly Muslim populations, references to pigs are considered insulting. So, in Saudi Arabia, "pigs" are called "scrapers." In Mexico, they're called "diablos," or devils.

 Quieter Species
 
Pigs no longer squeal, and nowadays, the smart ones are loaded with sensory devices that can quickly process data showing the extent of corrosion along intervals as small as one-tenth of an inch along a pipeline.

"I can see how the rest of the world finds it funny," said Clay Williams, chief financial officer at National Oilwell Varco Inc. (NOV), a Houston-based oil services company, referring to the the oil industry's use of such animate terminology. "We're just used to it. An operative noun and an operative verb. It's a business."

A research division of Royal Dutch Shell PLC (RDSB.LN) in credited with inventing the technology, which was then licensed to Tuboscope Inc., the first to manufacture smart pigs.

A top-of-the-line smart pig can cost a million dollars, said Williams, who worked at Tuboscope before it merged with Varco and then, later, National Oilwell. He estimates the value of pigging services conducted globally at hundreds of millions of dollars a year.

However, some pipelines, especially older ones, aren't "piggable" because turns in some sections may be too sharp for the smart pig to navigate.

BP, however, appears to have run into a different set of obstacles. Because the Prudhoe Bay transit lines in question are above ground, BP used ultrasonic testing to detect corrosion. But this testing method failed to find severe loss of material in the walls of the 29-year-old system.

 Will Embrace The Pig
 
There was an attempt to pig part of the pipeline in the early 1990s, but a buildup of calcium carbonate on the inside walls prevents the pig's sensors from picking up an abnormalities.

"The pigging was discontinued throughout the 1990s and indeed into this decade," Steve Marshall, head of BP Exploration Alaska, told a conference call with investors this week.

"Looking forward, our corrosion mitigation inspection programs... will very strongly feature routine maintenance pigging to the maximum frequency that we need and smart pigging... as well as any other technology that we can find that will help us demonstrate that we have infrastructure that is fit for purpose for the next 50 years."

What Marshall is saying, in essence, is that BP has learned to embrace the pig.

 -By Anna Raff, Dow Jones Newswires; 201-938-4426; anna.raff@dowjones.com 

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BP Buys Large Amount Of Oil In Mkt, 
No Force Majeure
DOW JONES NEWSWIRES
August 11, 2006 7:32 a.m.
By Jessica Resnick Ault and Angel Gonzalez
Of DOW JONES NEWSWIRES
 
HOUSTON (Dow Jones)--BP PLC (BP) purchased a large supply of crude oil from the open market in recent days to feed its West Coast refineries, in a sign that the world has adequate stores of oil despite the shutdown Sunday of the giant Prudhoe Bay oil field in Alaska

BP also said it isn't declaring force majeure on deliveries of oil, because its portion of crude from the field goes primarily to its own refineries in Washington and California. "We have no plans to declare force majeure," said Scott Dean, a BP spokesman.

The move come after one of its principal partners in Prudhoe Bay, ConocoPhillips told its customers it was resorting to the force majeure contract clause on deliveries of crude from the Alaskan field. A spokesperson for Exxon Mobil Corp. (XOM), the other partner in the project, said it was "too premature to discuss force majeure."

Force majeure is a clause in a contract that frees one or both parties from liability when an extraordinary event outside of its control takes place.

BP owns about 26% of the Prudhoe Bay field and is responsible for operating it for Exxon Mobil and ConocoPhillips. The company said on Sunday it was shutting down Prudhoe Bay, the largest field in the U.S., after discovering severe corrosion in a pipeline.

Aside from its own refineries, Dean said, BP only supplies crude from that field to one small customer near its Washington refinery and was making arrangements to supply alternative crude. "As we've said from Day 1, we've had our supply organization trying to minimize supply disruptions, Dean said.

Enough Oil In Market
 
BP initially said it was shutting down the entire field, but then said it was studying its options to keep the western half of the field open. The company said in a statement Thursday that the shutdown of the eastern side of the field was complete, and that the western field was producing 120,000 barrels a day now.

BP also confirmed it has purchased more than 3.5 million barrels of crude to meet the needs of its West Coast refineries and marketing operations over the short and medium term and is continuing to pursue additional crude oil and oil-product supply.

"There is adequate crude supply for BP's West Coast refineries in the short term and no disruption of gasoline supplies for California or the West Coast is expected during this time," BP said.

The comments sugest that despite difficulties in re-routing crude oil to the West Coast from other parts of the world, there is ample oil in the market to minimize supply disruptions.

BP may be hesitating to declare force majeure because it has yet to decide whether the Western portion of Prudhoe Bay will keep producing, analysts said.

"They may shut off 400,000 barrels a day or they may only shut half," said Paul Tossetti, director of market analysis at Washington D.C.-based energy consultancy PFC Energy. "Perhaps they're waiting for that decision, which they said they're going to take tomorrow."

Protected Tarnished Image
 
Bruce Lanni, an analyst at A.G. Edwards in San Francisco, said the energy titan will seek to delay declaring force majeure for as long as possible, but it will all depend on the extent and the duration of the Prudhoe Bay shutdown.

"Politically, they'll probably try to avoid that at any cost," he said. "They're trying to do everything they can to portray a good image. It's going to become increasingly more difficult if the entire field shuts down and if this thing continues to stretch on."

Without knowledge of the details of the force majeure clause in the operating agreement between BP, Conoco and Exxon, it's difficult to say whether BP could actually declare force majeure at all, given that the management of the pipeline was under its control.

"Every contract is going to be different," said Lanni. "Typically a force majeure clause would enable the company to declare force majeure should an unforseen event pop up."

Meanwhile, BP America President Robert Malone stressed that the company would meet the needs of Alaska's land-locked refineries. Three refineries with a total throughput capacity of 300,000 barrels a day are normally served by crude transported from the Trans-Alaska pipeline.

Ordinarily, the refineries buy crude from the state, provided by the North Slope producers. "We will keep them whole," BP spokesman Neil Chapman told Dow Jones Thursday.

"We told Flint Hills that if there's a problem we will be there to help with any shortfall," he said.

Flint Hills Resources, a subsidiary of Koch Industries (KOH.XX) operates the largest refinery in Alaska, with a 220,000 barrel a day throughput.

-By Jessica Resnick-Ault, Dow Jones Newswires; 713-547-9208; jessica.resnick-ault@dowjones.com

-By Angel Gonzalez, Dow Jones Newswires; 713-547-9207; angel.gonzalez@dowjones.com  

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Alaska Lawmakers Pass New Oil
Production Tax Bill
DOW JONES NEWSWIRES
August 11, 2006 8:17 a.m.

 
JUNEAU, Alaska (AP)--The Alaska Legislature has passed the state's biggest oil and gas tax law rewrite in decades as a way to spur development of Alaska's natural gas reserves.

The bill passed in the waning hours of a special session late Thursday after an ailing elderly lawmaker flew in from Anchorage to cast the deciding vote.

If lawmakers had failed to pass the production tax bill for the third time this year, Gov. Frank Murkowski would have convened a third special session of the year beginning Friday.

John Manly, the governor's spokesman, said although the bill that passed included a higher tax than he had proposed, Murkowski didn't plan to veto it.

Murkowski is negotiating a financial deal with the state's largest oil companies - BP PLC (BP), ConocoPhillips (COP) and Exxon Mobil Corp. (XOM) - that is meant to make constructing a $20 billion gas pipeline to Canada attractive.

The three companies negotiating the contract are the state's largest oil producers, and lease the rights to the North Slope's gas reserves. The companies would own the pipeline jointly with the state.

"The votes show it's a tough issue for the Legislature, but it's the best thing for Alaska," said House Majority Leader John Coghill, R-North Pole.

But for most House and Senate Democrats who wanted to change the structure of the tax completely, it was "a mistake that we'll pay for for generations," said House Minority Leader Ethan Berkowitz, D-Anchorage.

The tax bill would set a base tax rate of 22.5% of companies' profits from their Alaska operations. That tax rate would rise by 0.25% for every $1 rise in the price of oil above $55 per barrel.

At current prices, the tax rate would be about 28% of companies' profits.

The companies would be able to claim credits and deductions in the tax bill and use them to partially pay for developing natural gas facilities and infrastructure on the North Slope, which holds about 35 trillion cubic feet of natural gas reserves.

The House earlier Thursday had rejected the changes the Senate made to the net-profits tax plan by a slim 20-19 margin.

Then the House broke and the Republican majority called Rep. Carl Moses to fly in from Anchorage.

Summoning Moses, 77, caused the House to recess for nearly six hours.

He was absent due to a pinched nerve that caused him to lose feeling in his legs. But when he arrived at 8:40 p.m., he said he was feeling fine.

"Nothing that'll kill me," he said.

With Moses breaking the deadlock, other legislators changed their votes, and the bill passed 26-14.

Berkowitz called flying Moses to Juneau "a sign of their desperation" and said Republicans had to resort to drastic measures to pass the bill.

The tax is expected to bring Alaska $2.4 billion this year when oil is $60 per barrel, according to state Department of Revenue estimates. That is $1.3 billion more than the state's production tax takes in now at similar prices.

But the bill's detractors called those revenue projections a red herring. The credits and deductions would erase a large portion of that money, and the section of the bill that defines what company costs will and won't be deducted is not clear, they said.

"I think we're saying we're going to get all this revenue, when those of us who have kind of read this whole package know that we're going to take that revenue away," said Sen. Gretchen Guess, D-Anchorage. "Don't tell Alaskans we're going to get more revenue, and then pay out that revenue for a gas line ... without them knowing what costs are coming."

Moreover, nobody knows what effects a shutdown or partial shutdown of Prudhoe Bay will have on the tax plan, Berkowitz said. BP, which operates the Prudhoe Bay field, shut it down this week to replace 16 miles of leaky pipeline.

Point Thomson, the state's largest untapped gas field with an estimated 8 trillion cubic feet, could be a big beneficiary. Through tax credits and deductions, the Alaska government could pay as much as $4 billion to develop the field.

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After Prudhoe Oil Cut, West Coast Plants
Still Supplied
DOW JONES NEWSWIRES
August 11, 2006 7:31 a.m.
By Angel Gonzalez and Jessica Resnick-Ault
Of DOW JONES NEWSWIRES
 
HOUSTON (Dow Jones)--Four days after BP PLC's (BP) Alaska unit began a phased shutdown of the largest producing oil field in the U.S., several West Coast refineries that rely on crude from the area say they have enough supplies - for now.

The dwindling of Prudhoe Bay's 400,000 barrels a day of crude output made ConocoPhillips (COP), which controls 36% of the field, declare force majeure on its deliveries. The third owner, Exxon Mobil Corp. (XOM), said it was too early to talk about force majeure at this stage. Force majeure is a clause in a contract that frees one or both parties from liability when an extraordinary event outside of its control takes place.

Reassuring statements by refineries signal that global oil supplies may be plentiful enough to offset the loss of output from Prudhoe Bay. Field operator BP purchased 3.5 million barrels of crude in the market to supply its own refineries and honor commitments.

Oil prices jumped on Monday following BP's announcement. However, markets have relaxed in recent days as BP and U.S. officials voiced the prospect of keeping half of Prudhoe Bay on line. A decision on that is expected sometime this weekend.

 Refiners Holding Steady
 
ConocoPhillips' action had no immediate effect on Royal Dutch Shell PLC's (RDSB.LN) Anacortes, Wa. plant, which runs between 70,500 and 101,500 barrels a day of Alaska North Slope crude.

"Right now our supply situation is fine," Shell spokesman Stan Mays said.

The Anacortes refinery has enough ANS "crude supply in hand or en route for the short term," said Mays. "In the longer term, the refinery is working to secure sufficient supplies from alternate sources."

Valero Energy Corp. (VLO) doesn't expect its 144,000 barrel-a-day Benicia, Calif., refinery to be affected in the short term, a spokesman said. "We are able to substitute similar crude oils and do not anticipate any near-term operational impacts," said Valero spokesman Bill Day in an email.

Tesoro Petroleum Corp. (TSO) reiterated it won't be affected. The company runs 24,000 barrels a day of ANS at its two West Coast refineries.

"Currently, our Ferndale refinery operations have not been materially adversely affected by the shutdown," ConocoPhillips said in a filing with the U.S. Securities and Exchange Commission. The ultimate effect upon the refinery could change if the outage is sustained, the company added.

Alon USA Energy Inc. (ALJ) said its 66,000-barrel-a-day Paramount, Calif., plant, which runs between 7,000 and 8,000 barrels a day of ANS, had enough supplies to last through September. Beyond that date, Alon could look for alternate crudes such as Ecuador's Oriente grade, said senior vice president Claire Hart.

Alon is the sole refinery BP directly supplies with ANS outside of its own two West Coast plants.

BP has also vowed to supply crude to three land-locked Alaskan refineries that are ordinarily supplied with ANS by the state of Alaska, which sells crude oil it receives as royalty payments from hydrocarbons producers.

The following table reflects data collected from refining companies and crude oil traders.

 
Refinery---------------Total Throughput----------ANS Throughput
CALIFORNIA:
BP Carson--------------------265,000 b/d-----------130,000 b/d
Valero Benicia---------------144,000 b/d----------- 65,000 b/d
ConocoPhillips Rodeo ------ 73,200 b/d----------- 15,000 b/d
Tesoro Martinez ------------ 166,000 b/d ---------- 14,050 b/d
 (Prudhoe Bay Only)
Alon Paramount-------------- 66,000 b/d----------- 13,000 b/d
Chevron Richmond--------- 243,000 b/d-----------<10,000 b/d

WASHINGTON
BP Cherry Point ------------ 230,000 b/d----------- 115,000 b/d
Shell Anacortes-------------- 145,000 b/d---------- 72,500-101,500 b/d
ConocoPhillips Ferndale----- 96,000 b/d---------- 75,000 b/d
U.S. Oil Tacoma-------------- 44,000 b/d---------- 41,800 b/d
Tesoro Anacortes ------------ 115,000 b/d--------- 14,050 b/d
 (Prudhoe Bay Only)
ALASKA
Flint Hills North Pole--------- 220,000 b/d---------- 220,000 b/d
Petrostar Valdez -----------------48,000 b/d---------- 48,000 b/d
Petrostar North Pole-------------17,000 b/d----------- 17,000 b/d

-By Angel Gonzalez, Dow Jones Newswires; 713-547-9207; angel.gonzalez@dowjones.com  

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Alaska Star
August 10, 2006

http://www.alaskastar.com/stories/081006/edi_20060810026.shtml   
 
Alaska Star Editorial

BP finally repairing more than image
Bad press of late prompted BP to send its top
executives to Alaska in an attempt to repair its image.
By TONY BICKERT
 
But it wasn't until Sunday that the oil giant decided to repair its pipelines.

It's about time.

Before they ordered the shutdown of the country's largest oil field, so miles of corroded pipes can be replaced, BP's U.S. president Bob Malone and chief executive John Browne had merely made promises to better protect BP workers and the environment.

Lots of promises. The company has been facing a gushing of bad news lately, mainly the 2005 Texas refinery explosion and this year's North Slope oil spill. Don't forget the allegations that a former company trader tried to corner the propane market - all while the company reaps record profits.

It's no wonder Malone and Browne were going around vowing to do the right thing from now on.

It all sounded familiar to me. I was a reporter in the 1990s in Valdez, a time when the oil industry acted as though cutting environmental and safety corners was cheaper than paying the occasional fine if caught. This catch-me-if-you-can era was frustrating at times, but eventually, with help from a growing number of concerned employees speaking out, the news began to get the nation's attention. As a result, BP, Arco and Exxon faced congressional inquiries into the allegations of environmental and worker safety lapses at the Alyeska Marine Terminal in Valdez and elsewhere along the 800-mile trans-Alaska oil pipeline. Perhaps more importantly, the number and size of regulatory fines and court settlements awarded to whistleblowers also began to grow.

It was then BP apparently decided it would be cheaper to spend the money to fix the problems. To that end, Malone was named the new Alyeska president.

Like now, Malone came to Alaska in 1996 with hat in hand, saying he was aware of the corrupt corporate culture and vowing to restore integrity to the ranks. For starters, he promised Alyeska would fix the pipeline problems in Alaska.

I don't know the extent to which Alyeska fulfilled its promise to fix the problems of the1990s - which included corroded pipes on the North Slope - for I soon left Valdez for Eagle River.

And Malone soon left Alaska for other BP ports of call, only to return to this summer, along with Browne, to spend more time attempting to again repair BP's image. I've seen plenty of these image-repair stories in the print media this summer: BP promises to do this or that.

But it wasn't until Sunday that I saw some hard evidence that BP has finally decided to spend the necessary money to fix its pipeline problems.

Whether BP is acting out of good business sense - spend a little money now rather than a lot later - or to actually better protect its workers and the environment is irrelevant. We all win in the end.

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Anchorage Daily News
August 10, 2006

http://www.adn.com/money/industries/oil/prudhoe/story/8062323p-7955260c.html

Five holes found in pipeline
Small spots may be caused by bacteria hidden in pipe's sludge
By WESLEY LOY
Anchorage Daily News
Published: August 10, 2006
Last Modified: August 10, 2006 at 03:47 AM

The pipeline that sprang a leak over the weekend, triggering a convulsive shutdown of the huge Prudhoe Bay oil field, is pocked with at least five holes possibly caused by a virulent strain of corrosion, according to state and industry sources.

Oil managed to escape from one of the holes, creating a pool of up to 210 gallons on the summer-green tundra before field workers spotted and stopped the leak early Sunday.

The other holes were discovered after workers for BP, the British oil giant that runs Prudhoe, stripped off insulation and a metal jacket that wrap the above-ground pipe on the eastern side of the oil field. The wrappings blocked leaks from more of the holes.

Repairs crews have temporarily patched all the holes, each smaller than a peanut, state officials said.

There are good odds the pipeline has further breaches. BP managers said the pipe was tested in late July with a device called a smart pig, an electronic probe that slides through pipes looking for thin spots in the steel walls.

That report contained alarming results for BP -- indications of 16 anomalies, each a potential hole. BP crews were checking out these spots over the weekend when they noticed oil leaking onto the tundra, prompting top BP executives to order a complete shutdown of Prudhoe, the nation's largest oil field.

The action spooked the energy-strained country, bumping up crude prices and unleashing a torrent of accusations that BP had invited the shutdown by failing to properly clean and test the pipes.

BP has not yet completed the slow, tedious job of shutting down Prudhoe's hundreds of wells. Only the eastern side of the field was idle as of Wednesday night, roughly halving Prudhoe's average daily production of 400,000 barrels.

Federal and state regulators were working with BP on a plan to possibly keep the western side of the field running, once pipelines on that side are closely inspected and deemed safe to operate.

Gov. Frank Murkowski, who plans to visit Prudhoe Bay today, on Wednesday put his natural resources commissioner, Mike Menge, in charge of a state team that's working with federal pipeline regulators and BP managers to try to restore and maintain as much Prudhoe production as possible.

"All the right people are in the same room looking at it," Menge said.

BP executives have acknowledged that the company's pipeline care was inadequate. It failed to clean sedimentary sludge out of key lines and inspect them more often with smart pigs.

But the problem isn't that simple, BP spokesman Daren Beaudo said.

Sunday's spill, as well as a much larger one discovered in early March, involved pipelines known as transit lines. These pipes are major trunk lines within the field that funnel oil into the mouth of the larger trans-Alaska oil pipeline, which runs 800 miles from the North Slope to Valdez.

Normally, such transit lines do not have corrosion problems, Beaudo said and federal regulators confirm. That's because the lines carry finished oil -- crude that has been processed to remove corrosive water.

Yet corrosion, for reasons BP engineers don't yet understand, developed and accelerated rapidly inside some or all of the transit lines, which extend for 22 miles across Prudhoe.

"It's kind of a detective story for us in a way," Beaudo said.

The belief is that bacteria set up shop inside the pipelines, triggering an aggressive and unexpected form of corrosion that ate at the steel, he said. The microbes like living under sludge in the pipes, shielding them from chemicals BP adds to the oil flow to suppress corrosion.

Beaudo said the sludge buildup inside the pipes might have been exacerbated by the low and slow flow rate through lines originally designed to handle much larger and faster-moving volumes of oil. Prudhoe has been pumping since 1977 and once produced four times what it does today.

"Pigging and cleaning, clearly in hindsight, would have removed the solids that we believe helped foster the growth of these microbes," Beaudo said.

BP had recently cleaned the sludge out of the pipeline that failed Sunday, a necessary step before running the smart pig that detected the holes.

BP now has powerful people scrutinizing its maintenance and testing practices. Rep. John Dingell, D-Mich., has called for congressional hearings, and BP is responding to a federal grand jury subpoena to turn over records and even pieces of pipe as evidence in a potential criminal case.

Daily News reporter Wesley Loy can be reached at wloy@adn.com or 257-4590. Reporter Richard Richtmyer contributed to this story.

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http://www.adn.com/money/industries/oil/prudhoe/story/8062323p-7955264c.html

Drop in production increases corrosion
GETTING WORSE: Much of what is pumped out of the aging Prudhoe Bay oil field is water.
By MARY PEMBERTON
The Associated Press
Published: August 10, 2006
Last Modified: August 10, 2006 at 03:47 AM

BP's problem of corroding pipes is worsening as the nation's largest oil field ages and more water and less oil is produced during drilling.

"Really, we are a giant water field," said Bill Hedges, BP PLC's corrosion expert, explaining that what comes up now during drilling is three-quarters water.

The shutdown this week of the Prudhoe Bay oil field because of severe corrosion found in transit lines is raising questions about the condition of the rest of the field. Oil first flowed at Prudhoe Bay on June 20, 1977.

The Prudhoe Bay oil field is very different now from what it was when it was first brought onstream, said ING Financial Markets analyst Jason Kenney.

"The changing quality of the crude that is being produced has presented an issue with the infrastructure that's in place and the development and that is what BP are battling against," Kenney said.

The discovery of the corroded pipe is not the first major problem at Prudhoe Bay -- BP is facing a criminal investigation over a March spill of an estimated 201,000 gallons on the west side of the field. Both spills are being blamed on corroded transit pipes.

BP is spending $72 million this year on its anti-corrosion program, with about half that money going for millions of gallons of corrosion-inhibiting chemicals placed in the pipelines. The amount of inhibitor is roughly double what it was a decade ago.

The company uses a variety of techniques to detect corrosion, including X-raying the pipe and gauging thickness by ultrasound. Workers place gel on sections of pipe and move a transducer along it to detect thin spots. More than 100,000 points along roughly more than 1,000 miles of Prudhoe Bay pipe are checked annually.

Flow pipes -- the ones that carry oil, water and gas -- also are cleaned and scraped and "smart-pigged," where an ultrasound device is put into the pipe to check for thin places in the wall of the pipe.

It was that test, ordered by the U.S. Department of Transportation after the March spill, that revealed problems found Sunday.

BP had relied mostly on exterior ultrasound to monitor the integrity of its three transit pipes in the belief that they were low-risk for corrosion because they carried market-ready crude oil -- processed oil with the water, gas, and solids removed.

On any given day, 60 to 70 workers conduct tests on Prudhoe Bay's aging pipeline system, Hedges said.

BP now says it will use a maintenance pig to scrape and smart-pig all its transit lines.

CSFB analyst Edward Westlake said the outage in Alaska confirms that some production infrastructure is becoming old.

Thomas J. Barrett, administrator of the Department of Transportation's Pipeline and Hazardous Materials Safety Administration, said his office has issued BP several compliance orders since the March spill and will issue several more when the current on-site investigations are complete.

"Our goal is to restore the safe operations up there as quickly as we can. BP is doing the types of things we would like to have seen done sooner," he said.

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http://www.adn.com/money/industries/oil/prudhoe/story/8062323p-7955265c.html

Murkowski orders state hiring freeze
REVENUE: Administration will hold BP responsible, the governor assured Alaskans.
By MATT VOLZ
The Associated Press
Published: August 10, 2006
Last Modified: August 10, 2006 at 03:47 AM

JUNEAU -- Gov. Frank Murkowski on Wednesday instituted a state hiring freeze and said he would direct Attorney General David Marquez to investigate the "state's right to hold BP fully accountable for losses to the state."

Murkowski made the announcement three days after BP said it would shut down the Prudhoe Bay oil field after a small leak was found.

The expected loss of 400,000 barrels per day at today's oil prices means $6.4 million lost daily in royalties and taxes, Revenue Commissioner Bill Corbus said.

The state receives 89 percent of its income from oil revenue.

"BP must get the entire Prudhoe Bay back up and running as soon as it is safely possible," Murkowski told a joint session of the Legislature.

Murkowski also said he will appoint a state Cabinet, led by Natural Resources Commissioner Mike Menge, to deal with the Prudhoe Bay shutdown, "to make certain we retain the ability to exercise all of Alaska's prerogatives under our Prudhoe Bay leases, unit agreements, state laws and rights-of-way agreements."

He said the state intends to carefully scrutinize BP's plans to protect the environment from future damage and plans to resume operations.

He also said he was assuring all Alaskans that the state will hold BP responsible.

Murkowski questioned why BP abruptly decided to shut down the entire Prudhoe Bay field when there was only a small leak. The company made the decision to shutter the field and conduct further testing after finding a leak of four to five barrels.

"What did BP learn last Sunday that it did not know previously that would cause BP to take such precipitous action?" Murkowski said.

Murkowski said he is concerned that the state was not consulted before the decision was made.

Murkowski said there is discussion that BP may continue some production on the western side of Prudhoe Bay, but no decision has been made. BP officials have indicated that decision could be made by Friday.

The hiring freeze will be in place until more information is known about the duration of the Prudhoe Bay oil field shutdown, he said.

The state employs about 17,000 people and has 2,430 vacancies officials are trying to fill, said Murkowski spokesman John Manly.

Manly said the governor's budget office has not estimated how much the state would save with the hiring freeze, nor has the budget office set a cost- savings target.

State officials also will prepare a management plan to protect public services while they determine how long the Prudhoe Bay oil field will be shut down.

The shutdown of Prudhoe Bay, Murkowski said, has become a national issue because of the reduced amount of oil available and the impact on refineries in California, Washington and Oregon that are heavily dependent on Alaska oil.

Murkowski took the opportunity to encourage legislators to get behind his proposal reached with North Slope producers to build a $25 billion natural gas pipeline to Canada.

"I would ask all of you to please pull together with our administration and the producers so we can work as Alaskans through the challenge ahead," he said. "We simply have to get it done."

An uneasy Legislature is wary that Murkowski wants to give up too much to reach that goal, to the point that most say they won't ratify his contract with producers as presented. It appeared unlikely that the governor would get support for the contract before lawmakers ended their special session today.

Three Democratic legislators released a letter to Murkowski on Wednesday calling on the governor to hold hearings and have BP officials explain under oath what they had done, or failed to do, to maintain the integrity of Prudhoe Bay's pipeline infrastructure.

"Absent hearings, during which witnesses are sworn under oath and relevant documents are subpoenaed, the public may never learn the truth," reads the letter from Sen. Hollis French and Reps. Max Gruenberg and Les Gara.

Murkowski said that he would support the idea and that "I fully expect hearings to occur."

The state Department of Administration on Wednesday afternoon was calculating the number of agency vacancies that would be affected by the hiring freeze.

The freeze does not apply to essential employees, such as Alaska State Troopers, corrections and probation officers, and workers who provide patient and resident services at 24-hour institutions.

A person offered a job before Wednesday will still be hired and a state agency can apply for a waiver if a position must be filled for public safety reasons or essential state duties, according to a memo distributed to agencies by Murkowski Chief of Staff Jim Clark.

The Alaska State Employees Association business manager Jim Duncan said in a statement that all options should be reviewed before instituting a hiring freeze.

Duncan called on the governor to remove discretionary projects from the state's capital budget and lift the freeze.

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Fairbanks News Miner
August 10, 2006

http://newsminer.com/2006/08/10/1445/

Half of Prudhoe field may remain open
By Sam Bishop
Published August 10, 2006
Posted in Local


BP officials and regulators are studying whether the feeder line serving the western half of Prudhoe Bay oil field actually needs to be closed. If the line is usable, it could cut expected losses from the field shutdown by as much as half.

Prudhoe Bay, which BP Exploration Alaska Inc. operates for itself and other leaseholders in the field, produces 400,000 barrels per day. The oil is about evenly divided between the eastern and western lines, which deliver it to the trans-Alaska pipeline.

BP began shutting down the eastern line Sunday after discovering a leak and more extensive corrosion than expected. It said the western line would follow.

Retired Coast Guard Adm. Tom Barrett, director of the federal Pipeline and Hazardous Materials Administration in Washington, D.C., said he was not certain why BP had decided to shut down the western line.

BP first closed the western line in early March after discovering a leak of more than 200,000 gallons. The company installed a smaller but adequate bypass line to carry the oil, Barrett said. That line seems to be functioning properly, he said.

“We’re trying to understand why they felt they had to shut the line down,” he said. “If there is a way to maintain production, we will.”

Neil Chapman, a spokesman for BP in Anchorage, said the company is looking at its alternatives, including keeping the western line open.

“What we’re doing is working that option and anticipate toward the end of the week to be in a better position to know,” he said.

The company is working with regulatory agencies, he said.

“We’ve got to satisfy ourselves and we’ve got to work closely with them in order to understand their criteria,” he said. “Our hope is to be able to continue production, but the primary concern is safety and also environmental protection.”

BP still plans to start shutting down the western line once it closes the eastern line, Chapman said. As of 3 p.m. Wednesday, work on the eastern line had not been completed, he said.

The federal pipeline administration told BP in March that it had to “smart pig” the Prudhoe lines, something that hadn’t been done in years. A smart pig finds thin spots in the pipe walls. BP said it couldn’t pig the lines immediately because they had too many solids in them, a factor that contributed to the corrosion.

Barrett, a former Coast Guard commander from Alaska, was confirmed as the PHMSA administrator in June and visited the state in early July. On July 20, his agency issued a second order to BP, telling the company that it had to immediately submit a plan for the pigging and drain the oil from the bypassed section of the western line.

“Frankly, since July 20, BP has been pretty much responsive and doing the things required,” Barrett said. “(It’s) not the same type of lack of care that we had seen in the years that preceded the first spill (in March).”

The low-velocity feeder lines at Prudhoe Bay are not regulated by the pipeline administration, a branch of the U.S. Department of Transportation. Eighteen months ago, the administration started a process to do so. It has now accelerated that process, Barrett said.

Gov. Frank Murkowski said Wednesday that he has formed a cabinet team to ensure that BP’s actions correct the pipeline problems safely and quickly. The team consists of three departmental commissioners, the attorney general and the state-federal relations director in Washington.

Murkowski also asked Attorney General David Marquez to review whether the state should “hold BP fully accountable for losses to the state,” according to a news release.

Staff writer Sam Bishop can be reached at 459-7504 or sbishop@newsminer.com .

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http://newsminer.com/2006/08/10/1443/

Flint Hills spared effects of shutdown
By Staff Report
Published August 10, 2006
By SAM BISHOP

The Flint Hills refinery in North Pole will get enough crude oil from BP to make up for a shortfall created by the Prudhoe Bay field shutdown.

BP Exploration Alaska Inc. officials said Wednesday they would not only boost the supply of state royalty oil available to in-state refineries from their wholly owned North Slope fields but also make their own private oil available.

Jeff Cook, spokesman for Flint Hills Resources Alaska, issued a company statement Wednesday afternoon acknowledging BP’s commitment. The oil will allow normal operations at the refinery, he said.

“Flint Hills Resources appreciates the efforts of BP Alaska, the state of Alaska and others in assuring us the crude supply we need to meet the requirements of our Alaska consumers,” he said.

Cook said the refinery was busy Wednesday afternoon and had not been shorted any oil as a result of the Prudhoe shutdown.

Flint Hills operates almost exclusively on state royalty oil, taking between 56,000 and 75,000 barrels per day. For this month, the state had ordered 56,000 barrels per day, but the Prudhoe shutdown threatened to cut that by 19,757 barrels.

The state, which generally takes an eighth share of production on its North Slope leases as a royalty, tells oil companies three months in advance how much crude it wants “in-kind” to supply the North Pole refinery. It usually asks for 50-60 percent of its royalty oil in-kind.

Under the system the state uses to secure its royalty oil, all companies with an interest in a particular field unit must agree to any changes in the state’s in-kind share once it has been set.

After BP announced the Prudhoe shutdown Sunday, the state and Flint Hills asked BP and other oil owners on the North Slope to increase the royalty oil deliveries to make up, if only in part, for the loss.

ConocoPhillips, the North Slope’s other major operator, declined to do so. The additional royalty oil, which ConocoPhillips essentially sells for the state, had already been committed to customers in Alaska and the western United States, the company said.

BP also uses state royalty oil to supply customers, and so its decision to cover demand from in-state refineries could create shortfalls down the distribution chain. However, BP officials said they would find other sources to supply those customers.

“We are able to meet our customer commitments from a number of supply sources and will insure in-state refiners have the supplies they need,” said Dave MacDowell, a BP spokesman in Anchorage.

BP, ConocoPhillips and Exxon are the major owners of Prudhoe Bay oil, but, under an alignment agreement signed in 2000, BP is the field operator. It began shutting down the field Sunday after discovered a leak and extensive corrosion in lines that feed into the trans-Alaska pipeline from the eastern half of Prudhoe.

BP sends its Alaska oil from Alaska to the Cherry Point refinery in Blaine, Wash., and the Carson refinery in Los Angeles, Calif. Alaska supplies about half of each refinery’s crude, said Michael Abendhoff, BP’s director of public affairs for the Pacific Northwest.

“Our folks are out on the open market looking for crude oil from around the world,” Abendhoff said Wednesday.

That oil could replace whatever stays in Alaska, he said.

Abendhoff said it’s difficult to predict what effect the company’s search for additional oil would have on prices in the Pacific Northwest and West Coast markets.

“Inventory levels look alright through early September,” he said. A hurricane in the Gulf of Mexico could change that, he said, but “everything’s good down there right now.”

Even if ConocoPhillips and other North Slope leaseholders had agreed to release all state royalty oil in-kind, it wouldn’t have made up for the loss of royalty oil from Prudhoe Bay, according to Jim Stouffer, commercial analyst and royalty accounting manager with the state Division of Oil and Gas.

Stouffer was busy Wednesday afternoon revising the state’s requests from royalty oil from the North Slope leases wholly owned by BP. Those include state leases in the Milne Point, Northstar and Badami fields.

Those are relatively small fields, though, and the state has already been taking 95 percent of its oil in-kind from them, so the increase would make up little of the Prudhoe shortfall, he said.

Staff writer Sam Bishop can be reached at 459-7504 or sbishop@newsminer.com.

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http://newsminer.com/2006/08/10/1441/

Prudhoe Bay questions
Published August 10, 2006

The questions are coming fast, and “How could this happen?” is atop the list.

It’s a question that Alaskans and the nation deserve, in due time, to have answered regarding the decision by BP to shut down the Prudhoe Bay oil field. The priority at the moment is to get the field running again as soon as possible.

But working to get the giant field, which in total supplies 8 percent of the nation’s domestic oil production, doesn’t mean the list of questions can’t be compiled.

Was this preventable?

Were warnings made at any time?

Were warnings made but ignored?

Were state and federal inspections lax?

Did state and federal regulations fail to evolve with Prudhoe Bay’s aging to take into account the problems that come with growing old?

What led BP to use ultrasound technology to analyze the pipeline rather than other available methods that some say might have caught the problems years ago?

What does this mean for the condition of other North Slope oil transit lines?

Why was BP, as Gov. Frank Murkowski said to legislators on Wednesday, filing reports assuring the state that everything was fine on the North Slope when in fact it wasn’t?

These and other questions will come up at the expected legislative, congressional and regulatory agency hearings that surely will occur. The governor says he expects those hearings, supports those hearings and that his administration will cooperate entirely with those hearings. He and his newly assembled response team must be at the forefront in asking the questions and in demanding answers.

And one more thing:

The Daily News-Miner has argued here many times that the oil companies generally take good care of their infrastructure because it’s in their financial interest to do so. We have argued repeatedly that they should be allowed to explore and develop the coastal plain of the Arctic National Wildlife Refuge because they can do so in an environmentally responsible manner. We’ve said they have a proven track record on the North Slope. But now we wonder about the future. And that leads to one more question that must be asked and answered when the hearings begin:

How can we restore confidence in the operation of the North Slope oil fields?

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http://newsminer.com/2006/08/10/1444/

Senate committee rejects ‘produce or pay’ plan
By Stefan Milkowski
Published August 10, 2006

JUNEAUWith time running out, a Senate committee Wednesday threw out a key component of the oil production tax rewrite approved Sunday by the House and added a provision to protect the state from costs associated with shutdowns at Prudhoe Bay and other oil fields.

The Senate Special Committee on Natural Gas Development rejected the proposal to tie a company’s tax rate to its level of investment and replaced it with a 22.5 percent rate that would increase at high oil prices.

It also approved a “floor” on the tax rate at low prices and a proposal meant to limit state subsidies for repairs to the Prudhoe Bay oil field, which BP announced Sunday it would shut down because of pipeline corrosion.

“We took a good bill and made it better,” said Sen. Gary Wilken, R-Fairbanks.

Wilken said he was confident that the House would accept the changes and that the Legislature would reach agreement on the tax bill before the end of the summer’s second special session tonight.

The bill was forwarded Wednesday afternoon to the Senate floor, but consideration of it was put off until 7 a.m.today.

The committee added the 22.5 percent base rate after Pedro van Meurs, the governor’s lead adviser on oil and gas issues, spoke critically of the variable tax rate proposal earlier this week.

“It’s simpler,” said Sen. Ralph Seekins, R-Fairbanks, of the flat rate. Seekins, who chairs the committee, said the flat rate would accomplish the same goal and bring about the same revenue to the state.

In a move that acknowledged the importance of winning votes in both the House and Senate, the committee stuck with the House preference for how much to increase the tax rate as prices rise.

“The last thing I want to do is start arguing about a very, very little difference,” said Sen. Tom Wagoner, R-Kenai, who spoke in favor of sticking with the House’s rate. “I think we owe it to them.”

The other big change to the bill came in an amendment aimed at limiting state payments for oil field repairs. According to van Meurs, who helped draft the proposal, the change would guarantee that the state would not give tax credits for repairs “of the type citizens are worried about.”

“(It would ensure) when repairs turn into replacement of pipelines, that a certain amount of capital expenditures simply is not allowed,” he said.

The mechanism would work like a deductible in a health insurance policy. It would set a basic figure for capital expenditures that would not qualify for state credits and could not be deducted from an oil company’s tax base. Specifically, companies would have to pay $.30 per barrel of oil produced before the state incen