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