July 2006 News Stories

The Scotsman

July 29, 2006
http://business.scotsman.com/latest.cfm?id=1118922006

BP submits plan to drain Alaska oil pipeline

NEW YORK (Reuters) - Oil major BP Plc has submitted plans to U.S. regulators to drain an oil pipeline that leaked in Alaska this March, but the company warned it must first get approval to proceed from the U.S. Justice Department, which has subpoenaed BP over the spill.

BP was ordered last week by the Pipeline and Hazardous Materials Safety Administration, a unit of the Department of Transport, to submit plans by August 1 to remove 17,000 barrels of crude oil from the OT-21 oil transit line before the Alaskan winter set in.

BP has proposed using vacuum trucks or installing a jumper pipeline to remove the crude by the August 22 deadline.

The company has already identified the locations on the top of the pipeline where it would install the valves to pump the line out and it is waiting for approval from the government as well as the grand jury investigators.

BP's Alaskan operations have been under heavy scrutiny since the March spill, which occurred after a corroded section of the transit line allowed at least 200,000 gallons of crude oil to spill onto the Arctic tundra.

The company has been ordered by the PHMSA to clean the insides of the pipelines and improve corrosion monitoring.

BP could also face fines of up to $100,000 per day due to its failure to clean the lines by a mid-June deadline, the head of the PHMSA said in a letter to John Dingel, the ranking Democrat on the House of Representatives Energy and Commerce Committee.

Most recently, PHMSA regulators began looking into allegations made by Charles Hamel, a longtime advocate for safety improvements in the Alaska oil industry, that some valves on the pipeline were inoperable.

Hamel, who in the past has served as a channel for Alaskan oil industry workers to complain of safety and environmental problems, said the reports of the leaking valves were sent to him by two BP workers.

BP has acknowledged that one valve on the OT-21 line does not work properly, although a company spokesman said that the valve did not affect the integrity of the seal around the section where the leak occurred as it was upstream of another valve.

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Wall Street Journal
July 29, 2006

BP Required To Submit Safety Data On March Alaska Spill
DOW JONES NEWSWIRES
July 28, 2006 11:11 a.m.
 
WASHINGTON (AP)--BP PLC (BP), the largest oil producer in the U.S., is being required by federal investigators to submit detailed pipeline and storage safety information in connection with a massive March spill in Alaska.

The U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration said Thursday it asked BP to produce detailed engineering information on a section of a Prudhoe Bay pipeline that is believed to have spilled up to 267,000 gallons of oil onto the frozen ground about 250 miles above the Arctic Circle.

"These additional corrective actions are needed to assure the safety of the pipeline operations," said Tom Barrett, head of the federal agency. "BP's operations must reflect suitable and stringent operational controls."

The Wall Street Journal reported Friday that the same agency is also investigating allegations by some workers that safety valves on the pipeline are not working properly.

A BP spokesman in Alaska could not immediately be reached for comment.

Barrett and other government officials visited Alaska earlier this month to inspect pipeline operations on Alaska's North Slope, according to the Transportation Department, which is working in conjunction with several other state and federal agencies.

Earlier this week, BP said it would shut 12 oil wells on Alaska's North Slope as a precaution after whistleblowers alleged more than 50 were leaking. Most of the shuttered wells were in Prudhoe Bay.

The shutdowns come a month after BP confirmed it had received a subpoena from a U.S. grand jury investigating the March oil spill.

London-based BP has in the past blamed the incident on a small hole caused by corrosion in a pipeline.

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Financial Times
July 29, 2006

http://www.ft.com/cms/s/a628a0c4-1e9e-11db-9877-0000779e2340.html

Lord Browne's Turtles line up for the race that  will bring them the ultimate prize at BP
By Carola Hoyos
Published: July 29 2006 03:00 |
Last updated: July 29 2006 03:00

Lord Browne, BP's chief executive, has been as much a statesman as a businessman. In the past decade, he has carefully honed his image as the visionary figurehead of BP and ambassador of the industry. He has enjoyed cajoling sheiks, emirs and presidents, as much as cutting multi-billion-dollar deals with hard-nosed American peers.

All of the five candidates poised to replace him have spent time as Lord Browne's personal assistant and have watched the process from up close. So close that they learn, by way of corporate legend, that his favourite wine is a Montrachet and that he favours El Rey del Mundo Cuban cigars.

But - more than at most of the other big energy companies - the hopefuls at BP until now have operated in the shadow of their leader.

After years, in some cases decades, of grooming, all the candidates appear equally capable. So much so that the announcement of the winner is unlikely to budge BP's share price, analysts and investors say.

The man to take his place will have to learn quickly to take on weighty characters, but judging from the field of hopefuls, he will be more capitalist than diplomat.

Most outsiders favour Tony Hayward, the boyish-looking geologist who heads BP's exploration and production business. An avid sailor, he is described as private and a family man.

His career has spanned some of BP's most important operations. But it is his particular experience both in finance, as head of treasury, and, more importantly, his role since 2003 in spearheading BP's efforts in finding and producing oil and gas - a division that makes up 80 per cent of the company's total value - that makes him a front-runner

As the big oil companies struggle to lift their oil and gas production and replace their reserves, industry analysts believe it is critical the BP chief executive of the future has exploration and production experience.

There are precedents for this - Lord Browne made his name in finding oil in the North Sea before becoming chief executive.

ExxonMobil recently appointed the head of its exploration and production unit, Rex Tillerson, to take over from Lee Raymond, the only man who rivals Lord Browne's stature among oil company executives.

The main competition for Mr Tillerson came from refining, as do the main rivals of Mr Hayward for the top job at BP.

They are difficult to rank, but Mr Hayward's closest competitor may well be John Manzoni.

Mr Manzoni outworks most of his peers in sheer hours, as he runs BP's refining and marketing business. Pragmatic, numbers orientated and focused on detail, he is perhaps the most obvious engineer in a company that is largely made up of them.

His family line comes from a literary and romantic bent - his great, great, great grandfather Alessandro Manzoni wrote The Betrothed, between 1825 and 1827, a romantic novel set in the 17th century's war and plague-ridden Lombardy.

It is considered one of the greatest works of modern Italian fiction. Giuseppe Verdi's requiem was dedicated to him and first performed in 1874 on the anniversary of his death.

But, an unromantic oil engineer, Mr Manzoni apparently had not much pondered these details until they were pointed out to him by a colleague.

Some outsiders peg Mr Manzoni as slightly more able than Mr Hayward, making a close race more likely.

The top-three contenders are rounded out by Robert Dudley. Mr Dudley is the straight talking, friendly, head of TNK-BP, the Russian joint venture. His strength lies in the fact the business he runs is a microcosm of BP.

Indeed, TNK-BP is roughly the size BP was before its merger with Amoco and Arco, the two US oil and gas companies, in the late 1990s.

The TNK-BP venture has defied early analyst and investor criticism that the deal was too risky.

Under Mr Dudley, the business has managed to escape any large scrapes with its Russian business partners. It has weathered, more recently, the Kremlin's power-grab over Russia's energy industry, and has helped save BP's ailing production growth.

Among the remaining BP hopefuls is Iain Conn, who heads BP's internal functions. His portfolio is varied and he has been given "what needs sorting out at BP", as one executive put it.

He helped spin off BP's chemicals business, most recently, and was deeply involved in BP's 2001 deal with Eon to swap BP's Ruhrgas assets with Aral, Eon's German petrol station chain.

He is regarded as having the best stage presence - an important asset for any chief executive. At 43, he is also the youngest of the bunch.

But people close to the process feel he could be a more likely candidate the next time round.

Another contender who should not be dismissed, according to people familiar with the situation, is Andrew Inglis, who is close to the action, as Mr Hayward's deputy. Described as calm and serious, Mr Inglis seeks out new developments for BP upstream.

He has been deeply involved in sorting out the accident that saw the Thunderhorse platform in the Gulf of Mexico list 20 degrees after Hurricane Dennis hit it last July.

Lord Browne this week joked he had spent much of his summer holiday on the phone with Mr Inglis, dealing with the situation. It speaks to his ambition and reputation in BP that Mr Inglis is on the list despite being Mr Hayward's deputy.

"It is not where people are that makes them possible successors, it is who they are," says one person close to the succession process.

Sir Peter Sutherland, BP's powerful chairman - who pushed Lord Browne to unequivocally state this week that he would be retiring at the end of 2008 - will be looking for a calm, mature, balanced man with good business sense, says one person close to Mr Sutherland.

He has watched the contenders from the boardroom and has already begun to acquaint himself with them on an individual basis. But so far, he has not revealed any preferences.

As for Lord Browne, he has spent more than 20 years grooming his turtles - as BP's brightest young managers are known - who are picked out early in their careers and given unfettered access to the senior management.

All of his five would-be successors were included in the programme, which Lord Browne named after the fast-moving Teenage Mutant Ninja Turtles - popular in the 1980s and 1990s.

Corporate case studies have recorded that, on starting the job, a Turtle gets a pay increase and inherits the Turtle bible, an accumulated collection of "secret" advice.

Now it is time for the outgoing chief executive to step back from the pack, and leave the choice of which turtle will win the race to Mr Sutherland.

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Financial Times
July 28, 2006

http://www.ft.com/cms/s/d116fd4a-1dd5-11db-bf06-0000779e2340.html

US issues veiled warning to BP over pipeline work in Alaska US
By Sheila McNulty in New York
Published: July 28 2006 03:00 |
Last updated: July 28 2006 03:00

The US government yesterday expressed "significant concern'' over BP's limited progress in meeting corrective orders imposed on the UK oil group following the biggest-ever spill from a corroded pipeline at its Alaska field.

The Department of Transportation noted it has authority to impose a maximum fine of $1m per violation, which could be $10m if BP is seen to have failed to meet all 10 actions under the order.

In addition, the DoT "has discretion to refer violations to the attorney-general for civil enforcement".

BP has said it will meet the order, though it has missed many of its deadlines, which could be considered violations by the DoT.

The veiled warning to BP came in a letter by Thomas Barrett, head of the DoT's Pipeline and Hazardous Materials Safety Administration, in which he noted: "All enforcement options remain open.''

The letter, a copy of which was obtained by the FT, was addressed to John Dingell, senior Democrat on the House committee on energy and commerce, who is monitoring BP.

BP's spill followed a major explosion at a BP Texas refinery last year, which killed 15 people and injured an estimated 500, leading BP to appoint Bob Malone to turn round its US safety record.

The warning to BP coincided with a House sub-committee hearing yesterday on whether the DoT, which oversees high-stress pipelines, should also impose minimum operating standards on low-stress lines, such as the one that leaked.

"The situation with BP's pipelines on the North Slope remains serious,'' Mr Dingell told the FT.

"Global oil supplies are too tight to tolerate these kinds of problems.''

Mr Barrett has just visited the Alaska field. "We came away with perspective on the engineering challenges BP faces, but also with significant concern about BP's progress in measuring, planning for and addressing the sediment that had accumulated in its pipelines.''

The sediment, which has been building for up to 16 years in some parts, leads to corrosion, which could cause other leaks.

The DoT has ordered the sludge be removed and lines checked with high-tech equipment for corrosion.

Mr Barrett said BP has mostly blamed Alyeska Pipeline for failing to clear all the lines, citing Alyeska's concerns over BP pushing the sludge off its own field and into Alyeska's pipeline, which runs out of Alaska.

Alyeska does not want the sludge to put its pipeline at risk.

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Wall Street Journal
July 28, 2006

Two BP Alaska Oil-Field Valves Are Investigated
By JIM CARLTON
July 28, 2006; Page A2

The Department of Transportation said it is investigating allegations by some workers that two safety valves at BP PLC's oil field in Prudhoe Bay, Alaska, weren't working at the time of a large oil leak in March associated with the same pipeline.

The valves aren't believed to have played a part in the leak of as much as 267,000 gallons of crude oil, the largest such spill on the Alaskan North Slope, and haven't resulted in any other pipeline leaks. The valves could represent the potential for a spill hazard as BP, of London, faces regulatory scrutiny of its management of pipelines at Prudhoe Bay and in its North American operations.

BP said it doesn't know of any threat to the public health or to the environment as a result of the allegedly stuck valves.

Officials of the agency's Pipeline and Hazardous Materials Safety Administration sent a letter to BP Tuesday asking for detailed information on the valves in question and to describe any safety or environmental risks they might pose in case of a leak. The letter said BP officials identified one valve on the broken pipeline as "leaking through" when Thomas Barrett, administrator of the pipeline agency, visited the Prudhoe Bay site this month.

BP officials said they are preparing a detailed response to the letter, but added they know about no threatening leaks. They dispute the assertion they don't provide enough upkeep on valves at the field. BP spokesman Daren Beaudo said one valve showed signs of leaking at the time of Mr. Barrett's visit -- possibly because it didn't seal completely -- but he added it is redundant to another valve. The valves control the flow of oil.

Mr. Beaudo said the main valves have held since the spill, which state officials determined resulted from corrosion in a transit line. BP officials have taken a three-mile stretch of the pipeline out of service, pending scheduled replacement of the line next year. As crude production is being rerouted around the spill site, BP officials are working to drain nearly a million gallons of crude left in the closed pipeline.

Federal officials said they were responding to a complaint relayed to them by Charles Hamel, who has long served as a conduit for safety-related concerns by Alaskan oil-industry workers. Mr. Hamel, of Alexandria, Va., said the complaint was forwarded to him by two BP workers.

Separately, the pipeline-safety agency sent BP a letter July 20 taking it to task for failing to clean oil and sludge out of a section of the pipeline, which has been idled since March. BP said it was delayed in removing the oil by a federal grand jury's request to view some of the pipe but would seek to comply with the order. The inquiry comes amid other state and federal investigations into the spill, including a criminal one by the Environmental Protection Agency. BP has said it is cooperating.

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

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Reuters News
July 27, 2006

http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-07-27T212129Z_01_N27476190_RTRIDST_0_ENERGY-BP-FINE.XML

BP could face fine over delay in cleaning pipeline
Thu Jul 27, 2006 5:21 PM ET
By Robert Campbell

NEW YORK, July 27 (Reuters) - The government's top pipeline regulator expressed frustration this week with BP Plc's  failure to clean three Alaska oil pipelines as ordered and said the company could still be fined up to $100,000 per day.

In a letter sent to U.S. lawmakers, the Pipeline and Hazardous Materials Safety Administration "has reserved all enforcement prerogatives," over BP's failure to carry out an internal pipeline cleaning operation known as pigging by a mid-June deadline, wrote PHMSA Administrator Thomas Barrett.

The letter was sent to Rep. John Dingell, the ranking Democrat on the House Energy and Commerce Committee, a copy of which was obtained by Reuters.

BP was ordered by the PHMSA to pig three oil transit pipelines in Alaska by June 15 after a corroded segment of one of the lines leaked over 200,000 barrels of crude oil in March.

However, BP did not perform the pigging operations as ordered, claiming that a federal subpoena and the refusal of the operator of the Trans-Alaska Pipeline System (TAPS) to accept the sediment that would be produced by the cleaning made compliance impossible.

"PHMSA has not ruled on BP's request for extension of the deadline ... and in particular, has not determined that factors beyond BP's control prevented compliance," wrote Barrett.

Barrett expressed "disappointment" with BP's slow progress in complying with the clean-up order, noting that a visit he made earlier in July to Alaska drew his attention to what he described as BP's "lack of progress" in dealing with some of the obstacles preventing pipeline cleaning.

"We came away with perspective on the engineering challenges BP faces, but also with significant concern about BP's progress in measuring, planning for, and addressing the sediment that had accumulated in its pipelines," wrote Barrett.

BP has now completely pigged one of the three pipelines and a section of a second, but regulators have ordered the pigging halted until BP provides more data on the amount of sediment in the lines after the company's initial estimates were shown to be inaccurate.

The March oil spill was the worst ever on the Alaska North Slope and one of a series of safety, environmental and ethical lapses that have marred BP's record in the United States, including a blast at its Texas City, Texas, refinery in March 2005 that killed 15 people.

 

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Financial Times
July 27, 2006

http://www.ft.com/cms/s/2e685adc-1da6-11db-bf06-0000779e2340.html

US in veiled warning to BP over Alaska
By Sheila McNulty in New York
Published: July 27 2006 21:31 |
Last updated: July 27 2006 21:31

The US government on Thursday expressed “significant concern’’ over BP’s limited progress in meeting corrective orders imposed on the UK oil group following the biggest-ever spill from a corroded pipeline at its Alaska field.

The Department of Transportation noted it has authority to impose a maximum fine of $1m per violation, which could be $10m if BP is seen to have failed to meet all 10 actions under the order.

In addition, the DoT “has discretion to refer violations to the attorney-general for civil enforcement”.

BP has said it will meet the order, though it has missed many of its deadlines, which could be considered violations by the DoT.

The veiled warning to BP came in a letter by Thomas Barrett, head of the DoT’s Pipeline and Hazardous Materials Safety Administration, in which he noted: “All enforcement options remain open.’’

The letter, a copy of which was obtained by the FT, was addressed to John Dingell, senior Democrat on the House committee on energy and commerce, who is monitoring BP.

BP’s spill followed a major explosion at a BP Texas refinery last year, which killed 15 people and injured an estimated 500, leading BP to appoint Bob Malone to turn round its US safety record.

The warning to BP co-incided with a House sub-committee hearing on Thursday on whether the DoT, which oversees high-stress pipelines, should also impose minimum operating standards on low-stress lines, such as the one that leaked.

“The situation with BP’s pipelines on the North Slope remains serious,’’ Mr Dingell told the FT.

“Global oil supplies are too tight to tolerate these kinds of problems.’’

Mr Barrett has just visited the Alaska field. “We came away with perspective on the engineering challenges BP faces, but also with significant concern about BP’s progress in measuring, planning for and addressing the sediment that had accumulated in its pipelines.’’

The sediment, which has been building for up to 16 years in some parts, leads to corrosion, which could cause other leaks.

The DoT has ordered the sludge be removed and lines checked with high-tech equipment for corrosion.

Mr Barrett said BP has mostly blamed Alyeska Pipeline for failing to clear all the lines, citing Alyeska’s concerns over BP pushing the sludge off its own field and into Alyeska’s pipeline, which runs out of Alaska.

Alyeska does not want the sludge to put its pipeline at risk.

BP insists the sludge is less than it had initially estimated, going from up to 12 inches of build-up in some parts to at most three. “The degree of inconsistency with BP’s earlier estimates is reason alone for a cautious approach,’’ Mr Barrett said.

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Financial Times
July 27, 2006

http://www.ft.com/cms/s/b2587b06-1d0b-11db-9780-0000779e2340.html

BP investors uneasy about executive retirement rules
By Chris Hughes

Published: July 27 2006 03:00 | Last updated: July 27 2006 03:00

BP should reconsider its requirement that executives retire at 60 following the recent boardroom feud over the departure of Lord Browne, its chief executive, several of the oil group's leading shareholders said yesterday.

The 58-year-old executive was due to stand down in February 2008, but earlier this week struck a compromise deal that will see him continue until the end of that year.

While most big shareholders appear to be happy with the outcome, several were uneasy about the board's rigid application of the retirement rules. "You get a bit of a feeling that advantage has been taken of an existing process that just doesn't stack up," said one shareholder.

"We will certainly be putting pressure on the company to do something about compulsory retirement at 60, and now is the best time to get it changed."

In an informal poll among BP's top 15 shareholders, two others agreed, although they were less concerned about the timing of such a move.

"Stepping away from retiring at 60 would be a good thing, but it would be more tactful to do so when Lord Browne's successor is appointed," said one. "The real issue here was not retirement age but longevity of service."

Another said: "I don't really mind how old executives get. It's dogmatic to stick to an age."

Several shareholders were keen to see BP retain a mandatory re-tirement age - as long as it was applied flexibly. "It gives you a chance to get rid of people past their sell-by date. It's better to have rules in place and break them, than not have them at all," said one top-15 shareholder.

There was also support for the board, led by Peter Sutherland, the chairman, in forcing Lord Browne to declare his departure date. "They have taken uncertainty out of the situation. This gives the board credibility. It's right to be decisive and stick to your own governance rules," said one leading shareholder.

"Lord Browne is the best of his generation, but now we need to find the best of the next generation," said another top investor. who backed the board.

But two large shareholders said they would be complaining to BP about the lack of investor consultation surrounding Lord Browne's departure date.

Opinion was also divided about whether BP should choose an external candidate to succeed Lord Browne.

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Houston Chronicle
July 26, 2006

http://www.houstonchronicle.com/disp/story.mpl/business/energy/4072237.html

BP profit up, but problems are lingering
Gulf platform, Texas City refinery still troubled
By LYNN J. COOK
Copyright 2006 Houston Chronicle

BP's North American oil production and refining problems will not be fully fixed until 2007, Chief Executive Lord John Browne told analysts and investors Tuesday.

The 58-year-old Browne also announced he would be stepping down at the end of 2008.

 The news of his retirement and the continued woes with the company's Thunder Horse platform and refinery in Texas City came alongside the release of BP's quarterly earnings.

For the second quarter, BP booked record profits of $7.3 billion, 30 percent higher than those announced for the second quarter of 2005. Revenue was $74 billion.

At the end of trading Tuesday, BP's stock closed down 23 cents at $69.51.

The Thunder Horse platform in the Gulf of Mexico  which was ravaged by Hurricane Dennis last summer before it ever came online  experienced leaks even after repairs were made. The leaks will further delay Thunder Horse and the nearby Atlantis platform from producing oil and gas until early 2007, Browne said during a news conference at BP's London headquarters.

"During a routine hydrotest, we experience two leaks in a subsea manifold," he said, referring to the joints where pipelines connect. Browne said BP would replace the damaged subsea equipment and retest it.

And the company's troubled Texas City refinery continued to lose money in the first half of the year even though the facility was restarted in March and is currently processing about 200,000 barrels of crude a day  not quite half its capacity.

Texas City racked up a loss of $600 million in the first six months of the year, Browne said. At its current run rate, Texas City is near the financial break-even point, but "it's our contention that the financial potential for the site is not expected to be realized until 2007," Browne said.

In March 2005, 15 contractors were killed at the plant in an explosion.

In addition to solving the Thunder Horse and Texas City problems, BP is also facing regulatory probes into a pipeline leak in Alaska discovered last March. The trifecta of technical issues has sent BP scrambling to clean up its act in North America.

"First and foremost, we are committed to safety, integrity and the environment. We're redoubling our efforts in this sphere, notably in North America," Browne said.

BP will plow another $1 billion, on top of the $6 billion already committed over four years, into upgrading all aspects of safety at U.S. refineries and replace infield pipelines in Alaska.

Browne said that while BP will continue to cooperate with U.S. regulators investigating the company's problems, he doesn't want to wait on the outcome of those investigations.

So BP is creating a new U.S. advisory board filled with people from outside the company to assist BP America and its newly appointed chairman, Robert Malone, in monitoring operations with a focus on compliance and safety.

"BP has some 40 percent of its assets and its staff in the United States and a U.S. investment program of $30 billion over the next five years. We are the largest indigenous producer of oil and gas combined," Browne said in a written statement. "It is of vital importance to BP and to Americans who depend significantly on us for secure energy supplies that our U.S. businesses operate to the highest standards of safety and integrity."

BP's record-setting second-quarter profits came even though the company's oil and gas production has dropped off some due to the residual impacts of hurricanes in the Gulf of Mexico last season and asset shifting in Venezuela, where BP is having to enter into joint ventures with the state-owned oil company.

Browne attributed the earnings bounce to high oil prices.

BP's average crude oil price per barrel sold was $66 for the quarter  up 30 percent over this time last year. BP's refining margins were also up $1 per barrel for the second quarter to average $9.50 per barrel.

ljcook@chron.com

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http://www.chron.com/disp/story.mpl/business/energy/4070517.html

BP made $7.3 billion 2nd quarter profit
By LYNN J. COOK
Copyright 2006 Houston Chronicle

BP, the world's second largest publicly-traded energy company behind Exxon Mobil, booked a $7.3 billion profit for the second quarter  a 30 percent increase over profits recorded for the same period last year.

During a news conference held at company headquarters in London today, BP's chief executive, Lord John Browne, also announced he would step down at the end of 2008.

 "I will be retiring from BP, though may I say not from work, in 2008," he said.

Browne explained that BP's profit margin continues to swell even though oil and natural gas output has dropped over the last year. BP's revenues reflect an average crude oil price of $66 per barrel for the quarter  30 percent higher the BP's average crude oil price for the same quarter of 2005.

BP's output has fallen thanks to the lasting impacts of hurricanes in the Gulf of Mexico last summer and required asset shifting in Venezuela where BP has to enter into joint ventures with the state-owned oil company.

BP's refining margins were also up $1 a barrel in the second quarter to average $9.50 per barrel.

Browne cited several developments that he said would strengthen BP in the future, including first oil through the Baku-Ceyhan pipeline, a new discovery in Angola, the start-up of a liquified natural gas terminal in China and a 10 percent participation in the initial public offering of Russia's Rosneft.

But Browne also singled out BP's Texas City refinery, which is now processing 200,000 barrels of crude oil a day  not quite half its capacity  as an important milestone for the company. A unit of the Texas City refinery exploded in March 2005, killing 15 workers and injuring at least 170 others. After the explosion, parts of the refinery continued to operate until hurricane season hit and the entire Texas City facility was taken down for repair.

"First and foremost, we are committed to safety, integrity and the environment. We're redoubling our efforts in this sphere, notably in North America," Browne said,

The company announced it will add another $1 billion to the $6 billion already earmarked over the next four years to upgrade all aspects of safety at its U.S. refineries and to repair and replace infield pipelines in Alaska.

One year after the Texas City refinery explosion, BP was facing with a leaking oil pipeline in Alaska, which had to be shut down and repaired. The company said corrosion monitoring has been upgraded and it now plans to remove pipeline residues through a process known as 'pigging'  effectively, boring them out  by November, six months ahead of the original schedule.

Speaking on Texas City and Alaska, Browne said: "These events in our U.S. businesses have all caused great shock within the BP Group. They have prompted us to look very critically at what we can learn from ourselves and others and at what more we can do in certain key areas to assure ourselves and the outside world that our U.S. businesses are consistently operating safely, and with honesty and integrity."

While BP will cooperate with U.S. regulators investigating the problems, Browne said he doesn't want to wait on the outcome of those investigations.

The company plans to appoint independent members to a new U.S. advisory board that will assist and advise BP America and its newly-appointed chairman, Robert Malone, in monitoring the operations of BP's U.S. businesses with a particular focus on compliance, safety and regulatory affairs.

Browne said, "BP has some 40 percent of its assets and its staff in the United States and a U.S. investment program of $30 billion over the next five years. We are the largest indigenous producer of oil and gas combined. It is of vital importance to BP and to Americans who depend significantly on us for secure energy supplies that our US businesses operate to the highest standards of safety and integrity."

ljcook@chron.com

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Wall Street Journal
July 26, 2006

BP Moves To Fix Troubles
In U.S., Says Net Up 30%
By CHIP CUMMINS
July 26, 2006; Page A2

LONDON -- Fighting to boost confidence in its incident-prone U.S. businesses, BP PLC said it will increase spending on safety and engineering integrity at its American refineries and Alaskan oil operations; order an independent audit of its trading operations; and form an outside advisory panel to help steer the company's American unit.

BP announced the moves yesterday at the same time it reported a 30% jump in earnings, which were helped by higher oil and natural-gas prices but crimped by high taxes and costs. The moves come after a series of accidents and compliance failures in the U.S., including several deadly refinery accidents, an Alaskan oil spill and alleged trading shenanigans.
 
Also, John Browne said he would stay on as chief executive until the end of 2008. At a news conference in London, he denied recent speculation in the British press that he and Peter Sutherland, BP non-executive chairman, had clashed about the timing of his retirement, which the company and Lord Browne have long said would coincide with his 60th birthday in 2008. It was the first time Lord Browne had set a specific date for his retirement, saying Dec. 31, 2008, is "a nice calendar date."

BP posted second-quarter net income of $7.27 billion, or 30 cents a share, up from $5.59 billion, or 23 cents a share, a year earlier. Revenue rose 24% to $73.47 billion. BP's numbers conform to international financial-reporting standards, which differ from U.S. generally accepted accounting principles.

The company plans $15.5 billion to $16 billion of capital expenditures this year, up slightly from previous estimates because of higher costs. BP also said profits have been held down by higher taxes, citing specifically recent moves by the U.K. to increase taxes on oil production in the North Sea.

Despite rising costs and taxes, much higher oil prices helped deliver another quarter of stellar returns for BP, the world's second-largest publicly traded oil company by market capitalization after Exxon Mobil Corp. BP said its average realization for a barrel of crude was $65.96 during the quarter, up more than a third from $47.79 during the year-earlier period. Those sharply higher prices are likely to translate into big windfalls at other large, integrated oil companies that report their earnings this week. Exxon Mobil and No. 3 Royal Dutch Shell PLC report results tomorrow.

Cheat Sheets: Get a jump on what to expect from some other big names during the summer earnings season.The quarterly results reflected a net gain for special, nonoperational items of $6 million. Gains from asset sales outweighed a charge of roughly $460 million related to repairs and upgrades at BP's Texas City, Texas, plant. That compares with a net charge of $822 million a year earlier.

Yesterday BP shares traded in London slipped to 630 pence ($11.66), a drop of 3.5 pence.

BP said it would spend a further $1 billion on upgrading safety and engineering-integrity systems in the U.S. The move follows pressure on BP following a spate of accidents. In March 2005, 15 workers were killed by an explosion at BP's Texas City refinery. The refinery has suffered a number of less serious but troubling accidents since, including the death of a contractor over the weekend.

Federal officials are investigating corrosion problems at BP's operations at Prudhoe Bay, Alaska, where one BP pipeline leaked oil earlier this year. BP said yesterday it will boost the integrity of the pipeline system in Alaska.

Last month, U.S. officials also accused BP of manipulating the U.S. propane market, a charge BP has said it will contest in court. Yesterday, BP said it will appoint a team of independent, external auditors to examine the company's trading compliance and share the results of the audit with investigators. Finally, BP said it will appoint an independent advisory board to help guide BP America, the company's U.S. unit, and its new CEO, Robert Malone.

Lord Browne spent much of yesterday's news conference denying speculation he had been lobbying BP's board to remain in place longer than planned. Amid the speculation, he said he "wanted to be crystal clear" that he had no intention of staying on past 2008, a decision he said he made with the board and its independent chairman, Mr. Sutherland.

"Even if I was asked to stay, I would decline," he said.

In the news conference, he said he had recommended to the board a list of "more than three" internal candidates to succeed him in early 2009.

Write to Chip Cummins at chip.cummins@wsj.com

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Financial Times
July 26, 2006

http://www.ft.com/cms/s/8d90055a-1c43-11db-bd97-0000779e2340.html

Sutherland wins BP power play
By Carola Hoyos in London
Published: July 26 2006 03:00 |
Last updated: July 26 2006 03:00

Peter Sutherland, chairman of BP, yesterday stamped his authority over the energy group by forcing Lord Browne, its widely admired chief executive, to announce he would retire at the end of 2008.

Echoing words used by Mr Sutherland in private, Lord Browne said yesterday that "a company isn't about one person".

The two men had feuded over the announcement, with Lord Browne reluctant to commit himself to a departure date. Yesterday they reached a compromise that saw Lord Browne promising to go but extending his stay to the end of 2008, rather than February 2008, when he turns 60.

However, even as the company was trying to draw a line under the row, lingering tensions between the two camps resurfaced, particularly over a now-abandoned plan for BP to pursue a merger with Royal Dutch Shell, the company's European rival.

People close to Mr Sutherland and Lord Browne denied that the idea - resisted by the chairman and other board members - fuelled tension between the two.

The move, described earlier this week by sources close to Lord Browne as a "significant potential merger", was yesterday officially dismissed as nothing more than "scenario planning".

A senior BP executive said there was never "a serious proposal", while another said that Shell had not been prepared to discuss the idea when it was being floated by executives in the latter half of last year.

However, two insiders insisted the idea of a transformational merger had been closed down by Mr Sutherland. "Peter was less comfortable with the idea than John [Browne]," one said.

Shell last night refused to comment.

Yesterday Lord Browne gave an unequivocal pledge to leave BP on December 31 2008, adding he would decline to stay on, even if the board requested it.

He denied a rift with his chairman, saying the reason for his going was not age but tenure.

The tensions between Mr Sutherland and Lord Browne have raised questions over how much power the chief executive will exert in his remaining 18 months. Friends had mounted a weekend campaign designed to extend his tenure after Mr Sutherland had told him to "end the uncertainty" over his departure plans.

"At the end of 2008 I will have been CEO of BP for over 13 years and that is quite a long time." Lord Browne added: "This has been a matter of discussion for the chairman, the board and me for a very considerable time."

Bruce Evers, of Investec Securities, said: "Lord Browne is going to be an exceptionally hard act to follow. He is without question the leading oil man of his generation . . ."

BP yesterday reported record net replacement cost profit of $6.1bn (£3.2bn), a 23 per cent rise on last year. High oil prices and strong US refining margins helped offset a decline in production. The company announced sweeping changes to its US operations, which have been rocked by accidents in the past 18 months. BP America will get an advisory board for safety, compliance and regulatory affairs and an extra $1bn on top of $6bn - to improve operational standards and monitoring.

BP also said it would hire external auditors to ensure compliance at its trading operations which were hit recently by accusations from US authorities of market manipulation in 2004.Additional reporting by Toby Shelley in London

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Wall Street Journal
July 25, 2006

BP's Net Profit Rises 30%
On Higher Oil, Natural-Gas Prices
By CHIP CUMMINS
July 25, 2006 9:00 a.m.

LONDON -- BP PLC reported a 30% rise in second-quarter profit, buoyed by high oil and natural-gas prices and higher refining margins, but moderated somewhat by higher costs and higher taxes.

Meanwhile, BP Chief Executive John Browne said he would stay on in his role until the end of 2008. At a press conference in London Tuesday, he denied recent newspaper speculation that he and Peter Sutherland, BP nonexecutive chairman, had clashed about the timing of his retirement, which the company and Lord Browne have long said would coincide with his 60th birthday in 2008. It was the first time Lord Browne had set a specific date for his retirement, however, saying Dec. 31, 2008, was "a nice calendar date."

BP also unveiled a number of measures to shore up confidence in its U.S. operations, which have been hobbled by a series of safety and compliance problems. The measures include additional spending on safety and engineering improvements at its refineries and its pipeline system in Alaska; the appointment of an independent advisory board for its U.S. operations and an independent audit of its trading operations.
 
Cheat Sheets: Get a jump on what to expect from some other big names during the summer earnings season.BP reported second quarter net income of $7.27 billion, or about 30 cents a share, up from $5.59 billion, or about 23 cents a share, a year earlier. Revenue rose 24% to $73.47 billion. BP's numbers conform to international financial-reporting standards, which differ from U.S. generally accepted accounting principles.

Amid soaring crude prices, cost inflation across the oil patch has risen sharply. BP has been able to counter those higher costs more than many other companies in the recent past. But the company said it now believes it will need to boost capital expenditures modestly to keep pace with rising costs.

The company said it now plans to spend $15.5 billion to $16 billion this year, up slightly from previous guidance. BP also said profits have been crimped by higher taxes, citing specifically recent moves by the U.K. to increases taxes from oil production in the North Sea.

BP said its tax rate in the second quarter rose to 36% from 32% in the year-earlier period. The company said it expects its full-year effective tax rate to be 39%. A number of oil-rich countries, including Britain, Algeria and Venezuela, have increased -- or threatened to increase -- taxes, royalties and other financial compensation from oil companies operating in their fields.

Despite the cost pressures from higher taxes and oil-field inflation, much higher oil prices have helped deliver another quarter of stellar returns for BP, the world's second-largest publicly traded oil company by market capitalization. That suggests a rosy picture for other large, integrated oil companies that report their earnings this week. No. 1 Exxon Mobil Corp. and No. 3 Royal Dutch Shell PLC report results Thursday.

The quarterly results reflected a net gain for special, nonoperational items of $6 million. That compares with a net charge of $822 million charge a year earlier. BP said total oil and gas production for the year would be in line with its estimate of some 4.1 million to 4.2 million barrels a day of oil equivalent.

In early trading in London, BP shares were up 2.3%.

In a statement accompanying earnings, BP said it would spend a further $1 billion on upgrading safety and engineering-integrity systems in the U.S. The move follows intense pressure on BP following a spate of accidents. In March 2005, 15 workers were killed by an explosion at BP's Texas City, Texas, refinery. The refinery has suffered a number of less serious but troubling accidents since, including the death of a contractor over the weekend.

BP said it would focus new spending at BP's five U.S. refineries on maintenance, turnarounds, inspections and staff training. Outlays will rise to $1.5 billion this year from $1.2 billion in 2005 and will jump further to an average $1.7 billion each year from 2007 to 2010, BP said. The company is also hiring about 300 outside experts to comb refineries for safety problems and fix them. Federal officials are investigating corrosion problems at BP's operations at Prudhoe Bay, Alaska, where one BP pipeline leaked oil earlier this year. BP said Tuesday it will spend at least an additional $50 million boosting the integrity of the pipeline system in Alaska.

Last month, federal officials also accused BP of manipulating the U.S. propane market, a charge BP has said it will contest in court. On Tuesday, BP said it would appoint a team of independent, external auditors to comb over the company's trading compliance and share the results of the audit with investigators. Finally, BP said it would appoint an independent, advisory board to help guide BP America, the company's U.S. unit, and its new chief executive, Robert Malone.

"These events in our US businesses have all caused great shock within the BP Group," said BP Chief Executive John Browne in a statement. "They have prompted us to look very critically at what we can learn from ourselves and others and at what more we can do in certain key areas to assure ourselves and the outside world that our U.S. businesses are consistently operating safely, and with honesty and integrity."

Write to Chip Cummins at chip.cummins@wsj.com 

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BP To Invest A Further $1B To US Safety Over Next 4 Yrs
DOW JONES NEWSWIRES
July 25, 2006 3:04 a.m.
 
Edited Press Release

LONDON (Dow Jones)--BP Tuesday announced an acceleration of actions to improve the operational integrity and monitoring of its U.S. businesses. The company said it would add a further $1bn to the $6bn already earmarked over the next four years to upgrade all aspects of safety at its U.S. refineries and to repair and replace infield pipelines in Alaska.

The spend is part of a wide-ranging package of measures aimed at improving confidence in the integrity of BP's U.S. operations following a series of incidents over the past 18 months, including last year's explosion at the Texas City refinery, the recent oil spill in Alaska and the investigation into propane trading activity in the U.S.

BP chief executive Lord Browne said: "These events in our U.S. businesses have all caused great shock within the BP Group.

"They have prompted us to look very critically at what we can learn from ourselves and others and at what more we can do in certain key areas to assure ourselves and the outside world that our U.S. businesses are consistently operating safely.

"We are, of course, continuing to co-operate to the fullest possible extent with the U.S. regulatory bodies investigating these events. But we do not believe we can simply await the outcome of those investigations. In addition to the significant steps we have already taken we have decided we must do more now."

Browne said it is intended to appoint an advisory board to assist and advise the Group's wholly-owned U.S. subsidiary, BP America Inc. and its newly-appointed chairman, Robert A. Malone, in monitoring the operations of BP's U.S. businesses with particular focus on compliance, safety and regulatory affairs.

The measures Browne announced Tuesday include a step-up in the scale and pace of spending at BP's five U.S. refineries on maintenance, turnarounds, inspections and staff training. Spend will now rise to $1.5bn this year from $1.2bn in 2005 and will jump further to an average $1.7bn each year from 2007 to 2010.

Systems to manage process safety at the refineries will undergo a major upgrade, with some $200 million earmarked to pay for 300 external experts who will conduct comprehensive audits, and re-designs where necessary, of all safety process systems. The new systems are targeted to be installed and working by the end of 2007, a year ahead of the original schedule.

Browne said the input of the U.S. Occupational, Safety & Health Administration (OSHA) would be sought throughout the process and that the outcome would mirror or exceed OSHA's requirements.

BP Tuesday also pledged more rapid action to restore the integrity of its infield pipelines in Alaska. With corrosion monitoring already upgraded, it now plans to remove pipeline residues - through a process known as 'pigging' - by November, six months ahead of the original schedule.

Any necessary bypass lines are being built this summer and BP is making its own arrangements for the safe disposal of pipeline residues. The work is expected to cost some $50 million and entail the loss of around 40,000 barrels a day of production -11,000 barrels a day BP share - for up to a month.

The pipeline which leaked in the recent oil spill has been taken out of service and will be replaced by a new line which has already been ordered. If other transit lines are found to be faulty, they will also be replaced.

Browne said a major review by independent external auditors had also been set in train of the BP's compliance systems in its U.S. trading business. In the wake of allegations of market manipulation in U.S. propane trading, the auditors will examine the design of the trading organisation, delegations of authority, standards and guidelines, resources and the effectiveness of control and compliance.

The results of the review will be shared with relevant U.S. regulatory authorities and the auditors' recommendations will be urgently acted upon by BP.

"The steps taken Tuesday, including the appointment of a new advisory board for our U.S. subsidiary, indicate the absolute determination of the BP Group to restore confidence at every level in the conduct of our business in the U.S.," Browne said.

"BP has some 40% of its assets and its staff in the United States and a U.S. investment programme of around $30bn over the next five years. We are the largest indigenous producer of oil and gas combined. It is of vital importance to BP and to Americans who depend significantly on us for secure energy supplies that our U.S. businesses operate to the highest standards of safety and integrity."

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Financial Times
July 25, 2006

http://www.ft.com/cms/s/a9eaa406-1b50-11db-b164-0000779e2340.html

BP’s Browne confirms 2008 departure
By Carola Hoyos, Energy Correspondent,
and Toby Shelley
Published: July 24 2006 22:01 |
Last updated: July 25 2006 13:27

BP on Tuesday moved to end a potentially damaging feud at the top of the UK oil major after that Lord Browne, its highly respected chief executive, confirmed that he would leave the company by the end of 2008.

Lord Browne said: “I will be retiring in 2008. Even if I were asked to stay beyond 2008, I would decline. I will be leaving at the end of 2008.”

The compromise puts an end to days of speculation about the timing of Lord Browne’s departure and allows BP more time to assess potential successors. The oil group has a mandatory retirement age of 60  a rule that would have seen him stand down in February 2008.

Lord Browne was summoned by Peter Sutherland, the chairman, last Friday and told to put an end to the speculation. Mr Sutherland is understood to have argued that that the company had to be bigger than any one individual and had already begun the succession planning.

Tony Alves, analyst at brokers Peel Hunt, said Lord Browne had led during a period of huge change in the oil industry and would leave the company in good shape. Given the size of BP, Mr Alves said few investors would consider not holding shares on the basis that Lord Browne was or was not at the helm.

Friends of Lord Browne had mounted a rearguard action to prevent him being “bounced” into announcing his departure at Tuesday’s interim results. They have been canvassing institutional shareholders to amass support for moves to prolong his tenure while casting doubt on the quality of potential successors.

Lord Browne was said by friends to have been be “very upset” and had been resisting pressure from Mr Sutherland to make an unequivocal statement that he would not seek to stay beyond 2008.

The Financial Times has learned that BP’s succession-planning is under way. One board member said the matter had been discussed three times by the non-executive directors. “There was a unanimous view that he [Lord Browne] should go at 60,” the director said.

Although they have looked at outsiders, the non-executive directors agreed the new chief executive should be drawn from one of five internal candidates. Among these, front runners are likely to be Tony Hayward, head of the dominant exploration and production division, and John Manzoni, chief executive of refining and marketing.

Mr Sutherland was moved to act after a Merrill Lynch analyst’s note last week described Lord Browne’s retirement as “an emerging issue and potential medium-term risk”.

Friday’s meeting between the two men lasted 40 minutes and was said by an insider to have been “tense and hostile”. Mr Sutherland pressed Lord Browne repeatedly to “clarify the situation”. Lord Browne said he would think about it over the weekend.

There have been simmering tensions between the BP chairman and the chief executive for some time. Late last year, Mr Sutherland intervened to block a “significant potential merger”.

Additional reporting by Chris Hughes

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http://www.ft.com/cms/s/a2c6381c-1bae-11db-a555-0000779e2340.html

BP lifts safety spending as profits rise
By Toby Shelley
Published: July 25 2006 08:36 |
Last updated: July 25 2006 08:36

BP on Tuesday moved to address its woes in the US, where some 40 per cent of its assets and staff are based, pledging to spend an extra $1bn over the next four years to restore confidence in its refinery and pipeline operations.

The spending boost, and the creation of an independent advisory board for BP’s US subsidiary, came as the UK oil major announced an almost 23 per cent rise in second-quarter replacement cost profits to $6.1bn. Replacement cost profit strips out inventory effects on oil company income.

While it reiterated target production levels for the full year, BP confirmed production in the quarter was some 100,000 barrels of oil equivalent down from the the same period last year, with first-half output some 2.5 per cent down.

Spending on upgrading US operations is to rise to $6bn for the next four years as the BP battles to retain public confidence after a fatal explosion at Texas City in March 2005, revelations over oil spills in Alaska and a price-fixing lawsuit over allegations that BP traders manipulated the US propane market.

Lord Browne, chief executive, said a major review by independent external auditors had also been set in train of the BP’s compliance systems in its US trading business.

The auditors would examine the design of the trading organisation, delegations of authority, standards and guidelines, resources and the effectiveness of control and compliance, he said. The results of the review will be shared with relevant US regulatory authorities and the auditors’ recommendations will be urgently acted upon by BP.

Lord Browne, who on Tuesday said that he would be stepping down in 2008, said “These events in our US businesses have all caused great shock within the BP group”.

The decision to appoint an advisory board in the US follows the appointment of a new chairman, Robert Malone, for its operations there.

Under Lord Browne, BP has attempted to brand itself as an energy company rather than an oil company, publicising its spend on renewable energy projects and replacing its traditional logo with a sunflower image. This has made pipeline spills in Alaska, where oil exploration and production is controversial, all the more embarrassing and Lord Browne said on Tuesday that the pipeline concerned had already been taken out of service and corrosion monitoring upgraded.

The Texas City explosion last year killed 15 people and injured 500. The company then set aside $700m for compensation claims but on Tuesday said it had made a further provision of $500m. That accident has cost the company not only the costs of repair and compensation but also foregone profits, $460m in the second quarter alone.

The company also said on Tuesday that its Thunder Horse platform in the Gulf of Mexico, which was damaged in last year’s hurricane season, had received a setback with the discovery of two subsea leaks. Production Thunder Horse is now not expected to restart until early next year.

BP’s profits in the second quarter were supported by higher oil and gas prices, plus better refining margins, bolstering upstream and downstream operations at the same time, despite the lower production.

However, they are flattered by the fact that in the second quarter of last year the company took a net non-operating charge of $822m whereas it made a slight gain this year.

The dividend for the quarter was set at 9.825 cents, against 8.925 cents a year ago.

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Financial Times
July 25, 2006

http://www.ft.com/cms/s/db4fa17c-1b78-11db-b164-0000779e2340.html

BP set to unveil ‘comprehensive’ changes
By Jeremy Grant in Washington
Published: July 25 2006 02:24 |
Last updated: July 25 2006 02:24

BP, the UK-based energy group, was on Tuesday expected to announce “comprehensive” changes to its compliance procedures in North America. The moves will include tightening compliance at BP’s trading operations, which have been at the centre of accusations of price manipulation in the US propane market.

The Commodity Futures Trading Commission, the US futures industry regulator, alleged in a lawsuit last week that a five-man team at BP's natural gas trading desk in Houston cornered the market for a particular kind of propane.

The trading is alleged to have taken place in the unregulated over-the-counter markets.

BP denies that any manipulation took place.

BP’s well-known competitiveness has led the company to collect more accusations of wrong-doing than peers such as ExxonMobil, the world’s biggest energy group and BP’s closest rival in the US.

A series of safety and environmental setbacks at BP’s US operations have also plagued the group.

A contract worker died at the weekend at the same Texas City refinery where, last year, an explosion killed 15 and injured some 500.

The company shut down 12 Alaskan oil wells last week after whistleblowers said 50 had been leaking.

The claims renew worker fears that Alaska regulators are too beholden to BP, as one of the state’s biggest employers, to regulate its operations.

The US government last week said BP had "failed" to meet its responsibilities to rid its Alaska pipelines of sludge - a necessary step to enabling high-tech corrosion tests that could prevent another massive oil leak.

Additional reporting by Carola Hoyos in London

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http://www.ft.com/cms/s/a9eaa406-1b50-11db-b164-0000779e2340.html

BP feud erupts over Browne succession
By Carola Hoyos, Energy Correspondent
Published: July 24 2006 22:01 |
Last updated: July 25 2006 00:03

BP was on Monday night shaken by an increasingly public feud over the timing of the departure of Lord Browne, its highly respected chief executive.

Lord Browne was summoned by Peter Sutherland, the chairman, on Friday and told to put an end to damaging speculation that he wished to stay on beyond the oil group’s retirement age of 60  a rule that would see him stand down in February 2008.

The controversy will surprise outsiders as Lord Browne is routinely cited as Britain’s most admired business figure. However, Mr Sutherland is understood to be arguing that the company must be bigger than any one individual and has already begun the succession planning. “This is all a war about nothing,” said a source close to the board.

Friends of Lord Browne have since begun a rearguard action to prevent him being “bounced” into announcing his departure at Tuesday’s interim results. They have been canvassing institutional shareholders to amass support for moves to prolong his tenure while casting doubt on the quality of potential successors.

Lord Browne is said by friends to be “very upset” and has been resisting pressure from Mr Sutherland to make an unequivocal statement that he would not seek to stay beyond 2008. Allies say, however, that he will, if asked at Tuesday’s meeting, say that “by statute and per the board” he is due to go in February 2008.

They added that Lord Browne would be open to staying on in some capacity  although he is said to be “mindful of the corporate governance implications” in replacing Mr Sutherland as chairman.

However, in spite of the rearguard action, the Financial Times has learned that the succession-planning is under way. One board member said the matter had been discussed three times by the non-executive directors. “There was a unanimous view that he should go at 60,” the member said.

Supporters of Mr Sutherland accuse Lord Browne’s friends of “stoking up” a campaign.

Although they have looked at outsiders, the non-executives agreed the new chief executive should be drawn from one of five internal candidates.

Mr Sutherland was moved to act after a Merrill Lynch analyst’s note described Lord Browne’s retirement as “an emerging issue and potential medium-term risk”.

Friday’s meeting between the two men lasted 40 minutes and was said by an insider to have been “tense and hostile”. Mr Sutherland pressed Lord Browne repeatedly to “clarify the situation”. Lord Browne said he would think about it over the weekend.

Leading shareholders in BP were on Monday split over whether Lord Browne should stay on past his 60th birthday.

The Co-operative Insurance Society backed him to continue, along with several top-10 shareholders. Standard Life said investors would accept a finite extension to his tenure if his successor was not in place.

There have been simmering tensions between the BP chairman and the chief executive for some time. Late last year, Mr Sutherland intervened to block a “significant potential merger”.

Additional reporting by Chris Hughes

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Financial Times
July 24, 2006

http://www.ft.com/cms/s/6d033ce2-1ab0-11db-848c-0000779e2340.html

Man killed at BP's Texas City
By Sheila McNulty in Houston
Published: July 24 2006 03:00 |
Last updated: July 24 2006 03:00

BP's safety record in the US came under additional pressure at the weekend when a contract worker died at the Texas City refinery where 15 were killed and an estimated 500 injured in 2005.

The contract worker was in the basket of a motorised man-lift when, in repositioning the basket, his upper body became wedged between a beam and the control panel, BP said. It did not identify the man.

The worker was taken to the hospital, where he was pronounced dead.

The incident will renew fears about BP's US safety record, which has been blackened by a string of accidents, recently in Texas and Alaska but also occurring in other states in recent years.

The two biggest - the Texas City blast and a major spill from a corroded pipeline in Alaska in March - are under grand jury investigation for possible criminal action against BP and/or its executives.

Last month, BP appointed Bob Malone chairman and president of BP America to try to turn round its troubled US operations.

"Any death, anywhere in BP, is unacceptable," Mr Malone said. "When I visited Texas City earlier this week, many employees spoke about the many actions taken to make the refinery a better, safer place. This tragedy makes clear the need to accomplish this goal."

He said BP had taken several steps to ensure safety at the Texas City refinery - BP's biggest - following the accident.

BP has suspended all non-essential work there for three days, as management holds safety discussions with plant personnel, including contractors.

It has also suspended the use of motorised man-lift equipment as it reviews the processes and procedures governing their use. BP is investigating the fatality with contractor companies and employees involved in the job, including JV Piping, for whom the man worked; RSC equipment rental, which provided the man-lift; and Certified Safety, which is the spotter.

BP said it had notified local authorities as well as state and federal regulators. The Department of Labor's Occupational Safety and Health Administration division is on site.

This marks the third industrial accident in BP's US operations that OSHA has been called to investigate since the March 2005 explosion in Texas City. In May, OSHA was called to BP's Ohio refinery after a contract worker was severely burned.

 

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Financial Times
July 23, 2006

http://www.ft.com/cms/s/4d7ad260-1a68-11db-848c-0000779e2340.html

‘I must learn from what happened at BP America’
By Carola Hoyos
Published: July 23 2006 18:16 |
Last updated: July 23 2006 18:16

Bob Malone knew he had made a mistake when Lord Browne’s reading glasses dropped to the end of his nose. The chief executive of BP fixed his gaze on the man he had just promoted to head the energy company’s shipping operations, then spent several minutes chastising his underling over his inclusion of a slide on BP shipping’s financial health during a business review.

“I told you your job is to operate safely and environmentally responsibly our fleet,” Mr Malone recalls being told. “Don’t ever come into the room with financials,” Lord Browne went on.

Four years later a series of safety, environmental and ethical setbacks at BP’s US operations have tested the validity of Lord Browne’s message that BP puts safety first and profits second.

A contract worker died at the weekend at the same Texas City refinery where, last year, an explosion killed 15 and injured some five hundred.

After that blast at Texas City, as well as a large oil spill at Alaska’s pipelines, the near-sinking of BP’s Thunderhorse platform in the Gulf of Mexico and a recent propane trading scandal, investors want to know if the breakdowns are un­connected or if, instead, US operations at the world’s second largest listed energy group are fundamentally flawed.

The job of finding the answer has fallen to 54-year-old Mr Malone. Promoted three weeks ago to chairman and president of BP America, the affable Texan says that he will make good use of his own reading spectacles as he travels across the US grilling managers of BP’s refineries, pipelines and trading operations.

Before taking over BP’s most important country operation  one that employs one-third of the company’s 96,000 workers and ac­counted for one-third of its total sales in 2005 of $323bn  Mr Malone held a variety of positions in other parts of the company and at its subsidiaries. Safety has registered highly in all of them.

In the late 1990s, he dealt with safety problems and regulatory issues as chief executive officer of the Alyeska Pipeline Service Company, which operates the Trans Alaska Pipeline System, before leading one of the most dangerous BP operations: running the world’s largest fleet of natural gas and oil tankers.

During his tenure, he reduced BP’s reliance on contractors, adding 48 vessels to the company’s fleet. He also brought the remaining contractors into BP’s safety-compliance system. The move cost Mr Malone and his staff a chunk of their bonuses because their safety rating fell as contractors noted incidents that had previously gone unreported.

“The incentives are strong to be behind the safety value set. I saw my pay cheque fall by more than 10 per cent last year,” Mr Malone says as he argues that BP had plenty of sticks and carrots to ensure safety was at the top of every manager’s mind.

Although BP insists that the change at the top of its US operations has nothing to do with its problems there, Mr Malone has wasted little time shaking up the organisation. He created the position of US health and safety adviser before he took over officially on July 1. And he is already on the charm offensive to try to salvage BP’s efforts to market itself as a “green” energy company. To help him focus on the task, Mr Malone inherited only the US, not Canada and Latin America, from his predecessor’s list of responsibilities.

Much remains to be done as questions linger over whether BP is indeed investing enough in its people and infrastructure. Drilling engineers believe human error was one of the reasons the $1bn Thunderhorse platform listed by a dramatic 20 degrees when Hurricane Dennis blew through the Gulf a year ago. In Alaska, unions have argued for the past five years that BP was not investing enough in safety. At trading desks in the US and UK, BP’s well-known competitiveness has led the company to collect more accusations of wrong-doing than peers such as ExxonMobil, the world’s biggest energy group and BP’s closest rival in the US.

“I am not going to say it was a string of bad luck. If we have to further enhance our safety value system we will,” Mr Malone says. But he adds that his working assumption is that BP’s recent problems were individual breakdowns within a good value system, rather than warning signs of a flawed overall operation.

“Thunderhorse was about pushing the technology of floaty bits,” he says. “In trading we had a breakdown in integrity. In Alaska, we believed we had the right [pipeline corrosion] programme in place. Clearly we did not.

“I was in London when Texas City happened. I felt as much pain as anyone in the US, other than those in Texas City,” says Mr Malone. “I have to learn from what has happened. [BP America] is a big, important business for BP,” he says. “Where I believe we need to review, look and take action, I will.”

Colin Smith, energy analyst for Dresdner Kleinwort, the investment bank, says: “Investors would want comfort that BP had fully gripped all of the issues and learnt their lessons from the incidents in the US. Was Texas City a plant problem, or are there broader lessons that need to be implemented elsewhere?” he asks.

Mr Malone will also have to take on the current dispute between the US and energy companies over how much of the increasingly large profits from US oil production should go in to government coffers.

“Our history tells us that we have been very successful in finding agreements so that we get the right return on our investment and the nation gets the fair share of rent,” he says.

Clearly more exciting to Mr Malone, however, is the task of improving energy security and the environment. But the job is not only a means to an end. It is one of the most visible ways for BP to win back the trust of ordinary citizens.

“Energy security has to be in the mix. We have to have oil and gasoline. We need to find ways to consume less, develop additional supply. We need to be looking at alternative fuel sources in this country.”

Mr Malone is looking for such sources not only on behalf of BP. “I’ve been replacing my electric pump with solar [power] and have two new windmills on my ranch in West Texas,” he says proudly.

Even his gas-guzzling, eight-year-old Chevy pick-up truck is up for replacement in the Malone family’s drive to go green. If all goes according to his plans, Mr Malone’s cows, sheep and goats will be getting their feed delivered on the back of a hybrid petrol-electric pick-up truck before the end of the month.

It is difficult to imagine Mr Malone staring icily over his spectacles at failing managers. But questions about his personal style may be less important than his willingness to make tough decisions: if, counter to his current belief, his assessment of operations reveals flaws that strike at the heart of BP’s structure and culture in the US, an altogether more serious level of management intervention will be required from the genial Texan.


BOB MALONE’S TO-DO LIST: HOW TO GET BP BACK ON TRACK

BP’s most prominent mis-steps predate Bob Malone’s arrival as chairman and president of BP America on July 1. Last year’s refinery explosion in Texas City, which killed 15 people and injured hundreds, and oil leakage problems in Alaska, drew an immediate response that included increases in investment. But the Texan will still have to steer the energy company through ongoing investigations and lawsuits, while resolving safety issues.

* The Texas City explosion prompted criminal and regulatory probes. BP has put aside more than $1bn to compensate the victims.

* BP is also disputing charges by US authorities that its traders tried to corner the market for propane gas in 2004.

* The resurrection of BP’s Thunderhorse platform, which listed by 20 degrees during Hurricane Dennis last year, appears to be giving more trouble than expected. Analysts are voicing concern that the company may not be able to achieve its goal of starting production by the end of this year.

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Wall Street Journal
July 23, 2006

Contractor Killed at BP's Texas City Refinery
DOW JONES NEWSWIRES
July 22, 2006 11:34 a.m.
By Beth Heinsohn and John M. Biers
Of DOW JONES NEWSWIRES
 
NEW YORK (Dow Jones)--A contractor at BP Plc's (BP) Texas City, Texas, oil refinery died Friday while working on a pipe stack.

The unidentified 54-year-old man, an employee of JV Piping, was working from the basket of an industrial lift when he became pinned against a pipe. He later died at Mainland Medical Center in Texas City.

A BP spokesman told The Galveston County Daily News that all nonessential maintenance work at the plant had been halted and an internal investigation was under way.

BP also notified state and federal authorities, including the U.S. Occupational Safety and Health Administration, according to the Houston Chronicle.

The latest incident will be the third BP industrial accident in the last year and a half that OSHA has considered.

A deadly blast at BP's largest U.S. refinery in Texas City in March 2005 killed 15 contract workers and injured another 170 people. In May, OSHA opened an investigation of BP's Toledo, Ohio, refinery after a contract worker suffered severe burns.

OSHA's Toledo investigation followed on the heels of $2.4 million in fines levied on BP in April for alleged violations at the refinery. The oil giant is contesting the fines. In September 2005, BP agreed to pay $21.4 million a fine relating to safety violations at Texas City.

Additionally, in June federal commodity regulators charged BP with a trading conspiracy to corner the propane market. U.S. transportation regulators this week ordered BP to perform additional testing on its Alaska pipeline network; the move followed a large oil spill from a pipeline earlier this year.

In the wake of the accidents, BP has tapped a new U.S. division head, Robert Malone, who has vowed to improve safety operations.
 
-By Beth Heinsohn and John M. Biers; beth.heinsohn@dowjones.com; 201-938-4435

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Houston Chronicle
July 23, 2006

http://www.chron.com/disp/story.mpl/business/energy/4064767.html

BP leader vows safety turnaround
By LOREN STEFFY
Copyright 2006 Houston Chronicle

One of Bob Malone's first jobs was working in a blast furnace in East Texas. That may have prepared him, in some small way, for the firestorm he inherited as the new head of BP America.

BP, after all, faces two separate criminal investigations, one related to the March 23, 2005, blast at its Texas City refinery that killed 15 people, the other tied to a pipeline leak earlier this year in Alaska.

An independent panel run by former Secretary of State James Baker III is investigating BP's safety practices, and it's had several other accidents at Texas City and at a refinery in Ohio that have resulted in record fines.

It's been accused by federal regulators of trying to manipulate the market for propane.

Is it any wonder, then, that as Malone travels the country meeting with BP employees he finds them downtrodden?

"They're feeling pretty bruised right now," he says.

More open with public
Malone hopes to change not only those feelings, but the myriad of safety and environmental problems that spawned them. He's also vowed to be more forthcoming with the public, which may explain his willingness to meet me for lunch on Friday before he headed to his 10,000-acre ranch near Sonora in West Texas for the weekend.

If you've read this column during the past year and a half, you know that BP officials haven't been too quick to respond to my interview requests.

Malone, though, is different. He's been on the job about a month, so it's too early to say if he can fix what ails BP, but he's saying the right things.

"This is about getting our operations right," he says. "It really doesn't matter what I say, it's what we do."


12 wells closed
Last week, BP closed 12 natural gas wells in Alaska after whistle-blowers alleged some 50 BP wells may be leaking.

"Where I believe we need to act, I have," Malone says.

He also plans to hire an ombudsman to field worker concerns about safety in Alaska.

He expects to fill the position within the next 60 days with someone from outside the company.

He says he hasn't ruled out creating similar positions in other regions, although he said workers in places such as Texas tend to be more forthcoming about problems.

Having just met with employees in Texas City, Malone says he believes a new attitude pervades the refinery there.

Last Sunday, for example, BP was restarting a unit. Workers in the control room saw a reading they didn't like, and they shut the process down, he says. "They think it's very different from a year ago," he says.

Malone says he promised the workers in Texas City that he would return and spend time with the night shift. That's when there's more free time to talk, he says.

Malone himself worked the night shift as a young man working for Lone Star Steel. Malone says even as a high-ranking manager, he's tried not to lose sight of those days.

"I'm not ivory tower," he says.


One of the first to know
Malone says he was one of the first company officials in London to learn of the Texas City explosion. He was head of BP's shipping division at the time and got a call from one of the company's tankers docked nearby.

"Five thousand miles away and you felt it," he says.

Since then, of course, much has been written about the internal memos that show BP largely ignored safety concerns at Texas City long before the explosion and that it didn't comply with its own safety guidelines.

Last fall, BP shut down the refinery in advance of Hurricane Rita and has kept many of the units down to overhaul them. As of last month, only about half the facility was operating.

Almost 50 percent of the top managers in Texas City have been replaced since the explosion, Malone says. And, of course, Malone was put in his job in response to BP's many problems in the U.S.

Wait and see
None of which means that he will succeed or even that BP has committed to changing its ways as Malone says. After all, anyone can make themselves sound convincing over a plate of seafood.

Malone, though, basically told me that, and he offered to meet with me again after he's had more time to address the problems.

Change at a company the size of BP  especially the sort of cultural change that's needed  is difficult and slow in coming. Malone seems sincere in wanting to make it happen.

That alone is one of the more encouraging signals to come out of BP in the past year and a half.

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy @chron.com  . His blog is at http://blogs.chron.com/lorensteffy/
 

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Wall Street Journal
July 21, 2006

US DOT Tells BP To Complete Alaska Oil Pipeline Tests
DOW JONES NEWSWIRES
July 21, 2006 7:34 a.m.
By Maya Jackson Randall
Of DOW JONES NEWSWIRES
 
WASHINGTON (Dow Jones)--The U.S. Department of Transportation's pipeline safety office on Thursday directed BP Exploration Inc. in Alaska to take additional measures and perform internal tests to ensure safe operation of its pipelines in Prudhoe Bay.

The directive comes in response to a large oil spill in March that was the result of failure on a low-pressure Alaska pipeline operated by the BP PLC (BP) unit. The leak of more than 200,000 gallons of oil on Alaska's North Slope is said to be the largest oil spill in the region's history.

Pushing BP to take on additional testing of its system, the Pipeline and Hazardous Materials Safety Administration, or PHMSA, on Thursday directed BP to submit a comprehensive engineering plan to drain 17,000 barrels of oil within its Western Operations Area pipeline and store sediment within the pipelines in tanks to avoid contamination of the Trans Alaska Pipeline System.

Under the directive, BP must also test pipeline walls to determine whether the pipeline is ready for internal "smart pig" testing to detect any weak spots in the pipe. PHMSA denied BP's request to postpone "smart pigging" of its pipelines.

Officials in DOT's pipeline office visited Alaska's North Slope earlier this month to review BP's pipeline operations and meet with federal and state officials.

"These additional corrective actions are needed to assure the safety of the pipeline operations," PHMSA Administrator Tom Barrett said in a news release. "BP's operations must reflect suitable and stringent operational controls."

-By Maya Jackson Randall, Dow Jones Newswires; 202-862-9263; Maya.Jackson-Randall@dowjones.com  

 

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Financial Times
July 21, 2006

http://www.ft.com/cms/s/8f377660-1854-11db-99a6-0000779e2340.html

Analysts ponder BP without Browne
By Carola Hoyos
Published: July 21 2006 03:00 |
Last updated: July 21 2006 03:00

BP is expected to announce record second-quarter profit next week but oil industry analysts are growing nervous about life after Lord Browne, the UK energy company's visionary chief executive, who is nearing retirement age.

Mark Iannotti, analyst at Merrill Lynch, the investment bank, wrote yesterday: "We view the mandatory retirement of BP CEO John Browne . . . as an emerging issue and potential medium-term risk for shareholders and our positive investment stance."

Colin Smith, of Dresdner Kleinwort, the investment bank, agreed, saying: "It's not so far away now."

Lord Browne will hit BP's mandatory retirement age of 60 in February 2008.

He completed the turnround of BP's fortunes, masterminded its shift to the US with the acquisitions of Amoco and Arco in the late 1990s and three years ago was the only one of his peers to be able to close a big corporate energy deal in Russia.

Successors are already being groomed, with Tony Hayward, BP's head of exploration and production, seen as the leading candidate in a small pack of well-positioned hopefuls.

But several recent events have reopened the debate over whether any hopefuls may have to wait a little longer.

First, Lord Browne has spoken passionately against age discrimination, even though he has been careful not to connect the issue to his own situation.

Second, UK legislation due to come into force in October, combined with the precedent set by Royal Dutch Shell, BP's closet European competitor, when it shifted its retirement hurdles, has improved the opportunities for Lord Browne to stick around.

Whether he will signal to the board that this is, indeed, his wish is a separate question, the answer to which Lord Browne has guarded closely.

Many analysts believe he would want to continue working with BP. But remaining as chief executive could signal unease about his successors and moving to become non- executive chairman of the board could raise regulatory issues.

Sir William Castell, a former chief executive of Amersham, the healthcare company, former chairman of the Prince's Trust and chairman of the Wellcome Trust, has become a BP non-executive director.

Lord Browne is likely to be asked about his plans when he announces BP's second-quarter earnings on Tuesday. But succession will not be the onlyquestionon investors' minds.

BP's falling production will be on the agenda as well as it ageing pipeline system in Alaska and concerns about BP's other facilities. Shareholder activism, however, will likely be damped by another quarter of huge profit and large share buy- backs, analysts said. BP is expected to announce profit of between $5.8bn and $6.3bn for April to June.

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Anchorage Daily News
July 21, 2006

http://www.adn.com/news/alaska/ap_alaska/story/7986505p-7879541c.html

Alaska regulators to look at BP wells for leaks
MARY PEMBERTON, Associated Press Writer
Published: July 20, 2006
Last Modified: July 20, 2006 at 04:54 PM

ANCHORAGE, Alaska (AP) - The state is investigating dozens of BP-operated oil wells on Alaska's North Slope following allegations this week that petroleum-based fluids had leaked onto the Arctic tundra.

The Alaska Oil and Gas Conservation Commission had an inspector in-place Thursday to begin the process of looking into the integrity of 57 wells operated by the British oil company, said Commissioner Cathy Foerster.

The investigation might be extended to other wells if warranted, she said.

"We take these allegations seriously," Foerster said, adding that the state investigation would be conducted independently of one BP is doing.

The allegations were first reported this week in a London newspaper. The Financial Times referred to an unnamed "veteran BP employee" in reporting that some BP wells had allowed gas and hydrocarbon fluids to the surface.

The investigation was being launched even though the state agency had no information that any of the wells had leaked fluids onto the tundra, or that BP had operated the wells improperly, Foerster said.

"We don't have any information any of the 57 wells are in violation of our regulations," she said.

The Alaska Department of Environmental Conservation also is taking part in the investigation. Leslie Pearson, the agency's spill response program manager, said DEC also had no reports of spills at the 57 wells.

"To our knowledge, there have been no spills reported from any of these well cellars and no indication there have been any impacts to tundra," she said.

Foerster said an independent investigator with no ties to the oil industry also would be looking into the allegations for the state. The independent investigator was hired several months ago, in part because of criticism that state regulators are too easy on oil companies, she said.

Foerster said Alaska follows industry standards when it comes to regulating North Slope operators.

BP welcomes the state investigation into the wells, said Steve Rinehart, a spokesman for BP in Alaska.

"We are anxious to get to the bottom of this and to find any problems if there are some," he said.

Chuck Hamel, a former shipping broker from Virginia who frequently publicizes information from whistleblowing employees in Alaska's oil industry, said last month in a letter to state officials that water carrying oil had flooded some well cellars this spring, eventually reaching tidal ponds on the tundra.

Foerster said the commission had not received any information indicating well house spills had actually reached the tundra.

"I have workers up there that say just the opposite," Hamel said. "They know that they are vacuuming up crude oil that has reached the surface every day."

BP had previously shut down 37 of the 57 wells over concerns of petroleum products winding up in well cellars. It then shut down eight more to optimize oil production, leaving 12 wells still in operation. Those wells were being shut down this week after the Financial Times' report.

"We decided in an abundance of caution to shut down and reconfirm the integrity of 12 operating North Slope wells," BP spokesman Daren Beaudo said this week. "We have no reason to believe that continued operation poses a risk to workers or the environment."

Foerster said a small amount of leaked fluid is to be expected because the wells are mechanical systems that need to be lubricated. Crude oil or diesel fuel, added as freeze protection, also can reach the well house cellars, sometimes mixing with melted snow.

Those fluids are vacuumed out of the cellars as required, Foerster said.

Pearson said the investigation will include looking into the well cellars to see if they have liners.

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Wall Street Journal
July 21, 2006

Alaska Regulators Investigating BP Oil Wells For Leaks
DOW JONES NEWSWIRES
July 20, 2006 9:21 p.m.
 
ANCHORAGE, Alaska (AP)--The state of Alaska is investigating dozens of BP-operated (BP) oil wells on the North Slope following allegations this week that petroleum-based fluids had leaked onto the Arctic tundra.

The Alaska Oil and Gas Conservation Commission had an inspector in-place Thursday to begin the process of looking into the integrity of 57 wells operated by the U.K. oil company, said Commissioner Cathy Foerster.

The investigation might be extended to other wells if warranted, she said.

"We take these allegations seriously," Foerster said, adding that the state investigation would be conducted independently of one BP is doing.

The allegations were first reported this week in a London newspaper. The Financial Times referred to an unnamed "veteran BP employee" in reporting that some BP wells had allowed gas and hydrocarbon fluids to reach the surface.

The investigation was being launched even though the state agency had no information that any of the wells had leaked fluids onto the tundra, or that BP had operated the wells improperly, Foerster said.

"We don't have any information any of the 57 wells are in violation of our regulations," she said.

The Alaska Department of Environmental Conservation also is taking part in the investigation. Leslie Pearson, the agency's spill response program manager, said DEC also had no reports of spills at the 57 wells.

"To our knowledge, there have been no spills reported from any of these well cellars and no indication there have been any impacts to tundra," she said.

Foerster said an independent investigator with no ties to the oil industry also would be looking into the allegations for the state. The independent investigator was hired several months ago, in part because of criticism that state regulators are too easy on oil companies, she said.

Foerster said Alaska follows industry standards when it comes to regulating North Slope operators.

BP welcomes the state investigation into the wells, said Steve Rinehart, a spokesman for BP in Alaska.

"We are anxious to get to the bottom of this and to find any problems if there are some," he said.

Chuck Hamel, a former shipping broker from Virginia who frequently publicizes information from whistleblowing employees in Alaska's oil industry, said last month in a letter to state officials that water carrying oil had flooded some well cellars this spring, eventually reaching tidal ponds on the tundra.

Foerster said the oil and gas commission had not received any information indicating well house spills had actually reached the tundra.

"I have workers up there that say just the opposite," Hamel said. "They know that they are vacuuming up crude oil that has reached the surface every day."

BP had previously shut down 37 of the 57 wells over concerns about petroleum products winding up in well cellars. It then shut down eight more to optimize oil production, leaving 12 wells still in operation. Those wells were being shut down this week after the Financial Times report.

"We decided in an abundance of caution to shut down and reconfirm the integrity of 12 operating North Slope wells," BP spokesman Daren Beaudo said this week. "We have no reason to believe that continued operation poses a risk to workers or the environment."

Foerster said a small amount of leaked fluid is to be expected because the wells are mechanical systems that need to be lubricated. Crude oil or diesel fuel, added as freeze protection, also can reach the well house cellars, sometimes mixing with melted snow.

Those fluids are vacuumed out of the cellars as required, Foerster said.

Pearson said the investigation will include looking into the well cellars to see if they have liners

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Financial Times
July 21, 2006

http://www.ft.com/cms/s/25e8600e-1843-11db-99a6-0000779e2340.html

US says BP has ‘failed’ to clean Alaska pipelines
By Sheila McNulty in Houston
Published: July 21 2006 00:28 |
Last updated: July 21 2006 00:28

The US government on Thursday said BP had “failed” to meet its responsibilities to rid its Alaska pipelines of sludge - a necessary step to enabling high-tech corrosion tests that could prevent another massive oil leak.

“I continue to find that the presence of hazardous conditions on the specified pipelines,” said Stacey Gerard, the US Department of Transportation’s associate administrator for pipeline safety. “Without the implementation of corrective measures, [this] would result in likely serious harm to life, property or the environment.”

The DoT, which regulates the pipelines, ordered BP to immediately drain 17,000 barrels of oil from the segment of corroded pipe that leaked on March 2 in the biggest-ever spill at Prudhoe Bay, the US’s largest oil field.

The order comes amid increased scrutiny of BP. The company last week shut 12 Alaskan oil wells after whistleblowers said some 50 had been leaking.

The DoT also imposed enhanced measures to monitor and handle the sludge that has been building for up to 16 years in some parts of BP’s Alaska pipeline system. This buildup has been linked to the corrosion problem.

The orders follow a letter by John Dingell, senior Democrat on the House committee on energy and commerce, demanding to know “what sanctions will BP face if it continues to operate its pipelines” without meeting the Corrective Action Order, issued by the US government in March.

The DoT has not yet responded to Mr Dingell, but the latest order indicates its growing impatience.

Steve Rinehart, BP spokesman, said BP intended to meet the terms of the order.

In March, the DoT ordered BP to conduct high-tech maintenance and corrosion checks on its pipelines to guard against further leaks, but BP said the “pigging” equipment mandated might get stuck in some parts that had not been “scraper-pigged” in years.

BP has spent the months since then trying to come up with a place to dump the sludge that it must push out of its lines.

BP insists it cannot meet DOT demands because it is “still evaluating data and working to assess sediment quantities in these transit lines”. In addition, BP said, a grand jury subpoena requirement to remove a segment of its pipelines would make it impossible to run the equipment through the lines.

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US DOT OPS

http://www.phmsa.dot.gov/news/PressRelease-Final-BPXA07-20-06.pdf

U.S. Department of Transportation
Office of Public Affairs
Washington, D.C.

http://www.dot.gov/affairs/phmsa0506.htm

PHMSA 05-06
Contact: James Wiggins, Tel.: (202) 366-4831
Thursday, July 20, 2006

BP Exploration Directed to Complete Testing on North Slope Pipelines

The Pipeline and Hazardous Materials Safety Administration (PHMSA)
today directed BP Exploration (Alaska) Inc. to take additional
measures to ensure safety on its Prudhoe Bay pipelines as a result of
a pipeline failure in March 2006.

The agency's latest directive requires BP to submit a comprehensive
engineering plan to safely and quickly drain 17,000 barrels of oil
contained within the idled Western Operations Area pipeline, and
requires completion of engineering plans to assure sediment within the
pipelines is stored safely in tanks to avoid contamination and
maintain the safety of the Trans Alaska Pipeline system. Additionally,
BP must take samples from the pipeline walls, and photographs of
pipeline solids of the Eastern Operations pipeline to determine
whether the pipeline is ready for an internal "smart pig".

Immediately after the failure of BP's Prudhoe Bay Western Operations
Area 34-inch low-pressure pipeline, PHMSA issued an order directing
"smart pigging".

PHMSA Administrator Tom Barrett and acting Chief Safety Officer Stacey
Gerard visited Alaska earlier this month to review North Slope
pipeline operations, meet with federal and state officials, and ensure
completion of the corrective actions required by PHMSA's original order.

"These additional corrective actions are needed to assure the safety
of the pipeline operations," said PHMSA Administrator Barrett. "BP's
operations must reflect suitable and stringent operational controls."

PHMSA is coordinating its actions with the federal-state Joint
Pipeline Office and with numerous federal and state agencies that
oversee the safety on the North Slope of Alaska.

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Reuters News
July 20, 2006

http://today.reuters.co.uk/news/newsArticle.aspx?type=businessNews&storyID=2006-07-20T194048Z_01_N20233317_RTRUKOC_0_UK-ENERGY-BP-ALASKA.xml&archived=False

US clamps down on BP's Alaska oil pipelines
Thu Jul 20, 2006 8:41 PM BST
By Robert Campbell

NEW YORK (Reuters) - U.S. regulators have ordered BP Plc (BP.L: Quote, Profile, Research) to empty an oil pipeline in Alaska that leaked at least 200,000 gallons of crude oil last March, according to documents obtained by Reuters on Thursday.

The U.S. Pipeline and Hazardous Materials Safety Administration made the ruling after determining that allowing the oil to remain in the line over the winter would pose an excessive risk of further environmental damage.

The PHMSA also ordered BP to carry out additional testing on all the company's other oil transit pipelines in Alaska, as well as draw up plans within 30 days to repair, replace or scrap the pipeline that leaked.

The order to drain the pipeline by August 22 comes after BP was unable to comply with a previous PHMSA order to perform internal cleaning and inspection operations on the oil transit lines by June.

BP has said it cannot remove the estimated 17,000 barrels of oil in the line due to a subpoena by a federal grand jury that orders the company to preserve the pipeline segment that leaked as evidence as part of a criminal inquiry into the spill.

A BP spokesman said he was not able to comment on the latest regulatory action, as the company needed time to study the order.

BP's operations in the United States have come under intense scrutiny after a rash of environmental and safety issues over the past two years, including an explosion in March 2005 at its refinery in Texas City, Texas, that killed 15 workers and injured more than 170 others.

Most recently, the company shut down 12 producing wells in Alaska earlier this week after reports surfaced of casing integrity problems leading to leaks of oil.

BP officials have denied there are systematic flaws with its safety culture. Bob Malone, who was recently appointed head of BP's U.S. operations, has made improving BP's safety and environmental record in the United States a top priority.

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Wall Street Journal
July 18, 2006

UK PRESS:

BP Shuts Alaska Oil Wells On Whistleblower Action
DOW JONES NEWSWIRES
July 18, 2006 5:51 p.m.

BP PLC (BP) was forced to shut 12 more Alaskan oil wells Tuesday after whistleblowers said that about 50 were leaking, the Financial Times reported on its Web site Tuesday.

BP America President Robert Malone said it would close the wells after workers at its Prudhoe Bay oil field reported the leaks to the FT. Malone said the wells would be shut "even though we have no reason to believe...the continued operation of these wells poses a risk to workers or the environment."

A veteran BP employee told the FT that many of the 50 wells leaked only a packing material that doesn't threaten workers or the environment. But he added that some had allowed gas and hydrocarbon fluids to surface.

According to the employee and a contract worker, regulators let the wells remain in that state for months. "These are a hazard to workers and damage the environment," the BP employee said.

John Norman, chairman of the Alaska Oil and Gas Conservation Commission, refuted the charges. "We would never allow anything to be operable if there was fluid from a producing well coming to surface," he said.

But BP workers' advocate Chuck Hamel gave the FT a copy of reports the company sent to regulators daily that stated the wells were "waivered" to operate in spite of leaks. "We appreciate Bob Malone's good sense to shut in those leaking wells that pose the most danger to the work force," Hamel said.

When shown the allegations Friday, BP said it had 57 wells with a problem, and that 37 of them had been shut down. By Monday, BP said eight of the remaining 20 were "shut in." Malone then ordered the remaining 12 shut.

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

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Financial Times
July 18, 26

http://www.ft.com/cms/s/27134956-1688-11db-8b7b-0000779e2340.html

BP closes 12 Alaskan oil wells
By Sheila McNulty in Houston
Published: July 18 2006 22:01 |
Last updated: July 18 2006 22:01

BP’s troubles in the US intensified when the company shut 12 Alaskan oil wells on Tuesday after whistleblowers said some 50 had been leaking.

Robert Malone, president of BP America, said it would close the wells after workers at its Prudhoe Bay oil field told the Financial Times about the leaks. Mr Malone said the wells would be shut “even though we have no reason to believe? . ? . ? . ? the continued operation of these wells poses a risk to workers or the environment’’.

A veteran BP employee said many of the 50 wells leaked only a packing material that does not threaten workers or the environment. But he said some had allowed gas and hydrocarbon fluids to surface. He and a contract worker said regulators allowed them to continue in that state for months. “These are a hazard to workers and damage the environment,’’ said the BP employee.

The claims renew worker fears that Alaska regulators are too beholden to BP, as one of the state’s biggest employers, to regulate its operations.

John Norman, chairman of the Alaska Oil and Gas Conservation Commission, said: “We would never allow anything to be operable if there was fluid from a producing well coming to surface.’’

Yet Chuck Hamel, an advocate for BP workers, provided the FT with a copy of the report that the company sent daily to regulators. The documents spoke of wells being “waivered’’ to operate in spite of leaks. Mr Hamel said: “We appreciate Bob Malone’s good sense to shut in those leaking wells that pose the most danger to the work force.’’

When presented with the allegations on Friday, BP said it had 57 wells with a problem. Of those, 37 had been shut down.

By Monday, BP said eight of the remaining 20 had been “shut in”. Mr Malone then ordered the final 12 shut.

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Wall Street Journal
July 15, 2006

BP's New U.S. Chief Faces Big Challenge
By CHIP CUMMINS
July 14, 2006 12:17 p.m.

After taking over as chief executive of the trans-Alaska pipeline amid safety problems and regulatory scrutiny in the late 1990s, Robert Malone shook up the consortium, replacing managers, transferring hundreds of employees and spending millions in new investment.

Mr. Malone, a 54-year-old Texan, is back in the hot seat, this time as the newly appointed chief executive of BP PLC's American businesses. A series of recent safety, environmental and compliance stumbles by the company have triggered regulatory and criminal investigations.

Two weeks into the job, Mr. Malone says he isn't ready to launch any big shake-ups yet, but he is flying to a number of BP facilities across the country to meet managers and employees and see if change is in order. He has also moved to improve relations with Washington officials by appointing a senior BP executive as a special liaison to regulators. Prior to this new post, Mr. Malone had headed BP's shipping operations.

"The most important part, to me, is getting out there and seeing and hearing for myself," Mr. Malone said in a phone interview Friday from BP offices in Washington. "Get out there, get with the businesses, talk about what we're doing, look at the game plan, before I make any decisions for change."

In March 2005, an explosion at a BP refinery in Texas City, Texas, killed 15 workers, triggering several regulatory probes and a criminal investigation. Earlier this year, federal officials opened a separate criminal probe into corrosion issues at a BP-operated oil field at Prudhoe Bay, Alaska. And last month, the Commodity Futures Trading Commission and the Justice Department alleged in civil and criminal complaints that BP traders manipulated the propane market in early 2004.

"There are areas where clearly we did not have the controls in place and may not have had the processes and systems," Mr. Malone said. "But immediately upon identifying, [BP] went into action."

The Occupational Safety and Health Administration fined BP some $24 million for safety violations at Texas City and another refinery in Ohio. The agency has sent investigators to a third plant in Indiana as part of a heightened inspection program of BP facilities.

The company is cooperating with investigators probing corrosion issues and an oil spill in Alaska and has defended its anti-corrosion program there. BP has also said it will fight the propane-market manipulation allegations in court.

Mr. Malone said the heightened scrutiny from regulators isn't surprising, and one of his top priorities is to convince officials that BP is acting aggressively to correct problems.

"It's not unexpected attention, when you look at the incidents we've had," he said. "In my mind, it's entirely appropriate that OSHA, in particular, would be looking at us as deeply as they are right now. I understand it and respect what they have to do.
"My objective and the objective of all our businesses in the U.S. is show the action and show the change and put OSHA in a place where they are more comfortable and believe we have the systems and processes in place."

Mr. Malone didn't give a timeline for when that might happen: "I wish it was yesterday, but these are complex problems … and they don't lend themselves to quick, easy decisions."

Part of BP's strategy is to beef up communications with regulators. Mr. Malone said he has appointed a vice president for regulatory affairs -- a new, full-time role to improve BP's ability to be "responsive to information needs here in Washington," he said.

"We are making ourselves available to respond to any questions members on the Hill, or staff, or agencies have of us," he said.

Write to Chip Cummins at chip.cummins@wsj.com 

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Anchorage Daily News
July 13, 2006

http://www.adn.com/money/industries/oil/story/7960403p-7853790c.html

Chief to right BP ship in U.S.
ROBERT MALONE: Former Alyeska executive takes on troubled division.
By JAD MOUAWAD
The New York Times
Published: July 13, 2006
Last Modified: July 13, 2006 at 02:09 AM

Last week, just days after he officially took on a new assignment to run BP's business in the United States, Robert Malone took off for the Alaska tundra to visit one of the hottest of several hot spots in the global oil company's increasingly troubled North American portfolio.

And that's only the