April 2007 News Stories

Anchorage Daily News
April 30, 2007

http://www.adn.com/money/industries/oil/pipeline/story/8841329p-8742019c.html

BP says ease bill or no bid
GAS LINE: The state will "absolutely not" consider softening its requirements.
The Associated Press
Published: April 30, 2007
Last Modified: April 30, 2007 at 02:30 AM

FAIRBANKS -- Oil company BP PLC Saturday made a strong public statement against Gov. Sarah Palin's gas line legislation in a hearing before state lawmakers.

Dave Van Tuyl, BP's Alaska manager for gas commercialization, said that his company would not participate in the competitive bidding process on the project unless the bill undergoes significant changes.

The Alaska Gasline Inducement Act "needs substantial modification to result in a successful project," he said at a Senate Finance Committee hearing on the bill.

Van Tuyl also said the company most likely would not ship its North Slope gas reserves through a pipeline chosen under the bidding process proposed in the legislation.

The bill's requirements for prospective pipeline builders include project deadlines and commitments relating to pipeline expansions.

It allows the state to pick the project it considers the best and grant exclusive incentives, in part to pressure leaseholders to commit the gas to the pipe.

Van Tuyl argued the state should give up the requirements in favor of "objectives," which the companies could then compete to meet; waive the exclusivity of the state license to ensure competition among builders; avoid imposing firm deadlines on pipeline builders; and offer greater fiscal stability to gas producers such as BP.

Joe Balash, a member of Palin's gas line team, said the administration would "absolutely not" consider softening the requirements.

"The whole point of AGIA is to establish what the state must have out of the project," he said.

Balash said the administration remains convinced that "reasonable commercial parties" would get a project off the ground.

"BP is, I think, well aware of its obligations under the terms of its leases and its unit agreements to market its gas when it's reasonably profitable to do so," he said. "It's hard to imagine a 50 percent rate of return not being reasonably profitable."

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http://www.adn.com/money/industries/oil/pipeline/story/8841356p-8742030c.html

Fired over gas line, he returned to finish job
IRWIN: "We've got to do it right in Alaska," commissioner says.
By STEVE QUINN
The Associated Press
Published: April 30, 2007
Last Modified: April 30, 2007 at 03:00 AM

FAIRBANKS -- It's a Tuesday afternoon, and Gov. Sarah Palin's gas pipeline bill -- a plan she believes will one day help feed the nation's domestic natural gas supply -- is about to get its first public debate.

The hearing room on the fifth floor in Juneau's Capitol building is packed with close to 40 people, standing room only with others peering through the open door, but there is a conspicuous absence: Department of Natural Resources Commissioner Tom Irwin.

"I kept my promise to my family," Irwin said when he returned the next week. "I took them on a vacation."

No one publicly questioned his absence, or his commitment to a multibillion-dollar project so big that North Slope oil and natural gas producers call it unprecedented in size and scope for its prospects of shipping 4.5 billion cubic feet of gas more than 3,000 miles daily.

Irwin could easily have stayed home in Fairbanks, enjoying the structure of a corporate job that would get him home in time to play video games with his teenage grandson or street hockey with his granddaughters.

Instead, he returned to a job from which he was fired 18 months ago by former Gov. Frank Murkowski after writing a memo that questioned a gas line plan that administration was seeking to adopt.

In coming back, he exchanged a private life for a high-profile position that will hold him, among a group of others on Palin's gas line team, accountable for a development deemed critical to the state's long-term economic future.

"I don't see it as taking a chance," Irwin said. "The job is only half done, so this is simply unfinished business. That's all.

"We've got to do it right in Alaska or we screw this state up and we won't want to stay here anyway."

He's a gregarious and devoutly religious man whose comfort in a public setting is seen when he discusses Palin's Alaska Gasline Inducement Act.

He's calm, mindful of other viewpoints, but still steadfast in touting the bill's mission, strenuously suggesting to lawmakers not to make substantive changes.

AGIA'S OBJECTIVES

Palin's bill, known as AGIA, is designed to stimulate competition for the right to build a pipeline that could deliver North Slope natural gas to Alaska and Lower 48 consumers.

It's also aimed at generating future exploration beyond the 35 trillion cubic feet of proven reserves in the North Slope.

When it comes to talking about himself, Irwin deftly deflects the discussion to subjects he deems more topical, be it colleagues or his family.

And he refuses to criticize or second-guess the man who fired him, preferring to remain grateful for the initial appointment to oversee the state's resource development.

But it was Irwin's Oct. 20, 2005, challenge to Murkowski's negotiations with North Slope producers that cost him his job.

Irwin sent a confidential memo to former Attorney General David W. Marquez, asking whether the state was conducting negotiations outside the law and to the long-term detriment of the state.

He highlighted concerns about favorable tax treatment for North Slope producers BP, Exxon Mobil Corp. and Conoco Phillips. Murkowski released the letter publicly and ultimately fired Irwin.

"We were nibbling at the ends, but Tom got right to the heart of (the) issue," said Rep. John Coghill, R-North Pole. "I mark Tom at the high end of those I hold most credible.

"I'll also stick up for Gov. Murkowski. He had the right to come over and say, 'Work on this issue or leave.' Tom said, 'You're giving up too much.' And he left."

STAFF MEMBERS GO TOO

What ensued, however, still leaves Irwin stunned. Seven days after he wrote the memo, six members of his staff walked, resigning in support of Irwin's position.

One of those was Marty K. Rutherford, a single mom ready to buy a new home, whom Irwin implored to stay with the department.

Rutherford playfully but emphatically reminded Irwin that, having been fired, he wasn't her boss anymore so he couldn't tell her what to do. Her decision, as well as those from the other five deputy commissioners, was final.

"It was a no-brainer to leave," said Rutherford, who also returned and serves as deputy commissioner. "We felt we had to step back from this deal and make a statement that it wasn't in the state's best interest."

The departures produced protests outside the governor's Anchorage office from citizens, some of whom identified the group as the "Magnificent Seven."

The mass resignation letters also put Irwin in stronger standing, said Sen. Gene Therriault, R-North Pole.

"It lent credibility that he wasn't just a rogue commissioner," Therriault said. "It was critical in getting the public's focus on what was happening.

"Until that point, the public thought something was being negotiated. It wasn't until he and six others took that step the public saw something of major importance was going on."

Irwin decided to take a few months off and enjoy the holidays with his family before looking for work.

Meanwhile, Palin had already announced her intent to run for governor and identified Irwin as a potential asset not only to her campaign but perhaps to her Cabinet. The two remained in touch regularly over the next year.

Palin's campaign moved toward a victory last November; Irwin accepted a job with Golden Valley Electric Association as its vice president for government and public affairs.

NOT READY YET

Palin made it clear during her campaign and after being sworn in that she wanted Irwin to return and finish the job. But Irwin wasn't ready, at least not yet. His wife Sharon had taken a fall, breaking her arm and shoulder, though she has completely recovered.

Additionally, his 8-year-old granddaughter Karli has undergone numerous surgeries on her digestive and urinary tract, and faces more.

"I thought I was tough, but she is really the tough one," Irwin said. "If you only knew how much she's endured."

So Rutherford returned as an interim commissioner, helping Palin jump-start AGIA and hoping to give her former boss more time to think about his comeback.

Palin persisted, saying she wasn't worried about another challenge to her authority or any efforts to undermine her plans.

"The questions he had asked, they were the right ones," Palin said. "Somebody had to ask them.

"I've made it very clear I don't want people who just say yes to me. I want those questions asked and answered to make sure we don't do things that aren't off base."

Nearly two months after Palin was sworn in, Irwin announced his intent to return on Feb. 2. Even Sharon Irwin said it was time for her husband to finish what he had started.

"We don't live a guarded life; we like to go out and play hard, do what the grandkids do," she said. "He just wants to make sure we are all going to be safe.

"What he's doing is important. I think he's a very gifted person in getting people to work together. That's a real plus for what he is trying to accomplish."

Irwin's focal point will be the gas line bill at least through the end of session. Most of his time gets spent in Juneau, but there are also trips to Bethel, Anchorage and, if he's lucky, back home to tout the plan.

A bill that ultimately leads to a gas line and future resource development could make his memo one of the most compelling documents yet, his supporters say. But Irwin isn't so sure.

"I don't want this to be a prideful thing," Irwin said. "There is a lot of work to do. I just see this as an investment in the state's future and in my grandkids' future."

Fairbanks News Miner
April 29, 2007

http://newsminer.com/2007/04/29/6718

Oil pipeline tariff fight should be a key part of gas line debate
By Dermot Cole
Staff Writer
Published April 29, 2007

TARIFF CASE: To a greater extent than has been the case to date, the positions taken by the oil companies in the oil pipeline tariff dispute should be part of the discussions in Juneau about any proposals to build a gas pipeline.

Every legislator should be reading the major documents in the Federal Energy Regulatory Commission case about tariffs on the trans-Alaska oil pipeline. An understanding of this background information is needed to ensure that crucial mistakes made by the state on the oil pipeline are not repeated on the gas pipeline.

An administrative law judge is expected to issue an opinion on the case in May, which will be followed by deliberations of the five-member FERC. Whatever the commission decides is expected to lead to a battle in federal court.

The companies that own the oil pipeline BP, ConocoPhillips and Exxon heading the list are also the biggest operators on the North Slope. In this case they are trying to defend how much they charge themselves to ship a barrel of oil from Prudhoe Bay to Valdez for consumption outside the state.

The more they charge, the lower the value of the oil on the North Slope for royalty and tax purposes. Attorneys challenging the pipeline owners estimate that the state loses 25 cents when the transportation cost is $1 too high.

The tariff is also important because the more it costs to ship oil, the more difficult it is for competing oil companies to make a profit on exploring and developing oil resources on the North Slope.

Concerns about promoting future competition and control of the North Slope are at the heart of the gas pipeline debate. The arguments offered in the oil tariff case are particularly relevant to the gas pipeline and lead to questions about whether the pipeline owners would find it in their self-interest to keep gas line tariffs as low as possible.

Among those who say the rates on the oil pipeline are excessive are two companies that don’t own a piece of the pipeline Tesoro and Anadarko along with the state and the staff attorneys of the FERC.

A decision by the Regulatory Commission of Alaska in 2002 led to a cut in transportation rates of about 50 percent for those who shipped oil to Valdez for use within Alaska. The higher rates remain for oil that goes Outside.

Independent oil and gas analyst Richard Fineberg of Fairbanks, who has been raising key issues in this debate for many years while many state officials have silent on the matter estimates that the higher charges are costing the state treasury $400 a minute, or more than $500,000 per day, in reduced taxes and royalties.

In its FERC filing, the state says its protests of transportation rates “raise a single, simple question can the TAPS carriers charge vastly different rates for transportation of oil solely on the basis of where the shippers take their oil after it leaves TAPS? The answer to that question is quite straightforward they may not.”

The state is not challenging the interstate rates directly. That’s because the state agreed to a 1985 deal with the oil companies called the TAPS Settlement Methodology or TSM. That settlement included a provision one that seems quite reckless in retrospect that the state had an obligation to defend the deal.

So the challenge is indirect. It is based on a state claim that it is against federal law to impose different tariffs for the same service.

“The state’s position is blatantly disingenuous,” the pipeline owners said in March, rejecting claims of discrimination.

The oil companies say the state can’t claim discrimination because in the 1985 deal, the state agreed that the rates under the TSM were “just and reasonable and non-discriminatory” within the meaning of the Interstate Commerce Act. The contract bars the state from claiming discrimination, the companies claim.

“Having agreed to support TSM, the state should not be permitted now essentially to abrogate its own settlement,” the oil companies argue.

In the filings on the case, which now run to more than 7,000 pages of transcripts and 800 exhibits, Anadarko, Tesoro, the RCA and the FERC staff have highlighted numerous defects in the 1985 agreement with the state.

One of the main contentions by Anadarko and Tesoro is that they were not parties to the 1985 agreement and therefore they don’t have to abide by it. They are seeking action by FERC to set “just and reasonable rates,” a standard that the pipeline rates were not subjected to.

The complicated arguments in this case are worth examining in some detail, which I plan to do here over the next few weeks.

What may be particularly damaging to the oil companies is the position taken by the FERC staff attorneys, who are independent. The oil companies say the FERC attorneys’ “unqualified support for the positions asserted by Anadarko/Tesoro and the state is utterly mystifying.”

The FERC staff said it is concerned that positions taken by the oil pipeline owners “are not only directly contrary to the orders which approved the TAPS settlement over 20 years ago, but contrary to some of the most basic notions of calculating just and reasonable rates, as well.”

It said that the positions taken by Anadarko, Tesoro and the state are consistent with the FERC’s prior orders concerning the trans-Alaska pipeline and precedent.

“It is important that the commission reaffirm its established ratemaking standards in this proceeding and, as the record herein demonstrates, there is no legal, logical or equitable reason not to do so,” wrote Dennis Melvin, who directs the FERC legal division.

Dermot Cole can be reached at cole@newsminer.com or 459-7530.

2006 Prudhoe Bay Shutdown: Will Recent Regulatory Changes
and BP Management Reforms Prevent Future Failures?
Subcommittee on Oversight and Investigations

Oversight and Investigations Subcommittee (Chairman Stupak, D-Mich.) of
House Energy and Commerce Committee will hold a hearing titled "The 2006 Prudhoe Bay Shutdown:
Will Recent Regulatory Changes and Management Reforms Prevent Future Failures?"

Contact: Vacant, - Democratic Staff Director at 202-225-2927

Date
Thursday, May 3, 10 a.m.
Place
2123 Rayburn Bldg.
Note
Witnesses added.

Panel
Stacy Gerard - acting assistant administrator and chief safety officer, Pipeline and Hazardous Materials Safety Administration, Department of Transportation

Jonne Slemons - coordinator, Petroleum Systems Integrity Office, Alaska Department of Natural Resources

Carolyn Merritt - chair and CEO, U.S Chemical Safety and Hazard Investigation Board

Richard Fairfax - director, Directorate of Enforcement Programs, Occupational Safety and Health Administration, Department of Labor

Panel
Robert A. Malone - chairman and president,
BP America, Houston, Texas

GENEALOGY of MAJOR US REFINERS, a PDF Link

This gives interesting insight into who owns who and whose in bed with who,
a reference relating to refinery takeovers also. Some may be interested in this
pdf [38Kb] link which is a color timeline chart to 2006. Dates and notes about
oil company mergers are included.

http://www.eia.doe.gov/emeu/finance/mergers/dwnstream.pdf

Anchorage Daily News
April 26, 2007

http://www.adn.com/24hour/business/story/3607776p-12894346c.html

Exxon Mobil 1Q profit rises
By JOHN PORRETTO -- AP Business Writer
Published: April 26, 2007
Last Modified: April 26, 2007 at 05:28 AM

NEW YORK (AP) Exxon Mobil Corp., the world's largest publicly traded oil company, said Thursday its net income grew 10 percent in the first quarter, as higher refining, marketing and chemical profit margins overcame lower crude oil and natural gas prices.

Net income rose to $9.3 billion, or $1.62 per share, for the January-March period from $8.4 billion, or $1.37 per share, a year ago. Analysts polled by Thomson Financial were looking for a profit of $1.52 per share.

Revenue fell to $87.2 billion from $88.9 billion a year earlier. Like other major oil companies, Exxon was hurt by lower oil and natural gas prices to start 2007 compared with a year ago.

Last year, the Irving, Texas-based company posted the largest annual profit by a U.S. company - $39.5 billion. That result topped the previous record, also by Exxon Mobil, of $36.13 billion set in 2005.

Last month, Exxon Mobil said it will spend some of that money on more than 20 new global projects in the next three years, investments expected to add 1 million oil-equivalent barrels a day to the company's volumes at peak production.

The company said its spending tab for capital and exploration projects in the first quarter was $4.3 billion.

"In the first quarter, Exxon Mobil continued to actively invest, bringing additional crude oil, finished products and natural gas to market," Exxon Mobil Chairman and Chief Executive Rex Tillerson said in a statement.

Its shares rose 58 cents to $80.50 in premarket trading.

Exxon Mobil was the third major oil company to report earnings in as many days. BP PLC, Europe's second-largest oil company, on Tuesday reported a 17 percent drop in first-quarter earnings on lower oil prices and declining production. On Wednesday, ConocoPhillips said its first-quarter profit rose 7.7 percent, but the result was propped up by assets sales as it also was hurt by lower commodity prices.

Exxon Mobil said earnings from its exploration and production arm - known as the upstream side of the business - were $6 billion, down from $5.7 billion a year ago, primarily reflecting lower oil and natural gas prices and decreased demand for natural gas in Europe.

The market price for crude oil was off more than $5 a barrel in the first quarter versus a year ago. The comparable price for natural gas also was down.

Exxon Mobil said oil production in the first three months of 2007 was slightly higher than a year ago, helped in part by increased production from projects in West Africa, Russia and the Middle East.

Natural gas production, however, was off from last year, hampered by mature field declines and lower European demand related to weather.

On the refining and marketing side of the business - known as the downstream - earnings rose to $1.9 billion from $1.3 billion to start 2006, lifted by improved refining and marketing margins and more efficient refining operations.

A company's refining margin is the difference between what it costs to refine crude oil and what the company makes selling refined products, such as gasoline and jet fuel.

Exxon Mobil said it also saw improved profit margins at its chemicals business, where earnings of $1.2 billion were up from nearly $1 billion in the year-ago quarter.

During the first quarter, Exxon Mobil said it bought 108 million shares of its common stock at a cost of $8 billion. Shares outstanding were reduced from roughly 5.7 billion from at the end of 2006 to 5.6 billion at the end of March.

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http://www.adn.com/money/industries/oil/story/8827664p-8728464c.html

Heavy equipment accident idles Prudhoe Bay plant
NO INJURIES: North Slope output is down by 90,000 barrels a day, or 12 percent.
By WESLEY LOY
Anchorage Daily News
Published: April 26, 2007
Last Modified: April 26, 2007 at 04:09 AM

An accident with a piece of heavy equipment in the giant Prudhoe Bay oil field has temporarily knocked a sizable chunk out of North Slope crude oil production.

On Wednesday, North Slope output was down by about 90,000 barrels a day, or almost 12 percent of normal production.

Daren Beaudo, spokesman for BP, the company that runs Prudhoe, said a side-boom crane used to handle pipe was in transit around noon Monday when it hit an electric power line, causing a shutdown of a nearby processing plant called Gathering Center 2.

No one was injured, Beaudo said.

The plant is a key facility that separates the raw stream from wells into oil, water and natural gas.

The plant already had been partially shut down last weekend for maintenance work, and the accident with the crane brought it to a full stop, Beaudo said.

Rather than restart it partially, BP decided to keep the plant idled and take advantage of the chance to perform other needed maintenance work, he said.

Most likely, full oil production won't be restored until the weekend, he said.

Gathering Center 2 is one of three gathering centers on the western side of the vast Prudhoe Bay field.

The plant was in the spotlight in March 2006, when field workers discovered a large, snow-covered oil spill along the large pipeline leading away from the plant. The estimated 201,000-gallon spill, the largest oil spill ever on the North Slope tundra, is still under investigation by federal authorities.

BP runs Prudhoe Bay on behalf of itself and other owners including Exxon Mobil, Conoco Phillips, Chevron and Forest Oil.

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Corporate Crime Reporter
April 25, 2007

http://www.corporatecrimereporter.com/bpalaskaair042507.htm

CORPORATE CRIME REPORTER
EPA Sides with BP on Alaska Air Pollution Rule
21 Corporate Crime Reporter 18, April 25, 2007

The Environmental Protection Agency has sided with BP on a controversial air pollution rule for the oil company’s North Slope complex.

In an order issued last week, the EPA adopted looser air pollution limits for BP’s sprawling petroleum production and exploration operations.

As a result of the order, petroleum facilities will be allowed to emit additional tons of hydrocarbons each day, according to Public Employees for Environmental Responsibility (PEER), a public interest group that has been bird-dogging the issue.

EPA Administrator Stephen Johnson rejected a petition filed by PEER and a former Alaska state environmental engineer, Bill MacClarence, demanding that EPA veto a permit issued by the state of Alaska in 2003 for facilities at the massive BP complex on the North Slope.

“The North Slope currently produces as much as a fifth of the nation’s oil supply, so the volume of pollution released is immense,” said Bill MacClarence, who had protested the permit both when he served as the supervisor of its air permit program for the Alaska Department of Environmental Conservation and after he retired. “North Slope oil operations are already emitting as much nitrogen oxides as the entire Washington, DC metropolitan area and it is going to get a lot worse.”

At issue is a regulatory rule called “aggregation” which prevents polluters from avoiding air pollution permit limits by breaking their operations down into smaller units, each with its own pollution cap.

On January 12, 2007, EPA issued national guidance that forbade applying aggregation principles to reduce pollution at oil facilities that are physically separated even though operationally linked.

Oil and gas developments typically consist of many pieces of equipment, sometimes thousands in big developments, often connected by pipelines.

The January 2007 guidance means that oil companies can treat equipment clusters as separate facilities, each with its own pollution allowances.

MacClarence, a 20-year environmental engineer, had persuaded the State of Alaska to require aggregation in the BP permit, but under intense lobbying from the Alaska Oil & Gas Association, the state reversed its stand in July 2003.

Initially, EPA echoed those concerns but eventually also reversed its position.

In the order, EPA Administrator Johnson denied that his agency “altered its position on aggregation ...because of aggressive lobbying by the Alaska oil and gas industry…” but admitted that “EPA did meet with the applicant, at the applicant’s request, on two occasions to discuss aggregation…”

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Wall Street Journal
April 25, 2007

BP's Profit Declines 17%
As Oil Prices, Output Fall
By BENOÎT FAUCON
April 25, 2007; Page A7

LONDON -- BP PLC, kicking off the oil majors' earnings season, offered more proof that the industry's run of record profits may be over.

The oil giant said first-quarter net profit fell 17% to $4.66 billion, as lower oil prices and a drop in output offset higher refining margins. The profit drop comes as international oil companies are finding it difficult to revive their bottom lines as they face dwindling output and rising costs.

The latest earnings were weighed down by the cost of BP's $1.1 billion acquisition of Chevron Corp.'s Dutch manufacturing company.

The results, however, also were bolstered by a gain of $363 million, mostly related to the sale of BP's exploration and production and gas-infrastructure business in the Netherlands and accounting gains related to North Sea contracts. The gain compares with a year-earlier charge of $17 million.

BP's oil and gas production for the quarter totaled 3.91 million barrels of oil equivalent a day, down from 4.04 million barrels a day in the year-earlier quarter.

.The average price of the Brent benchmark United Kingdom crude-oil contract was $57.80 a barrel in the quarter, down 7% on average from a year earlier, according to BP's estimates.

Industrywide average refining margins were up 44% in northwestern Europe and 27% on the U.S. Gulf Coast, according to Citigroup Inc. BP wasn't able to fully capture the year-to-year increase in refining margins -- partly because its Texas City, Texas, refinery still is operating at 57% capacity after a deadly blast and because its refinery in Whiting, Ind., started operating at half its capacity in late March because of operational issues.

The company said profit from its exploration and production unit had been weighed down by sector-specific inflation, higher depreciation charges and increased spending to improve safety and reliability at its operations.

BP -- the world's third-largest non-government-controlled oil company by market capitalization after Exxon Mobil Corp. and Royal Dutch Shell PLC -- posted net profit of $5.62 billion a year earlier. Revenue declined 3.3% to $62.04 billion from $64.17 billion.

In London, BP's shares fell 1.6%, or nine pence, to 568.5 pence ($11.37).

Write to Benoît Faucon at benoit.faucon@dowjones.com

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ConocoPhillips Posts Higher Net
By JOSEE ROSE and JONATHAN VUOCOLO
April 25, 2007 9:55 a.m.

ConocoPhillips, the first major U.S. oil company to report first-quarter results, said profit rose 7.7% as results were boosted by a benefit from asset dispositions.

However, revenue fell 12% due to lower volumes and oil prices.

.The third-largest U.S. oil company by market capitalization said net income rose to $3.55 billion from $3.29 billion. On a per-share basis, earnings fell to $2.12 from $2.34 a year ago. The latest quarter included benefit of 29 cents a share from asset sales.

Revenue at ConocoPhillips, Houston, fell to $41.3 billion from $46.9 billion a year ago. During the quarter, the company repurchased $1 billion of common stock.

Overall, oil-company profits are expected to fall from a year earlier because crude-oil and natural-gas prices have fallen some from their highs. However, U.S. gasoline prices have risen 23% since the beginning of the year because of lower inventory, and as a result, refining operations are expected to be strong.

ConocoPhillips's crude oil refining capacity as of Jan. 1 was 2.73 million barrels per day, down from 2.9 million barrels at year-end 2006. The company said this was because of contributions from its Wood River and Borger refineries to the downstream business venture with EnCana.

ConocoPhillips said exploration and production net income fell to $2.33 billion from $2.55 billion a year ago, due to lower commodity prices, higher taxes and higher operating costs.

Daily production in its exploration and production unit, including the Canadian Syncrude consortium and excluding strategic partner OAO Lukoil Holdings, averaged 2.02 million barrels of oil equivalent, or BOE, a day, up from 1.61 million barrels a year ago. The increase was helped by the acquisition of Burlington Resources, Libya volumes and upstream business venture with EnCana Corp.

ConocoPhillips recently entered a deal with EnCana to swap refining capacity for Canadian oilsands production.

ConocoPhillips said it expects production in its exploration and production unit to be lower in the second quarter, due to scheduled maintenance, normal seasonality in Alaska, its exit from Dubai, and asset dispositions.

Midstream net income fell to $85 million from $110 million due to lower volumes and natural gas liquid prices.

ConocoPhillips's refining and marketing net income rose to $1.14 billion from $390 million a year ago, helped in part to a net benefit of $135 million.

The company also had a decline in profit from its chemicals segment, which includes the 50% interest in Chevron Phillips Chemical Co. Net income fell to $82 million from $149 million a year ago, due to lower olefins and polyolefins margins and an insurance benefit in the year-ago period.

Oil futures closed Wednesday at $64.58, up 5.8% for the year. Oil started year at $61.0658, however, oil is still off from its all-time high of $78.40 on July 12.

Write to Josee Rose at josee.rose@dowjones.com and Jonathan Vuocolo at Jonathan.Vuocolo@wsj.com

April 24, 2007

http://www.chron.com/disp/story.mpl/business/energy/4741886.html

Board faults trailer report
Trade group's recommendations don't cut it,
safety officials say
By TOM FOWLER

Guidelines developed by the oil industry's leading trade group are "open-ended and mushy" when it comes to determining the safest location for temporary trailers at refineries, a member of the U.S. Chemical Safety and Hazard Investigation Board said Monday.

The draft standards released by the American Petroleum Institute in December fail to spell out minimum safe distances between trailers and hazardous equipment and do not create strict limitations on their use, board member William Wright said at a conference in Houston.

"Guidance from the industry should explicitly seek to minimize the use of these structures," Wright said. "I would say API's guidelines don't go far enough."

The location of temporary trailers was a key element in the March 2005 explosion at BP's Texas City refinery in which 15 people were killed and scores injured. All of the dead and many of the injured were working in temporary trailers as close as 121 feet to the unit where the explosion occurred.

The trade group previously has defended the guidelines, saying it generally doesn't dictate to its member companies how to do business and that the guidelines were still in draft form.

American Petroleum Institute spokeswoman Karen Matusic said Monday that the 35-person committee that developed the draft standards has taken the chemical safety board's comments and others into consideration and is meeting this week to go over a final version.

She could not say if the new guidelines will be more specific, but they will be sent to trade group members for a vote soon and a final version should be released by the end of June.

API drafted its recommendations at the request of the safety board, which identified the issue as an industrywide priority shortly after the Texas City accident.

The recommendations released by the institute in December outlined the risk assessment process refinery operators should take when planning the placement of temporary trailers but left final decisions to the operators' judgment.

Union officials criticized the recommendations last year for not being more specific or restrictive.

"This is what happens when the fox watches the henhouse," Gary Beevers, international vice president of the oil sector for the United Steelworkers, said in December.

Chemical safety board officials expressed some reservations about the API draft at the time but waited until this week to go public with their concerns.

Wright, a former officer in the Navy's Special Operations Explosive Ordnance Disposal unit, discussed the board's reservations on Monday before the Annual International Conference of the Center for Chemical Process Safety in Houston.

Companies have responded to concerns about trailer safety in different ways. Soon after the accident, BP adopted strict policies regarding trailer placement, said John Mogford, global head of safety and operations for BP.

The company removed 200 trailers from the Texas City refinery alone and moved the 800 or so workers in them off site. The company is constructing a permanent "hurricane-proof" building at the refinery, further reducing the need for temporary structures, he said.

Shell started looking at the issue of trailer placement in 2000, long before the accident, spokesman Stan Mays said. The company developed a computer-based risk assessment tool to help in placing trailers at its chemical plants and the Motiva refineries it operates with Saudi Aramco.

"All of our trailers have been moved to safe locations due to the program," Mays said.

ConocoPhillips changed its procedures following the Texas City blast and "prohibits the placement of temporary building units within zones that could be impacted by potential safety incidents," spokesman Phil Blackburn said.

Officials at Valero, North America's largest refiner, said they use a computer-based assessment process to place trailers in safe locations that, in most cases, exceeds the API guidelines.

Exxon Mobil Corp. is updating its standards to match the draft API standards, a spokeswoman said Monday.

tom.fowler@chron.com

Wall Street Journal
April 24, 2007

4th UPDATE:
BP 1Q Net Pft Dn 17% On Lower Oil Prices, Output
DOW JONES NEWSWIRES
April 24, 2007 6:18 a.m.
(This updates an item that ran at 0849 GMT, with BP's share of TNK-BP earnings.)
By Benoit Faucon
Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--BP PLC (BP) Tuesday posted a net profit down 17% for the first quarter, as lower oil prices and output offset higher refining margins.

Kicking off the oil majors' earnings season, Europe's second-largest oil company by market capitalization posted a first-quarter net profit of $4.66 billion, or 23.9 cents per share, for the three months ended March 31, compared to $5.62 billion, or 27.1 cents per share, for the year-earlier period.

Total revenue stood at $62.04 billion, down 3% from $64.17 billion for the same period last year.

BP's numbers conform to international financial-reporting standards, which differ from U.S. generally accepted accounting principles.

The drop in profits comes as international oil companies are increasingly finding it difficult to revive their bottom lines as they face dwindling output and rising costs.

This year's first-quarter result also included a net non-operating profit of $363 million, mostly due to the sale of its exploration and production and gas infrastructure business in the Netherlands and accounting gains related to North Sea contracts. The gain compared to a net non-operating charge of $17 million for the same period last year.

The earnings also included the cost of BP's $1.1 billion acquisition of Chevron Corp.'s (CVX) Dutch manufacturing company, which includes a 31% stake in the Nerefco refinery.

BP's quarterly clean replacement cost profit stood at $4 billion, bang in line with analysts' expectations and down 24% from $5.28 billion in the year-earlier period. The BP profit measure, which strips out exceptional items and the impact of inventory gains and losses from the bottom line, is a figure closely watched by analysts.

BP said its total oil and gas production for the first quarter of this year was 3.91 million barrels of oil equivalent a day, compared to 4.04 million per day a year earlier.

The price of the Brent benchmark U.K. crude oil contract was down 7% on average to $57.8 a barrel in the first quarter of 2007, on a year-on-year basis, according to BP's estimates.

However, according to Citigroup, industrywide average refining margins were up 44% in Northwest Europe and 27% in the U.S Gulf Coast.

BP was not able to fully capture the year-on-year increase in refining margins. That's partly because its Texas City, Texas, refinery is still operating at 57% of capacity and because its refinery in Whiting, Indiana, started operating at half its capacity in late March.

Late in the quarter, operational issues at the Whiting refinery reduced throughput to around 200,000 barrels per day, about half its capacity, BP said in the earnings statements. BP said the output cut is expected to continue until it completes repairs.

As of Friday, the Texas City refinery was still processing only 248,000 barrels a day, following an extended restart, instead of its 437,000-barrels-a-day capacity. But a BP executive said Monday it is on track to reach 400,000 barrels a day by year-end."

In addition, BP said profits at its exploration and production unit had been negatively impacted by higher costs, reflecting the impacts of sector-specific inflation, higher depreciation charges and increased spending to improve safety and reliability at its operations.

BP's share of net income from its 50%-owned Russia joint venture TNK-BP (TNBP.RS) stood at $162 million in the quarter, compared to $418 million in the year-earlier period.

The British oil major said the venture's result was negatively affected by lower prices and the adverse effect of oil prices used as a reference for taxes lagging behind actual oil prices.

BP's net output share in the first quarter from the joint venture was 930,000 barrels of oil equivalent a day on average, compared to 994,000 in the same period a year ago.

Societe Generale analyst Stephane Foucaud said: "We do not expect the market to react significantly considering results were almost in line with expectations."

He said, however, that refining and marketing profits were lower than he had forecast due to fair-value accounting. Oil and gas production was also slightly less than the analyst had expected.

At 1013 GMT, BP shares were trading down 0.17%, or 1 penny, at 576.5 pence. The stock is down by roughly 19% from a year ago.

Company Web site: http://www.bp.com

By Benoit Faucon, Dow Jones Newswires; +44-20-7842-9266; benoit.faucon@dowjones.com

Anchorage Daily News
April 22, 2007

http://www.adn.com/front/picture_inset/story/8816356p-8717152c.html

After brutal accident, roustabout learns to cope
By WESLEY LOY
Anchorage Daily News
Published: April 22, 2007
Last Modified: April 22, 2007 at 05:19 AM

Video: In Veetoune's words
http://www.adn.com/photos/multimedia/nabors

Veetoune Mokhantha got a weird feeling as he lay in the hospital room. A bunch of people were gathered around his mom and dad, his girlfriend, some buddies.

They kept looking at his leg, you know? They kept looking at it. And then the doctor told him. Said he’d lost his left leg below the knee in the drilling rig accident.

“I started crying,” he said. “I was pissed. I didn’t want to talk to anybody. Just kicked everybody out.”

He was alive, at least. The young roustabout had stepped into a hole in a steam-filled room, into a spinning industrial auger that nearly devoured him. With finesse and brute force, rescuers cut him out of the steel. Flew him 800 miles off the frigid North Slope to Providence Alaska Medical Center in Anchorage.

So he’d survived.

But how would he live?

Mokhantha family members and friends call him Toune, like Toon, or Tim spent all spring recuperating from the March 25, 2006, accident. And through the summer, he learned to walk again. He was fitted with a prosthetic leg. Started out on a walker. Then a push walker, crutches, a cane.

He did learn to walk.

But it’s not over.

It’s not the lost leg that causes him the most trouble and pain. It’s the right leg, the one that was wrapped around the shaft of the auger, shattered and torn. He can put his fist in hollows where muscle should be. Most of the calf is gone. His big toe and two others also are gone.

He also suffered serious burns from the cutting torches rescuers used to free him.

He’s had multiple surgeries on the leg bone grafts, installing and removing screws and other hardware, fixing the Achilles and faces more.

It’s more like a peg than a leg. He has no dorsiflexion can’t move his foot and toes upward. Like the ankle is wooden.

So his toes stay curled down all the time, hooked like claws, which means he walks on top of them till they bleed.

His second toe, the one next to the big toe, is scabbed and bleeding one February day as he arrives at the Providence physical therapy center. It’s got Toune in a bad mood.

“I hope they cut it off,” he said.

(A surgeon did, last Wednesday.)

But soon, he’s smiling he’s got a brilliant, boy’s smile under that Yankees ball cap as he works with Wally Wilson, an easygoing therapist who got his training in Alabama.

Wilson helps stretch his legs. Then Toune sits on a giant, green medicine ball and they toss a soccer ball back and forth. Hones his balance.

“He’s strong. He’s fit. He’s got great upper body strength, which is an asset,” Wilson said.

Nearby, an old woman pedals a stationary bike. After an hour, Toune hobbles out to the reception area, where his mom is waiting, but turns back and pokes his head into an office.

“Bye, Melissa.”

'I WAS SO MAD’

Alaska’s oil industry is flush with risk, as enormous rigs employing 100 workers or more punch holes into the North Slope tundra, typically in winter when the ground is frozen rock solid.

The oil fields are isolated, arrayed along the Arctic Ocean coast. Mokhantha’s rig was in an especially remote area, drilling a wildcat well deep inside the National Petroleum Reserve-Alaska, a mostly empty federal tract the size of Indiana. The site was more than 100 miles west of Prudhoe Bay, the biggest of the Slope’s oil fields.

Despite the dangers, injuries as severe as Mokhantha’s are rare on the Slope.

The type of machine that trapped him, however, has maimed or killed plenty of people in a variety of industries.

An auger is basically a long corkscrew laid in a trough or pipe, its spinning blades designed to push along bulk material ranging from concrete to grain to cow manure to, in this case, mud used to lubricate drilling bits.

An arm, leg or piece of clothing in an auger often means severe injury or death. They’ve mangled many a farmer. In 2005, a pregnant woman working on a factory fishing ship in the Bering Sea lost both legs when an auger at the bottom of a hopper she was cleaning was switched on by accident.

Steam obscured his vision as Mokhantha entered a side room on the rig and stepped into a hole created after a co-worker removed a floor grate covering the auger, which was clogged with ice the workers were trying to dislodge.

He’s disgusted with himself why did he have to step into that auger? “I guess it was meant to be, whatever,” he said. “I was so mad.” But Alaska safety inspectors believe the accident could have been prevented.

In August, the state Occupational Safety and Health office fined the rig operator, Nabors Alaska Drilling Inc., a unit of Bermuda-based drilling giant Nabors Industries Ltd., $18,900 for three safety violations: failing to train workers effectively, unlawfully cleaning machinery in motion and failing to erect a temporary protective railing around the floor opening.

Nabors is contesting the fine and the case is unresolved, state officials said.

MOTORCYCLE DREAMS

Around Christmas, as Mokhantha tells the story of his ordeal, he tears up as he describes how toolpusher Ray Barnes, the top man on the rig, stayed right by his side throughout the seven-hour rescue. Held his hand. Talked to him.

“He’s cool,” Toune said.

But Toune’s not got much use for Nabors. At first, he said, Nabors managers were “all goodie goodie.” Called him. Came to visit. Now, he said, weeks and months roll by without any contact. Workers’ compensation is paying his medical bills. But there’s been no Nabors settlement, and state law generally prevents injured workers from suing their employers. So Mokhantha and his lawyer have sued a Nabors subcontractor they say was supposed to make sure the company followed safe work practices on the rig.

Asked if he’s still a Nabors employee, Toune said blankly, “I don’t know.” He knows he’s not getting a paycheck, though.

Except for his medical troubles, he seems to have a comfortable life. He lives in a basement apartment in his mom and dad’s South Anchorage house. His space is dominated by a 50-inch TV, a billowy white sofa, two sleek motorcycles and a rambunctious Shar-Pei puppy named Blue. His gorgeous girlfriend lives with him, though Toune said he told her after the accident that she could leave if she wanted.

He was born in Michigan, to parents who immigrated from Laos. Around the Mokhantha house, visitors can hear not only English but Lao and Thai.

Toune was a decent running back at Zeeland East High School, near Grand Rapids, and was a brawny guy before the accident 5 foot 10, 190 pounds.

In the hospital, his weight dipped as low as 130 pounds and he still looks slight, except for those powerful arms, one of which he’s covered in tattoos of a coy fish and a Lotus flower, symbolizing strength and new life.

Friends ring his cell phone often, and they come and get him almost daily. They hit the mall, or hang out in one guy’s garage. Whatever. Toune is 20 now, almost old enough to go into a bar.

He’s alternately despondent and stoked.

It disappoints him that he can’t stand or walk for more than 20 minutes or so before pain in his leg forces him into a wheelchair. And he frets about what he’s going to do for work. He said an insurance claims adjuster keeps asking him about his plans, but he figures he’s got enough to worry about with the surgeries.

“I wish I could go back to work. But what kind of job would take me?” he said. And then he looks down and mumbles, “Be a burger flipper.” He knows he wants to get better.

He watches that Discovery Channel show, “Rebuilt,” about a high-tech prosthetics lab.

More than anything, he dreams of riding his motorcycles again crotch rockets, a Yamaha R6 and a Honda 954.

Because he can’t work the gear shift with his left leg, he’ll have to rig up a hand shifter. But he’s sure he’ll ride.

“Summer’s coming,” he says over and over, and flashes that smile.

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

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http://www.adn.com/front/picture_inset/story/8816356p-8717157c.html

Nabors focused on reducing accidents
By WESLEY LOY
Anchorage Daily News
Published: April 22, 2007
Last Modified: April 22, 2007 at 05:27 AM

Oil and gas drilling is dangerous work, and many workers who get into scrapes with unforgiving equipment end up in far worse shape than Veetoune Mokhantha, the Anchorage man who suffered severe leg injuries on a North Slope rig last year.

During the period 2003 through 2005 in the United States, 281 people died in the industry, almost a quarter of them while assembling, repairing or cleaning equipment such as the spinning auger that grabbed Mokhantha, the National Institute for Occupational Safety and Health reports.

Mokhantha was not working on the most dangerous part of the rig the drilling floor at the base of the derrick, where workers use hydraulic lifts, chains and wrenches to move drill bits and heavy sections of pipe into and out of the bore hole.

Half the rig incidents that result in lost work time involve floormen. Roustabouts like Mokhantha, who do jobs on the periphery of the drilling, account for about 2 percent, according to the International Association of Drilling Contractors, a Houston trade group.

INJURIES ONCE COMMON

Bermuda-based Nabors Industries Ltd., which operated the rig Mokhantha worked on, is one of the world’s largest drilling contractors, with several rigs in Alaska. BP and other top oil companies hire Nabors to drill holes to find and produce oil.

Nabors spokesman Denny Smith said injuries used to be accepted as a given, but the industry has worked hard to stamp out that attitude in recent years. Nabors has set up training centers for its workers, and last year its U.S. budget included $43 million for safety and training, he said.

Citing figures from the IADC, Smith noted Nabors ranks better than other large drillers in rates of accidents involving lost work time. “Obviously, tragic accidents do happen,” he said. “Our focus is to get things to zero.”

Mokhantha said Nabors put him through a training course before he began what would be only a three-month career with the company. But he said he doesn’t remember much of what the instructors covered there.

NABORS' SAFETY FINES Aside from the Mokhantha case, state and federal Occupational Safety and Health Administration inspectors have cited Nabors several times the last five years for Alaska violations:

• State safety inspectors in 2003 fined Nabors $2,250 negotiated down from $4,500 in a case in which a floorman was hospitalized after he was pinned by hydraulic tongs he was using to handle pipe. Inspectors said the company failed to install a safety line to prevent the tongs from kicking back.

• In another 2003 case, a cable known as a mule line snagged on a Nabors rig drilling north of Anchor Point. Veteran rig worker Orvis “Pete” Pederson’s foot was pinned and cut in half by the taut line. Nabors was not fined, and Pederson wrote in a statement, “I don’t blame anyone for this accident.”

• Federal OSHA inspectors fined Nabors $1,300 in 2003 for failure to provide adequate guarding around moving machinery, said Randy White, an agency supervisor in Anchorage.

• In 2006, Nabors was fined $1,500 for improperly storing potentially explosive compressed oxygen and gas cylinders.

• This year the company got a $2,000 fine for improperly modifying a forklift employees used to move 2,000-pound pallets of chemicals. Under state law that shields companies from employee lawsuits, Mokhantha can’t sue Nabors directly for his injuries on Nabors Rig 14-E, nor FEX, the Canadian oil company that hired Nabors to drill its well.

But he and his attorney, Marc June, did file suit in January against ASRC Energy Services Inc., which they claim was a subcontractor providing “safety services” on the rig. The suit in state Superior Court in Anchorage seeks “in excess of $100,000.”

The case is scheduled to go to trial in June 2008. In court papers filed last week, a lawyer for ASRC argues the company is immune from liability under the Alaska Workers’ Compensation Act. The suit adds: “Plaintiff’s injuries and damages, if any, were caused, in whole or in part, by plaintiff’s own negligence.”

uE06E Daily News reporter Wesley Loy can be reached at wloy@adn.com or 257-4590.

Anchorage Daily News
April 21, 2007

http://www.adn.com/news/government/legislature/story/8805443p-8706531c.html

Oil field plan will focus on maintenance
NEW OFFICE: Ten staff members will oversee the entire pipeline process.
By STEVE QUINN
The Associated Press
Published: April 19, 2007
Last Modified: April 19, 2007 at 02:48 AM

JUNEAU -- The state on Wednesday established a new office to provide oversight of its oil field infrastructure, just months after a partial shutdown of Prudhoe Bay that was blamed on corrosion.

Gov. Sarah Palin signed the administrative order creating the Petroleum Systems Integrity Office, whose 10 staff members will oversee the entire pipeline process, from permitting to routine maintenance. Department of Natural Resources Commissioner Tom Irwin will lead the new effort.

Three new inspectors and a manager will be hired to monitor the oil industry's maintenance practices through site visits and review of maintenance records. Six staffers already in place already manage the permitting process.

"We are not going to tolerate corrosion," Palin said, calling pipelines the state's "economic lifelines."

"For the first time money and personnel will be set aside to specifically make sure the integrity of our lines is monitored. The state's commitment begins today," she said.

Corrosion was blamed for a March 2006 leak in BP lines at Prudhoe Bay, where more than 200,000 gallons of oil leaked.

But pipeline maintenance didn't become a national issue until last August, when BP partially shut down Prudhoe Bay, the nation's largest oil field, after discovering a small leak and fears of corrosion. BP operates the field on behalf of itself and other producers, including Conoco Phillips Co. and Exxon Mobil Corp.

BP is now spending about $250 million to replace 16 miles of pipeline in Prudhoe Bay.

Before the shutdown, the state relied on the producers to monitor maintenance without state oversight. The Prudhoe Bay incidents changed that, Irwin said.

"History has showed us that didn't work," Irwin said. "It's the way it should work but it didn't."

BP spokesman Steve Rinehart said the company still is reviewing Palin's administrative order.

"BP's practice is to work closely with government regulators and agencies," he said. "We will do so with the new Petroleum Systems Integrity Office."

The state must still hire inspectors, draft appropriate regulations and determine new penalties for violations. No timetable was announced.

Also on Wednesday, Palin urged lawmakers to pick up the pace on two slow-moving bills that would prevent oil companies from deducting facility maintenance or repair costs that may be the product of neglect.

State Sen. Tom Wagoner, R-Kenai, and Rep. Kurt Olson, R-Soldotna, filed the bills more than two months ago. Within days of their introduction, BP told lawmakers it plans to take tax deductions and credits for repair work to corroded pipes on the North Slope.

Lawmakers estimate potential deductions could cost the state up to $116 million in tax revenue.

Even as lawmakers have prioritized Palin's bill to build a natural gas pipeline, she said lawmakers have had plenty of time to address these two measures.

"The people of Alaska should not be held responsible for $116 million worth of credit toward a $250 million capital project that was caused by bad maintenance," Wagoner said. "That is the situation."

Olson's bill has been referred to a subcommittee while the House Resources Committee has spent the last two weeks on the natural gas pipeline bill. Wagoner's bill had a hearing scheduled late Wednesday in the Senate Resources Committee.

Xxxxxxxxxxxxxxxxxxxxx

PART 2

http://www.adn.com/money/industries/oil/story/8808715p-8709509c.html

Roustabout's rescuers battle brutal cold
By WESLEY LOY
Anchorage Daily News
Published: April 20, 2007
Last Modified: April 20, 2007 at 10:13 AM

Ron Shaw, a firefighter in Barrow, was at home asleep when he got the call around 2:45 a.m.

A man was horribly trapped in machinery on a drilling rig. Wedged in tight, legs wrapped around an auger. He needed rescue, and fast.

Shaw, in charge of maintaining rescue equipment for the North Slope Borough Fire Department, bolted to the station and grabbed all his gear -- the Sawzall, a big jigsaw capable of cutting through pipe, and the Jaws of Life, a rescue tool paramedics use to free people from wrecked cars.

Then he headed to the airport for a helicopter flight to Nabors Rig 14-E, which was drilling an exploratory well on a remote tundra site about 50 miles east of town.

It was brutally cold, and the prop wash from the chopper was searing.

Shaw had never worked an auger event before. The corkscrew conveyor moved drilling fluid, or mud, along a trough on the rig. And it had Tim -- Veetoune Mokhantha, a young roustabout -- on the rig. He'd accidentally stepped through a hole in the floor, and the rotating auger had grabbed him. Swallowed up his legs.

Shaw thought about the scene he'd face.

Steel and mud.

Kid hung in steel and mud.

How bad was he bleeding? Was he in shock?

That Johnny Cash song. "Kicking and a-gouging in the mud and the blood and the beer."

On the rig, a drilling camp medic and other rescuers already were working frantically to free the victim.

Lying on his belly, mired hip-deep in machinery, Tim felt the commotion going on above him.

A woman worker came by, seemed to puke, then moved away.

"Oh, this is bad. This is bad," Tim thought.

Rig workers had tried to free him by turning the auger in reverse, but Tim screamed.

They'd have to cut him out.

But could they get through the fist of metal that held him -- the auger shaft, the heavy steel braces, a wall under which Tim's legs ran, and other fixtures?

A welder, Dave Allam, was summoned. They sniffed the room for explosive gases, and covered Tim with a flame-retardant blanket. Using a torch, Allam and the others cut through the wall, exposing rectangular steel braces at the wall base.

Allam began cutting the braces, but the deeper he cut, the closer to Tim's torso he got. They ran water over Tim to keep from burning him, but that caused problems for Allam -- his torch started popping and debris spattered onto his goggles.

Finally, the cutting had to stop. Tim was getting burned.

At 5 a.m., almost three hours after the accident happened, Shaw and his extraction team arrived from Barrow.

Shaw found the space inside the rig terribly cramped.

A man was on the floor with Tim, coaching him, keeping him calm.

Shaw, an emergency medical technician, was amazed Tim wasn't in shock. He was alert and conscious, though anxious.

Shaw figured Tim's legs might be badly cut, and vasoconstriction -- the body's ability to constrict blood flow to traumatized limbs -- was helping keep him alive. He'd also been given a powerful painkiller.

But Shaw knew time was short, that Tim easily could bleed out, especially if he became agitated. They checked his blood pressure every couple of minutes, and tried to hook up an intravenous drip, but the tubing kept freezing as the temperature inside the idled rig began to plunge.

"Hold on, partner, we're trying to get you out," Shaw said. "Just hang in there."

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

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PART 3
http://www.adn.com/money/industries/oil/story/8811962p-8712744c.html

Life or death decision to save young roustabout
Part 3 of 4 about a Slope worker entangled in an auger on a drilling rig.
By WESLEY LOY
Anchorage Daily News
Published: April 21, 2007
Last Modified: April 21, 2007 at 05:02 AM

The Jaws of Life wouldn't work. Too much steel to cut.

The rescuers attacked the metal bracing with a cutting torch, saws and a chain hoist to try to open up more space around Veetoune "Tim" Mokhantha. Several hours earlier he'd stepped through a hole in the floor, into a rotating auger that pulled in his legs.

Ron Shaw, a Barrow firefighter who was choppered to the accident scene -- a drilling rig on the tundra 50 miles from town -- worked down on his knees, twisted awkwardly for what seemed like hours.

Finally he could see down the auger trough, into which Tim's legs had been drawn.

The mud and the blood.

And then he saw the sole of Tim's boot, oddly facing back at him. He reached in and the boot moved easily, but it was too heavy to be empty.

Shaw turned around and ordered, "Bag, tag and ice." He didn't dare explain, for fear of freaking Tim.

Some rescuers began wondering aloud whether they needed to take far more drastic action to save him -- field amputation of one or both limbs.

Tim, a 19-year-old roustabout on Nabors drilling Rig 14-E, got wind of the talk and it horrified him.

It upset Shaw, too.

No, sir, they wouldn't resort to that. Not after all they'd put into saving the kid. Shaw felt they couldn't afford to discuss it. Tim's life depended on him staying calm.

But the rescuers faced a dilemma.

To disassemble the machine clutching Tim, the last step to freeing him, they needed to cut away a fixture called the bearing hanger. But he was lying atop it and couldn't move. To cut it away would risk scorching him with the cutting torch.

His best friend on the rig -- with the rig boss, toolpusher Ray Barnes -- stayed right with Tim, trying to soothe him, telling him he was a good worker.

Nobody told him the auger had chewed off at least part of his left leg.

Tim was starting to lose hope. He even wanted to die. He figured he'd lost a lot of blood, though he never saw any.

At 8:45 a.m., nearly seven hours into the crisis, a doctor on the scene stressed it was life or death now -- time to cut the hanger.

Dave Allam, a company welder, cut it in less than three minutes.

The scrum of rescuers put a stick in Tim's mouth for the pain and lifted him free.

In minutes he was away on a series of emergency flights that brought him about 800 miles to Providence hospital in Anchorage.

Tim's mother works at Providence. When she first saw Tim, the tubes and devices attached to him stunned her.

"He's on life support," she thought.

She was wrong about that. But some of the worst of Tim's ordeal was yet to come.

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

The series

• THURSDAY: Rig accident traps young roustabout

• FRIDAY: Help is mobilized. Read the first two parts at adn.com

• TODAY: Desperate choices

• SUNDAY: Angry aftermath The series

In reporting this story, oil reporter Wesley Loy interviewed witnesses and emergency responders to the accident on Nabors Rig 14-E. Loy also interviewed state safety officials and reviewed their reports on the accident. Nabors Alaska Drilling Inc. managers did not respond to multiple interview requests. A spokesman for Nabors Industries in Houston said the company would not comment because of pending litigation. However, Loy reviewed copies of an internal Nabors report on the accident.

Houston Chronicle
April 21, 2007

http://www.chron.com/disp/story.mpl/front/4735400.html

Contract workers sent to hospitals
BP investigators say no evidence of harmful leak at refinery
By BRETT CLANTON, TOM FOWLER and KEVIN MORAN
Copyright 2007 Houston Chronicle

BP said Friday that more than 100 contract workers from its Texas City refinery were taken to area hospitals Thursday evening after complaining of flulike symptoms.

But by Friday afternoon, the British oil company said its investigators had not found any evidence of a release or leak, and that small devices that workers were wearing to detect harmful emissions did not go off.

"We're looking at circumstances of last night's activities very closely," BP spokesman Scott Dean said.

The event is the latest in a string of incidents in recent months at BP's Texas City refinery, which has been under scrutiny since a March 2005 explosion killed 15 and injured scores more.

But Bruce Clawson, head of homeland security and emergency management in Texas City, said he has heard a theory that the incident Thursday may have been a hoax by disgruntled workers.

"That's being thoroughly investigated," he said. "If that's true, it will come out. If it's not true, it will come out."

BP's Dean said affected workers came from at least four construction companies, but he was unable to verify who all of them were. BP had no employees who were affected, though some were working in the vicinity, he said.

ISI Specialists of Lake Jackson had 19 employees who were treated Thursday night, said Jim Getgood, CEO of the company. But he said he had no reason to believe the incident was faked.

"It's really pretty far-fetched to imagine a group of employees from multiple companies could get together and organize an event like this," he said.

Last week, ISI workers in Texas City voted against joining the International Association of Heat and Frost Insulators and Asbestos Workers, though more than 400 had staged a walkout at the BP refinery in February to demand higher pay, said Todd Dunnahoe, the union's director of organizing.

But he said the union had no involvement in Thursday's incident.

Workers said they experienced dizziness, eye irritation and nausea while doing repairs on an oil processing unit known as Pipestill 3B that had been out of use since Hurricane Rita in 2005, BP said.

More than 60 workers were put through a decontamination process at Mainland Memorial Medical Center in Texas City, and two of 46 workers taken to John Sealy Hospital at the University of Texas Medical Branch in Galveston were admitted to that hospital, health officials said.

The hospitals released most of the workers by Friday morning at 1 a.m, BP said.

The Texas Commission for Environmental Quality said it was not investigating the incident because there appeared to be no evidence that harmful hydrocarbons were released into the air, agency spokeswoman Andrea Morrow said.

Daniel Horowitz, spokesman for the U.S. Chemical Safety and Hazard Investigation Board, said the agency was concerned about the incident but also didn't have any plans to send an investigative team to Texas City.

But the Occupational Safety and Health Administration is investigating the Thursday incident, as well as other recent accidents at the plant, an agency spokeswoman said. But she said she could not provide details.

The Texas City refinery has had four other mishaps since the beginning of the year, according to a database kept by the state.

On Jan. 10, while starting up an ultracracker, workers noticed a small leak, leading to the immediate shutdown and repair of the equipment. The unit had been off line since September 2005.

In February a small leak was detected in a so-called sour fuel gas line, which led to some of the gas being sent to a flare during repairs.

On April 4, a lightning strike caused a fire in a tank that holds excess storm water. Hydrocarbons appeared to have floated to the top of the tank and were ignited, the company said.

And on April 10, a circuit breaker tripped on a fluid catalyst cracking unit, leading to a release of a dustlike substance called catalyst from a stack. At least five Texas City residents who live near the plant were treated for minor skin and eye irritations at Mainland Medical Center after the incident.

But BP's Dean downplayed any suggestion that the incidents amount to a new pattern of safety problems. A possible explanation, he said, is that there has been an extremely high amount of activity at the facility with repair work and new construction being done.

BP is spending more than $1 billion to upgrade the refinery, which has been operating at half capacity since it shut down before Hurricane Rita in 2005.

While BP's Texas City refinery has been under close scrutiny after the fatal 2005 incident, it isn't the only one that has reported operational events in the recent past.

For example, since the beginning of the year, Valero's Texas City refinery had 10 events the state classified as "emissions events."

Bill Day, a spokesman for Valero, said the vast majority of the reports were related to minor events, and none had an effect on the community.

brett.clanton@chron.com

Anchorage Daily News
April 19, 2007

http://www.adn.com/opinion/compass/story/8805460p-8706552c.html

High pipeline tariffs are costing state
COMPASS: Points of view from the community
By RICHARD A. FINEBERG
Published: April 19, 2007
Last Modified: April 19, 2007 at 01:12 AM

Four and one-half years ago, the Regulatory Commission of Alaska determined that the owners of the trans-Alaska oil pipeline were charging far too much for shipping oil on the 800-mile line from the North Slope to Valdez. Based on RCA data, I estimate that during the 30 years the line has been carrying North Slope oil to Valdez, overcharges have enabled the pipeline owners to pocket -- at state expense -- at least $4.5 billion more in 2007 dollars than the amount necessary to repay all costs, plus a reasonable return on their investment.

Today, excessive tariffs (shipping charges) still cost the state treasury approximately $400 per minute -- more than $500,000 per day. Every dollar of overcharges reduces state royalty and tax revenue by about 25 cents. Instead, that money goes to the pipeline owners.

BP, Conoco Phillips and Exxon Mobil, which own approximately 96 percent of the 800-mile pipeline and control a similar portion of North Slope production, are the major beneficiaries of this situation. Overcharges also curb interest in North Slope development by other companies, which have to pay tariff overcharges out of pocket.

This massive, ongoing hemorrhage of state revenue stems from the complex and controversial 1985 settlement agreement between the pipeline owners and the state, represented by the Department of Law and its highly paid consultants.

The RCA only has authority over oil destined for in-state refiners -- approximately 11 percent of total shipments. The pipeline owners went to court to appeal the RCA's 2002 order. In 2006 a Superior Court judge rejected the owners' arguments, upholding the RCA decision "in all respects." That case is now before the Alaska Supreme Court.

Tariffs on 89 percent of the oil fall under the jurisdiction of the Federal Energy Regulatory Commission, which still uses the 1985 settlement as its tariff guideline.

As the weight of the decisions against high tariffs governed by the 1985 settlement accumulates, the owners have dramatically increased their tariffs for interstate oil shipped under FERC jurisdiction. Independent North Slope producer Anadarko and refiner Tesoro -- now joined by the Department of Law on technical grounds -- have protested the increased tariffs at FERC.

For most of the decade since Tesoro launched its RCA tariff protest, the Department of Law has argued on the side of the pipeline owners. Although the state now advocates lower tariffs at FERC, its arguments, in comparison to those of the protesting shippers, seem muted, convoluted and tenuous.

The FERC staff has recently weighed in on the side of the protesters, describing the owners' defense of their tariffs in terms such as "silly," "obfuscating" and contrary to FERC precedent. The FERC staff brief is the latest confirmation that the owners used everything but the kitchen sink and meaningful rate-making data to justify unreasonably high tariffs.

Instead of aggressively challenging specific tariff overcharges at FERC, the Department of Law, in belatedly seeking lower tariffs at FERC, seems content to paddle in the wake of the protesting shippers. Meanwhile, as Department of Law tariff managers wrestle with legal conundrums their predecessors helped create, high tariffs continue to thwart the same potential developers the state now courts for gas line development, and the state treasury continues to bleed.

The consequences of allowing the owners to talk the tariff issue to death while continuing to collect high tariffs are clear. As plans for a natural gas pipeline go forward, encouraging potential North Slope developers to explore for oil and gas may constitute a more important reason for more aggressive state action to end tariff overcharges than the $400 per minute the state continues to lose.

In either case, careful review of tariff history and analysis of recent developments will independently demonstrate that primary responsibility for formulating and executing state pipeline tariff policy should be transferred from the Department of Law and its consultants to the state's resource management agencies.

Richard Fineberg, an independent oil and gas analyst from Ester, served as senior policy adviser to the governor on oil and gas policy 1987-1989. In 2001, he prepared testimony in the tariff case for the RCA's public advocacy section.

Anchorage Daily News
April 19, 2007

http://www.adn.com/money/industries/oil/story/8805385p-8706497c.html

19-year-old laborer takes one misstep into a drill rig auger
By WESLEY LOY
Anchorage Daily News
Published: April 19, 2007
Last Modified: April 19, 2007 at 03:21 AM

Graphic
http://www.adn.com/ips_rich_content/427-19NaborsDrillSite-150-x-203.gif

On the drilling rig, most of the guys knew Veetoune Mokhantha as Tim. Just Tim.

He was 19, and had been working on the rig on the frozen edge of nowhere for just three months.

He was a roustabout. In the oil patch, that means grunt. Laborer. You get good and dirty as a roustabout.

But you also get paid, seriously paid, and Mokhantha was thrilled to have scored a $24-an-hour job with Nabors Industries, one of the world's top drilling contractors.

It was serious money for the teenage son of immigrant parents from Laos -- a kid crazy for fast cars and, most of all, fast motorcycles. Rig pay sure as heck beat the $14 an hour he'd made in a previous job in a nursing home.

Like most young guys, he was too alive to give much thought to dying. Too indestructible to fully appreciate the danger of working on a clanging, steaming machine on the North Slope tundra. He never saw the grisly accident coming.

It was a little over a year ago, very early on March 25, 2006.

Rig 14-E was punching a wildcat well south of Cape Simpson, in a remote expanse of federal land known as the National Petroleum Reserve-Alaska. The nearest town of any size was Barrow, about 50 roadless miles to the west.

Tim and the other hands on Nabors Rig 14-E were feeling pretty good. Their two-week shift was just about over, and the next day Tim would fly home to Anchorage for two weeks of rest and fun.

That's the way it rolls for most Slope workers -- two weeks on, two weeks off -- and Tim liked it.

With spring in sight, it was still brutally cold on the Slope, minus 22 that night.

On the enclosed rig, however, it was toasty, at least 70 degrees. Tim wore regular street clothes underneath a flame-retardant jumpsuit.

He started his 12-hour shift at midnight.

He was assigned to the dewatering house, a unit on the rig where the drilling mud was processed.

The mud is vital for drilling.

It's pumped down the hole to cool the drilling bit, and flows back to the surface as a hot slurry full of rock cuttings.

Tim worked alone in the dewatering house.

Around 1:30 a.m., another rig hand stepped in. Said they had a problem with the auger in an adjacent unit -- the pit room. Said it was frozen up and needed thawing.

Tim stayed behind and kept working.

After half an hour, he decided to go next door and check on the troubleshooters.

The auger was a long, rotating corkscrew with sharp blades. It lay in a metal trough, just beneath the metal flooring grates, and carried the mud from room to room.

An ice plug had formed in the open-air gap between the dewatering house and the pit room, where the auger and mud were exposed to extreme cold.

Rig hands in the pit room were looking to knock out the ice with a steam hose.

The pit room was warm and foggy as the chill air hit the vats of scalding mud. It was so steamy it was hard to see well, and it got worse after Tim swung open the outside door and stepped in with a rush of arctic air.

He turned right and stepped down a narrow passage. Through the fog, he could make out toolpusher Ray Barnes -- the man in charge of Rig 14-E -- and another worker.

After three or four steps, Tim's right boot sagged. Barnes made a grab for Tim but it was too late.

Workers had removed the floor grate covering the auger and Tim had stepped through. He tugged, but he couldn't pull the steel-toed boot out of the hole. And he couldn't yank his foot out of the boot.

In an instant, his other foot was in the hole. The auger flung him face down onto the cold metal floor.

When they removed the grate, rig workers hadn't shut down the machine. Now Tim was in its grip. The auger was sucking him in.

Horrified, the other rig workers hit a kill switch on the wall.

Tim screamed. Trapped in machinery up to his hips, he felt more numbness than pain.

"Give me a phone! Give me a phone!" he pleaded. He had to call his parents. Tell them he loved them before he died.
-------------------------------------------------
Daily News reporter Wesley Loy can be reached at wloy@adn.com .
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FIRST IN A FOUR-PART SERIES

Veetoune "Tim" Mokhantha, a North Slope roustabout, was trapped in oil-rig machinery in March of last year. This is the story of that accident and its aftermath.
-------------------------------------------------
EDITOR'S NOTE: In reporting this story, oil reporter Wesley Loy interviewed witnesses and emergency responders to the accident on Nabors Rig 14-E. Loy also interviewed state safety officials and reviewed their reports on the accident. Nabors Alaska Drilling Inc. managers did not respond to multiple interview requests. A spokesman for Nabors Industries in Houston said the company would not comment because of pending litigation. However, Loy reviewed copies of an internal Nabors report on the accident.

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http://www.adn.com/news/government/legislature/story/8805443p-8706531c.html

Oil field plan will focus on maintenance
NEW OFFICE: Ten staff members will oversee the entire pipeline process.
By STEVE QUINN
The Associated Press
Published: April 19, 2007
Last Modified: April 19, 2007 at 02:48 AM

JUNEAU -- The state on Wednesday established a new office to provide oversight of its oil field infrastructure, just months after a partial shutdown of Prudhoe Bay that was blamed on corrosion.

Gov. Sarah Palin signed the administrative order creating the Petroleum Systems Integrity Office, whose 10 staff members will oversee the entire pipeline process, from permitting to routine maintenance. Department of Natural Resources Commissioner Tom Irwin will lead the new effort.

Three new inspectors and a manager will be hired to monitor the oil industry's maintenance practices through site visits and review of maintenance records. Six staffers already in place already manage the permitting process.

"We are not going to tolerate corrosion," Palin said, calling pipelines the state's "economic lifelines."

"For the first time money and personnel will be set aside to specifically make sure the integrity of our lines is monitored. The state's commitment begins today," she said.

Corrosion was blamed for a March 2006 leak in BP lines at Prudhoe Bay, where more than 200,000 gallons of oil leaked.

But pipeline maintenance didn't become a national issue until last August, when BP partially shut down Prudhoe Bay, the nation's largest oil field, after discovering a small leak and fears of corrosion. BP operates the field on behalf of itself and other producers, including Conoco Phillips Co. and Exxon Mobil Corp.

BP is now spending about $250 million to replace 16 miles of pipeline in Prudhoe Bay.

Before the shutdown, the state relied on the producers to monitor maintenance without state oversight. The Prudhoe Bay incidents changed that, Irwin said.

"History has showed us that didn't work," Irwin said. "It's the way it should work but it didn't."

BP spokesman Steve Rinehart said the company still is reviewing Palin's administrative order.

"BP's practice is to work closely with government regulators and agencies," he said. "We will do so with the new Petroleum Systems Integrity Office."

The state must still hire inspectors, draft appropriate regulations and determine new penalties for violations. No timetable was announced.

Also on Wednesday, Palin urged lawmakers to pick up the pace on two slow-moving bills that would prevent oil companies from deducting facility maintenance or repair costs that may be the product of neglect.

State Sen. Tom Wagoner, R-Kenai, and Rep. Kurt Olson, R-Soldotna, filed the bills more than two months ago. Within days of their introduction, BP told lawmakers it plans to take tax deductions and credits for repair work to corroded pipes on the North Slope.

Lawmakers estimate potential deductions could cost the state up to $116 million in tax revenue.

Even as lawmakers have prioritized Palin's bill to build a natural gas pipeline, she said lawmakers have had plenty of time to address these two measures.

"The people of Alaska should not be held responsible for $116 million worth of credit toward a $250 million capital project that was caused by bad maintenance," Wagoner said. "That is the situation."

Olson's bill has been referred to a subcommittee while the House Resources Committee has spent the last two weeks on the natural gas pipeline bill. Wagoner's bill had a hearing scheduled late Wednesday in the Senate Resources Committee.

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Houston Chronicle
April 19, 2007

http://www.chron.com/disp/story.mpl/business/energy/4726932.html

Lawyer:
BP didn't reveal scope of public relations effort
By KRISTEN HAYS
Copyright 2007 Houston Chronicle

BP's effort to combat bad publicity stemming from the March 2005 explosion at its Texas City refinery is much wider in scope than company officials have previously acknowledged in court, a lawyer representing hundreds of plaintiffs in blast-related litigation said today.

State District Judge Susan Criss in Galveston said that next month she will consider what, if any, sanctions to impose against BP for failing to previously disclose the scope of the public-relations campaign.

Thousands of mailings promoting BP's commitment to plant safety have been sent out monthly in the community since the summer following the blast that killed 15 people, Beaumont attorney Brent Coon told Criss at a hearing today.

BP's Texas City-based manager for government and public affairs, Neal Geary, has already testified both in court and in a deposition about a mailing he sent to 900 Texas City business leaders on the eve of a blast-related civil trial that was to start last November.

At the time, Criss scolded BP and called the mailing "a stunt" that could taint the jury pool. The case was settled on the day a jury was to be selected.

But Coon said he recently learned that Geary allegedly knew about another mailing sent to 7,000 Texas City residents days before the trial as well as the previous monthly mailings. Geary didn't volunteer that information in his previous testimony.

"We are tired of the games. We are tired of the delay tactics. We are tired of the half-truths and obfuscations," Coon said.

The issue arose earlier this month when BP lawyers told Coon and Criss about the mailing to 7,000 people. That mailing went out under the signature of Iris Cross, the plant's community relations director.

Coon said today that Cross testified in a deposition last week that the most mailings went through her and Geary knew about them.

Criss said she was "concerned there is evidence of perjury" in Geary's testimony that he sent out the 900 mailings without company approval and the issue of mailings he did not mention in previous testimony. She said Coon could grill Geary about the issues in a second deposition.

"It might resolve any need to make a ruling on this issue," she said.

BP lawyer David Salyer disputed any signs of perjury.

"If you look at the questions he was asked, we don't believe he perjured himself," Salyer said.

Salyer also said he disclosed the Cross mailing when he found it among piles of documents he received from another plaintiffs' lawyer.

That and the Geary mailing were of interest because they went out on the eve of the November trial and could have been received by potential jurors in that case, he said. But he called the earlier mailings "irrelevant."

"This all has to do with that Nov. 6 jury pool," Salyer said.

"Well, also it has to do with future jury pools, but go ahead," Criss replied.

Kenneth Tekell and Ronnie Krist, two other BP lawyers, sought to downplay the flap over the mailings. Tekell said the parties should focus on settling pending lawsuits rather than addressing "a lot of past history," while Krist said it was "foolish" to continue investigating the issue.

Criss countered that the effect of the mailings on future jury pools as well as the possibility that Geary "misrepresented the truth" need to be addressed.

About 1,350 lawsuits have been settled for hundreds of millions of dollars. About 3,000 remain pending, including more than 2,000 that were Criss said were filed before the deadline of the blast's two-year anniversary last month.

Geary couldn't immediately be reached for comment.

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http://www.chron.com/disp/story.mpl/business/4728848.html

More BP mailings come to light
Judge says penalties possible over how
they've been revealed
By KRISTEN HAYS
Copyright 2007 Houston Chronicle

Mailings promoting BP's commitment to plant safety had been sent out monthly in Texas City since the summer after the March 2005 refinery blast that killed 15 people, a plaintiffs' attorney told a judge Wednesday.

Plaintiffs' attorney Brent Coon said BP has employed a "massive long-term strategy" to gain favorable public opinion and possibly influence potential jurors with a mailing campaign much wider in scope than company officials have previously acknowledged in court.

"We are tired of the games. We are tired of the delay tactics. We are tired of the half-truths and obfuscations," said Coon, who represents hundreds of people suing BP over the blast.

BP lawyers sought to downplay the mailings, saying they need to focus on settling thousands of pending lawsuits rather than digging into past events.

But State District Judge Susan Criss said BP could face penalties for its piecemeal disclosure of the mailings and if she determines they may taint future jury pools.

She said she would consider sanctions at a hearing next month.

The issue of the mailings first arose last November when Neal Geary, BP's Texas City-based manager for government and public affairs, sent a mailing to 900 Texas City business leaders days before a civil case involving two of the deaths was slated to go to trial.

The mailing promoted BP's stance on safety.

At the time, Criss scolded BP's legal team, saying the company pulled "a stunt" that could taint a jury.

The case later settled.

Geary, who signed the mailing, testified about it in court and in a deposition. However, lawyers said he didn't volunteer information about the thousands of other mailings for which he wasn't responsible.

7,000 residents

Nearly two weeks ago, BP lawyers told Criss and Coon they had unearthed another mailing that was sent to 7,000 Texas City residents at the same time Geary's mailing went out.

Coon said Wednesday that Iris Cross, the company's community relations director in Texas City, testified in a deposition last week that she was responsible for the larger mailing. Coon said she also testified that Geary knew about it as well as an unidentified number of monthly newsletters that included safety updates that had been sent to Texas City residents since the summer of 2005.

Coon called the effort "a massive PR undertaking that has been going on the length of the litigation."

BP spokesman Neil Chapman said Wednesday night that BP stopped sending out the monthly mailings last year.

Concern about testimony

Criss said she was "concerned there is evidence of perjury" in Geary's testimony that he sent out the 900 mailings without company approval as well as the revelation that there were other mailings he knew about but didn't mention.

Neither Geary nor his lawyer, Wendell Odom, were at the hearing. But in response to Criss' statements, Odom said in a telephone interview later Wednesday that perjury requires intentional lying to be a crime.

"Neal has never intended to testify falsely," Odom said. "That doesn't mean that one cannot make mistakes in their testimony."

At the hearing, BP lawyer David Salyer told Criss that given the questions Geary was asked, "we don't believe he perjured himself."

Criss said Coon could grill Geary about the issues in a second deposition, which has yet to be scheduled.

"It might resolve any need to make a ruling on this issue," she said.

Criss also ordered BP lawyers to give Coon copies of all mailings sent out, not just those sent on the eve of the planned trial. "All the PR stuff we've been talking about, any sort of propaganda you've mailed out, I want you to send it to Mr. Coon," the judge said.

Mailings called irrelevant

Salyer acknowledged the Geary and Cross mailings were of interest because they went out right before the trial that was scheduled for November and could have been received by potential jurors in that case.

But he called the monthly mailings irrelevant.

Ronnie Krist, another BP lawyer, said it was "foolish" to continue investigating the issue when the focus should be on settling pending cases.

Criss countered that the effect of the mailings on future jury pools as well as the possibility that Geary "misrepresented the truth" need to be addressed.

Also Wednesday, Criss ordered BP to unseal the report of an internal company investigation that Coon said called for firing four executives for their failures in proper oversight and accident prevention.

However, the report of the investigation conducted by Wilhelm Bonse-Geuking, group vice president of BP, will remain under wraps while the company appeals Criss' order.

About 1,350 lawsuits have been settled for hundreds of millions of dollars. About 3,000 remain pending.

kristen.hays@chron.com

Alaska Governor
April 18, 2007

http://www.gov.state.ak.us/news.php?id=304

Governor Palin Signs Administrative Order
FOR IMMEDIATE RELEASE 07-085

Governor Palin Signs Administrative Order Creating Petroleum Systems Integrity Office

April 18, 2007, Juneau, Alaska Governor Sarah Palin today announced the “Petroleum Systems Integrity Office” (PSIO), her initiative to ensure Alaska’s oil and gas infrastructure will get the maintenance and inspection it needs to operate safely for decades to come.

“The economic well-being of our state depends on the flow of oil from state lands on the North Slope and elsewhere in the state,” said Governor Palin. “Alaska will continue to deliver the new energy our nation needs, and we absolutely demand that our oil and gas systems are up to the job.”

Governor Palin’s Administrative Order 234, signed April 18, 2007, creates the PSIO as an independent office inside the Department of Natural Resources (DNR) Division of Oil and Gas, with specific responsibilities and authorities to coordinate the state’s permitting, oversight and compliance functions with all other responsible agencies.

PSIO addresses lax maintenance practices on the North Slope that came to light last year after corroded pipelines spilled 200,000 gallons of oil, leading to production shut-downs at Prudhoe Bay and interruption in the flow of oil revenue to the state, she said.

PSIO requires industry to establish and maintain quality assurance programs, and requires the state to inspect facilities to ensure operators comply with those programs. PSIO will also search for any gaps in laws, regulations or industry practices that threaten the integrity of the state’s oil and gas infrastructure. If necessary, the office will step in and exert the state’s authority as issuer of development leases to ensure the system and the state’s interests are protected.

Under PSIO, state and federal agencies will retain their own responsibilities: Alaska Department of Environmental Conservation for environmental protection; Alaska Department of Natural Resources for land and water use, habitat protection, unit and lease management, and coastal zone management; and the U.S. Department of Transportation for the trans-Alaska Pipeline System (TAPS). But their efforts will be better coordinated, and any gaps in oversight will be better filled, through PSIO, the governor said.

“No other state has taken such bold steps to make sure the operators of oil and gas facilities are properly maintaining their own equipment,” Palin said. “Alaska is the first state to make operators share their maintenance and quality assurance programs with the state. We’re the first state to make operators document that they are complying with those programs. We’re the first state to conduct inspections to verify they are complying with those programs.

While the goal of the previous administration’s systems integrity effort was the same, the Lease Monitoring and Engineering Integrity Coordinator’s Office (LMEICO), would have added expensive new permitting, budgeting and personnel functions in a complex structure that provided little additional benefit, Governor Palin said.

“We are setting our standards high, but that’s because the stakes are high for Alaska and for a nation that depends on our oil and gas,” she said. “I am confident that PSIO is the best way to ensure safe, reliable operation of our energy infrastructure.”

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http://www.gov.state.ak.us/admin-orders/234.html

234 (04-18-07)
AO 234 Designating the Commissioner of the Department of Natural Resources as coordinator of oversight activities over oil and natural gas activities on state oil and natural gas units and leases. Creates the Petroleum Systems Integrity Office within the Department of Natural Resources.

ADMINISTRATIVE ORDER NO. 234

I, Sarah Palin, Governor of the State of Alaska, under the authority of art. III, secs. 1 and 24, of the Alaska Constitution, and AS 44.17.060, name the commissioner of the Department of Natural Resources as the coordinator of oversight of facilities, equipment, infrastructure, and activities designed to explore for, produce, process, or transport oil and natural gas from, across, or within state oil and natural gas units or leases. This Order authorizes and directs increased and assertive oversight activities on state oil and natural gas units and leases by the Department of Natural Resources. These oversight activities include all activities relating to all facilities, equipment, and infrastructure. This Order also provides for coordination among state agencies of oversight on oil and natural gas matters on state land.

Nothing in this Order affects the authorities or responsibilities of state agencies with permitting, authorization, or oversight authority over oil and natural gas activities on state oil and natural gas units and leases, including advocacy by the Department of Law before the Federal Energy Regulatory Commission and state regulatory commissions, the development of fiscal terms under AS 43.82 or any later-enacted statute on development of such fiscal terms, or construction and maintenance of surface and air transportation infrastructure by the Department of Transportation and Public Facilities under other legal authority.

FINDINGS

It is in the best interests of the people of this state and the nation that oil and natural gas exploration, production, and transportation facilities within this state be designed, constructed, operated, and maintained in a safe and environmentally sound manner. Oversight by state agencies with legal jurisdiction over the facilities, equipment, infrastructure, and activities designed to produce and transport oil and natural gas must be efficient, effective, and capable of ensuring compliance with state law.

It is in the best interests of the people of this state and the nation that oil and natural gas infrastructure in this state be designed, constructed, operated, and maintained to minimize the economic impacts to ongoing functions of state government caused by unplanned interruptions or reductions in oil and natural gas production in this state.

It is in the best interests of the people of this state and the nation that oil and natural gas infrastructure be maintained to avoid premature abandonment, which would cause waste of the state's resources.

It is in the best interests of the people of this state to utilize existing state government structures and processes to the maximum extent possible, and to effectively coordinate all state resources associated with oversight of facilities, equipment, infrastructure, and activities designed to produce oil and natural gas from state oil and natural gas units and leases.

The Department of Natural Resources has the authority under AS 38.05 and AS 44.37.020(a), and under state oil and natural gas leases, to exercise oversight of all oil and natural gas facilities, equipment, infrastructure, and activities on state oil and natural gas units and leases.

ORDER

To further these findings, I, Sarah Palin, Governor of the State of Alaska, order and declare the following:

In regard to matters other than those relating to the development, and adoption or issuance, of regulations, standards, permits or other authorizations under federal, state, or local law, or to facilities subject to the United States Federal Highway Administration or the United State's Federal Aviation Administration oversight, the commissioner of the Department of Natural Resources is the lead official for communication and coordination with appropriate federal agencies, and with local governments, related to oversight of oil and natural gas exploration, production, and transportation on state oil and natural gas units and leases. The commissioner of the Department of Natural Resources may delegate duties under this Order to a qualified designee from the Department of Natural Resources.

The commissioner of the Department of Natural Resources is the lead official for communication and coordination among the following Designated Agencies regarding oil and natural gas infrastructure and activities on state oil and natural gas units and leases: Department of Environmental Conservation; Department of Fish and Game; Department of Public Safety; Department of Revenue; Department of Transportation and Public Facilities; Department of Labor and Workforce Development; Department of Law; Department of Natural Resources; Alaska Oil and Gas Conservation Commission; and the director in the Governor's Office in Washington, D.C.

The commissioner shall establish a Petroleum Systems Integrity Office (PSIO) and designate a Petroleum Systems Integrity Office Coordinator (PSIOC). The PSIOC is the lead state official in exercising oversight of the maintenance of facilities, equipment, and infrastructure for the sustained production and transportation of oil and natural gas resources in this state, including such facilities, equipment, and infrastructure not currently within the jurisdiction of a Designated Agency.

Each Designated Agency shall appoint a Liaison Officer who shall report to the head of that Designated Agency. The Liaison Officer shall coordinate with the PSIOC. Liaison officers shall serve as the primary point of contact representing their respective Designated Agency.

The PSIOC shall establish, conduct, and coordinate through the Liaison Officers a process to comprehensively assess current state agency jurisdictions, standards, and practices on matters subject to this Order. That assessment shall identify all state agencies' detailed statutory and regulatory authority and practices; any gaps in statutes, regulations, resources, practices, or oversight regarding oil and natural gas facilities, equipment, infrastructure, and activities on state oil and natural gas units and leases; and the risks associated with any gaps. Analysis done under this paragraph is intended to preclude duplication of effort, and provide a comprehensive and cost-effective approach to determine the appropriate state oversight of oil and natural gas facilities, equipment, infrastructure, and activities on state oil and natural gas units and leases.

The PSIOC shall lead the interagency effort, through the Liaison Officers, to evaluate industry oversight of oil and natural gas facilities, equipment, infrastructure, and activities on state oil and natural gas units and leases. Designated agencies, to the extent authorized through existing legal authorities, shall require the industry businesses to provide a comprehensive description of current practices that includes the quality control, quality assurance, monitoring, inspection, and other practices the business uses to ensure the integrity and reliability of oil and natural gas facilities, equipment, infrastructure, and activities. The PSIOC shall coordinate the review of these evaluations and descriptions, identify gaps, and seek remedial action. The PSIOC shall make recommendations to the commissioner of the Department of Natural Resources regarding enforcement actions by the Department of Natural Resources and cases to be referred to other state, local, or federal agencies for appropriate civil or criminal penalties available under the law.

On an ongoing basis, the PSIOC shall coordinate the oversight activities of the PSIO with the Designated Agencies. The Designated Agencies shall participate in interagency activities led by the PSIO and provide other technical assistance as requested by the PSIO.

Unless contrary to any dispute resolution process in statute or regulation, in the event of an interagency dispute between Designated Agencies regarding a matter covered under this Order, Liaison Officers shall raise the issue to the PSIOC, who shall resolve the interagency dispute to the maximum extent possible in accordance with law. If the interagency dispute cannot be resolved by the PSIOC, the matter shall be elevated to the affected Designated Agency heads and the commissioner of the Department of Natural Resources. If an interagency dispute cannot be resolved by the affected Designated Agency heads and the commissioner of the Department of Natural Resources, the matter shall be elevated to the governor.

Consistent with AS 44.23.020, the attorney general, as legal advisor for the state, shall provide legal services to the PSIO, the PSIOC, and all Designated Agencies.

This Order is for administrative purposes only. It neither creates any third-party rights nor modifies the statutory and regulatory authority of Designated Agencies.

The PSIOC shall submit to the commissioner of the Department of Natural Resources and to the governor periodic progress reports that summarize evaluation, coordination, review, and oversight activities done under this Order and accomplishment of those activities.

DEFINITIONS

In this Order,

"Designated Agencies" means the Department of Environmental Conservation; Department of Fish and Game; Department of Public Safety; Department of Revenue; Department of Transportation and Public Facilities; Department of Labor and Workforce Development; Department of Law; Department of Natural Resources; Alaska Oil and Gas Conservation Commission; and the director in the Governor's Office in Washington, D.C.;

"equipment" means machinery that is not a permanent fixture, is located on either a state oil and natural gas unit or lease, and is used to operate, construct, clean, or otherwise service oil and natural gas infrastructure and facilities;

"exploration facility" has the meaning given in AS 46.04.900;

"facilities" includes exploration facilities, oil terminal facilities, and production facilities;

"infrastructure" means all oil and natural gas pipelines, both onshore and offshore, including production facilities, line pipe, valves, and other appurtenances connected to line pipe, pumping units, and fabricated assemblies associated with pumping units, flow lines, separation facilities such as gathering centers and flow stations; transmission pipeline; above-ground oil storage tanks; oil or natural gas processing facilities, including seawater and produced water facilities; and all offshore platforms intended for use in oil and natural gas exploration or production

"Liaison Officer" means an officer or employee from a Designated Agency appointed to represent and report to the head of that Designated Agency and to serve as the primary point of contact between that Designated Agency and the PSIO and PSIOC;

"oil terminal facility" has the meaning given in AS 46.04.900;

"production facility" has the meaning given in AS 46.04.900;

"PSIO" means the Petroleum Systems Integrity Office established under this Order;

"PSIOC" means the Petroleum Systems Integrity Office Coordinator designated under this Order;

"transmission pipeline" has the meaning given in 18 AAC 75.990.

REVOCATION OF AND RELATIONSHIP TO OTHER ADMINISTRATIVE ORDERS

Administrative Order No. 229 is revoked. This Order supplements Administrative Order Nos. 134 and 187 and shall be interpreted as being complementary to those Orders. Unless contrary to any dispute resolution process in statute or regulation, any conflict among the Orders shall be resolved by the heads of the affected Designated State Agencies; if an interagency disagreement remains, the governor will resolve the conflict.

This Order takes effect immediately.
DATED at Juneau, Alaska, this 18th day of April, 2007.

Anchorage Daily News
April 17, 2007

http://www.adn.com/money/industries/oil/story/8800604p-8701851c.html

Groups seek halt to Shell drilling in Beaufort Sea
EXPLORATION: Critics say wells threaten
resources for Native subsistence.
By DAN JOLING
The Associated Press
Published: April 17, 2007
Last Modified: April 17, 2007 at 04:57 AM

ANCHORAGE -- Native American and conservation groups on Monday appealed a federal government decision to approve Shell Oil's exploration plan for the Beaufort Sea.

The groups want to halt Shell exploration activities off the north coast of Alaska that are scheduled to begin in June.

Shell Exploration & Production Co., part of Royal Dutch Shell PLC, in 2005 spent more than $44 million for 84 offshore leases in the Beaufort Sea.

The Mineral Management Service in February approved an outer continental shelf exploration plan submitted by Shell Offshore Inc. Shell proposed to drill up to 12 exploration wells on 12 tracts over three years, including four exploration wells this summer, according to the appeal.

The Mineral Management Service's environmental assessment determined the proposed exploration "would not significantly affect the quality of the human environment."

Three groups filed an appeal Monday to halt Shell's plan. They include Resisting Environmental Destruction On Indigenous Lands, or REDOIL, a network of indigenous organizations; the Center for Biological Diversity; and the Sierra Club.

"Shell's plans could potentially devastate the subsistence resources of the North Slope," said Faith Gemmill of Fairbanks, REDOIL's outreach coordinator in Alaska.

Residents of Alaska's North Slope are concerned both with the potential for spills and with harm that would accompany industrial activity, she said.

The groups filed an appeal with the U.S. Department of the Interior's Board of Land Appeals in Anchorage. If the board rejects the appeal, the groups requested immediate judicial review.

Shell officials did not immediately return a phone call Monday.

The agency did not provide adequate time for public comment on its environmental review, according to the appeal.

According to the groups, the Mineral Management Service, part of the interior department, failed to consider the potential effects from a crude-oil spill during exploration.

"Such a spill could have catastrophic effects on the environment and resources in the Beaufort Sea," the groups said in their appeal, including wildlife such as polar bears, bowhead whales, walrus and other marine mammals.

Brendan Cummings, an attorney for the Center for Biological Diversity, said the lease area is off the Arctic National Wildlife Refuge, which could be affected by a spill.

Gemmill said subsistence hunters and fishermen also worry that birds and animals will be affected by industrial activity. Bowhead whales, she said, could be deflected away from hunters by drilling noise.

Other subsistence activities, such as fishing and hunting for caribou, walrus and waterfowl, could be adversely affected by offshore drilling and the air and marine operations needed to support it, the groups said. Two threatened species, spectacled and Steller's eiders, also could be disturbed.

The groups also said aircraft and ships would harm the sea's wilderness qualities.

Anchorage Daily News
April 13, 2007

http://www.adn.com/money/industries/oil/story/8790070p-8691263c.html

Capacity of oil spill barges must increase, state says
PRINCE WILLIAM SOUND: Holding ability of vessels overestimated by 15 percent.
By WESLEY LOY
Anchorage Daily News
Published: April 13, 2007
Last Modified: April 13, 2007 at 02:54 AM

State officials are pushing Alaska oil tanker operators to boost the capacity of critical spill-cleanup barges in Prince William Sound.

The action comes after the operators admitted last month that due to a miscalculation, they had understated to regulators how much spilled oil the five barges could hold.

State officials want the shipping companies -- which haul oil for Conoco Phillips, BP, Exxon Mobil and others -- to boost holding capacity by nearly 2.9 million gallons.

By comparison, the 1989 Exxon Valdez oil spill was about 11 million gallons.

The state also is seeking an unspecified civil fine from the shippers.

The barges, stationed around the Sound, would play a vital role in quickly cleaning up a large spill, serving as enormous holding tanks for skimmed oil and oily water.

Tanker company representatives and Department of Environmental Conservation regulators met Wednesday in Anchorage to begin hammering out an agreement to settle the matter.

The shipping companies most likely will bring another barge into Prince William Sound, said Betty Schorr, a DEC official.

They're looking at a barge on the West Coast, but it would need modification in a dry dock, she said. That could take weeks or months.

She said the shippers seem to be working diligently to fix the problem.

"I did come away from that meeting feeling they're not sitting back waiting for more direction. They're working the issues," Schorr said.

Anil Mathur, president Alaska Tanker Co., the shipping firm that hauls oil for BP, said tanker operators will solve the barge shortfall as quickly as possible.

"We will definitely, rapidly close any gaps," he said. "The question is what's the best way to do it?"

Due to the slow response to the Exxon spill, the barges as well as powerful tugs and other reforms were ordered for the Sound. The barges serve not only as holding tanks but platforms for cleanup equipment.

Tanker operators thought the barges collectively would hold a certain volume of liquid, but a consultant discovered capacity was up to 15 percent less that originally thought, Schorr said. The shippers then gave state officials a "notice of nonreadiness."

The barge problem has not halted shipments of North Slope crude oil from Valdez to West Coast refineries.

However, the shippers have agreed to certain extra precautions.

Spill response barges have been repositioned or put on standby in the Sound and in Cook Inlet; tug escorts for loaded tankers have been increased; and a one-way traffic zone for tankers moving through Valdez Narrows has been extended.

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

Xxxxxxxxxxxxxxxx

http://www.adn.com/money/industries/oil/pipeline/story/8790068p-8691262c.html

Fire sparks scrutiny of safety standards
ALYESKA: Blaze at pipeline tank farm in January prompts push for rule revisions.
By JEANNETTE J. LEE
The Associated Press
Published: April 13, 2007
Last Modified: April 13, 2007 at 02:55 AM

The company that operates one of the world's longest oil pipelines must revamp several of its safety standards following a fire near a crude oil storage facility, according to the state and federal Joint Pipeline Office.

No one was injured by the fire in January at a tank farm run by the Alyeska Pipeline Service Co., but the company has been told to provide pipeline safety officials with plans to prevent future accidents by early May.

The fire started when flames from a portable heater ignited crude oil vapors seeping from the vents of a storage tank, said Ray Elleven, who wrote the report, on Thursday. Crude from the trans-Alaska oil pipeline is sometimes diverted into the tanks to relieve pressure on the 800-mile line.

The most alarming safety deficiencies included "unreliable" evacuation procedures, such as the lack of an alarm system, and the practice of doing welding and electrical work near vents that were releasing flammable gases, said Elleven, the state Department of Labor's liaison to the Joint Pipeline Office.

Alyeska opened its own investigation into the cause of the fire and will start outfitting the tank farms with a system of audible alarms, among other improvements, said spokesman Curtis Thomas, who is based in Fairbanks.

The company was formed by a consortium of pipeline owners, with London-based BP holding a 47 percent share. The other major owners are Exxon Mobil Corp. and Conoco Phillips.

Thomas said Alyeska plans to create a work team that will analyze operations on tank farms and re-evaluate the internal permitting process for any work that produces flames or sparks, such as welding.

"I just wanted to assure you that this is something the company clearly takes very seriously," said Rod Hanson, the company's health, safety, environment and quality director. "We were very pleased that there were no injuries and no equipment damage, but that doesn't lessen our concern about the incident and making sure we learn from such an event."

The fire started Jan. 6, while an electrician was doing maintenance work on a valve at Pump Station 9 a few miles south of Delta Junction. With the temperature at minus-25 degrees Fahrenheit, a portable heater, about the size of a small pickup, was placed 15 feet from the 55,000-barrel tank.

As the electrician was checking wiring, a false signal generated 200 miles to the south during the testing of a new pipeline control system triggered an automated shutdown and diverted crude into the tank without warning, Hanson said. The fire started nearly 90 seconds later, as the oil displaced fumes in the tank.

The electrician told Elleven that he did not hear a radio call to evacuate the tank farm and continued with his work. Seconds after the call, he felt the heat, ran to his truck and drove off.

The fire was extinguished in about seven minutes and may have ranged between 20 and 100 feet high, according to interviews Elleven conducted with workers at the scene.

Financial Times
April 13, 2007

http://www.ft.com/cms/s/cdd7dd06-e95a-11db-a162-000b5df10621.html

BP hit by protest vote over Lord Browne's pay package
By Carola Hoyos
Published: April 13 2007 03:00 |
Last updated: April 13 2007 03:00

BP suffered a significant protest vote at its annual meeting yesterday when more than a fifth of votes cast failed to back its executive pay plan.

A number of shareholders had wanted to use Lord Browne's last annual meeting as chief executive as an opportunity to hold himpersonally accountable for the energy company's safety problems.

Although the once-lionised chief executive's pay felland his performance-related bonuses were curtailed, some shareholders objected to BP's decision to award Lord Browne shares worth up to 7.5 times salary - based on long-term leadership measures and the group's share-price performance between 2007 and 2009 - despite the fact he will have left BP by July.

Some were also concerned about an additional payment of 12 months' salary, a £1.98m bonus and £90,000 of fringe benefits, including the cost of a car and driver to which Lord Browne is entitled after he leaves in July.

Of the 11.9bn votes cast yesterday, some 9.3bn, or78 per cent, supported the executive remuneration package. But another 1.9bn shares, or just under 16 per cent, voted against it and another 685m, or 5.8 per cent, abstained.

Michael McKersie, assistant director of investment affairs at the Association of British Insurers, which had been supportive of the pay scheme, said: "This was certainly a larger number voting against than you would normally see."

He added: "Remuneration is often a convenient way to express wide-ranging concerns. There is a message here and the company should not be complacent."

Alan MacDougall, managing director of Pirc, the corporate governance consultancy, which opposed the package, added: "For a company of BP's size, for more than one in five of its shareholders to fail to endorse its remuneration policy is a significant statement. We hope BP will respond to the clear concerns of a substantial block of its shareholders."

Yesterday's protest vote follows a series of safety failures at BP, notably the Texas City refinery blast, which killed 15 people in 2005, and the Prudhoe Bay spill in 2006.

The company's safety record and its senior management have been heavily criticised in reports from the Chemical Safety Board in the US and from a panel led by James Baker, former US secretary of state.

Lord Browne, who has spent more than 30 years at BP, the last 12 as chief executive, told shareholders yesterday the Texas City explosion was "the saddest and darkest day in my working life at BP".

Peter Sutherland, chairman, who had a bruising public battle last year with Lord Browne over the timing of the chief executive's retirement, phrased hisfarewell speech carefully, saying:

"I have enjoyed working with John. As in any relationship we have had our occasional ups and downs."

However, Mr Sutherland turned on Lord Browne's critics, telling one: "He has delivered enormous value to the company over the years and you have failed to recognise this."

He added: "We are certainly not overpaying our executives."

Houston Chronicle
April 13, 2007

http://www.chron.com/disp/story.mpl/business/4711136.html

BP chairman says company has fallen short
He tells investors at annual meeting that oil giant will learn from errors
By BRETT CLANTON
Copyright 2007 Houston Chronicle

BP Chairman Peter Sutherland told shareholders Thursday the oil company has fallen short of its own "high standards" in the communities where it operates, including Texas City, where a 2005 refinery blast killed 15 workers and injured scores more.

But he tried to reassure investors that BP will emerge stronger from its recent string of high-profile missteps.

"We must learn what we need to learn," he said, according to a transcript of his remarks from the company's annual meeting in London. "But we must also make sure that we are able to spot the opportunities to take this company forward wherever in the world they may arise."

In 2006, which Sutherland called one of the most turbulent years in the company's nearly 100-year history, BP had two oil spills in Alaska, delays in the startup of its Thunder Horse oil platform in the Gulf of Mexico and allegations of improper trading activities in the U.S.

The company also continued to deal with fallout from the Texas City tragedy. More than 2,000 lawsuits are pending against BP, which has set aside $1.6 billion to pay claims and has already settled more than 1,300 suits. The refinery in Texas City also has been operating at half-capacity since it was shut down before Hurricane Rita.

The problems have badly bruised the company's image. But investors have remained interested in the company's stock because of strength in the commodities market and robust refining margins, said John Parry, an analyst who follows BP with John S. Herold in Norwalk, Conn.

"I think what you've seen is a lessening of concerns" about the company's recent mistakes, he said.

BP's stock price rose $1.41 Thursday to $67.41 a share in New York Stock Exchange trading.

Reports placed blame

In January, a panel led by former Secretary of State James A. Baker III released a report on the Texas City disaster recommending specific safety improvements at the company's U.S. refineries. And last month, the U.S. Chemical Safety Board issued a report that blamed the tragedy on years of cost-cutting, operator mistakes and a corporate culture that didn't make safety a priority.

On Thursday, Sutherland said BP is making "good progress" on one of the key Baker report recommendations. In May, the company will name an industry expert who will advise BP on how to create more effective systems for monitoring refinery safety and implementing other of the report's recommendations, all of which the company has said it will adopt.

Browne's last appearance

Also on Thursday, John Browne, BP's outgoing CEO, made his last appearance at a company annual meeting. He is stepping down in July, more than a year earlier than originally scheduled.

Browne referred to the Texas City blast as "the saddest and darkest day in my working life at BP."

He called the events of the last two years "truly humbling." But Browne reiterated that BP's fundamentals "our strategy, our assets and the high standards of our people are something we should all be proud of."

Shareholders voted 83 percent in favor of a compensation package for Browne over objections from some investors who believed future incentive payouts should be tied to safety targets.

Browne will leave BP with $10.5 million in July and $42.9 million in pension payments, as well as millions of dollars in shares due under an incentive plan that expires at the end of 2009, according to The Associated Press.

brett.clanton@chron.com

Fairbanks News Miner
April 12, 2007

http://newsminer.com/2007/04/12/6448/

State scrutinizes Alyeska safety for pump station fire
By Eric Lidji
Staff Writer
Published April 12, 2007

State officials are requiring the Alyeska Pipeline Service Co. to review and revise safety procedures along the trans-Alaska oil pipeline because of a January fire at Pump Station 9 near Delta Junction.

On April 3, the Department of Labor and Workforce Development released a report on the incident finding Alyeska’s safety procedure to be lacking in some regards and not followed in others.

Alyeska spokesman Curtis Thomas said he had not read the state report but that Alyeska conducted its own investigation following the event.

“We take this extremely seriously, and that’s why we launched a full investigation to determine why this happened and how to prevent it from happening again,” Thomas said.

The fire started on Jan. 6 after an unexpected shutdown of the trans-Alaska oil pipeline diverted crude oil to Pump Station 9 relief tanks, which automatically released flammable vapors to ease pressure on the line.

Because temperatures were more than 25 below zero, crews working near one tank had put up a temporary work tent warmed by a portable industrial heater, which ignited the vapors.

According to the report, an Alyeska electrician using the work area did not hear the radio evacuation call and mistook the sound of the igniting vapors for a sonic boom. The electrician finally felt the heat from the flames and ran to his truck, which had been idling nearby.

Crews shut off the tank valve after five minutes, stopping the flow of vapors and extinguishing the fire before it caused injuries or damage.

The Department of Labor report requires Alyeska to provide the state with specific actions taken to prevent a similar event from happening in the future, and recommended isolating tanks during particularly hot work and installing an alarm in the tank area to speed evacuation.

In a memo to workers, Alyeska traced the Pump Station 9 incident to a reliance on localized safety measures that became inadequate when confronted with outside influences.

The shutdown of the pipeline that triggered the vapors and subsequent fire was caused by an unrelated system failure at Pump Station 11 near Valdez.

In the memo, Alyeska Health, Safety, Environment and Quality Director Rod Hanson wrote, “In discussions with line management, we’ve come to believe that this incident is likely a symptom of a deeper issue; following standard practices without giving additional thought to uniqueness of circumstances.”

Alyeska requires workers to file a special permit detailing guidelines for any work involving extreme heat.

While a supervisor filed the permit before work started near the tanks, the state report found some procedures were not adequately followed. Particularly, the heater was 10 feet too close to the tanks and a car had been left idling nearby, creating a second potential source of ignition.

The Alyeska memo mirrored many of the concerns and recommendations of the state report, including installing alarms in the tank area, re-evaluating the permitting process for work requiring extreme heat and forming a team to analyze the entire tank system.

Contact staff writer Eric Lidji at 459-7504 or elidji@newsminer.com

Wall Street Journal
April 12, 2007

UPDATE:
Alyeska Must Revamp Standards After Alaska Fire -Govt
DOW JONES NEWSWIRES
April 12, 2007 6:51 p.m.
(Adds comment from Alyeska, company background, details of fire)

ANCHORAGE, Alaska (AP)--The company that operates one of the world's longest oil pipelines must revamp several of its safety standards following a brief fire near a crude oil storage facility, according to the state and federal Joint Pipeline Office.

No one was injured by the fire in January at a tank farm run by the Alyeska Pipeline Service Co., but the company has been told to provide pipeline safety officials with plans to prevent future accidents by early May.

The nonfatal blaze started when flames from a portable heater merged with crude oil vapors seeping from the vents of a 55,000-barrel storage tank, Ray Elleven, who wrote the report, said Thursday. Crude from the trans-Alaska oil pipeline is sometimes diverted into the tanks to relieve pressure on the 800-mile line.

The most alarming safety deficiencies included "unreliable" evacuation procedures, such as the lack of an alarm system and the practice of doing welding and electrical work near vents that were releasing flammable gases, said Elleven, who is the liaison between the Department of Labor Safety and the Joint Pipeline Office.

Alyeska opened its own investigation into the cause of the fire and will start outfitting the tank farms with a system of audible alarms, among other improvements, said spokesman Curtis Thomas, who is based in Fairbanks.

The company was formed by a consortium of pipeline owners, with London-based BP PLC (BP) holding a 47% share. The other major owners are Exxon Mobil Corp. (XOM) and ConocoPhillips (COP).

Thomas said Alyeska plans to create a work team to analyze operations on tank farms and reevaluate the internal permitting process for any work that produces flames or sparks, such as welding.

The fire started Jan. 6, while an electrician was doing maintenance work on a valve at Pump Station 9 a few miles south of Delta Junction. With the temperature at minus-25 degrees Fahrenheit, a portable heater, about the size of a small pickup, was placed 15 feet from the 55,000-barrel tank.

As the electrician was checking wiring, an unplanned pipeline shutdown sent crude into the tank without warning. The fire started nearly 90 seconds later.

The electrician told Elleven he didn't hear a radio call to evacuate the tank farm and continued working. Seconds after the call, he felt the heat, ran to his truck and drove off.

The fire was extinguished in about seven minutes, according to interviews Elleven conducted with workers at the scene.

The trans-Alaska oil pipeline carries crude from the North Slope to the port of Valdez in south-central Alaska, where it is loaded onto ships bound for West Coast refineries.

Xxxxxxxxxxxxxxxxx

UPDATE:
BP To Update On Baker Report In May - Chairman
DOW JONES NEWSWIRES
April 12, 2007 8:39 a.m.
(Updates item published at 1116 GMT with details from BP's AGM.)

LONDON (Dow Jones)--BP PLC (BP) Chairman Peter Sutherland said Thursday the U.K.-based oil major expects to make an announcement in May about its implementation of the Baker report's recommendations.

The report, released in January, issued findings from a panel led by former U.S. Secretary of State James Baker on how to improve the company's safety systems following the March 2005 explosion that killed 15 people at BP's U.S.-based Texas City refinery.

The panel recommended the BP board appoint a separate expert to advise it on the way in which the company implements the panel's findings.

"The Baker panel clearly saw that the company had potential to become an industry leader around the issues of process safety, and to aid the company and the board in that task we accepted the recommendation of expert help," Sutherland said at the company's annual general meeting in London.

The chairman said the board has made "good progress" in identifying a person for that role. The company is finalizing the details and expects to make an announcement in May.

Sutherland said it is "vital that we reinforce those values" of safety.

Chief Executive John Browne said management is working with the Baker panel on how to best implement the findings.

"We have made significant changes," Browne said. "We can do more, and we will do more."

BP and Browne have come under heavy criticism over health and safety issues after the explosion at the Texas City refinery.

Browne reiterated the Texas City accident happened on his watch, calling it "the saddest and darkest day in my working life at BP."

In January, the Baker report took BP to task for failing to provide, among other things, effective leadership needed to ensure worker safety.

In his final annual general meeting as CEO, however, Browne said: "I believe that you can be confident that BP is heading in the right strategic direction. But more than that, it is a progressive company, willing, where necessary, to learn from mistakes."

-By Alex MacDonald and Leia Parker, Dow Jones Newswires; +44 (0)20 7842 9328; alex.macdonald@dowjones.com

Houston Chronicle
April 10, 2007

http://www.chron.com/disp/story.mpl/business/energy/4700617.html

Judge: BP mailing 'stunt' triggers jury tampering concerns
By KRISTEN HAYS
Copyright 2007 Houston Chronicle

The Galveston judge overseeing litigation stemming from the 2005 blast at BP's Texas City refinery has ordered a second deposition of a public affairs manager at the plant regarding possible jury tampering.

BP's Texas City-based manager for government and public affairs, Neal Geary, has already testified both in court and in a deposition about a mailing he sent out to 900 Texas City business leaders on the eve of a civil trial last October. The mailing highlighted the company's efforts to improve safety.

At the time, state District Judge Susan Criss called the mailing "a stunt" that could taint the jury pool for the case involving two of the 15 deaths caused by the explosion. Scores more were injured.

She demanded, and received, a list of recipients to compare to the list of potential jurors. The case was settled in November on the day jury selection was to take place.

However, BP lawyers last week informed Criss that they had recently unearthed a second mailing that went out around the same time as the first to a much wider audience of 7,000 Texas City residents.

Not in testimony

Geary did not mention the second mailing in his testimony, Criss said in an interview Monday. However, lawyers noted in a hearing Monday that the second mailing went out under the signature of the company's community relations director in Texas City, Iris Cross, not Geary.

At the hearing Monday, the judge said Brent Coon, a Beaumont lawyer who represents scores of plaintiffs in the litigation, could grill Geary again in a second deposition and depose Cross as well.

"We have found out they've been doing something they forgot to tell us about," Coon said in an interview after the hearing Monday.

Neither Geary nor Cross returned messages left at their offices early Monday evening.

But BP spokesman Neil Chapman said Monday that "some information was omitted about communications last October."

Last November, Geary discussed the first mailer in a hearing, telling Criss he sent it without first getting BP's approval.

Chapman said the second mailing was the same as the one sent to 900 members of the Texas City Chamber of Commerce. The second mailing was sent to "people living and working near the refinery," he said.

"As a result of the further review by our legal team, it was something that came to light," Chapman said of the second mailing. "It was omitted when the court was seeking the facts last year."

Criss said BP lawyers on Monday gave her a list of recipients of the second mailing, which she will scan for matches to potential jurors in the case that was bound for trial at the time the mailings went out.

Sanctions possible

At a hearing next week, she will consider sanctions against BP.

Coon also will discuss his probe into the second mailing and if he believes it will be necessary to depose BP lawyers about whether they knew about it last year.

Chapman said both mailings were a response to media coverage of the blast, which included a segment on CBS' 60 Minutes.

Criss also said Monday that over 2,000 new lawsuits were filed against BP in the five days leading up to the blast's two-year anniversary on March 23.

BP has spent hundreds of millions of dollars to settle more than 1,300 lawsuits, but hundreds more were still pending before the flurry of filings before the anniversary. That date marked the two-year deadline to sue.

Criss said she would have a final tally of cases pending by next week.

kristen.hays@chron.com

Wall Street Journal
April 10, 2007

Truck Spills Thousands Of Gals Of Diesel Fuel At Prudhoe Bay
DOW JONES NEWSWIRES
April 9, 2007 10:14 p.m.

ANCHORAGE, Alaska (AP)--A tanker truck spilled nearly 7,000 gallons of diesel fuel onto a frozen pond and the tundra near a Prudhoe Bay oil drilling site over the weekend, state environmental officials said Monday.

The driver, who worked for Anchorage-based oil field service company VECO Corp., was the only person in the truck and was not injured, said Ed Meggert of the Department of Environmental Conservation.

The 15,000-square-foot spill occurred Sunday along a road on the east side of Prudhoe Bay.

The driver had lost a contact lens and was pulling over to the side of the road when he lost control of the truck in the softer gravel, Meggert said. The truck rolled onto its side, spilling more than half of its contents.

Diesel is one of the more toxic fuels and tends to seep easily into ground, Meggert said. However, the tundra is frozen solid and probably won't soak up much fuel, he said, and the pond should be relatively easy to clean because it is frozen and the oil is sitting on top of the ice.

About 2,300 gallons of fuel had been recovered from the pond surface by Monday.

Daren Beaudo, a spokesman for Prudhoe Bay operator BP LLC, said all of Prudhoe Bay's owners are responsible for bearing the costs of the cleanup effort. They include ConocoPhillips (COP), Exxon Mobil Corp. (XOM) and BP (BP), as well as several small companies.

Meggert said it was too early to know whether any company will be fined, and he didn't how much the cleanup will cost.