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Anchorage Daily News
January 31, 2007

http://www.adn.com/front/story/8604491p-8497377c.html

BP will cut pipeline again to study corrosion
EXPLORATORY: The U.S. request is not related to criminal investigation.
By WESLEY LOY
Anchorage Daily News
Published: January 31, 2007
Last Modified: January 31, 2007 at 03:45 AM

PHOTO
http://www.adn.com/ips_rich_content/633-31PrudhoePipeLoc.gif

BP this week plans to cut a 40-foot section out of a major Prudhoe Bay pipeline and study it for clues about why it sprang leaks last summer, causing an unsettling partial shutdown of the nation's largest oil field.

It's the second time in less than a year that federal authorities have asked BP to snip out a piece of Prudhoe pipe for analysis.

Last year, a federal grand jury investigating possible criminal violations hit BP with a subpoena for a segment of another leaky pipeline. That piece is being held as evidence.

This latest request for a pipe section isn't related to the criminal investigation, a federal official said Tuesday.

Rather, it is part of efforts to learn more about the aggressive strain of corrosion that ate numerous holes and near-holes inside the steel pipeline that leaked in August. The pipe, three miles long and 30 inches in diameter, is on Prudhoe's east side.

"The main goal is to find out the root cause," said James Wiggins, a spokesman for the U.S. Pipeline and Hazardous Materials Safety Administration. The answer could prevent future pipeline ruptures, he said.

BP runs the giant oil field on behalf of itself and other owners including Exxon Mobil and Conoco Phillips.

The London-based company has been under fire since early last year for lax maintenance of Prudhoe Bay pipelines, drawing scrutiny and pointed criticism from pipeline regulators, members of Congress and others.

The problem pipes are known as transit lines -- major trunk lines that drain oil out of the vast field and feed it into the larger trans-Alaska pipeline, which carries the crude 800 miles south to the tanker port at Valdez.

The transit lines are old, installed before North Slope oil production began in 1977.

Because the lines carry pure crude oil free of corrosive water, BP executives have said they were surprised that holes developed and caused leaks. But they also have admitted the company failed to regularly clean and inspect the pipes for problems.

According to letters exchanged between BP and the federal pipeline administration, BP crews will begin work Thursday on cutting out the 40-foot section of pipe.

"It's not a small job," BP spokesman Daren Beaudo said Tuesday.

The badly corroded, above-ground pipeline has been out of service since it leaked in August, and BP plans to demolish it. It's been drained, but some residual oil might still be inside, Beaudo said.

Crews will take precautions to contain any oil that might spill when they cut out the section, and dangerous petroleum vapors will be snuffed by sweeping the pipeline with nitrogen, according to a BP plan submitted to regulators.

The plan says a crane will lift the length of pipe onto a truck for delivery to a shop, where it will be cut into smaller pieces for study of corroded spots, sediment buildup and scaly deposits, which are thought to have contributed to the corrosion outbreak.

Meantime, the exposed ends of the pipe left in the field will have to be sealed to prevent leaks.

The whole operation is expected to take four days, and federal pipeline regulators will be on hand to "witness the activities," according to the correspondence.

The regulators also asked BP to document the "chain of custody" for the pipe section.

That doesn't necessarily mean the section is evidence to be considered in a criminal investigation or enforcement action against BP, Wiggins said.

Rather, that's the normal procedure any time segments are cut out of pipelines for study, as happens from time to time on damaged or ruptured pipelines around the country, he said.

Beaudo said BP is cooperating fully in handing over the pipe section to regulators.

"They said they wanted it and we said we'd do it," he said. "We're all interested in the corrosion mechanism."

In October, after BP received a subpoena, the company cut a section out of a similar transit line on the western side of Prudhoe Bay.

That section encompasses the almond-sized hole through which an estimated 201,000 gallons of crude oil leaked slowly onto the tundra. The spill, discovered in March, was the largest oil spill ever on the North Slope.

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

BP bosses debated Texas report
By Sheila McNulty in Houston
Published: January 29 2007 02:00 |
Last updated: January 29 2007 02:00

BP's senior executives debated how much to reveal in its own report on the fatal Texas City accident, according to internal e-mails.

Cynthia J Warner, BP's new group vice-president for refining, was in favour of limiting what was included in the internal report, the Financial Times has learned.

"I think it's essential that we limit root causes in this report to those that led to the Isom incident and to those things that would have been discovered in the focused investigation of the Isom incident,'' Ms Warner said in an e-mail to John Mogford, BP's global head of safety and operations.

The FT has obtained a copy of the e-mail, dated October 12 2005.

Ronnie Chappell, BP representative, said Mr Mogford had asked Ms Warner to comment on his report into the critical factors and underlying causes of the March 2005 explosion of the Isom unit at Texas City, which killed 15 and injured 500 in the biggest US industrial accident in a decade.

Yet Ms Warner complained to Mr Mogford that she was "disappointed that almost none of my input seems to have been included".

"This will become a public document and, thereby, creates a level of specific commitment and need to discuss that requires a very high standard of us being absolutely sure of our position.

"I agree that there is a much broader set of root causes that we must address related to our overall system of Operations Excellence, but the Isom investigation isn't the place to put these things, and you and I have been put in place to find and address them, so I'm not worried that they will get overlooked.''

Despite noting that the report was Mr Mogford's responsibility and "no one can tell you what ought to be in it", Ms Warner said: "I just want to be sure you've had the chance to hear some views of someone who has spent a lot of time in refineries and in Texas City so you can consider them.''

She was concerned that some areas were being overlooked.

"There are some critical things that aren't included as root causes that I think we must highlight and fix. One is the underlying issue of divisiveness and lack of teamwork and another is the absence of a technical focus on the day-to-day operations of the equipment at the Isom unit.''

Ms Warner objected to Mr Mogford's conclusions on BP's outdated blowdown system, which vented to the atmosphere instead of to a more modern flare.

"I think we are getting way ahead of ourselves when we conclude that the appalling lack of focus on the Blowdown system as a critical safety system that needed to be focused upon, maintained, and eventually phased out is a sign that our overall focus on Process Safety is a shambles.''

Ms Warner admitted BP could have problems with its process safety system but added: "There are a lot of good things about it and, for the most part, I'll allege that it's in good shape.''

The independent panel led by James A Baker III, the former secretary of state, reported last week that "significant process safety culture issues exist at all five US refineries''.

BP Web site
January 16, 2007

BP News <editor@bp.com>

BP will Implement Recommendations
of Independent Safety Review Panel

HOUSTON -- BP p.l.c. will implement the recommendations made by an independent safety review panel as part of the company's continuing effort to improve its safety culture and to strengthen and standardize process safety management at BP's five U.S. refineries.

BP already has taken a number of actions which align with the recommendations of the BP US Refineries Independent Safety Review Panel and will, after a more thorough review, develop plans for additional action at its U.S. refineries and for applying lessons learned elsewhere.

In a report made public today, the Panel identified material deficiencies in process safety performance at BP's U.S. refineries and called on BP to give process safety the same priority BP has historically given personal safety and environmental performance. The Panel made recommendations for improving BP's process safety leadership, systems, expertise and oversight of process safety performance.

The Panel, led by former U.S. Secretary of State James A. Baker, III, was appointed by BP Group Chief Executive John Browne in October 2005 on the recommendation of the U.S. Chemical Safety and Hazard Investigation Board (CSB). BP is cooperating with the CSB in its investigation of the March 23, 2005 explosion and fire at the Texas City refinery that claimed the lives of 15 workers and injured many more.

John Browne said: "I want to thank Secretary Baker and the other Panel members for their effort, their insights and their recommendations," Browne said. "We asked for a candid assessment from this diverse group of experts and they delivered one. We will use this report to enhance and continue the substantial effort already underway to improve safety culture and process safety management at our facilities."

The Panel acknowledged the company's efforts stating that "since March of 2005 BP has expressed a major commitment to a far better process safety regime, has committed significant resources and personnel to that end, and has undertaken or announced many measures that could impact process safety performance at BP's five U.S. refineries." The Panel also said that making dramatic change in large companies is difficult in short time frames and that the ultimate effectiveness of the actions taken or planned by BP could only be determined over time.

"Many of the Panel's recommendations are consistent with the findings of our own internal reviews," said Browne. "As a result, we have been in action on many of their recommendations for a year or more. Our progress has been encouraging but there is much more to do. Members of our refining leadership team will be meeting with the Panel within the week to address how best to implement these recommendations.

"I share the Panel's confidence in BP's refining workforce," Browne added. "They are, as the Panel stated, ready, willing and able to participate in a sustained effort to move BP towards process safety excellence. As I told the Panel, I intend to ensure BP becomes an industry leader in process safety management and performance. We will want to do everything possible to prevent another tragedy like the one that occurred at Texas City."

Notes to editors
The full text of the report prepared by the BP US Refineries Independent Safety Review Panel is available at www.bp.com/bakerpanelreport (pdf, 2352KB)

•       The BP US Refineries Independent Safety Review Panel was established to make a thorough, independent and credible assessment of corporate oversight of safety management systems at the company's five U.S. refineries and of the company's corporate safety culture. The Panel did not investigate the Texas City incident or any other past event.

•       The Panel makes clear in Section 1 that its findings "should not be construed as suggesting or determining that any particular individual, whether a refinery employee or contractor, refinery manager, corporate-level manager or BP board member failed to meet any applicable legal standard, was negligent, otherwise committed a wrongful or tortious conduct, or breached any duties owed to BP, BP's shareholders or anyone else. Any such finding or determination is outside the scope of the Panel's charter. The Panel simply did not seek to develop the type of data and evidence that would be necessary to make such a finding or determination. The Panel observes, however, that during the course of its review, it saw no information to suggest that anyone - from BP's board members to its hourly workers - acted in anything other than good faith."

•       The Panel also says that it is under no illusion that the deficiencies in process safety culture, management, or corporate oversight identified in the report are limited to BP. All companies in the industry should give serious consideration to its recommendations.

•       BP has taken significant action to reduce risk and improve process safety performance at its U.S. refineries and its other facilities around the world. Those actions include:

o       Formation of a senior executive team, which includes several managing directors, to support and oversee process safety, integrity management, and operational integrity initiatives within the company.

o       Creation of a new Safety and Operations function responsible for establishing Group operations and process safety standards and auditing safety and operations performance. The Safety and Operations function reports directly to the Group Chief Executive.

o       The appointment of a new Group Vice President for Refining familiar with the work of the Panel. Cynthia Warner will move into the position effective April 1, 2007 after serving as the company's liaison with the Panel.

o       Significant expansion of the responsibilities and powers of the Chairman and President of BP America to include monitoring BP's U.S. operations to ensure compliance with regulatory requirements and company standards, and to rectify problems when they are identified. Robert A. Malone, a BP Executive Vice President with significant operations experience, was appointed to the post effective July 1, 2006. He reports directly to the Group Chief Executive.

o       Creation of an advisory board to assist BP America management in monitoring and assessing BP's US operations.

o       Appointment of retired federal Judge Stanley Sporkin to act as a channel for receiving, investigating and resolving concerns raised by BP staff and contract workers in the U.S.

o       An increase in spending from $1.2 billion in 2005 to an average of $1.7 billion per year from 2007 to 2010 to improve the integrity and reliability of our refining assets in the United States. This represents an increase in, and an acceleration of, planned spending.

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

o       Adoption of new corporate standards governing operations integrity management and control of work and the adoption of a new engineering technical practice governing the use of temporary occupied structures in refineries and other facilities.

o       Significant external recruitment across our US refining businesses to increase underlying capability in operations and engineering.

o       Providing focus through the creation of a six point plan, including implementation of the Integrity Management and Control of Work Group Standards.

o       Changes in the way safety audits are conducted and results communicated within the corporation. The company has appointed a central 60-person operations and safety audit team led by an expert recruited from outside the company.

o       Development of metrics as leading indicators of process safety performance.

o       Installation of modern process control systems on major units, the transition to a more powerful maintenance management system, improvements in worker training, and the removal of blow down stacks which vent heavier than air light hydrocarbons to atmosphere.

Other background
• BP has accepted responsibility for the March 23 explosion at the Texas City refinery and for the management system failures and employee mistakes which contributed to or caused the explosion.

• The company has set aside $1.6 billion to compensate victims of the explosion and has worked to resolve claims arising from the incident. Settlements have been achieved with the families of every worker who died and with many of the workers who suffered injuries.

• BP has entered a settlement with the U.S. Occupational Safety and Health Administration resolving more than 300 separate alleged violations of OSHA safety regulations. BP paid a fine of just over $21 million. The company agreed to a number of corrective actions, including the hiring and placement of process safety and organizational experts at the refinery. Under the agreement, BP does not admit the alleged violations or agree with the way OSHA has characterized them.

• BP continues to cooperate with the CSB, the U.S. Environmental Protection Agency and the Texas Commission on Environmental Quality regarding the Texas City explosion and related concerns.

• BP has endorsed a CSB recommendation urging the industry to revisit existing standards for the use of temporary buildings inside refineries and other processing plants. BP has established a new standard for its refining operations and plans to share it with others in industry.

For further information contact:
Name: Ronnie Chappell
Office: BP Press Office, Houston
Telephone: +1 (281) 366 5174
Office: BP Press Office, London
Telephone:+44 (0)207 496 4076

Anchorage Daily News
January 24, 2007

http://www.adn.com/money/industries/oil/story/8585798p-8478888c.html

Kuparuk oil field marks 25th anniversary
MORE TO COME: Officials say production
not yet to halfway point.
By KRISTEN NELSON
Petroleum News
Published: January 24, 2007
Last Modified: January 24, 2007 at 03:38 AM

The Kuparuk River oil field, the state's second largest, has been in production for more than 25 years, since Dec. 13, 1981.

It has a lot more anniversaries to go.

"We don't feel we're halfway through the field's life yet, even though we're at the 25-year anniversary," said Paul Dubuisson, manager of North Slope operations for Conoco Phillips, the company that runs Kuparuk.

"Today the field continues to be an important legacy asset to our company," added Jim Bowles, Conoco's Alaska president.

Kuparuk, discovered in 1969, is located to the west of Prudhoe Bay, the largest oil field not only in Alaska but the nation.

According to state figures, Kuparuk and related fields had produced almost 2.2 billion barrels of oil through the end of November. By comparison, Prudhoe has produced more than 11 billion barrels.

The sprawling Kuparuk field has 47 active drill sites and some 1,100 wells, about half of which produce oil; the others inject water, gas or other substances back underground, Dubuisson said.

By applying advanced technologies, Conoco engineers see a lot of potential left in Kuparuk.

"Like most large fields it continues to expand," Dubuisson said. Engineers see two main targets for getting more out of Kuparuk: Tapping the pools of thick, sticky oil called heavy crude associated with Kuparuk, and also drilling more wells to exploit thoroughly the field's conventional oil reservoirs.

New drilling techniques and other innovations have unlocked "a tremendous amount -- but there's even more there," Dubuisson said.

Three-dimensional seismic surveys conducted in the field two winters ago allowed Conoco to identify "quite a bit" of potential in the existing field for more development, which can be done with more drilling and treatments such as waterflood.

Billions of barrels of heavy crude are contained in West Sak and Ugnu, two heavy oil accumulations that overlie the deeper Kuparuk reservoir. Because the heavy oil layers are relatively cold, sticky and hard to pump, Conoco historically has simply drilled through the West Sak and Ugnu pools to tap the Kuparuk oil, which is easier to produce.

As the Kuparuk pool plays out, more emphasis will be placed on developing the heavy crude, Conoco managers say.

West Sak development already is under way at Kuparuk, and someday work might pick up to develop Ugnu, which lies above West Sak and is an even heavier grade of oil.

Conoco is making good progress at West Sak, Dubuisson said.

"We brought on another well (Dec. 10) making about 3,000 barrels a day," he said. "It wasn't that long ago it would have been a couple hundred barrels a day."

One problem with the heavy crude is that a lot of sand tends to come out of the ground mixed with the oil. Conoco has improved equipment and found ways to separate the oil and sand.

"We've gotten very good at managing it," Dubuisson said. "The wells produce some sand initially when you bring them on, but as you clean them up ... it goes back to just a very small background level."

State records show West Sak has produced 25.9 million barrels so far, while Ugnu has produced 1,606 barrels.

Conoco owns 52 percent of Kuparuk and runs it on behalf of other owners including BP, which owns 37 percent, Exxon Mobil with 6 percent and Chevron with 5 percent.

Xxxxxxxxxxxxxxxxxxxxxxxxxx

http://www.adn.com/news/alaska/wildlife/bears/polar_bears/story/8586538p-8479596c.html

Polar bears shift dens off the ice
BEAUFORT SEA: Study shows that pregnant sows dig in on land; global warming is cited.
By DAN JOLING
The Associated Press
Published: January 24, 2007
Last Modified: January 24, 2007 at 02:24 AM

More pregnant polar bears in Alaska are digging snow dens on land instead of sea ice, according to a federal study, and researchers say deteriorating sea ice due to climate warming is the likely reason.

From 1985 to 1994, 62 percent of the female polar bears studied dug dens in snow on sea ice. From 1998 to 2004, just 37 percent gave birth on sea ice. The rest instead dug snow dens on land, according to the study by three U.S. Geological Survey researchers.

Bears that continued to den on ice moved east in the Beaufort Sea off Alaska's northern coast, away from ice that was thinner or unstable.

"We hypothesized that the sea ice changes may have reduced the availability or degraded the quality of offshore denning habits and altered the spatial distribution of denning," said wildlife biologist Anthony Fischbach, lead author of the study. "In recent years, Arctic pack ice has formed progressively later, melted earlier, and lost much of its older and thicker multiyear component."

The study makes no predictions of harm in the short term but suggests the Beaufort Sea bear population could be harmed if warming continues. Though bears are powerful swimmers, at some point they might face daunting distances of open water to reach denning habitat on shore.

"If Arctic sea ice continues to decline, we predict that the proportion of coastal denning will continue to increase until the autumn ice conditions prevent pregnant bears foraging offshore from reaching the coast in advance of denning," Fischbach said.

The study is under USGS review. Fischbach spoke about the study at the Alaska Marine Science Symposium, which continues through today in Anchorage. The co-authors are research wildlife biologists Steven Amstrup and David Douglas.

The study is likely to give ammunition to conservation groups calling for polar bears to be listed as threatened under the Endangered Species Act.

Three conservation groups sued the federal government in late 2005 seeking protections for polar bears under the law, blaming global warming for the melting of sea ice, the primary habitat of the animals.

Department of Interior Secretary Dirk Kempthorne in December proposed listing polar bears as a "threatened" species. A public comment period on the proposal is open through April 9.

"Threatened" under the law means a species is likely to become endangered in the foreseeable future. "Endangered" means it is in danger of extinction throughout all or a significant portion of its range.

The listing is opposed by Alaska Republican Gov. Sarah Palin, who told Kempthorne by letter that listing polar bears has the potential to damage the economy of Alaska and the nation without any benefit to polar bear numbers or their habitat, and that there are no human activities that can be regulated to effect change.

Conservationists disagree.

"The dire impacts from global warming on America's polar bears continue to mount: drownings, cannibalism, starvation, reduced cub survival and now denning dislocation," said Deborah Williams, president of Alaska Conservation Solutions, an Anchorage-based group aimed at halting climate change. "Clearly, we need to demand that Congress and the administration protect polar bears, and our future, by reducing greenhouse gas emissions and listing polar bears under the Endangered Species Act."

Kassie Siegel of the Center for Biological Diversity, the lead author of the petition seeking to list polar bears as threatened, said the study underscores the scope of changes in the Arctic.

"It's such the canary in the coal mine," Siegel said. "If you want to know what's going to be happening in the rest of the world in 25 years, all you have to know is what's happening in the Arctic. Everything is changing, and not for the better."

Alaska polar bears spend most of their lives on sea ice, a marine habitat from which they hunt for their main prey, ringed seals, plus bearded seals and other animals.

Typically in November or December, after sea ice has reconnected to Alaska's coast, pregnant polar bears dig dens where snow has piled into drifts.

Sea ice pushed into shore becomes jumbled into pressure ridges that capture snow used for dens. However, with new ice, that can happen after bears want to make dens. On shore, terrestrial features catch snow.

"They're generally using coastal bluffs and the river bluffs," said study co-author David Douglas. "Along the big rivers, they have bluffs that catch snow."

The USGS estimates the Beaufort Sea polar bear population at 1,526. In the study, researchers determined that denning distribution had shifted, based on satellite radio tracking of 89 bears in northern Alaska that led them to 124 dens between 1985 and 2004.

They believe pregnant bears shifted onto shore because the sea froze later, creating few pressure ridges. Also, more old ice that may have had pressure ridges had melted.

"The first-year ice would just be forming," Douglas said. "It's very flat, unless there's been an early winter that allows it to thicken enough and actually ridge up and then catch snow."

They did not speculate whether bears might be harmed in the short term.

"The big issue is, the long term may be coming sooner that we thought it was," Fischbach said.

"If the foraging areas get so far off shore they (bears) cannot reach the coastal areas in advance of denning, and at the same time they'll be facing deterioration of the offshore denning habitat, then we would expect there would be reproductive consequences to the population."

Researchers rejected two alternative hypotheses for the shift to land -- hunting and the presence of more whale carcasses on beaches. Canada and the United States minimized hunting about 30 years ago but the denning shift occurred less than a decade ago. They also observed that just 5 percent of "pre-denning" females passed within 5 kilometers of a carcass site, compared to 30 percent of females that did not den that year.

Houston Chronicle
January 21, 2007

http://www.chron.com/disp/story.mpl/business/4486108.html

BP workers ill-trained for dangers, report says
Baker panel criticizes lack of hands-on exercises
By ANNE BELLI
Copyright 2007 Houston Chronicle

When a unit at BP's Texas City refinery unexpectedly shut down during a power outage a few weeks ago, newly hired operators froze in confusion, not knowing how to handle the potentially dangerous situation.

"I never saw so many scared faces in my life," said one seasoned operator.

"These were brand-new operators. Some of these guys had not been trained, and they did not know what to do," said the operator, who spoke on condition of anonymity out of fear of retribution.

Indeed, BP's training of its workers who operate and oversee some of the most dangerous equipment in the country falls short of providing them with the expertise they need to safely do their jobs, said a panel of experts headed by former Secretary of State James A. Baker III.

The safety review panel was formed at the behest of federal investigators looking into the March 2005 blast at the Texas City plant, where 15 people were killed and scores more seriously injured.

BP spokesman Scott Dean confirmed that an outage happened a few days before Christmas but said that all units were brought down and restarted safely and without incident.

"Regardless of someone's opinion of how people appeared, they did react, followed procedures and took action in a professional and safe manner," Dean said. "No one was injured, and there was no significant environmental impact apart from the flaring that was reported and standard practice when you have a power failure."

Spreading the blame

Nonetheless, in its scathing report, released after a 15-month investigation, the panel lambasted BP's training programs not only at the Texas City site but also at four other refineries the company operates nationwide saying that a lack of knowledge among workers, supervisors and managers was at the root of many safety woes.

"The panel believes that the effects of widespread deficiencies in process safety training and education have manifested themselves in a number of ways at BP's U.S. refineries," the report states.

BP has acknowledged training shortfalls at Texas City, and the Baker report notes several steps that the company already has taken to beef up its education programs nationwide.

Among the encouraging moves is that a new company vice president in the Safety and Operations Group told panelists that better training for supervisors "is one of the first programs" that would be implemented, the report says.

Further, the company has said it has implemented a new "leadership development" program and other enhanced training initiatives at Texas City.

"During the past 18 months, BP has made significant progress in implementing a comprehensive program at its Texas City refinery that includes investment in people, plant and process," Dean said.

But the Baker panel's report indicates that the oil giant whose refineries have the capability of processing roughly 1.3 million barrels of crude a day into gasoline, jet fuel and other products has widespread training problems to fix.

Inexperienced trainers

According to interviews with workers, newly hired operators sometimes were trained by inexperienced supervisors, the report said. Operators were promoted to supervisor positions without being required to demonstrate that they understood the units they were overseeing. And engineers "routinely indicated that they believed they were not given sufficient training to do their jobs."

Outdated manuals were being used, and workers often asked in vain for more mentoring, the report says.

At Texas City, more than one in three hourly operators or 35 percent agreed in a survey done by the panel that "the training that I received does not provide me with a clear understanding of the process safety risks at my refinery."

There and elsewhere, training too often has meant requiring workers to take self-administered computer courses while mentoring and so-called "gun drills" designed to simulate emergencies don't happen often enough, the report said.

"At most of BP's U.S. refineries the implementation of and over-reliance on BP's computer-based training contributes to inadequate process safety training of refinery employees," the panel found.

Computer training seemed to be preferred, the panel found, because it provided a quick and easy way to prove compliance with federal training regulations to inspectors. But what on paper was adequate training in reality was not, it added.

The report indicates that Texas City workers agree.

"In operations, it can't be like that," said the experienced operator who witnessed the recent power outage. "It has to be hands-on. You have to have face-to-face training. One operator is responsible for thousands of valves, and you can't have a computer explain all of that."

Training funds decline

Part of BP's training problems, the panel concluded, stems from a lack of financial backing and work force.

That was especially evident at Texas City, where the training budget plummeted from $2.8 million in 1998 to $1.7 million in 2005, the year of the blast, the report stated. Full-time employees devoted to training also dipped from 28 to nine in the same period. Even then, some of those training coordinators spent as little as 5 percent of their time actually training, the report said.

Steve Erickson, executive director of the Gulf Coast Process Technology Alliance, said BP isn't the only oil company that has reduced training positions in recent years as more training has been done by computer.

Erickson, whose alliance advocates the hiring of degreed process technicians, said computer training is a good alternative to classroom training when it comes to "general" instruction. But computers should not take the place of well-qualified people who know the peculiarities of a specific plant's equipment, he said.

He said simulators, similar to those used in the aviation industry, are very helpful because they teach workers how to react in emergency situations. Simulation technology had been "horrendously expensive" but has become more affordable in recent years, Erickson said.

Union officials hope to finalize new training agreements with BP at a meeting at the end of this month, said Kim Nibarger, coordinator of the United Steelworkers' Triangle of Prevention Program.

He said the union safety trainers have long favored a more hands-on approach to training than the use of computer programs and testing.

"We train on the small-group level," he said. "That's the way adults learn."

anne.belli@chron.com

Wall Street Journal
January 18, 2007
Afternoon

Refining Industry Grapples With Baker Findings On BP
DOW JONES NEWSWIRES
January 18, 2007 5:33 p.m.
By Beth Heinsohn and Jessica Resnick-Ault
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--BP PLC (BP) has vowed to implement recommendations contained in this week's independent safety report of its refineries, but it isn't clear yet how much impact the report will have on the industry as a whole.

Some industry consultants predicted the report, commissioned in the wake of a fatal BP refinery accident in March 2005, would prompt dramatic change in the industry.

But the report, which suggested that BP's problems may be shared by other refiners, has raised a tricky question for industry officials, who say they are taking its findings seriously, even as they defend their operations.

The suggestion that BP's deficiencies may exist elsewhere in the industry "may be an unfair statement," said NPRA executive vice president Charlie Drevna, but the industry still needs to take heed. "If you're ever satisfied, you've lost the game," he added.

Industry Stands Up For Safety Programs

As expected, the long-awaited Baker report harshly criticized the British oil giant, concluding that BP has "material process safety deficiencies" at all five U.S. refineries and lambasting BP for excessive cost-cutting at the plants.

Process safety involves steps companies should take to reduce the inherent risk of working with explosive chemicals, heavy machinery and other industrial hazards arising from events outside the control of workers.

BP's focus on improved personal injury rates distracted the company from looking at indicators related to process safety at its U.S. refineries. The company's reliance on this data "combined with an inadequate process safety understanding created a false sense of confidence that BP was properly addressing process safety risks," according to the report.

But Baker also suggested that BP is not the only company with problems.

"We are under no illusions that the deficiencies we have identified are unique to BP," said Baker, who declined to elaborate on BP's performance relative to peers during a news conference Tuesday in Houston. Baker was commissioned to lead the panel in the wake of a deadly March 2005 blast at BP's Texas City refinery that killed 15.

Besides NPRA's Drevna, who hailed the refining industry's "commendable history" of safe operations, its sister group, the American Petroleum Institute, also defended the industry. In 2005, the refining industry saw 1.4 occupational injuries and illnesses per 100 full-time employees, compared with a rate of 6.3 for all U.S. manufacturing employees, API said.

But a consultant who contributed to the Baker report warned that almost every refiner has reduced personnel and technical resources at the same time that the public is demanding fewer incidents.

"You can't just keep rolling along with fewer resources and hope for these incidents not to occur," said Jack McCavit of Texas-based J.L. McCavit Consulting LLC.

McCavit is a former chemical company operations manager who has urged professional groups in the industry to come up with process safety guidelines.

In a forthcoming book based on work he did at Celanese Chemical Co. McCavit's suggestions include greater frequency of safety system checks between audits done every three years.

"We hope we've got some ways to help people evaluate their (safety) culture, and things they can do to improve their culture," he said.

Safety Changes Seen Ahead

Changes to oil companies' safety systems are likely on the way, possibly for bottom-line reasons, said industry consultant George Pilko, chairman of Houston-based Pilko and Associates.

"This is one of those watershed events, particularly considering the threat of criminal prosecution that hangs over BP," Pilko said.

Given the scrutiny BP executives came under as a result of the Texas City accident, top management at oil companies will likely review environmental, health and management systems as well as safety regimes, he said.

Pilko's group has advised top U.S. energy companies, including BP, Valero Energy Corp. (VLO), ConocoPhillips (COP), ExxonMobil and Marathon Oil Corp. (MRO) on environment, health and safety.

"They'll do some extensive benchmarking and senior executives and outside directors will want to know," Pilko said, referring to oil companies with refining operations.

-By Jessica Resnick-Ault, Dow Jones Newswires; 713-547-9208; jessica.resnick-ault@dowjones.com

-By Beth Heinsohn, Dow Jones Newswires

201-938-4435; beth.heinsohn@dowjones.com

Wall Street Journal
January 18, 2007

Report Shows Downside Of BP CEO's Refinery-Light Strategy
DOW JONES NEWSWIRES
January 18, 2007 7:30 a.m.
(This article was originally published Wednesday)
By John M. Biers
Of DOW JONES NEWSWIRES

HOUSTON (Dow Jones)--In July 1999, BP PLC's (BP) Chief Executive Lord John Browne announced a bold plan for improving returns at BP that included a "strategic decision" to sharply reduce global refining capacity in the expectation of persistently weak profit margins.

Browne's agenda, which included a plan to reduce refinery capacity by about a third, was generally praised by industry watchers at the time, generating headlines like "BP Amoco stays step ahead in oil super-league."

But with Tuesday's release of an independent report harshly critical of BP's U.S. refining division, the focus returned to the operational downside of Browne's downstream-light approach - a strategy that also misread the recent surge in refining assets that has generated talk of "the golden age of refining" after a long slump.

The report, by former Secretary of State James Baker's commission, faults a corporate culture that viewed refining as a "tolerated cousin," in the words of some BP refining officials quoted in the report, indicting a pattern of underinvestment that marred employee morale. BP commissioned the report after a March 2005 Texas refinery accident killed 15 workers.

"BP has not always ensured that its U.S. refineries had sufficient staff and capability to promote strong process safety performance," the report said.

The effect of ongoing staff cuts was "a collective loss of human expertise in the refining business, both in the line and in supporting functions," it said.

The Baker report noted that BP's two most senior executives over refining, Browne and Global Downstream Chief John Manzoni, came from the exploration and production wing of the business and had no prior refining experience. Although the Baker panel "would not necessarily" expect those two officials to have been process safety experts, it called the lack of a senior advocate for refinery process safety "a corporate blind spot."

Browne announced last week that he will step down in July, more than a year ahead of schedule. Although he has been credited with a number of landmark strategic moves, his last years with the company had been plagued by accidents and governance problems in the U.S.

Refining "has never had high visibility within the company under Browne's term," said James Halloran, who holds 4.3 million shares of BP at National City Private Client Group in Ohio. The Baker report "gives (BP) cover for things they should have done (including) a decent process for how they invest capital."

"I don't think BP has adapted to the greater earnings power for refining, in terms of placing greater emphasis on it," Halloran said.

BP spokesman Ronnie Chappell said BP is investing aggressively in refining, noting the company's commitment to boost annual U.S. refining spending by $500 million for the next four years. Although the company sold some refineries after its Amoco and Arco acquisitions, BP began increasing investment in refining soon after that, "well in advance of refinery margins being as healthy as they are today," he said.

"These are businesses we are investing in and working to keep viable and competitive," Chappell said.

On Tuesday, Browne categorically denied that the company put profits over safety.

Regarding the report's observations on senior leadership, Chappell said John Mogford has been appointed a senior vice president with authority over process safety issues. Browne and Manzoni are both "talented, skilled and capable" executives seasoned in many key facets of oil and gas, a vast and complex industry, he said.

In identifying "material process safety deficiencies" at all five of BP's U.S. refineries, the Baker report notes that BP's Texas City refinery faced persistent budget pressure. The accident-plagued Texas plant moved aggressively to meet a post-merger 25% cut in the capital budget, even after a period of lean spending while the plant was still owned by Amoco. The plant faced more pressure in 2002, the report said.

In keeping with its charter with BP, the Baker panel didn't weigh in on whether cost-cutting caused the March 2005 explosion at Texas City. The U.S. Chemical and Hazard Investigation Board has alleged this causality, while BP has contested it.

Many of these issues came together in BP's Ohio refinery, where employee surveys commissioned by Baker showed that frequent refinery management turnover and anemic spending left workers thinking that "Toledo was merely a training ground that did not fit into BP's long-term plans, and this damaged the general morale of the Toledo workforce," the report said.

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

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Alaska Gov Emphasizes Need For Natural Gas Pipeline
DOW JONES NEWSWIRES
January 18, 2007

JUNEAU, Alaska (AP)--Gov. Sarah Palin told lawmakers Wednesday to soon expect legislation outlining the process for a natural gas pipeline.

In her first State of the State address, Palin minced no words about her priorities for this year's legislative session, which began on Tuesday.

"This gas line, it's going to fuel our homes, our economy, and careers for Alaskans - for generations," she said. "This gas line is critical not just for our future, though, but for the nation's future."

A statewide gas line is considered to be a potential boon to the state's economy, somewhat akin to that of Prudhoe Bay's oil production at its peak.

But the pipeline would also take on national importance as the country works to lessen its dependency on foreign energy supplies.

In calling for lawmakers to consider her legislation, Palin is asking them to revisit one of the most contentious issues left over from Frank Murkowski's administration.

Murkowski reached an agreement with BP PLC (BP), Exxon Mobil Corp. (XOM) and ConocoPhillips (COP) to build a pipeline from the North Slope through Canada and into the Midwest.

The line would ultimately have delivered 4.5 billion cubic feet of natural gas a day, which is about 7% of the current U.S. demand.

But lawmakers felt the deal gave too many considerations to the big firms, including locking in tax rates for several decades.

That will change, Palin told lawmakers.

"The deal was a 'no deal,"' she said. "And our Legislature was handed a plan that even exceeded the administration's authority. Remember, in exchange for those unnecessary concessions, the producers didn't have to commit to preparing applications, much less build a gas line."

Palin's solution: a bill that will re-establish project criteria which energy companies must meet in exchange for inducement incentives from the state.

Palin calls it the Alaska Gasline Inducement Act, or AGIA.

Successful passage essentially means replacing the Stranded Gas Act, the foundation for Murkowski's deal, though it would not represent a repeal.

"The centerpiece of this is to induce construction of the gas pipeline. A gas line constructed on our terms, without selling Alaska's sovereignty," Palin said.

"This law allows transparent and competitive processes," she said. "It jump starts progress with incentives, and it strikes the right balance on a project for the state, the nation, the project proponents and the producers. It will be good for all."

The bill will be introduced this session, and right now is being scrutinized for its legality, strategy and efficiency, she said while imploring lawmakers to be diligent.

"We must be realistic about the complexity of this. It won't happen with the snap of a governor's fingers. It can't happen overnight," she said.

Energy analysts have estimated there to be about 35 trillion cubic feet of proved natural gas reserves in the North Slope, but they believe that figure will rise in the future.

Palin's AGIA plan requires whoever builds the pipeline to ensure long-term exploration that includes more development on the North Slope.

The proposed gas line has implications on the nation's growing dependency on imported natural gas supplies, which stand at about 15%, according to the Energy Department.

That figure could grow to about 25% by the time any Alaskan gas line gets built within the next 10 to 12 years, analysts said.

For now, most imported natural gas comes from Canada with a small percentage arriving in tanker carrying liquefied natural gas, also known as LNG.

"It would be a critical component to our supplies," said Ed Kelly, vice president of North America Gas & Power for consultant Wood Mackenzie in Houston.

"It would allow natural gas to remain an economic source of power generation and heat in the economy-at-large," he said.

Kelly weighed in on the pipeline prospects without knowing of Palin's plans, but it's been a topic he and other energy analysts have carefully watched for several years.

Several years ago, natural gas prices were too low to justify the massive investment required to move fuel from the North Slope to the Lower 48.

Today, prices are in the $6-plus range per thousand cubic feet, well below the December 2005 peak of $15.38 but still nearly three times that of five years ago.

Thus, a successful pipeline development in Alaska represents a "secured energy source," Kelly said.

"I think prices will keep on creating a signal for this development," Kelly said. "It would reduce our need for LNG."

Financial Times
January 18, 2007

http://www.ft.com/cms/s/1298cc02-a699-11db-937f-0000779e2340.html

Satisfying BP investors will be hard
By Ed Crooks and Carola Hoyos
Published: January 18 2007 02:00 |
Last updated: January 18 2007 02:00

As James Baker was delivering his politely excoriating verdict on BP's safety culture and leadership, analysts were judging its qualities as an investment.

Many of their views were positive. Citigroup, UBS and Deutsche Bank were among those making or reiterating "buy" recommendations on the shares. After a period of sustained underperformance, on many yardsticks BP's shares now look cheap, they believe.

The problem for the company's cheerleaders is timing. BP's strategy - getting safety and operations right and steadily increasing production - is unlikely to pay off fast enough to satisfy investors.

One BP shareholder told the Financial Times that Tony Hayward, the new chief executive from the summer, "won't have the luxury of a year".

That pressure has inspired a variety of ideas for a dramatic move to transform negative perceptions of BP.

Use of its strong balance sheet to buy back a block of shares or pay a special dividend, a merger with another oil major or even a break-up have all been suggested. For their proponents, these ideas are more appealing than the long, hard slog that lies ahead.

The immediate financial cost of responding to Mr Baker's recommendations is modest for a company of BP's size. It is to raise spending on its US refineries from $1.2bn in 2005 to $1.7bn (£863m) a year during 2007-10 to improve their integrity and reliability. An extra dollar on the price of oil would be enough to pay for all that.

However, that may under-state the trauma BP has undergone, not just from the Baker report but from everything that has happened since the Texas City explosion in March 2005. Everything it does is now under scrutiny.

Like other big oil companies, BP sits on much ageing infrastructure. As the oil price has risen and technology has improved, squeezing the last drops of oil out of declining fields has become profitable. Rigs, pipelines and other hardware have been pushed to last for longer than intended when they were built.

Replacing that hardware will take time, during which the dangers of a repeat of problems such as the corrosion discovered in Alaska last year and accidents such as the explosion at Texas City will remain.

Wherever there is a marginal call to be made, managers will feel pushed towards the safer, more expensive option. Mr Hayward made that explicit last year when he questioned BP's "mantra of more for less": trying to do 100 per cent of a job with 90 per cent of the resources.

Other problems also overshadow BP. Like every other oil company, its shares are highly dependent on the price of crude, which fell sharply on Tuesday after Saudi Arabia, the dominant member of the Organisation of the Petroleum Exporting Countries, said it saw no need for the oil producers' group to cut its output any further.

There are persistent fears over the future of TNK-BP, the 50 per cent-owned Russian joint venture which was BP's greatest success in the first half of the decade.

Most recently, investors have worried about its disappointing production performance. Since 2004, BP's output has been stuck at about 4m barrels of oil equivalent per day and it has several times fallen short of analysts' expectations and its own targets.

Eventually, perhaps towards the end of the year, the good news is likely to start to flow. Production will start rising visibly, as new projects in Azerbaijan, Angola and the Gulf of Mexico come on stream and ramp up output. But BP's recent history is an object lesson in what can go wrong between finding oil in the ground and turning it into money.

Hence renewed calls for a quick fix. BP has been advised either to get bigger, by merging with another "super major" oil company, or smaller, by splitting its downstream business such as refineries from its upstream exploration and production activities.

But both those routes are fraught with difficulty. A mega-merger with Royal Dutch Shell, for example - which was contemplated by BP in 2005 - would run into competition problems in Europe and the US. Disposals might get round that obstruction, at the cost of losing much of the benefit of the merger.

Break-up of the company, as suggested by Cazenove analysts, would be a gamble. Oil companies like to be able to extract the profit from the value chain between the oil well and the petrol pump wherever it can be found. If BP were the only super-major to split itself up, it could expose itself to rough treatment from competitors.

Financial solutions would be easier. Awash with cash thanks to the high oil price, BP has been buying back its shares. In the past two years it has spent more than $27bn on buy-backs, apparently to little effect.

Jonathan Wright of Citigroup argues that, rather than making steady purchases, it should announce a single tender offer for a significant quantity of its shares, or pay a special dividend.

If returning $27bn to investors has been ineffectual, however, there can be no guarantee that returning similar sums in a slightly different way will be any more successful. It seems that on the slow and steady road to recovery, the short cuts are all blocked off.

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http://www.ft.com/cms/s/60ca6944-a699-11db-937f-0000779e2340.html

BP'S OPTIONS - PROS AND CONS
Published: January 18 2007 02:00 |
Last updated: January 18 2007 02:00

*Tender offer for 10 per cent of its share capital

Pro

Would be a high-profile event and answer investors' concerns about undergearing

Con

The buy-back programme so far has appeared ineffectual: would this do any better?

*Special dividend

Pro

May be a better way to return cash to shareholders and would appeal to income investors

Con

Would create tax problems. The special dividend might have to be cut or dropped if oil prices fall further

*Mega merger

Pro

Another high-profile move that could change investors' perceptions. Opportunities

for large cost savings

Con

BP's record does not create confidence that integration of a merger would be successful. A deal with a another 'super major' such as Royal Dutch Shell would run into serious competition problems

*Break-up

Pro

BP's current value is less than the sum of its parts. Separate upstream and downstream businesses would be valued more
highly by the market

Con
Purely upstream company could have more volatile earnings. Opportunities for synergy between upstream and downstream would

be lost

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http://www.ft.com/cms/s/385d072e-a698-11db-937f-0000779e2340.html

BP COMES IN FOR TOUGH CRITICISM AS US OPERATIONS FAIL TO LEARN LESSONS FROM GRANGEMOUTH INCIDENTS
By Ed Crooks
Published: January 18 2007 02:00 |
Last updated: January 18 2007 02:00

Some of the toughest criticism in James Baker's report on the safety of BP's US refineries comes from the company's failure to learn from a series of three incidents at its petrochemical complex at Grangemouth, Scotland, in 2000, writes Ed Crooks.

Between May 29 and June 10 of that year, the complex (pictured right) - which has since been sold by BP - was hit by a power distribution failure, a medium-pressure steam main rupture and a fire in an operating unit that tookmore than seven hours to put out.

No-one was killed or seriously injured, but the Health and Safety Executive concluded that was only due to "good fortune". BP was fined £1m as a result of two charges related to the fire and the steam main rupture.

In its report on Grangemouth, published in 2003, the HSE said it "seeks to reassure the public" by demonstrating that "a number of lessons have been learned both by BP and by the regulators".

But those lessons were missed by BP's similar businesses in the US.

For example, one of the problems at Grangemouth was found to be that the management was too focused on safety indicators based on personal injuries and not on the risk of serious incidents: exactly what the Baker panel found in the US.

Its report said: "The panel believes that in its response to Grangemouth, BP missed an opportunity to make and sustain company-wide changes that would have resulted in safer workplacesfor its employees and contractors."

Houston Chronicle
January 17, 2007

http://www.chron.com/disp/story.mpl/business/4475794.html

Workers in U.S. felt lack of trust, survey says
By BRETT CLANTON
Copyright 2007 Houston Chronicle

PHOTO
http://images.chron.com/photos/2007/01/16/4819192/311xInlineGallery.jpg

FULL BAKER Report
http://www.bp.com/bakerpanelreport

BP's failure to create a "positive, trusting and open" culture at some of its U.S. refineries may have contributed to broader safety problems, a highly critical report on the British oil giant said Tuesday.

Indeed, some BP workers said they feared being punished for reporting safety incidents, while others said inconsistent or unwieldy reporting procedures kept them from coming forward, according to a survey of nearly 7,500 BP refinery employees and contractors in the U.S.

The survey was part of a sweeping review of BP's safety practices at its U.S. refineries. An independent panel, which was recommended by the U.S. Chemical Safety and Hazard Investigation Board and led by former Secretary of State James A. Baker III, conducted the review after the March 2005 accident at BP's Texas City refinery killed 15 workers and injured scores more.

The survey's results underscored one of the panel's key findings: That BP did not establish effective or reliable ways to track "process safety" procedures across its five U.S. refineries.

Process safety in a refinery involves the prevention of leaks, spills, equipment malfunctions, corrosions and other potential hazards that can lead to catastrophic accidents.

BP Group Chief Executive John Browne said Tuesday the company supports the panel's recommendations and will implement them soon.

"We will use this report to enhance and continue the substantial effort already under way to improve safety culture and process safety management at our facilities," Browne said.

The report by the panel also said that "the single most important factor in creating a good process safety culture is trust."

Labor and management

Yet when the panel reviewed survey responses, read thousands of company documents and interviewed BP employees, it found that the culture within several of BP's U.S. refineries often discouraged open and honest communication between labor and management.
That is much less so at BP's Cherry Point, Wash., and Carson, Calif., refineries, based on the panel's research. But the positive culture at those plants was likely in place before they were acquired by BP from Arco, the panel said in its report.

BP has not established positive, open and effective safety cultures at refineries in Whiting, Ind., Toledo, Ohio, and Texas City, according to employees there, the report said.

In the survey, 44 to 60 percent of operators and maintenance and craft technicians in Toledo and Texas City said they believed management was more concerned with "assigning blame or issuing discipline" than correcting hazards.

About 72 percent of BP's U.S. refinery work force of 10,300 responded to the survey, which was conducted in May.

When BP has tried to foster more openness in safety-reporting procedures, it has not worked, according to refinery employees. A computer-based system is not used frequently enough to be relevant and is not user-friendly, while an anonymous hot line run by a third party is rarely used and often not trusted by workers, the report said.

Not sharing information

In addition, BP is not communicating investigation results to employees and it is not sharing important safety information among other U.S. refineries, the report said.

That may change under a new agreement in principle worked out between the United Steelworkers and BP and announced by the union Tuesday.

The two sides will craft a comprehensive joint safety initiative, said the union, which represents 4,300 workers at BP's U.S. refineries.

"Nothing can mitigate the 2005 tragedy," said United Steelworkers President Leo Girard, referring to the Texas City accident in a statement. "But our new agreement with BP shows the company's willingness to work with the union to address the root causes of the explosion, not just in Texas City, but throughout the corporation."

brett.clanton@chron.com

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http://www.chron.com/disp/story.mpl/front/4475824.html

BP flaws unattended for years, report says
Baker panel says safety lapses found at all five U.S. refineries
By ANNE BELLI
Copyright 2007 Houston Chronicle

Near catastrophes went uninvestigated.

And known equipment problems such as thinning pipes and vessels went unrepaired for up to 10 years.

These are just some of the bleak discoveries detailed in a highly critical report released Tuesday on BP's five U.S. refineries.

Although some of the plants had more woes than others, a Houston company specializing in so-called "process safety" which concerns equipment and operations found what it called serious lapses at all of the refineries, not just in Texas City where 15 people were killed in a March 2005 explosion.

The findings by ABS Consulting are the backbone of Tuesday's report made public by the BP U.S. Refineries Independent Safety Review Panel, chaired by former Secretary of State James A. Baker III and charged with evaluating the oil giant's commitment to safety.

The panel was formed by BP last year at the urging of federal investigators looking into the root cause of the Texas City blast, the worst in the U.S. in more than a decade.

In unveiling the panel's findings and recommendations, Baker said the panel found that BP focused more on personal safety issues, such as slips and falls and vehicle accidents, rather than process safety. Because the company's personal safety record improved in time, management had a "false sense of confidence that it was properly addressing process safety," Baker said.

In addition, the panel found a general lack of emphasis on process safety on the part of BP's London-based senior management including outgoing Chief Executive John Browne.

"Browne is generally noted for his leadership in various areas, including reducing carbon dioxide emissions and developing the use of alternative fuels," the 300-page report states. "In hindsight the panel believes that if Browne had demonstrated comparable leadership on and commitment to process safety, that leadership and commitment would likely have resulted in a higher level of process safety performance in BP's U.S. refineries."

Safety underfunded

Baker and other panel members also said at a morning news conference held at the downtown Hyatt Regency that while they found no evidence BP executives intentionally underfunded safety improvements, they nonetheless failed to dedicate enough of the company's vast profits through the years in that area.

BP "did not always ensure that adequate resources were effectively allocated to support or sustain a high level of process safety performance," the report states.

That should change, Baker said.

"We believe that if BP implements these recommendations fully that they could become a leader in the industry," Baker said.

In a video news conference at the nearby Hilton Americas shortly after the panel released its report, Browne said he took responsibility for the company's oversights and had already begun to implement changes.

"If I had to say one thing which I hope you will all hear today it is this: BP gets it. And I get it too. This happened on my watch, and as chief executive, I have a responsibility to learn from what has occurred," he said.

Under pointed questioning by reporters, Browne denied that he or any official put production and profits above personal safety, or that he or any senior manager rejected any specific request for funding of process safety. He also said that his decision to move up his retirement from 2008 to this summer had nothing to do with the Baker report.

He vowed that BP would implement all of the panel's 10 recommendations, including the most strict that the oil giant appoint an independent monitor to report back to the board on the status of the its implementation of the panel's recommendations.

He noted that the company has committed an average $1.7 billion a year for the next four years to improve safety at its U.S. refineries.

"As the report acknowledges, BP has made significant changes to its process safety systems and culture since the accident at Texas City," Browne said. "But we can do more. And we will do more."

Indeed, "there is still much work for BP to do in order to achieve process safety excellence," said the report filed by ABS, which was hired by the Baker panel as its technical consultant.

In addition to Texas City, BP's U.S. refineries are located in Carson, Calif.; Whiting, Ind.; Toledo, Ohio, and Cherry Point, Wash., and when fully operating they process roughly 1.3 million barrels of crude oil a day.

ABS teams visited each of the refineries except Texas City.

In that case, the consultants reviewed another company's outside review of the plant conducted as part of the BP's settlement with the U.S. Occupational Safety & Health Administration.

Among the consultants specific findings:

•In the Texas City, Carson and Whiting plants, known equipment problems such as thinning pipes and vessels went unrepaired for months, even years. In Texas City, nearly 200 thickness defects were unaddressed for up to eight years, for example.
•In all refineries except Texas City, the consultants found that BP's tests of critical alarms and "emergency shutdown devices" were either improperly conducted or overdue.
•"Action items" resulting from audits or near-miss investigations intended to improve safety often went uncompleted for months or even years, or were overlooked altogether at all five refineries. For example, in Carson about half of the action items generated between 2001 and 2004 remained open at the time of the team's visit last spring. At Toledo and Whiting, some items were left uncorrected for more than a year.
•At all refineries, BP did not adequately inspect important refinery process equipment, resulting in extensive backlogs. "Some of these backlogs included hundreds of items overdue for long periods (i.e years)," the report said. In Texas City, nearly 400 pressure vessels, piping, relief valves, storage tanks and other pieces of equipment were overdue, for example.
•After discovering dangerous problems in the pressure relief systems in Whiting, the team found similar problems in Carson, Texas City and Toledo, as well as a lack of understanding of the risks involved.
•Near misses at all five refineries were not properly investigated, and in some cases not even reported. The team found that "BP was systematically missing opportunities to learn from near misses."

Report draws praise

BP's failure to learn from near misses in Texas City has been a concern of federal investigators at the U.S. Chemical Safety and Hazard Investigation Board, which urged creation of the Baker panel. Investigators have said that the equipment that exploded there had had previous upsets in the months and years before the blast.

CSB Chairman Carolyn Merritt applauded the Baker panel's report. "Safety culture is created at the top, and when it fails there, it fails workers far down the line," she said. "That is what happened at BP."

Officials with the United Steelworkers said they also applaud the report and are hopeful it paves the way for a better relationship between the plants' hourly workers and BP management. After Browne's news conference, the union announced that it had reached a pact with management on a new safety initiative.

But union officials and others said that the real proof of whether BP makes process safety a priority will come months and years from now.

Safety review panel member and retired U.S. Navy Admiral Frank "Skip" Bowman said that's why the panel recommended that BP's board appoint a monitor for the next five years.

"Of course, we will all be watching," he said.

anne.belli@yahoo.com

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http://www.chron.com/disp/story.mpl/business/4475793.html

British press slams company on issues raised in Baker report
By GREGORY KATZ
Copyright 2007 Houston Chronicle Europe Bureau

LONDON The London-based multi- national oil giant BP suffered one of its darkest moments Tuesday as British press commentators focused on safety shortcomings spotlighted in a report issued Tuesday.

The study of BP's U.S. refinery operating procedures was viewed as a major setback for BP, one of Britain's leading companies, and for outgoing CEO Lord Browne, who had been hailed as one of the country's most successful businessmen until a series of setbacks that began nearly two years ago with a deadly explosion at BP's Texas City refinery.

A banner headline on the Web site of the usually pro-business Telegraph newspaper screamed "BP's Day of Shame" and chronicled the many criticisms of the company, which has greatly expanded its range of operations during Browne's tenure.

The BBC called the report issued by a panel chaired by former Secretary of State James A. Baker III "extremely savage" in its portrayal of BP's handling of its five refineries in the U.S., and the widely viewed Sky News cable channel said the report constitutes a "devastating blow to the oil giant's reputation."

There was widespread speculation in the press that Browne had announced last week he would be retiring 17 months early because of the negative impact the Baker report would have on his ability to run the company, but analysts cautioned there was no proof of this theory.

"It's difficult to know if he retired early because of this report," said Jonathan Wright, an oil analyst with Citigroup in London. "There are suspicions about that, but nothing in the report makes it seem that he had to go. No one's been singled out."

"It's probably not as damning as some people might have feared. They are not blaming people, they are making recommendations for improving performance and they are saying it's not just BP at fault and that other companies could benefit as well."

He said the financial community is generally comfortable with the announcement that Tony Hayward will replace Browne as CEO, but pointed out that Hayward as BP's chief of exploration and production has not been able to meet targets for development of new oil fields in the Gulf of Mexico.

"Hayward is not untarnished," Wright said. "We've had problems on his watch, with the Alaska issues, and with the Gulf of Mexico fields. He hasn't really delivered on the growth promises of the company. But he's certainly competent, and he's used to responsibility. He may have a different style than Browne and listen more."

Despite the panel's findings and the harsh reports in the British press, BP's standing in the financial community will remain fairly high, said Robert Mabro, retired director of the Oxford Institute for Energy Studies in England.

He said BP's standing with the public affected by the explosion had fallen dramatically but its status in Britain's business community remained high.

"The people who are unhappy are the people who had relatives who died, the people who were wounded, of course they are angry, but the financial sector doesn't care about that," Mabro said. "BP's reputation in the financial world is undamaged."

gregory.katz@chron.com

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http://www.chron.com/disp/story.mpl/business/4475931.html

BP chief's earlier departure is progress
By LOREN STEFFY
Copyright 2007 Houston Chronicle News Service

Last week, before the Baker-led independent panel released its assessment of BP, Browne announced he would move up his departure as the oil company's chief executive by more than a year. At a news conference Tuesday, he insisted the two events are unrelated.

Nevertheless, the Baker report, released Tuesday, is a referendum on Browne's leadership. On the one hand, the Browne era built BP into a global energy powerhouse and repainted it "green."

On the other, Browne's achievements rested on a corporate hierarchy blind to one of the most fundamental elements of refining petroleum: making sure it doesn't blow up.

Talking to reporters, Baker stressed that the panel didn't find that BP cut funding for safety programs, a point reiterated later to me by Bob Malone, head of BP's U.S. operations. The money was available, Malone said, but it wasn't always spent properly.

A consultant's report accompanying the panel's findings outlines problems that show how the money wasn't spent equipment deficiencies, a backlog of inspections for key pieces of machinery and alarms that weren't tested.

BP has already taken steps to address many of the issues and has vowed to embrace all of the panel's suggestions.

The report called for a more fundamental shift as well. BP needs to change its attitude about safety. It needs to emphasize process safety as much as it did personal safety. The latter is basically worker injury reports, a quantifiable statistic that, the Baker panel found, BP tracked faithfully. But the process safety, the overriding plan to avert catastrophes, got short shrift.

In other words, BP needs a cultural change.

"Culture is forever," said former Sen. Slade Gorton,
R-Wash., a panel member. "Complacency is a great danger. This is a job that's literally going to last forever."

Later, Browne spoke to reporters about the Texas City explosion for the first time, almost two years after the blast killed 15 people and injured scores more.

"As chief executive, I have a responsibility to learn from what has occurred," he said via video link from London. "BP gets it, and I get it, too."

Those are strong, well-scripted words, but as Baker panel members noted, we won't know if BP gets it for years to come. Browne successor and protégé Tony Hayward wasn't at the news conference, so we didn't get to hear his commitment to change.

One aspect of BP?

Baker's report focused only on the refining business. Browne reinforced that point, noting that "this report is about an aspect of BP."

We are left to extrapolate from the panel's findings whether the inattention to safety at refineries points to some larger pattern, a systemic failing across all BP's divisions.

Browne and Malone insist safety problems at refineries don't, for example, correlate to pipeline corrosion in Alaska.

Both, however, have a common denominator in maintenance. If the company tolerated a backlog of inspections at its refineries, would it have demanded timely ones on its pipelines?

Both require a vigilance that, in reading the Baker report, seems to have been lacking at BP. That's not to say it didn't care about safety or maintenance. It merely had other priorities.

Perhaps those priorities were growth, perhaps they were international expansion, perhaps they were the much-hyped environmental commitment.

Regardless, Browne's legacy, his accomplishments and innovations, will be shrouded by the failures that surfaced at the end of his tenure.

Blueprint for industry

The Baker report's findings weren't surprising. Its recommendations were sound. Baker himself suggested they could become a blueprint not just for BP, but for the entire refining industry.

First, though, BP has to follow them. It will be years before we know if that's happening. The signs, Malone told me, are largely intangible to outsiders.

Last week, though, before the recommendations were even public, came the strongest sign of BP's commitment to change. The man ultimately responsible for the shortcomings that spawned the Texas City disaster hastened his exit.

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

Anchorage Daily News
January 17, 2007

http://www.adn.com/money/industries/oil/story/8568661p-8462276c.html

BP ignored big safety issues at fatal Texas blast site
15 DIED: Baker group says company fixated on individuals, not processes, at its refineries.
By JOHN PORRETTO
The Associated Press
Published: January 17, 2007
Last Modified: January 17, 2007 at 02:07 AM

HOUSTON -- British oil company BP failed to emphasize safety at its U.S. refineries before the 2005 Texas City explosion that killed 15 people, according to a report released Tuesday by an independent panel led by former U.S. Secretary of State James A. Baker III.

The panel, in a statement summarizing its 300-plus page report on BP's operations, said the company had made strides in personal accident prevention but came up short on the bigger picture.

"The panel maintains a central theme that prior to the Texas City tragedy BP emphasized personal safety and had achieved significant improvements in personal injury rates, but the company did not emphasize process safety," the statement said. "BP mistakenly interpreted improving personal injury rates as an indication of acceptable process safety performance at its U.S. refineries."

The 11-member panel made 10 recommendations, including that an independent monitor report to the company's board of directors for five years.

"BP gets it, and I get it too," BP CEO John Browne told reporters by video link from London. "I recognize the need for improvement."

Browne, who got the report from Baker on Sunday, called the report a "hard-hitting and critical analysis that focused on deficiencies and negatives."

Browne defended the company's overall safety record, which the Baker report acknowledged was sufficient in terms of personal injury prevention and environmental safety.

But on so-called process safety, "it wasn't excellent enough," Browne said. "And the standard is excellence."

The chief executive said the company would implement the panel's recommendations, including the independent monitor. But he said the company needs to compare Baker's report with a companywide safety examination that began soon after the Texas City explosion; he gave no time frame for making the changes Baker's group suggested.

Baker has led the panel investigating corporate management at Houston-based BP Products North America following the March 2005 blast that killed 15 people and injured more than 170 others.

The U.S. Chemical Safety and Hazard Investigation Board, known as the CSB, urged BP in August 2005 to hire outside experts to look at the company's oversight of safety management systems and make its findings public -- similar to an investigation at NASA following the space shuttle Columbia tragedy.

The panel, announced in October 2005, has traveled to BP's five U.S. refineries and interviewed hundreds of employees.

"BP tended to have a short-term focus in its U.S. refining operations, and its decentralized management system and entrepreneurial culture delegated substantial discretion to U.S. refinery plant managers without clearly defining process safety expectations, responsibilities or accountabilities," the panel said in the report.

Baker, a senior partner at the Houston-based Baker Botts law firm, was White House chief of staff and treasury secretary in the Reagan administration and secretary of state in the first Bush administration. The release of the BP report was twice delayed because of his work with the Iraq Study Group, which made its recommendations to President Bush last month on how to revamp U.S. policy in Iraq.

The release of the report comes less than a week after London-based BP said that Browne, its chief executive, would step down by the end of July, more than a year ahead of schedule.

John Manzoni, the company's head of refining and marketing, said Tuesday he had no plans to resign.

The 2005 explosion has so far cost the company around $2 billion in compensation payouts, repairs and lost profits. BP has settled hundreds of lawsuits related to the accident, putting aside $1.6 billion just to resolve legal disputes.

Based on its investigation, the CSB has criticized BP for its safety systems at Texas City, about 40 miles southeast of Houston, finding the company fostered bad management at the plant and failed to fix problems.

In September 2005, the U.S. Occupational Safety and Health Administration found BP committed more than 300 willful violations of its rules and fined the company $21.3 million.

BP's own December 2005 report blamed failures by management at the refinery, saying it didn't make safety a priority, tolerated risks and failed to communicate. But BP added it "found no evidence of anyone consciously or intentionally taking actions or decisions that put others at risk."

The CSB has credited BP for cooperating with its investigation, making sweeping changes in how it recognizes potential hazards and hiring the Baker panel.

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Tug will help ships cope with Inlet ice
PRESSURE: Standby boat has been recommended to avoid catastrophes.
By WESLEY LOY
Anchorage Daily News
Published: January 17, 2007
Last Modified: January 17, 2007 at 02:22 AM

A powerful tugboat is headed to Cook Inlet to help shepherd oil tankers in dangerous, ice-choked waters.

The move by Tesoro Alaska Co., which has a refinery and tanker dock at Nikiski, drew applause from U.S. Coast Guard officers and oil industry watchdog groups.

All say a tug could help avert a catastrophic shipwreck and oil spill by standing by to corral a distressed or runaway ship.

Watchdogs called for a tug and other measures after a Jan. 9 incident in which lines securing the tanker Seabulk Pride to the Nikiski dock were strained -- with one snapping -- when heavy, tide-driven ice pushed up against the ship.

It was the same tanker that broke away entirely from its moorings in similar icy conditions last February, allowing the powerless ship to drift onto a beach just north of the dock. Rescuers using tugs brought from Anchorage and elsewhere mounted a frantic and ultimately successful effort to refloat the 600-foot tanker, which was loaded with nearly 5 million gallons of petroleum products.

British consultants who studied Tesoro's dock and mooring procedures reported in December that "ships using the berth have an unacceptably high risk of breakaway." They suggested increasing the number of mooring lines and having a tug stand by as ways to improve shipping safety.

Coast Guard Capt. Mark DeVries said Tuesday he's pleased that Tesoro is bringing in the tug. He said the company told him the tug would be in Cook Inlet at least through the winter when shifting ice can blanket parts of the Inlet.

The 5,500-horsepower tractor tug, operated by Crowley Maritime Corp., is coming up from Seattle and is due in Cook Inlet this week, ahead of the next oil tanker scheduled to arrive at the Tesoro dock late this month, DeVries said.

"I'm quite excited," he said. "We all can sleep a little bit easier knowing that if something goes wrong, we've got that extra asset down there."

Jim Butler, a Kenai representative for Seabulk Tankers Inc., operator of the Seabulk Pride and other ships calling in Cook Inlet, said the company supports Tesoro's move to bring in the tug.

"It's an important tool," Butler said.

Whether a tug remains in Cook Inlet in future years is part of a larger debate now going on about shipping safety, he said.

Tesoro spokesman Kip Knudson said his company is paying for the tug, named the Protector, but he didn't know the cost. The contract is for this winter only, he said.

"It's certainly going to add another layer of protection to our marine operations," he said.

Officials with the Cook Inlet Regional Citizens Advisory Council, a Kenai-based oil industry watchdog group, praised the decision to bring in the tug.

"Tugs play a role everywhere that oil tankers port in the U.S., and it's time Cook Inlet saw similar safeguards, especially during winter months when ice becomes such a hazard," said Michael Munger, the group's executive director.

The tug is expected to be used at the Nikiski dock and possibly at the Drift River dock on the west side of Cook Inlet, the council said.

While Cook Inlet has tugs based in Anchorage and other ports, the one Tesoro is bringing in is much more powerful, said the Coast Guard's DeVries. The tug is similar to Crowley tractor tugs used to escort the larger oil tankers in Prince William Sound, he said.

Bob Shavelson, with the Homer-based environmental group Cook Inletkeeper, also hailed the tug's coming.

"This is a huge step for industry because historically they have denied tugs make things safer," he said

Wall Street Journal
January 17, 2007

Safety Report Will Test BP's Incoming CEO
By CHIP CUMMINS
January 17, 2007; Page A14

LONDON -- BP PLC'S effort to minimize damage from a critical independent safety review of its U.S. operations presents the first big test for BP's next chief executive, Tony Hayward.

The London-based oil titan, reacting to the review released yesterday by an independent panel, promised to embrace a number of sweeping changes at its U.S. oil refineries, including engaging an independent body to monitor safety practices at the company. The panel, led by former U.S. Secretary of State James Baker III, sharply criticized practices at BP's American refineries, saying the company lacked strong leadership on safety.

The panel said it found significant problems at BP's five U.S. refineries. BP commissioned the panel after an explosion at its plant in Texas City, Texas, killed 15 workers in March 2005. "BP has not provided effective process safety leadership and has not adequately established process safety as a core value across all its five U.S. refineries," the report said.

Mr. Baker, in a news conference in Houston yesterday, said BP appeared to take safety seriously. But he said the company focused on "personal safety" improvements, for instance tracking statistics such as frequency of accidents and days lost to injuries. Such statistics led to a "false sense of confidence" in the company's safety culture and didn't enable the company to develop adequate, corporatewide safety procedures, Mr. Baker said.

The report also cited BP for not always ensuring that adequate funding and manpower were devoted to safety. But the panel never found that BP "purposefully withheld resources" that shortchanged safety, Mr. Baker said.

BP itself has issued stinging self-critiques of its Texas City plant after the accident. The U.S. Occupational Safety and Health Administration and the U.S. Chemical Safety and Hazard Investigation Board have both alleged specific safety shortfalls in Texas. Officials at the chemical-safety board, for instance, said that BP's cost cutting there played a direct role in causing the accident, an allegation BP has denied and that the Baker report said it couldn't substantiate.

The report is the most recent rebuke to longtime BP CEO John Browne. Last week, Lord Browne said he would step down about a year and a half earlier than expected. It comes amid other major problems for the company in the U.S., from oil spills and corrosion in Alaska to alleged improper energy trading, a charge BP denies.

Still, the Baker report contained little in the way of dramatic revelations, and its findings weren't as blistering as many BP executives and industry experts had anticipated. Thus, the publication of the report could provide the company an opportunity to show investors and regulators that it is acting quickly to shore up what has become a big American liability: safety.

The effort will be the first big test for a new management team led by Mr. Hayward that is gearing up to take over from Lord Browne. Currently BP's head of exploration and production, Mr. Hayward will take over as CEO in August.

Mr. Hayward will have to deliver on BP's promises to improve safety and make the structural and cultural changes pushed by the Baker panel. BP said yesterday it had already moved to shore up safety at its plants and was spending more money on its refineries.

The company said it would embrace all of the panel's recommendations, including agreeing to an outside body to monitor safety for five years. That recommendation was reported over the weekend by The Wall Street Journal. The Baker panel said that the outside body should report periodically to the board about how well the company is living up to its promises to improve safety and that BP should make those findings public.

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

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As BP's Hayward Takes Helm,
His Priorities Should Be Clear
January 17, 2007

Dealing with a damning report on your company's operations is hardly the best way to start life as a chief executive-in-waiting. But that is precisely the situation facing Tony Hayward, whose appointment at BP to succeed Lord Browne came on the eve of the Baker report on the oil giant's safety record in the U.S.

Mr. Hayward's priorities should be clear. First, improve safety. The oil giant has been sweating its assets in order to boost returns. That helps explain the problems at the Texas City Refinery and its Alaskan pipeline. In a letter leaked from BP's intranet just before Christmas, Mr. Hayward admitted that getting 100% of the task completed with 90% of the resources doesn't always work. BP has already upped spending on improving safety at U.S. refineries to $1.7 billion, but the figure could still rise.

Throwing money at the problem probably won't be enough. BP's culture needs to change, too. The oil giant became increasingly dominated by a "Yes, Lord Browne" culture. The scale of change isn't as big as that confronting rival Shell after its reserves debacle in 2004. But it isn't trivial.

Third, Mr. Hayward needs to address the problem of falling production. As the current head of the exploration-and-production division, pumping barrels is presumably something he should be good at. Here, Mr. Hayward should benefit from Lord Browne's legacy: BP has a strong foothold in Russia, and a few juicy projects in the pipeline. Some big ones, like Atlantis in the Gulf of Mexico or various fields in Azerbaijan, are due to come on-stream in late 2007 and 2008. Although he's set up reasonably well, there may be operational or political slip-ups for Mr. Hayward to manage.

What about something more radical? That may not be Mr. Hayward's priority now. BP has looked at more extreme options in the past -- such as a merger with Royal Dutch Shell, or even breaking itself up into two smaller and more manageable companies. But even BP, which has a deserved reputation for being responsive to investor concerns, hasn't gone that far. Yet.

---- Fiona Maharg-Bravo, Simon Nixon and John Christy

For a complete set of BreakingViews comments, see www.breakingviews.com.

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BP Seen Little Damaged By Baker Report On Safety-Analysts
DOW JONES NEWSWIRES
January 16, 2007 12:36 p.m.
By James Herron
Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--U.K. oil and gas giant BP PLC (BP) will suffer little further damage to its reputation and share price from the Baker report into safety at its U.S. refining operations, industry analysts said Tuesday.

The report, led by former U.S. Secretary of State James Baker and released Tuesday by BP, said investigators found "significant" problems at five BP refineries in the U.S. and said company goals, such as cost-cutting, often overrode safety concerns at its plants.

"Maybe it could have a short-term negative impact on the share price and reputation, but it won't make people more reluctant to invest in BP," said Antoine Leurent, analyst at KBC Peelhunt in Paris, referring to the Baker report.

BP shares closed down 1.46% at 541 pence Tuesday, but said shares in Total SA (TOT) and Exxon Mobil Corp. (XOM) fell by a similar proportion. "There is a huge weight on the oil price, and everything is going down in the sector," he said.

"It looks like a non-event," of the report. "The stock market doesn't care, apparently."

Peter Hitchens, an analyst at Teather and Greenwood in London, said that BP has already implemented many of the safety improvements suggested in the Baker report. The company's promise of increased expenditure on refinery safety to $1.7 billion from $1.2 billion is "money that would have been spent anyway," he said.

"As expected, the report is effectively saying toughen up safety, and that's it," Hitchens said.

But BP won't emerge totally undamaged, said a U.S.-based industry analyst. The Baker report's findings probably were what prompted BP CEO John Browne's early retirement, the analyst said, and it could also put pressure on John Manzoni, head of refining and marketing at the company.

Browne said Friday he will retire at the end of July, 17 months earlier than expected. BP said current Head of Refining and Marketing Tony Hayward will then succeed Browne in the top post.

Browne said Tuesday, however, that the Baker report was unrelated to his retirement date, which he had decided in early December to advance.

"It will take years (for BP) to have their reputation cleaned," said Leurent of KBC Peelhunt. It took two or three years for ExxonMobil to restore its image after its big Alaskan oil spill in 1989, he said. There is also potential for outstanding complaints related to BP's 2005 Texas City, Texas, refinery explosion to "revive the bad news" for BP this year, he said.

None of the analysts above changed their ratings or target prices for BP based on the Baker report.

The Baker report was prompted by a huge explosion at BP's Texas City refinery in March 2005, which killed 15 workers and injured more than 170. The blast occurred after gases spewed from an overfilled refinery unit and ignited.

The U.S. Chemical Safety and Hazard Investigation Board said cost-cutting had compromised safety at the refinery and urged BP in August 2005 to hire outside experts to look at the company's safety management.

BP asked Baker to chair a panel to investigate safety at BP's five U.S. refineries in October 2005.

Company Web site: http://www.bp.com
-By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; james.herron@dowjones.com
(Sally Jones in London contributed to this article.)

Financial Times
January 17, 2007

http://www.ft.com/cms/s/eed61a46-a5cf-11db-a4e0-0000779e2340.html

FROMT PAGE FIRST SECTION
BP denies that it put profit over plant safety
By FT reporters
Published: January 17 2007 02:00 |
Last updated: January 17 2007 02:00

BP last night hit back at suggestions it put profits over safety after a damning independent report found "material deficiencies" and systemic problems in stewardship of all five of its US refineries.

A panel led by James Baker, former US secretary of state, commissioned after the fatal 2005 Texas City refinery explosion, identified a series of weaknesses in BP's safety practices. "Significant process safety culture issues exist at each refinery, not just the Texas City facility," it said.

The explosion killed 15 people and 170 were injured. It was America's worst industrial accident in a decade.

The report was intended to make recommendations about all BP's US refineries. It refrained from criticising individuals but said Lord Browne - who said last week he would step down as chief executive in July - was "instrumental in shaping BP's corporate culture".

It added: "While BP has an aspirational goal of 'no accidents, no harm to people' BP has not provided effective leadership in making certain its management and US refining workforce understand what is expected of them regarding process safety. The panel believes that BP has not provided effective process safety leadership and has not adequately established process safety as a core value."

Lord Browne - who denied his early departure was prompted by the report - said: "If I had to say one thing which I hope you will all hear today it is this: BP gets it. And I get it too." He denied cost-cutting was responsible for failings: "We've never focused on profits above safety. . . I certainly never turned down a request [for safety funds]."

The 374-page report's findings are likely to be used against BP in many outstanding civil cases and could be seized by the grand jury investigating whether to bring criminal charges.

Mr Baker said Peter Sutherland, BP chairman, described his findings as "quite a harsh report".

The inquiry acknowledged BP had improved its safety record since the blast, but said management failed to provide leadership when tackling the systemic problems in the rest of the US.

Mr Baker said earlier: "There are some changes [in management] that we believe perhaps could be helpful" but did not discuss individuals. John Manzoni, BP's board director with responsibility for refining and marketing at the time, remains in that position. He said he would not resign after Mr Baker's findings.

The report made 10 recommendations BP is expected to follow in full. It said executive board members must show leadership on safety and establish integrated, comprehensive safety management. It also urged BP to establish a more open safety culture at each refinery and advised it to work with government agencies and unions to develop indicators to monitor safety.

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Exhaustive report and dismal conclusions
By Ed Crooks and Sheila McNulty
Published: January 17 2007 02:00 |
Last updated: January 17 2007 02:00

James Baker's 374-page report, the product of interviews with 700 BP workers, a survey of 7,500 staff and contractors and an assessment of 340,000 pages of documents, has come up with some dismal conclusions about the safety culture at BP's US refineries.

The panel says it wants BP to become the industry leader in safety; BP says it has already begun to take the steps that will get it there. But both agree it still has a very long way to go.

Management

A consistent theme of the Baker report is the lack of connection between the high ideals of BP's board and the day-to-day practice of its operations. Ultimately, that represents a failure of leadership.

"While BP has an aspirational goal of 'no accidents, no harm to people', BP has not provided effective leadership in making certain its management and US refining workforce understand what is expected of them regarding process safety performance," the report says.

And although BP places great stress on making its managers accountable, the panel found, "BP has not demonstrated that it has effectively held executive management and refining line managers and supervisors, both at the corporate level and at the refinery level, accountable for process safety performance at its five US refineries".

There was no "designated, high-ranking leader for process safety dedicated to its refining business", the report says.

There is a hint, too, that lack of familiarity with the business may have been a problem. Neither Lord Browne, BP's chief executive, nor John Manzoni, the director responsible for refining and marketing, had any significant experience of refineries when they took their jobs.

BP's response

A new senior executive team, including several managing directors, will support and oversee process safety, integrity management and operational integrity initiatives within the company. There will be a new safety and operations function reporting directly to the chief executive.

Tony Hayward, chief executive designate, is another exploration and production man. But many of the individuals responsible for refining and BP's US activities have been changed.

Cynthia Warner has been appointed its new vice-president for refining. Bob Malone, the head of BP in the US appointed last year, has new powers and responsibilities, including regulation and safety standards.

Culture

BP's culture is cited by the panel as a potential weakness in managing safety. The panel raises concerns that "BP tended to have a short-term focus and its decentralised management system and entrepreneurial culture have delegated substantial discretion to US refinery plant managers without clearly defining process safety expectations, responsibilities, or accountabilities". It points out that Lord Browne "has been instrumental in shaping BP's corporate culture".

At the refinery level, relations between workers and managers have often been poor. At three refineries, including Texas City, the panel found, "BP has not established a positive, trusting, and open environment with effective lines of communication between management and the workforce".

The panel found "instances of a lack of operating discipline, toleration of serious deviations from safe operating practices, and app-arent complacency toward serious process safety risks at each refinery".

BP's response

Retired federal Judge Stanley Sporkin has been appointed as "ombudsman", to receive and act on concerns raised by BP workers.

BP is introducing "new corporate standards governing operations integrity management and control of work".

Information

BP's procedures to analyse potential dangers donot "ensure adequate identification and rigorous analysis of those hazards" the panel found, pointing to recurrent problems as evidence of a "systemic" deficiency.

The company does monitor information about accidents, but has looked too much at the wrong things, relying excessively on injury rates, which has "significantly hindered its perception of process risk", the report found.

Incidents and near-misses are probably under-reported and when they are spotted, root causes have often not been correctly identified, the panel added.

BP's directors appear not to have been getting the right information, the panel suggested. "The panel's examination indicates that BP's executive management either did not receive refinery-specific information that suggested process safety deficiencies at some of the US refineries or did not effectively respond to the information that it did receive."

BP's response

Safety audits will be conducted and the results communicated in new ways. A central 60-person operations and safety audit team has been appointed, led by an outside expert.

Resources

Lord Browne insisted yesterday that neither he nor Mr Manzoni had ever turned down a request for funds to improve safety. But the Baker panel identified resources as a significant issue.

The report says the panel did not find enough information to tell whether BP had ever "intentionally withheld resources on any safety-related assets or projectsfor budgetary or costreasons".

Nevertheless, the report makes it clear that "the company did not always ensure that adequate resources were effectively allocated to support or sustain a high level of process safety performance".

Understaffing was also reported as a problem.

BP's response

It says it plans "significant external recruitment across our US refining businesses to increase underlying capability in operations and engineering".

Modern process control systems will be installed and "blow down stacks" like the one at the heart of the Texas City explosion, which vent heavier than air light hydrocarbons to atmosphere, will be removed.

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BP's safety failures are not yet resolved
Published: January 17 2007 02:00 |
Last updated: January 17 2007 02:00

Another month, another Baker report. December's report from the Iraq Study Group, co-chaired by James A. Baker III, former US secretary of state, has been largely ignored by America's president. But the management of BP, the oil giant, must not ignore yesterday's report from a panel chaired by Mr Baker into the safety and management of the company's US operations.

The independent panel was formed on the recommendation of a safety watchdog investigating the explosions at BP's Texas City refinery, which killed 15 workers and injured 500 more in March 2005. The panel looked at safety culture across BP Products North America, not just at Texas City, reflecting other accidents, including some at BP's Alaskan operations.

The Baker panel found that BP "has not provided effective process safety leadership", that "material deficiencies in process safety exist at BP's five US refineries" and that "BP's executive management either did not receive refinery-specific information on process safety deficiencies . . . or did not effectively respond to the information that it did receive".

That is a damning verdict. The panel's conclusions suggest that BP's executives were most at fault, but the board of directors does not escape. The board relied on information about safety given to it by management. But, implies the report, the board did not question that information. As a result it failed to ensure that effective management systems for process safety were actually put in place.

When management failures lie behind a tragedy on the scale of Texas City there must be accountability. BP has convened the Baker panel and conducted a thorough review of its own safety procedures: for that it deserves applause. Lord Browne, the company's iconic chief executive, announced last week that he will step down a year earlier than planned.

For Lord Browne, who as CEO must bear ultimate responsibility, the safety failures are a blot on an otherwise stellar career. But his departure does not draw a line under the Texas City disaster. The executives in charge of BP's North American refineries should consider their positions. The boardroom, meanwhile, where many non-executives have been in place for almost a decade, needs to be revamped.

There should be no schadenfreude inside other companies. Instead they should realise that, despite increased board-level scrutiny of financial affairs in the wake of the Enron scandal, businesses face other grave risks. At an industrial company, safety is one. Non-executives need to start asking the right questions.

The Baker panel goes on to set out how BP can improve its process safety: through better management, monitoring, accountability and, most important of all, leadership. If BP and others follow that advice, it will be a big step towards better industrial safety.

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BROWNE WARY ON LEGAL LIABILITY
By Sheila McNulty
Published: January 17 2007 02:00 |
Last updated: January 17 2007 02:00

Lord Browne, BP's chief executive, took pains yesterday to drive a wedge between the Baker Panel report on the UK company's problematic US safety culture and any implications it might have for BP's legal liability, writes Sheila McNulty in Houston.

He said, for example, that "the panel did not believe that the board failed to comply with their legal duties,'' and that "thepanel said they 'saw no information to suggestthat anyone - from BP's board members to itshourly workers - acted in anything other than good faith'."

Indeed, James Baker, former US secretary of state, said that the panel he led was not charged with investigating the causes of the explosion and had reached no legal conclusions.

Yet plaintiffs lawyers in the 500 or so outstanding cases against BP, arising fromthe fatal Texas refinery explosion, seized on the overwhelmingly negative conclusions reached by the panel after morethan a year of review.

"It validates some of the allegations the plaintiffs have made throughout the investigation," said Brent Coon, a plaintiffs' attorney representing 150 outstanding cases brought by families of those injured and killed in the blast.

He pointed, for example, to what he called "BP's lack of appreciation of adequate safety protocol necessary for petrochemical plants".

"It's all the more damning for them to argue against recommendations from the panel, as they chose the panel,'' Mr Coon said.

Houston Chronicle
January 16, 2007

http://www.chron.com/disp/story.mpl/front/4472762.html

Panel criticizes BP safety efforts
Sources say the Baker-led group found the oil
giant ignored broader refinery problems
By ANNE BELLI
Copyright 2007 Houston Chronicle

BP's most senior executives failed to emphasize the importance of safe operations within their U.S. refineries, resulting in widespread problems throughout the plants, a harshly worded and highly critical report released today says.

Federal investigators have said such problems have led to the March 2005 blast in Texas City, where 15 people were killed and scores more injured.

The report was prepared by an independent safety review panel chaired by former Secretary of State James A. Baker III. The panel is made up of 11 people with expertise ranging from process safety to risk management to nuclear power.

The report says BP's board should appoint an independent monitor to routinely report back over the next five years on progress the company is making toward implementing 10 recommendations being made by the panel.

The panel, though, found no evidence that BP purposely turned a blind eye toward operational safety.

Instead it found that BP chiefs were focused on personal safety statistics concerning such minor accidents as slip and falls and vehicle collisions. Meanwhile, they were oblivious to the broader problems brewing in operations at all five of their domestic refineries.

The Texas City explosion occurred as workers were restarting a unit after a maintenance shutdown. Federal investigators looking into causes of the blast have said that malfunctioning equipment, poor communication between workers and managers, outdated or nonexistent safety plans, even worker fatigue were contributing factors.

Although their final report isn't due out for two months, the U.S. Chemical Safety and Hazard Investigation Board last year urged BP to create an independent panel to review the corporate safety culture after finding evidence that management may have a lax attitude toward process.

BP acknowledged last year in its own final investigation report that upper management seemed more concerned about personal safety statistics than process safety. And it has said it has worked to make managers more accountable for the kinds of mishaps that can lead to explosions.

BP announced last week that Browne, the embattled company head, would move up his retirement from 2008 to this summer.

In addition to the Texas City plant, BP operates refineries in Whiting, Ind.; Carson, Calif.; Cherry Point, Wash.; and Toledo, Ohio.

The Texas City site is the largest refinery in BP's portfolio.

anne.belli@chron.com

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WHAT THE REPORT SAYS

Shortcomings

Among the report's other findings, according to the sources:

•BP did not do an adequate job of tracking near misses leaks and spills that could lead to blasts. Nor did it adequately analyze them and find their root causes.

•Generally, BP lacked an effective system to track process safety performance including the follow-up corrections taken in the wake of mishaps.

•Process safety meant different things at the company's five U.S. refineries, meaning there was no uniform system for safely running the refineries and monitoring performance.

Recommendations

In addition to BP's board naming an outside monitor, according to the sources, the panel is expected to recommend that:

•Senior management provide strong leadership on process safety, setting that as a "core value" from the top down.

•The company implement an effective system to measure process safety performance.

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http://www.chron.com/disp/story.mpl/business/energy/4472273.html

Chevron fire belches soot, oil
Residents told to stay indoors in California city; unit was already shut for repairs
By JOE CARROLL
Bloomberg News

A fire at Chevron Corp.'s Richmond, Calif., refinery spewed soot and unburned petroleum over homes and businesses before it was brought under control about 2 1/2 hours after it erupted.

One employee suffered minor burns and has returned to work, the company said in an e-mailed statement.

The fire is being allowed to burn itself out and the cause is under investigation, the statement said.

The blaze in the refinery's crude distillation unit, which began about 5:15 a.m. California time, won't affect gasoline or diesel output because the crude unit was already shut for planned repairs when the fire began, said Camille Priselac, a Chevron spokeswoman. The plant accounts for 23 percent of San Ramon, Calif.-based Chevron's U.S. refining capacity.

A crude distillation unit heats oil under pressure to separate light components used to make gasoline and jet fuel from heavier molecules that go into bunker fuel and asphalt.

The Richmond refinery has one such unit, Priselac said.

The 105-year-old refinery has a capacity of 240,000 barrels of crude oil a day and is Chevron's third-largest, Priselac said.

Chevron is the second-biggest U.S. oil company, behind Irving-based Exxon Mobil Corp.

Residents of Richmond, a city of 103,000 about 16 miles north of San Francisco, were ordered to remain indoors to avoid inhaling pollutants released into the air, said Vanessa Rodrigues, a dispatcher for the Richmond Police Department. The take-shelter order was lifted at about 9 a.m., according to the Richmond Fire Department.

"It looks like any releases were pretty much soot and uncombusted hydrocarbons," said Art Botterell, warning systems manager for Contra Costa County, where Richmond is located. "At this point, there's nothing acutely toxic that we've heard of. But none of that stuff is really very good for you, so we just ask everyone to go inside and button up."

Richmond firefighters assisted the refinery's in-house fire department, Rodrigues said. Sirens and a system of automatic telephone notifications alerted residents, Botterell said.

Contra Costa County, home to several oil refineries and chemical plants, experiences "one or two incidents a year" that require take-shelter orders, Botterell said.

The fire had little effect on trading. Crude oil for February delivery Monday afternoon fell 9 cents, or 0.2 percent, to $52.90 a barrel in electronic trading on the New York Mercantile Exchange. The exchange's trading floor was closed for the Martin Luther King Jr. holiday, but electronic trading continued.

Traders have doubts that the Organization of the Petroleum Exporting Countries, which produces 40 percent of the world's oil, will cut output enough to prop up prices as a mild winter slows demand.

"The fact that OPEC is cutting, and frankly scrambling at the minute to try and rein in the market, has suggested the world is well supplied of oil," said Neil McMahon, a London-based analyst at Sanford C. Bernstein & Co. "They are producing far too much."

Wall Street Journal
January 16, 2007

UPDATE:
Baker Panel Cites Significant Problems At BP Refineries
DOW JONES NEWSWIRES
January 16, 2007 11:07 a.m.
(Updates with details from Baker press conference, BP reaction,
updates share price, adds more details.)
By John M. Biers
Of DOW JONES NEWSWIRES

HOUSTON(Dow Jones)--An independent panel set up to review BP PLC's (BP) refinery operations in the U.S. Tuesday said it found "significant" problems at five refineries and said company goals, such as cost-cutting, often overrode safety concerns at its plants.

"BP has not always ensured that the resources required for strong process safety performance at its five U.S. refineries were identified and provided," the panel said.

The 374-page report, commissioned in the wake of a deadly March 2005 blast at the Texas City refinery, found that although BP aspires to be a safe company, it hasn't provided effective process safety leadership in making certain its management and U.S. refining workforce understand what is expected of them regarding process safety performance.

In its report, the panel maintains a central theme that prior to the Texas City tragedy, BP emphasized personal safety and had achieved significant improvement in personal injury rates. But the company didn't emphasize process safety. BP mistakenly interpreted improving personal injury rates as an indication of acceptable process safety performance at its U.S. refineries.

"Significant process safety culture issues exist at each refinery, not just the Texas City facility," said the panel, chaired by former Secretary of State James Baker.

"We are under no illusion that the deficiencies we have identified are unique to BP," Baker said in a statement. "If other refining and chemical companies consider our recommendations and apply them, we believe that those workplaces will be safer and that future tragedies like the Texas City accident can be avoided."

In an immediate reaction, BP said it will implement the panel's findings. "We asked for a candid assessment from this diverse group of experts and they delivered one," said outgoing Chief Executive Lord John Browne. "We will use this report to enhance and continue the substantial effort already underway to improve safety culture and process safety management at our facilities."

Speaking at a news conference in Houston, Baker said he hasn't spoken to Browne since the report was released but did speak with BP's Chairman Peter Sutherland who characterized the report as "tough". Baker said executive changes already announced by BP "could be helpful" but added that it will take time to gauge that.

Follows Management Shuffle

The Baker report comes on the heels of Friday's surprise announcement that global exploration and production chief Tony Hayward would succeed Browne this summer, more than a year ahead of schedule. The findings comes as BP continues to fend off a number of government probes and lawsuits over Texas City and a range of other operational problems in the U.S., including pipeline corrosion in Alaska and alleged efforts to manipulate propane and gasoline trading markets.

BP appointed Baker in October 2005 to lead the commission in response to an urgent recommendation by the U.S. Chemical Safety and Hazard Investigations Board for a high-level assessment after the March 2005 Texas City disaster, which killed 15 workers and injured over 170. Since that time, BP has been fined by federal or state occupational safety agencies in Washington, Ohio and Indiana after violations at refineries in those states.

The 11-member panel made 10 recommendations, including that an independent monitor report to the company's board of directors for a period of five years.

Since the BP refinery accident at Texas City, the panel noted that BP has expressed a major commitment to a better safety regime, has committed significant resources and personnel to that end, and has undertaken or announced many measures that could beneficially impact safety at BP's US refineries. It remains to be seen however, whether these measures will be effective.

Drawing from its extensive interviews of BP workers, the report cites significant evidence of widespread concern about funding of BP's refineries. Many hourly workers interviewed at the Whiting, Indiana refinery reported that "preventive maintenance was seldom practiced, the refinery has a 'run until it breaks' mentality and the workforce had a great deal of experience running equipment with 'Band-Aids."

BP shares in the U.S., which jumped Friday in the wake of the announcement of Browne's early departure, were trading down 63 cents Tuesday, at $64.01 a share.

Urges Worker Involvement

In a response to the report, the CSB called for prompt action from BP. "There is no doubt that the issues of safety culture and safety management identified in this report are serious and warrant immediate action by BP, its executives and its board of directors," said CSB chairman Carolyn Merritt in a press release.

During 2006, the panel interviewed more than 700 people, including hourly workers, plant managers and senior executives. Corporate executives interviewed include Browne, Global Downstream Chief John Manzoni, former BP U.S. chief executive Ross Pillari, outgoing group refining vice president Mike Hoffman and John Mogford, a senior VP.

In addition to providing more effective leadership on safety and ensuring an "appropriate level of safety knowledge" from workers up to executive management, BP should develop a system to continuously identify and manage process risk, the report said.

In a possible reference to the often adversarial relationship between BP and the union officials that represent its workers, one recommendation was for BP to "involve the relevant stakeholders to develop a positive, trusting, and open process safety culture within each U.S. refinery."

The report urged BP to take a leadership role in improving safety throughout the entire oil industry. In addition to BP developing a set of leading and lagging performance indicators to monitor safety at its U.S. refineries, the company is to work with governmental agencies to develop a similar set of indicators for use in refining and chemical industries.

The panel's final recommendation to BP was that it "use the lessons learned from the Texas City tragedy and from the panel's report to transform the company into a recognized industry leader in process safety management."

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

(Jessica Resnick-Ault, Beth Heinsohn and Grainne McCarthy contributed to this report.)

Wall Street Journal
January 16, 2007

Independent Report Criticizes
Safety at BP's Refineries
By JOHN M. BIERS
January 16, 2007 10:38 a.m.

NEW YORK -- An independent panel set up to review BP PLC's refinery operations in the U.S. said Tuesday it found "significant" problems at five refineries and said company goals, such as cost-cutting, often overrode safety concerns at its plants.

The 374-page report, commissioned in the wake of a deadly March 2005 blast at the company's Texas City refinery, found that although BP aspires to be a safe company, it hasn't provided effective process-safety leadership in making certain its management and U.S. refining workforce understand what is expected of them regarding process safety performance.

BP said it will implement the panel's findings.

Baker Report
http://online.wsj.com/documents/Bakerpanelreport.pdf

"Significant process-safety culture issues exist at each refinery, not just the Texas City facility," said the panel, chaired by former Secretary of State James Baker.

"We are under no illusion that the deficiencies we have identified are unique to BP," Mr. Baker said in a statement. "If other refining and chemical companies consider our recommendations and apply them, we believe that those workplaces will be safer and that future tragedies like the Texas City accident can be avoided."

The 11-member panel made 10 recommendations, including that an independent monitor report to the company's board of directors for a period of five years.

In the report, the panel maintains a central theme that prior to the Texas City tragedy, BP emphasized personal safety and had achieved significant improvement in personal injury rates. But the company didn't emphasize process safety. BP mistakenly interpreted improving personal injury rates as an indication of acceptable process-safety performance at its U.S. refineries.

Mr. Baker also led the panel investigating corporate management at Houston-based BP Products North America following the March 2005 blast that killed 15 people and injured more than 170 others.

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

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Baker Panel: 'Significant' Problems At 5 BP US Refineries
DOW JONES NEWSWIRES
January 16, 2007 10:18 a.m.
By John M. Biers
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--An independent panel set up to review BP PLC's (BP) refinery operations in the U.S. Tuesday said it found "significant" problems at five refineries and said company goals, such as cost-cutting, often overrode safety concerns at its plants.

The report, commissioned in the wake of a deadly March 2005 blast at the Texas City refinery, found that although BP aspires to be a safe company, it hasn't provided effective process safety leadership in making certain its management and U.S. refining workforce understand what is expected of them regarding process safety performance.

"Significant process safety culture issues exist at each refinery, not just the Texas City facility," said the panel, chaired by former Secretary of State James Baker.

"We are under no illusion that the deficiencies we have identified are unique to BP," Baker said in a statement. "If other refining and chemical companies consider our recommendations and apply them, we believe that those workplaces will be safer and that future tragedies like the Texas City accident can be avoided."

In its report, the panel maintains a central theme that prior to the Texas City tragedy, BP emphasized personal safety and had achieved significant improvement in personal injury rates. But the company didn't emphasize process safety. BP mistakenly interpreted improving personal injury rates as an indication of acceptable process safety performance at its U.S. refineries.

In an immediate reaction, BP said it will implement the panel's findings.

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Sources:
BP Mgmt Lacked Emphasis On Safety At Ops -Report
DOW JONES NEWSWIRES
January 16, 2007 9:13 a.m.

NEW YORK (Dow Jones)--Senior management at BP PLC (BP) failed to emphasize safety at its U.S. refinery operations, an advisory panel concluded, and called on the company to appoint an independent monitor to observe progress on a list of recommendations from the panel, the Houston Chronicle reported on its Web site Tuesday.

A report from the panel, which centered on a deadly explosion at a Texas refinery two years ago, is expected to be released at 10:30 a.m. EST, the Associated Press reported. The Houston Chronicle cited unidentified sources familiar with the report.

The sources said the panel, headed by former secretary of state James Baker, found no evidence BP purposely overlooked operational safety.

"Process safety is about the safety of their operations, the things that can blow up a refinery, such as loss of containment, spills and releases," according to one source quoted by the newspaper. "BP focuses more on personal safety ... than process safety."

The report's release comes less than a week after London-based BP said Chief Executive John Browne would step down by the end of July, more than a year ahead of schedule.

A U.K. newspaper, the Sunday Times, earlier reported that criticisms from the Baker panel report are expected to be severe enough to lead to the departure of more BP executives.

The March 2005 blast at the company's Texas City refinery killed 15 people and injured more than 170 others.

The U.S. Chemical Safety and Hazard Investigation Board, known as the CSB, urged BP in August 2005 to hire outside experts to look at the company's oversight of safety management systems and make its findings public.

The panel, announced in October 2005, has traveled to BP's five U.S. refineries and interviewed hundreds of employees, the Associated Press reported.

The 2005 explosion has so far cost the company around $2 billion in compensation payouts, repairs and lost profits. BP has settled hundreds of lawsuits related to the accident, putting aside $1.6 billion just to resolve legal disputes.

In September 2005, the U.S. Occupational Safety and Health Administration found BP committed more than 300 willful violations of its rules and fined the company $21.3 million.

A BP report in December 2005 blamed failures by management at the refinery, saying it didn't make safety a priority, tolerated risks and failed to communicate. But BP added it "found no evidence of anyone consciously or intentionally taking actions or decisions that put others at risk."

BP has said it will invest about $1 billion over five years to improve and maintain the Texas City site. BP also operates refineries in California, Indiana, Washington and Ohio

Financial Times
January 16, 2007

http://www.ft.com/cms/s/edae16ca-a505-11db-b0ef-0000779e2340.html

Baker says BP failed to provide funds for safety
By Sheila McNulty in Houston
and Carola Hoyos in London
Published: January 16 2007 02:00 |
Last updated: January 16 2007 02:00

BAKER REPORT in FULL
http://media.ft.com/cms/4687fe00-a574-11db-a4e0-0000779e2340.pdf

BP will be accused today of failing to provide adequate resources to ensure safety at its US refineries in a damaging report that calls on the group's board to take the lead in ensuring standards are improved.

The report, by James Baker, the former US secretary of state, will say: "BP has not always ensured that it identified and provided the resources required for strong process safety performance at its US refineries.''

The finding is certain to be used against BP in the many outstanding civil cases against it.

It could also be seized upon by the grand jury investigating whether to bring criminal charges over the explosion in 2005 at the company's Texas City refinery that killed 15 and left 500 injured in the worst US industrial accident in a decade.

The report, which runs to several hundred pages, identified safety culture problems across the North American refining organisation, according to someone who had read the document.

And it put the onus on BP's directors to lead an overhaul of the safety culture at its US refineries and monitor progress over the coming years, the person said.

It will make a dozen recommendations, all of which will be accepted by BP, although the company will dispute some of the findings.

Another person, who also had read the report, said it implicated BP's current management in the problems with the company's US safety culture.

BP was given the report last Wednesday, two days before the announcement that Lord Browne, its much-feted chief executive, was to stand down early.

The announcement that he would make way for Tony Hayward, head of exploration and production, at the end of July is thought in part to have been an attempt to limit the damage done by the report's publication today.

However, it has emerged that Lord Browne's final payout is likely to be severely curtailed by the company's poor recent performance.

He is likely to receive an extra year's base salary - which was about £1.5m in 2005 -- but looks set to forgo many of his remaining 5m long-term performance related shares for 2004-2008 on which the board has yet to decide, people close to the company said.

In 2002-2005 he was only granted about a third of the possible 2.2m maximum.

His remaining, unexercised 4.6m options have hardly fared better. Their average weighted strike price is £5.06, below BP's Friday closing share price of £5.46.

His total package is unclear because some of the periods covered by long-term incentivepayments expire after Lord Browne's expected departure date. However, he will leave with a pension pot estimated at £20m and existing shares as of the end of 2005 worth £12.2m.

The investigative report by Mr Baker was urged on BP by the US Chemical Safety Board, an independent federal agency responsible for investigating the causes of accidents due to hazardous materials in commerce and industry.

Mr Baker and his panel spent more than a year reviewing BP's US refineries.

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http://www.ft.com/cms/s/0a451104-a546-11db-a4e0-0000779e2340.html

Baker report on BP published
Published: January 16 2007 12:14 |
Last updated: January 16 2007 15:23

The Baker report into BP’s safety standards in the US is now out. BP says it will implement the report’s recommendations. The report runs to 374 pages, so we’re still going through it. Here are some highlights so far:

“The Panel believes that BP has not provided effective process safety leadership and has not adequately established process safety as a core value across all its five U.S. refineries. While BP has an aspirational goal of “no accidents, no harm to people,” BP has not provided effective leadership in making certain its management and U.S. refining workforce understand what is expected of them regarding process safety performance.”

“BP has not always ensured that it identified and provided the resources required for strong process safety performance at its U.S. refineries.”

“The Panel also found that BP did not effectively incorporate process safety into management decision-making.”

“Neither BP’s executive management nor its refining line management has ensured the implementation of an integrated, comprehensive, and effective process safety management system.”

It is not clear yet whether other executives will follow Lord Browne out the door. So far, the bloggers have been fairly quiet about Browne’s departure.

“It was [...] under his leadership that BP pioneered the ‘open innovation’ model of technology development, funding massive amounts of research at university R&D centers instead of in internal R&D centers,” writes Neal Dikeman on cleantechblog.com. “And for the cleantech world, it was under Browne’s leadership that BP virtually defined its technology strategy in terms of a ‘low-carbon’ future.”

“The question surrounding Browne is whether he will be able to recover his tarnished reputation now that his legacy is under scrutiny and damaged,” says, not very controversially, Leslie Gaines-Ross at reputationxchange.blogspot.com.

And, rather more surprisingly, Jon C. Ogg at 247wallst.com, says: “Of course traders and M&A rumor mongers are taking the opportunity to say this could imply a merger between BP and perhaps Royal Dutch Shell.”

The other person, we learned this morning, who is leaving his post this summer will be John Tiner. The chief executive of the FSA wants a big job in the private sector, just like so many of the people the regulator wishes it could attract. We’ll take a good look at his record this afternoon. By the time he goes in July he will have done well to make the FSA less bureaucratic, but he has benefited from extraordinarily benign markets. His successor may have a tougher time. No news on who that might be yet.

Elsewhere, the top story so far is the arrest in the US of two founders and former directors of Neteller, the online payment company to the likes of 888 Holdings and PartyGaming. Shares in the company, once a big retail punters’ stock, have been suspended while Neteller works out what is going on. Neither Stephen Lawrence, former chief executive and chairman, and John Lefebvre, who stepped down as a non-executive director in December 2005, have any operational role at Neteller any more but they remain two of its largest shareholders. There is an amusing profile of Lefebvre on the University of Calgary website. “Here’s a man embodying the spirit of a generation,” it says. “One moment, he’s speaking intensely about eradicating political global tyranny, and in the next, slipping on his gumboots to stand ankle-deep in the Pacific Ocean and strum the mandolin; one moment plotting to save old-growth forest in China from clear cutting loggers, and in the next, whimsically tinkling “M-i-c … k-e-y, M-o-u-s-e” on a William Knabe & Co. piano, circa 1904.”

Sharply increased sales of organic and premium range food at Tesco helped like-for-like sales excluding petrol rose by 5.9 per cent in the six weeks to January 6, slightly ahead of the growth rate reported in the third quarter. Online sales grew 30 per cent, which is astonishing. Bizarrely, Tesco seems to have been selling loads of cashmere sweaters. M&S said the same thing. What is it about cashmere at the moment?

Among the retailers’ Christmas trading statements Debenhams was weak and Philip Dorgan at Panmure says the best years are behind it (shares off 5 per cent). Burberry, like many of the luxury retailers this year, looks much stronger (like-for-likes up 13 per cent). Laura Ashley expects full-year profits to beat forecasts and Ted Baker looks strong too.

For those who didn’t get our third edition this morning, here is a piece by Peter Thal Larsen, our banking editor, which you might have missed but which is quite a significant City story:

“Goldman Sachs has moved Driss Ben-Brahim, one of its most senior London-based proprietary traders, into a management job after a year in which his trading performance was mixed.

Mr Ben-Brahim, a senior foreign exchange trader who is thought to have been among the bank’s most highly paid executives in past years, will take charge of foreign exchange sales and trading within emerging markets, people familiar with the matter said.

The move shifts a trader whose rise exemplifies the changing nature of the financial markets into a management role where he will be mainly responsible for developing Goldman’s business with the institutional investors and hedge funds that are driving the increased volume on the foreign exchange markets.

Mr Ben-Brahim, who was promoted to Goldman’s lucrative partnership pool in 2004, is one of the new breed of traders whose success in making proprietary bets with the bank’s capital helped propel Goldman to record revenues last year.

Goldman’s senior management is now dominated by executives who have spent most of their careers on the trading, rather than the advisory, side.”

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http://www.ft.com/cms/s/0feaef4a-a571-11db-a4e0-0000779e2340.html

Baker report criticizes BP safety culture
By FT Reporters
Published: January 16 2007 15:19 |
Last updated: January 16 2007 15:19

BP agreed to implement the changes proposed in a year long investigation into the safety at its US refineries.

The investigation, which was led by James Baker, the former US Secretary of State, identified “material deficiences” in the safety performance at BP’s five US refineries.

“Significant process safety culture issues exist at each refinery, not just the Texas City facility,” the panel concluded.

The finding is certain to be used against the company in the many outstanding civil cases against BP and could be seized upon by the grand jury investigating whether to bring criminal charges over the explosion at the Texas City refinery disaster that killed 15 and injured 500 in the worst US industrial accident in a decade.

In a response to the findings Lord Browne said: ““I want to thank Secretary Baker and the other Panel members for their effort, their insights and their recommendations.

“We asked for a candid assessment from this diverse group of experts and they delivered one. We will use this report to enhance and continue the substantial effort already underway to improve safety culture and process safety management at our facilities,” he added.

The report, which runs to several hundred pages, identified safety culture problems across the North American refining organisation and put the onus on BP’s board of directors to lead an overhaul of the safety culture at the company’s US refineries and monitor progress over the next number of years.

However, the report fell short of naming those responsible for the lax safety culture.

BP shares were down 2p at 547p in mid-afternoon trading.

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http://www.ft.com/cms/s/9586a99e-a573-11db-a4e0-0000779e2340.html

Baker report: Key findings
Published: January 16 2007 15:33 |
Last updated: January 16 2007 15:33

CORPORATE SAFETY CULTURE:

Process safety leadership: “It is imperative that BP’s leadership set the process safety “tone at the top” of the organization and establish appropriate expectations regarding process safety performance. Based on its review, the Panel believes that BP has not provided effective process safety leadership and has not adequately established process safety as a core value across all its five U.S. refineries.

“While BP has an aspirational goal of “no accidents, no harm to people,” BP has not provided effective leadership in making certain its management and US refining workforce understand what is expected of them regarding process safety performance.

“BP has emphasized personal safety in recent years and has achieved significant improvement in personal safety performance, but BP did not emphasize process safety. BP mistakenly interpreted improving personal injury rates as an indication of acceptable process safety performance at its U.S. refineries.

“BP’s reliance on this data, combined with an inadequate process safety understanding, created a false sense of confidence that BP was properly addressing process safety risks.

“The Panel further found that process safety leadership appeared to have suffered as a result of high turnover of refinery plant managers.

“During the course of its review, the Panel has observed a shift in BP’s understanding of process safety. As discussed in this report, BP has undertaken a number of measures intended to improve process safety performance. The Panel also recognizes that BP executive management and corporate-level management have more visibly demonstrated their commitment to process safety in recent months.”

Employee empowerment: “At Texas City, Toledo, and Whiting [refineries], BP has not established a positive, trusting, and open environment with effective lines of communication between management and the workforce, although the safety culture appears to be improving at Texas City and Whiting.

“While BP has an aspirational goal of ‘no accidents, no harm to people,’ BP has not provided effective leadership in making certain its management and U.S. refining workforce understand what is expected of them regarding process safety performance.”

Resources and positioning of process safety capabilities: “BP has not always ensured that it identified and provided the resources required for strong process safety performance at its U.S. refineries. Despite having numerous staff at different levels of the organization that support process safety, BP does not have a designated, high-ranking leader for process safety dedicated to its refining business.

“The Panel believes, however, that the company did not always ensure that adequate resources were effectively allocated to support or sustain a high level of process safety performance. In addition, BP’s corporate management mandated numerous initiatives that applied to the U.S. refineries and that, while well-intentioned, have overloaded personnel at BP’s U.S. refineries. This “initiative overload” may have undermined process safety performance at the US refineries.

“In addition, operations and maintenance personnel in BP’s five U.S. refineries sometimes work high rates of overtime, and this could impact their ability to perform their jobs safely and increases process safety risk. BP has announced plans to increase both funding and hiring at its U.S. refineries.”

Incorporation of process safety into management decision-making: “The Panel also found that BP did not effectively incorporate process safety into management decision-making. BP tended to have a short-term focus, and its decentralized management system and entrepreneurial culture have delegated substantial discretion to U.S. refinery plant managers without clearly defining process safety expectations, responsibilities, or accountabilities.

“In addition, while accountability is a core concept in BP’s Management Framework for driving desired conduct, BP has not demonstrated that it has effectively held executive management and refining line managers and supervisors, both at the corporate level and at the refinery level, accountable for process safety performance at its five US refineries. It appears to the Panel that BP now recognizes the need to provide clearer process safety expectations.”

Process safety cultures at BP’s US refineries: “BP has not instilled a common, unifying process safety culture among its U.S. refineries. Each refinery has its own separate and distinct process safety culture. While some refineries are far more effective than others in promoting process safety, significant process safety culture issues exist at all five US refineries, not just Texas City.”

PROCESS SAFETY MANAGEMENT SYSTEMS

Process risk assessment and analysis. “While all of BP’s U.S. refineries have active programs to analyze process hazards, the system as a whole does not ensure adequate identification and rigorous analysis of those hazards. The Panel’s examination also indicates that the extent and recurring nature of this deficiency is not isolated, but systemic.”

BP Global Newletter
January 12, 2007

BP Announces Lord Browne Succession Plan

BP announced today that after more than a decade in the CEO role Lord Browne has decided to retire as chief executive at the end of July 2007.

The board is pleased to announce that Tony Hayward, currently BP's head of exploration and production, will succeed Lord Browne following his retirement as group chief executive.

Peter Sutherland, BP's chairman, said: "John Browne is the greatest British businessman of his generation and has transformed BP into one of the biggest energy groups in the world. His performance over the past 12 years has been extraordinary, which is no doubt why he has constantly been named by his fellow CEOs as the most impressive businessman in Britain. His vision, intellect, leadership and skill have been a wonder to behold and he will be a difficult act to follow.

"Last summer, John and I had agreed that he would stay as CEO until the end of 2008. John decided that it would be in the company's interest to name a successor now in order to provide an orderly transition. Having made that decision, which the board fully supports, we came to the conclusion that a six month handover would be more appropriate than 18 months.

"It is a testament to John's managerial skill that BP is blessed with having such an impressive managerial top bench to choose from and John and I are delighted to be able to announce that Tony Hayward will be succeeding him from August 1, 2007. Tony has an excellent track record and extensive knowledge of the sector and will be able to draw on John's wealth of knowledge over the next six months."

During Lord Browne's tenure as the chief executive of BP he has presided over a fivefold increase in the company's market capitalisation to £104.6 billion and profits to $22.3 billion; while the share price has gone up around 250 per cent to 532 pence and earnings per share have gone up over 600 per cent.

Lord Browne said: "It has been a privilege to have had the opportunity to turn BP into an international company at the forefront of the energy industry. We clearly have important issues still to deal with which I am determined to address. I am pleased that Peter and I have been able to work together to develop a successor in Tony in whom I have every confidence."

Note to Editors:
Biographies of Lord Browne and Tony Hayward are below.

Dr A.B. Hayward

Tony Hayward was appointed to the main board of BP in 2003, becoming chief executive officer of BP's exploration and production segment responsible for the group's assets and operational activities relating to the discovery and production of hydrocarbons.

He joined BP in 1982 and, following a series of technical and commercial roles in BP Exploration in London, Aberdeen, France, China and Glasgow, in 1992 he moved to Colombia as exploration manager. In 1995 he became president of the BP group in Venezuela.

In 1997 Dr Hayward returned to London as a director of BP Exploration and following the merger of BP and Amoco, in 1999 he became a group vice president and a member of the upstream executive committee. He was appointed group treasurer in 2000 where his responsibilities included global treasury operations, corporate finance and mergers and acquisitions. He was appointed an executive vice president in 2002 becoming chief operating officer for exploration and production later that year.

He is a non-executive and senior independent director of Corus Group, was appointed Companion of the Chartered Management Institute in September 2005 and was a member of Citibank's Advisory Board between 2000 and 2003.

Dr Hayward was born in 1957. He is married with two children. He is a keen sportsman and enjoys sailing, triathlons and watching football, rugby and cricket.

The Lord Browne of Madingley

Lord Browne is Group Chief Executive of BP p.l.c.

Born in 1948, he joined BP in 1966 as a university apprentice. He holds a degree in Physics from Cambridge University and an MS in Business from Stanford University, California. He has also been awarded Honorary Doctorates from Heriot Watt University (D.Eng) and Robert Gordon University (D.Tech), Dundee University (LLD), Warwick University (D.Sc), Hull University (D.Sc), Cranfield University (D.Sc), Sheffield Hallam University (Hon. Duniv), University of Buckingham (D.Sc), Leuven University, Belgium (D.Sc), Thunderbird (LLD), University of Notre Dame (LLD), Colorado School of Mines (D.Eng), D Mendeleyev University of Chemical Technology of Russia, Arizona State University (DHLitt). He is an Honorary Fellow of St John's College, Cambridge and a Senior Member of St Antony's College, Oxford. He is a Fellow and President of the Royal Academy of Engineering, a Fellow of the Royal Society, a Fellow of the Institute of Mining and Metallurgy, a Fellow of the Institute of Physics, a Fellow of the Institute of Petroleum, a Fellow of the American Academy of Arts & Sciences, a Companion of the Institute of Management, an Honorary Fellow of the Institute of Chemical Engineers, an Honorary Fellow of the Geological Society, an Honorary Fellow of the Institution of Mechanical Engineers and an Honorary Fellow of the Royal Society of Chemistry.

Between 1969 and 1983, he held a variety of exploration and production posts in Anchorage, New York, San Francisco, London and Canada.

In 1984 he became Group Treasurer and Chief Executive of BP Finance International.

In April 1986, he took up the position of Executive Vice President and Chief Financial Officer of The Standard Oil Company in Cleveland, Ohio. In 1987, following the BP/Standard merger, in addition to his position as Executive Vice President and Chief Financial Officer of BP America, he was appointed Chief Executive Officer of Standard Oil Production Company.

In 1989, he became Managing Director and Chief Executive Officer of BP Exploration based in London. In September 1991, he joined the Board of The British Petroleum Company p.l.c. as a Managing Director. He was appointed Group Chief Executive on June 10, 1995. Following the merger of BP and Amoco, he became Group Chief Executive of BP Amoco on December 31, 1998.

He is a non-executive director of Goldman Sachs. He was a director of Intel Corporation from 1997 - 2006, a Trustee of The British Museum from 1995-2005, a member of the Supervisory Board of DaimlerChrysler AG from 1998 - 2001 and a non-executive director of SmithKline Beecham from 1996-1999.

He is Chairman of the International Advisory Board of the School of Economics and Management, Tsinghua University, Chairman of the Cambridge Judge Business School and Emeritus Chairman of the Advisory Board of the Stanford Graduate School of Business. He is a Trustee of the Cambridge University Foundation, and a member of the Guild of Cambridge Benefactors. He is a member (and former Chairman) of the British American Business Inc. He is a member of the board of Catalyst; he is an honorary Trustee of the Chicago Symphony Orchestra, an honorary counsellor of the Conference Board, Inc., a Fellow of the American Academy of Arts and Sciences, a Senior Fellow of the Foreign Policy Association, a Trustee of the Eisenhower Fellowship and a Vice President of the Prince of Wales Business Leaders Forum.

In 1999, the Royal Academy of Engineering awarded him the Prince Philip Medal for his outstanding contribution to the field of Engineering. The Stanford Business School Alumni Association presented him with the Ernest C Arbuckle Award in 2001, in recognition of excellence in the field of management leadership. Other awards include the Henry Shaw Medal of the Missouri Botanical Gardens, the Gold Medal of the Institute of Management, the Institute of Energy Melchett Medal (2001), the Society of Petroleum Engineers Public Service Award (2002), the Institution of Chemical Engineers Commemorative Medal (2003), the inaugural Channing Corporate Citizenship Award from British American Business Inc. (2004), the World Petroleum Congress Dewhurst Award (2005), the Dwight D Eisenhower Leadership Award from the Business Council for International Understanding.

He was voted Most Admired CEO by Management Today from 1999 - 2002.

He was knighted in 1998 and made a life peer in 2001.

Anchorage Daily News
January 15, 2007

http://www.adn.com/news/government/legislature/story/8564160p-8457732c.html

An unlikely Senate alliance gathering
for work Tuesday
Tread lightly: With politically sensitive agenda, there’s no room for bickering
By STEVE QUINN
The Associated Press
Published: January 15, 2007
Last Modified: January 15, 2007 at 02:26 AM

JUNEAU When Republican senators report to work this week, they’ll arrive as the majority party but it won’t last long.

Pending a Senate leadership vote, an unnamed coalition made up of nine Democrats and six Republicans will assume majority status and leave the other five Republicans standing on the sidelines with their party suddenly and inexplicably in the minority.

Political analysts call it a rare partnership of lawmakers who couldn’t agree, except to disagree, last year.

How this alignment plays out has significant implications for a state beset by recent ethics scandals and the controversy over same-sex benefits for partners of state employees.

This could have national implications when lawmakers revisit the contentious topic of a $25 billion pipeline to take natural gas from the North Slope to the Midwest.

Backers say this coalition will lead to less partisan bickering that’s soured the public on government and more middle-ground legislation, though not necessarily more new laws. It could also restore some of the public’s eroding faith in government, they say.

Wasilla Republican Lyda Green stands to be the Senate president, pending a vote, and she says the coalition is a reflection of the public’s wishes for change statewide and nationally.

“The public wants people who can work together,” she said. “This will expedite things and cause real discussion to take place on important items and things that are imminently important.”

Critics disagree, however, saying the coalition could potentially produce more divisive behavior among the Senate Republicans and create a relationship gap rather than an accord between the Senate and Republican-controlled House.

For now, House Speaker John Harris said he’s more concerned about House business, but he conceded he wished the coalition had not happened.

“Right now, I don’t care if they are Republicans or Democrats; they are legislators, as far as I’m concerned,” said Harris, a Valdez Republican. “We have a responsibility to our constituents and the people of the state of Alaska.”

Republicans hold an 11-9 advantage in the state Senate after November’s election, when Democrats gained one seat.

It’s rare, political analysts say, to see the majority willing to give up its lead.

“At least on the face of it, you don’t find the philosophical commonality as in most of the coalitions,” said Carl Shepro, political science professor at the University of Alaska Anchorage.

“They are certainly at opposite ends of the spectrum,” he said. “It’s kind of hard to see what they have in common, I guess. Potentially, though I think something like this could be very positive.”

Sen. Fred Dyson, R-Eagle River, agrees there was “bullying, yelling and immature conduct” in the Senate last year, but creating the coalition and relegating experienced lawmakers like Gene Therriault, Gary Wilken and Tom Wagoner to the minority was not the answer.

A veteran of several political coalitions two decades ago advised the new coalition members to tread lightly, at least in the beginning.

“If they are careful and each member understands they cannot push issues too far to the right and to the left, it could be a good coalition,” said former Democrat Rep. Ben Grussendorf of Sitka. “They also need to be careful when they are operating with the capital budget.

“They can’t become philosophically or fiscally greedy and make sure members of the coalition are taken care of in the process. And they can’t suddenly decide to pick certain issues that have political banter to it and start beating each other over the head with it.”

The foundation of this coalition stems from a long-standing cordial working relationship between Bethel Democrat Lyman Hoffman and Green. Hoffman and Anchorage Republican John Cowdery approached Green with the idea last fall, Green said.

Green said she wasn’t sure how much support the idea would gather, hoping for at least an 11-9 majority for the coalition. Eventually, it grew to a 15-5 split that’s expected to kick off this year’s 120-day legislative session that begins Tuesday.

It also gives Green the nod for Senate president, leaving fellow Republican Therriault in the seemingly odd position of minority leader. In return, Democrats are likely to receive an effective voice that’s been missing for more than a decade and, with that, several committee seats.

“It just got to be real tough,” Green said. “We had a lack of agreement as who was going to be in leadership. We had Republicans disagreeing with Republicans, especially the discussions we’ve had the last two years over the gas pipeline contract.”

Therriault calls the coalition a “marriage of convenience” among lawmakers with philosophical differences.

“It allows sides to grab positions of power which they very much wanted to do,” he said. “They’re willing to set aside the past interaction bad interaction in order to ascend to positions that they achieved.”

Therriault, however, said he promises not to arrive in Juneau with a sour-grapes attitude.

“We intend to be a constructive minority to look out for state,” he said. “We will be questioning what the majority does, but we don’t want to be rock throwers.”

Coalitions aren’t new to Alaska.

In the 1980s and early 1990s, lawmakers from the Bush or rural areas would align themselves with a party with hopes of gaining a bigger share of the budget pie. That ended in 1994 when Republicans claimed a strong majority.

Early handicapping of this coalition’s productivity have political analysts favoring the state’s coastal and rural regions more than the state’s interior because of the representation.

“It’s a way of distributing the budget pie and being inclusive, and it happens when there isn’t a strong partisan push to do much of anything,” said Jerry McBeath, political science professor at the University of Alaska Fairbanks.

“In recent years, especially with high oil prices, that drive has disappeared,” he said. “So, the coalition really references bringing home the bacon to different constituents throughout the state.”

At the very least, it’s a fresh start, says Kim Elton, a Juneau Democrat who joined the coalition.

“A coalition doesn’t form and doesn’t last if we continue to have a filter between our ears that says this came from a Democrat or Republican,” Elton said. “The gas line is complex enough that you want to take the poison of partisanship out of it. That’s where we need to start.”

Wall Street Journal
January 15, 2007

Report Broadens Criticism Of BP Safety Practices
Baker panel outlines 'systemic' problems with U.S. refineries
By CHIP CUMMINS
January 15, 2007

LONDON -- BP PLC board members and executives face a report this week from former U.S. Secretary of State James A. Baker III that will significantly broaden criticism of safety and management practices at the British oil giant and heighten pressure on board members and management to make deep changes as it transitions to its first new chief executive in more than decade.

BP and the U.S. Chemical Safety Board, an American investigative agency with no regulatory role, have issued a series of reports on poor management, maintenance and safety practices at BP's Texas City, Texas, refinery, the site of an explosion in March 2005 that killed 15. The Chemical Safety Board, for instance, blamed cost cutting at the company for contributing to the accident, a finding BP had vigorously denied. Investigators, including the Justice Department, are continuing to probe that accident.

The Baker report broadens scrutiny to all five of BP's American refineries, pointing out "systemic" problems in how BP managers -- including top executives at BP headquarters in London -- approached safety and how they made management decisions across the company, people familiar with the situation said.

The report was commissioned by BP, on the recommendation of U.S. safety officials. The document will be made public tomorrow morning. BP executives, who had been bracing for a highly critical report for months, have recently received copies.

The report isn't designed to lay specific blame on individual executives for the Texas City accident, but it criticizes the way BP management and board members addressed safety issues, these people said. The report details shortcomings and lists a number of recommendations for improvement, focusing on "organizational deficiencies" across the company's U.S. refinery operations and up through London headquarters, said one person familiar with the report.

Panel members determined BP executives appeared to take safety seriously and lauded the company for some of its safety practices, according to another person familiar with the report. But executives relied too much on reported safety statistics at its plants, which didn't tell managers about deeper-seated safety problems, this person said. BP has acknowledged executives focused too much on tracking reported safety incidents at Texas City, and not understanding a corroded safety culture there that the statistics failed to uncover. The Baker report recommends BP engage an outside body to serve as an independent monitor of safety at the company for several years, this person said.

The report comes just days after John Browne, the company's long-serving chief executive, said he would step down from the helm about 17 months earlier than expected. A number of U.S. executives have been replaced since the accident and a series of other problems -- including oil spills and corrosion problems in Alaska and alleged energy-market manipulation at BP. BP denies the market manipulation charges and says it is cooperating with all investigations into its businesses.

The findings of the Baker report could be especially damaging to John Manzoni, BP's global head of refining and marketing. Mr. Manzoni had been a top contender to succeed Lord Browne, but a run of accidents at the company's American refineries, including a series of accidents at Texas City, worsened his odds considerably. On Friday, BP named Tony Hayward, head of exploration and production, as Lord Browne's successor, taking over this summer.

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

Xxxxxxxxxxxxxxxxxxxxxxxxx

Can an Insider Clean Up BP?
By JAMES HERRON
January 15, 2007

LONDON -- As U.K. oil giant BP PLC moves to reposition itself following a series of U.S. operational woes, it has turned to Tony Hayward -- its head of exploration and production -- to lead the way.

Mr. Hayward, appointed head of exploration and production in 2003, has positioned himself as the man to sweep through a company troubled by a series of safety scandals, most notably a huge refinery explosion in Texas and an Alaska oil-pipeline leak.

Seen as the quintessential insider, Mr. Hayward, who was born in 1957, is expected to clean up the company's image without effecting a major structural overhaul, analysts said. His renewed focus on safety is likely to mean more to the market than his association with any previous debacles, they said.

"He is a down-to-earth guy, well grounded in exploration and production," said Jason Kenney, analyst at investment bank ING Group NV. "I wouldn't expect any U-turns. He has been long enough in BP to know where its strengths lie."

While experts frequently attach words like "visionary" to Chief Executive John Browne's strategic entry to Russia, or his embrace of alternative energy, it isn't clear whether Mr. Hayward shares those strengths, analysts said.

Mr. Hayward recently set forth his focus on safety on an internal BP Web site. "We have a leadership style that probably is too directive and doesn't listen sufficiently well," he wrote. "The top of the organization doesn't listen hard enough to what the bottom of the organization is saying."

Mr. Hayward blamed BP's safety problems on "the mantra of 'more for less'...that we can get 100% of the task completed with 90% of the resources."

Despite this tough talk, most industry observers see Mr. Hayward as an inside man, always the most probable successor and likely to follow closely in Mr. Browne's footsteps. Indeed, the breakthrough moment of Mr. Hayward's BP career is often cited as the moment in 1990 when, as a junior manager, he came to Lord Browne's attention at a company conference. Mr. Browne asked Mr. Hayward to become his personal assistant as Mr. Browne took charge of BP's exploration and production and division.

"It was the ultimate learning experience -- worth any number of MBAs," said Mr. Hayward on the BP Web site. "I learnt more in that 18 months than during any other period in my career."

--Leia Parker in London and John Biers and Jessica Resnick-Ault in Houston contributed to this article.

Write to James Herron at james.herron@dowjones.com

Xxxxxxxxxxxxxxxxxxxxxxxxxx

COMMENT FROM breakingviews

BP's Lord Browne Ran Out of Gas
As Rivalries, Mishaps Piled Up
January 15, 2007

Lord Browne has rightly quit BP early. While long considered Britain's best businessman for crafting a global oil giant from a former state monopoly, the chief executive of the oil giant became a dead duck after losing a series of power struggles with Chairman Peter Sutherland. His legacy was also tarnished by a series of mishaps. He will step down officially in July.

Lord Browne's days were numbered when the board failed to agree to his wish to stay on past the company's normal retirement age. He then tried to take control of the appointment process for his successor. When that failed, he faced a scenario in which he would have been reduced to impotence. The final blow came from Tony Hayward, now appointed to succeed him. The head of exploration and production launched what some perceived as a thinly-veiled attack on his boss's management style on BP's intranet just before Christmas.

Lord Browne may not have been as effective at boardroom politics as the pugnacious Mr. Sutherland. But that disadvantage might not have mattered if BP hadn't simultaneously suffered a series of serious operational problems in the U.S.: the Texas City refinery blast, corrosion on its Alaskan pipeline and alleged abuses in propane trading.

These didn't just cause bad publicity. They raised questions over whether BP was actually well-managed -- and, in particular, whether Amoco and Arco, Lord Browne's two big acquisitions, had been properly integrated. BP's shares, once a gusher, started to under perform.

Mr. Hayward takes over at a difficult time. He must restore confidence among investors that the colossus Lord Browne created can be run effectively. He also has to do this against a background of falling oil prices. The good news is that, with Lord Browne going in six months, there's no question about who's in charge.

Wall Street Journal
January 15, 2007

Report Broadens Criticism Of BP Safety Practices
Baker panel outlines 'systemic' problems with U.S. refineries
By CHIP CUMMINS
January 15, 2007

LONDON -- BP PLC board members and executives face a report this week from former U.S. Secretary of State James A. Baker III that will significantly broaden criticism of safety and management practices at the British oil giant and heighten pressure on board members and management to make deep changes as it transitions to its first new chief executive in more than decade.

BP and the U.S. Chemical Safety Board, an American investigative agency with no regulatory role, have issued a series of reports on poor management, maintenance and safety practices at BP's Texas City, Texas, refinery, the site of an explosion in March 2005 that killed 15. The Chemical Safety Board, for instance, blamed cost cutting at the company for contributing to the accident, a finding BP had vigorously denied. Investigators, including the Justice Department, are continuing to probe that accident.

The Baker report broadens scrutiny to all five of BP's American refineries, pointing out "systemic" problems in how BP managers -- including top executives at BP headquarters in London -- approached safety and how they made management decisions across the company, people familiar with the situation said.

The report was commissioned by BP, on the recommendation of U.S. safety officials. The document will be made public tomorrow morning. BP executives, who had been bracing for a highly critical report for months, have recently received copies.

The report isn't designed to lay specific blame on individual executives for the Texas City accident, but it criticizes the way BP management and board members addressed safety issues, these people said. The report details shortcomings and lists a number of recommendations for improvement, focusing on "organizational deficiencies" across the company's U.S. refinery operations and up through London headquarters, said one person familiar with the report.

Panel members determined BP executives appeared to take safety seriously and lauded the company for some of its safety practices, according to another person familiar with the report. But executives relied too much on reported safety statistics at its plants, which didn't tell managers about deeper-seated safety problems, this person said. BP has acknowledged executives focused too much on tracking reported safety incidents at Texas City, and not understanding a corroded safety culture there that the statistics failed to uncover. The Baker report recommends BP engage an outside body to serve as an independent monitor of safety at the company for several years, this person said.

The report comes just days after John Browne, the company's long-serving chief executive, said he would step down from the helm about 17 months earlier than expected. A number of U.S. executives have been replaced since the accident and a series of other problems -- including oil spills and corrosion problems in Alaska and alleged energy-market manipulation at BP. BP denies the market manipulation charges and says it is cooperating with all investigations into its businesses.

The findings of the Baker report could be especially damaging to John Manzoni, BP's global head of refining and marketing. Mr. Manzoni had been a top contender to succeed Lord Browne, but a run of accidents at the company's American refineries, including a series of accidents at Texas City, worsened his odds considerably. On Friday, BP named Tony Hayward, head of exploration and production, as Lord Browne's successor, taking over this summer.

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

Xxxxxxxxxxxxxxxxxxxxxxxxx

Can an Insider Clean Up BP?
By JAMES HERRON
January 15, 2007

LONDON -- As U.K. oil giant BP PLC moves to reposition itself following a series of U.S. operational woes, it has turned to Tony Hayward -- its head of exploration and production -- to lead the way.

Mr. Hayward, appointed head of exploration and production in 2003, has positioned himself as the man to sweep through a company troubled by a series of safety scandals, most notably a huge refinery explosion in Texas and an Alaska oil-pipeline leak.

Seen as the quintessential insider, Mr. Hayward, who was born in 1957, is expected to clean up the company's image without effecting a major structural overhaul, analysts said. His renewed focus on safety is likely to mean more to the market than his association with any previous debacles, they said.

"He is a down-to-earth guy, well grounded in exploration and production," said Jason Kenney, analyst at investment bank ING Group NV. "I wouldn't expect any U-turns. He has been long enough in BP to know where its strengths lie."

While experts frequently attach words like "visionary" to Chief Executive John Browne's strategic entry to Russia, or his embrace of alternative energy, it isn't clear whether Mr. Hayward shares those strengths, analysts said.

Mr. Hayward recently set forth his focus on safety on an internal BP Web site. "We have a leadership style that probably is too directive and doesn't listen sufficiently well," he wrote. "The top of the organization doesn't listen hard enough to what the bottom of the organization is saying."

Mr. Hayward blamed BP's safety problems on "the mantra of 'more for less'...that we can get 100% of the task completed with 90% of the resources."

Despite this tough talk, most industry observers see Mr. Hayward as an inside man, always the most probable successor and likely to follow closely in Mr. Browne's footsteps. Indeed, the breakthrough moment of Mr. Hayward's BP career is often cited as the moment in 1990 when, as a junior manager, he came to Lord Browne's attention at a company conference. Mr. Browne asked Mr. Hayward to become his personal assistant as Mr. Browne took charge of BP's exploration and production and division.

"It was the ultimate learning experience -- worth any number of MBAs," said Mr. Hayward on the BP Web site. "I learnt more in that 18 months than during any other period in my career."

--Leia Parker in London and John Biers and Jessica Resnick-Ault in Houston contributed to this article.

Write to James Herron at james.herron@dowjones.com

Xxxxx

COMMENT FROM breakingviews

BP's Lord Browne Ran Out of Gas
As Rivalries, Mishaps Piled Up
January 15, 2007

Lord Browne has rightly quit BP early. While long considered Britain's best businessman for crafting a global oil giant from a former state monopoly, the chief executive of the oil giant became a dead duck after losing a series of power struggles with Chairman Peter Sutherland. His legacy was also tarnished by a series of mishaps. He will step down officially in July.

Lord Browne's days were numbered when the board failed to agree to his wish to stay on past the company's normal retirement age. He then tried to take control of the appointment process for his successor. When that failed, he faced a scenario in which he would have been reduced to impotence. The final blow came from Tony Hayward, now appointed to succeed him. The head of exploration and production launched what some perceived as a thinly-veiled attack on his boss's management style on BP's intranet just before Christmas.

Lord Browne may not have been as effective at boardroom politics as the pugnacious Mr. Sutherland. But that disadvantage might not have mattered if BP hadn't simultaneously suffered a series of serious operational problems in the U.S.: the Texas City refinery blast, corrosion on its Alaskan pipeline and alleged abuses in propane trading.

These didn't just cause bad publicity. They raised questions over whether BP was actually well-managed -- and, in particular, whether Amoco and Arco, Lord Browne's two big acquisitions, had been properly integrated. BP's shares, once a gusher, started to under perform.

Mr. Hayward takes over at a difficult time. He must restore confidence among investors that the colossus Lord Browne created can be run effectively. He also has to do this against a background of falling oil prices. The good news is that, with Lord Browne going in six months, there's no question about who's in charge.

Anchorage Daily News
January 14, 2007

http://www.adn.com/news/government/legislature/story/8561778p-8455249c.html

FBI raids help set agenda in Juneau
LEGISLATURE: Ethics, pipeline, education are top issues this session.

By SABRA AYERS
Anchorage Daily News

Published: January 14, 2007
Last Modified: January 14, 2007 at 04:04 AM

JUNEAU -- An unfinished gas pipeline deal, rising health care and education costs, and a bipartisan call for revising the legislative ethics laws -- Alaska's lawmakers return to the capital this week to begin tackling these and other issues in a four-month session that starts Tuesday.

The session gets under way after a year of political change in which Alaska saw the election of its first female governor and Democrats gained powerful Senate committee seats after being in the minority since 1984.

A political scandal, which erupted in August when the FBI raided six lawmakers' offices in an investigation into alleged government graft, has brought curbing corruption to the forefront of both voters' and legislators' minds.

How much the shadow of the FBI raids will hover over this year's legislative session remains to be seen, lawmakers said. Rumors of more indictments to come are swirling around the capital after the December indictment of one lawmaker, Tom Anderson, a Republican representative from Anchorage whose term in office ends Tuesday.

"The black cloud is definitely going to be difficult for some people," said Sen. Kim Elton, a Democrat from Juneau. "The most distressing part is now it has become easy for people to assume everything we do is tainted."

The scandal has placed ethics reform at the top of the list in both chambers of the government. Legislators from both sides of the aisle have filed ethics-reform bills.

The governor's office has said it will also submit a proposal.

"People understand what the concerns are, but the best solution has yet to be hammered out," said Sen. Gene Therriault, a Republican from North Pole and the Senate minority leader.

Lawmakers begin the session at a time when the state is flush with cash, thanks to high oil prices and a new oil tax. That's good news for those pushing for spending in education and beefing up the under-funded state pension system.

But Gov. Sarah Palin has asked for spending restraint, and additions to state savings accounts, saying being prudent is the best way for Alaska to safeguard for the future. Palin has asked her Cabinet members to trim her proposed $3.7 billion budget for state operations by $150 million.

"It's going to be tough, there's no doubt about it," said incoming Senate President Lyda Green, a Republican from Wasilla. Green is heading a 15-member bipartisan coalition, a setup that will see Republicans on both sides of the aisle.

The House is split 23-17 with a Republican majority.

Securing a gas pipeline deal is expected to become a main focus in both the governor's office and with lawmakers, but it's unclear how much progress will happen. The Palin administration is working on a bill it promises will "jump start" a deal on state tax terms if a developer takes on the pipeline. Palin has said she wants to "bring transparency to a competitive process" when negotiating contract proposals.

Lawmakers said they hope to be kept in the loop on the governor's progress, but agree that her administration will need time to thoroughly figure out the best deal for Alaska.

"No one is expecting her to have something ready on Jan. 16," said Rep. Ralph Samuels, a Republican from Anchorage. "But after six weeks, I'm sure the pressure will start to build and we'll be looking for some indication as to the direction the governor is moving."

Several crime fighting bills have also been filed this year. Requiring schools to report chronic truants would help communities keep at-risk children in school and out of gangs, according to a bill proposed by Sen. Con Bunde, R-Anchorage.

Another bill, sponsored by Rep. Kevin Meyer, an Anchorage Republican, would require ignition interlocks systems, which prevent a car from starting if a driver fails a breathalyzer test for alcohol, for all repeat offenders convicted of driving under the influence.

Daily News reporter Sabra Ayers can be reached at sayers@adn.com or 907-586-1531

Fairbanks News Miner
January 14, 2007

http://newsminer.com/2007/01/14/4453/

Oooguruk represents move toward smaller fields on the North Slope
By Eric Lidji
Staff Writer
Published January 14, 2007

Small could become a big deal on the North Slope this year.

With the Oooguruk Development Unit, Pioneer Natural Resources should become the first independent operator to produce off shore oil from the North Slope at the start of next year.

The move represents a shift toward smaller companies developing smaller fields on the North Slope, at a time when the major fields have been steadily declining in production.

Even though Pioneer is a smaller company, it is only smaller by North Slope standards, where the major players are some of the largest companies in the world.

“These are the kind of projects that fit an independent company’s portfolio that don’t necessarily meet the threshold for the majors to develop,” said Tadd Owens, director of governmental and public affairs for Pioneer.

The Irving, Texas company, came to the North Slope in the winter of 2003, drilling three exploratory wells and building a gravel island in the Harrison Bay, just off the shore of the Beaufort Sea, west of Prudhoe Bay.

Pioneer, which also has a field in the Cook Inlet, shares a working interest in Oooguruk with ENI, an independent company from Alaska.

Early last year, Pioneer’s board of directors approved the project. Drilling is expected to start by the end of the year, with the oil pulled from the ground by the start of 2008.

Pioneer estimates Oooguruk will yield 15,000 to 20,000 barrels a day at its peak, totaling between 50 and 90 million barrels over the 25-year life span of the field.

Compared to the 118.5 million barrels pulled from the Prudhoe Bay Unit in 2005, that makes Oooguruk a relatively small field.

“I think there’s a broad agreement that the supergiant fields on the North Slope have been located,” said Marilyn Crockett, the deputy director of the Alaska Oil and Gas Association, a non-profit group representing the oil industry.

For the fields that remain, Crockett said that basic costs for day-to-day life in the harsh North Slope environment can be cost-prohibitive to a very small company.

However, many North Slope fields with significant oil deposits remain undeveloped, because they don’t have significant enough deposits to justify the resources of a major company like Exxon, BP or ConocoPhillips.

These fields require companies small enough to remain agile, but large enough to spend significant investments.

“It’s been no secret that the reserves are there with relatively heavy oil,” said Antony Scott, a commercial analyst with the Department of Natural Resources, said about Oooguruk

Ken Sheffield, Pioneer Alaska’s president, said Oooguruk already had exploratory wells drilled when they acquired the lease. It took new information and market conditions to make the field worthwhile.

“One of the challenges in our business is not just finding hydrocarbons, but finding hydrocarbons that can be economically developed,” Sheffield said.

Pioneer plans to invest as much as $525 million over the life of the Oooguruk project.

“It’s still a significant and sizable investment,” Crockett said.

As production declines on the North Slope, smaller fields might be able to compensate for the loss. Temple Davidson, an economist with the Division of Oil and Gas, said the state has tried to streamline the permitting process for new producers on the North Slopes with the hope of bringing in more smaller companies.

“The state made an concerted effort to encourage independents to explore, develop and produce North Slope resources,” said Temple Davidson, an economist with the Division of Oil and Gas.

Davidson said that the companies like Pioneer benefited from the Petroleum Production Tax, which taxes profits and not production.

Rep. Vic Kohring, R-Wasilla, pre-filed a bill last week that would exempt very small producers those producing less than 501 barrels a day from certain financial requirements.

That could open even smaller fields to production. Sheffield said he wouldn’t be surprised if independents started similar projects on the North Slope.

“Certainly (Oooguruk) would give others the confidence that it can be done,” he said.

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

Houston Chronicle
January 13, 2007

http://www.chron.com/disp/story.mpl/business/4467901.html

Reign will end early at BP
Company says new leader will take over this summer; announcement comes days before Texas City report
By KRISTEN HAYS
Copyright 2007 Houston Chronicle

The lame duck tenure of BP Chief Executive Lord John Browne, who's faced sharp criticism for the company's blunders in the last two years, is shrinking.
The London-based company announced Friday that Browne, its CEO for a dozen years, will retire in July instead of at the end of 2008 as he said last summer.

Tony Hayward, head of BP's exploration and production division, will succeed Browne on Aug. 1, the company said.

The news came days before Tuesday's release of a report by an independent panel chaired by former Secretary of State James Baker III that reviewed BP's safety culture at its United States refineries.

The panel was formed after federal investigators looking into the March 2005 explosion that killed 15 people and injured scores said they had serious concerns about BP's commitment to safety at the Texas City refinery and four others in the U.S.

BP spokesman Neil Chapman wouldn't say whether Tuesday's release of the report prompted the company to announce Browne's sooner-than-expected retirement this week. "We really don't have anything to add" beyond the company's statement, he said.

In that statement, BP Chairman Peter Sutherland said he and Browne agreed to name a successor now "to provide an orderly transition." Once Hayward was chosen, they decided Browne would leave earlier than planned.

"We came to the conclusion that a six-month handover would be more appropriate than 18 months," Sutherland said.

Analysts weren't surprised, particularly given rumors that Browne who led more than $100 billion in acquisitions might push through one last deal before his departure.

But the perception is that some of BP's growth luster has been tarnished, and the company may have wanted to head off such speculation and focus on regaining its footing under Hayward who, like Browne, came up through the ranks of exploration and production.

"From a psychological, internal political and maybe image point of view, they may have wanted to just turn the reins over now rather than let the market speculate on who it would be and whether (Browne) would make another bold move on the acquisition or divestiture front," said John Parry, an analyst with John S. Herold Inc.

Browne, who turns 59 next month, pushed for growth during his tenure, leading BP's $48 billion acquisition of Amoco in 1998 that kicked off a series of big-oil linkups, including mergers of Exxon and Mobil and Chevron and Texaco. BP later acquired Atlantic Richfield Co. for $30 billion.

Environmental ideals

He also led BP's effort to embrace environmental ideals and alternative energy sources as well as fossil fuels.

But a series of recent problems, most notably the Texas City blast, besmirched his reputation and drew heavy criticism. Last year BP temporarily shut down operations at Prudhoe Bay in Alaska's North Slope, the nation's largest oil field, because of an oil leak and pipeline corrosion.

Allegations of propane market manipulation by BP traders emerged, which the company denies. BP conceded some employees skirted company trading policy and were disciplined or dismissed.

Production startup at the company's Thunder Horse platform in the Gulf of Mexico has been fraught with delays.

BP also said in a recent trading update that it expects to report a drop in fourth-quarter 2006 production, refining and marketing results as compared to the previous year.

Members of the Baker panel have declined to discuss their findings, but several have said it will be a critical and frank assessment of safety issues at BP.

That would surprise critics, who have said they expect the panel to sugarcoat problems, particularly because of Baker's longtime ties to the energy industry and his law firm's previous business relationships with the oil giant. Baker has strongly denied such allegations and has repeatedly said the panel would conduct a thorough review, then "let the chips fall where they may."

Joined in 1966

Browne joined BP in 1966 as a university apprentice. He became CEO of BP Exploration in 1989 and was appointed CEO of the entire company in 1995. He was knighted in 1998.

Robert Mabro, honorary president and retired director of the Oxford Institute for Energy Studies in England, said Browne had vision and was "extremely good" at talking to the financial sector. But he said Browne would be remembered as "single-minded."

"He pushed more and more in that direction of shareholder value, but there are risks and they had accidents," Mabro said.

Hayward, 49, joined BP in 1982. He held technical and commercial exploration roles and spent part of the 1990s in South America. In 1997, he returned to London as a director of BP Exploration after the Amoco merger. He became CEO of the exploration and production segment in 2003.

Mabro said Hayward has a good reputation and "has always been one of the two or three who could be elected as pope at BP." But he said BP's recent problems are indicative of the push for profits that leads to shortcuts in the face of pressure from the financial community.

"It makes sense to hire from the inside, but one cannot say it solves the problem unless the new guy is ready to change the culture," Mabro said.

Kristen.Hays@chron.com Anne.Belli@chron.com Gregory.Katz@chron.com

Chronicle reporters Anne Belli and Kristen Hays contributed from Houston and Gregory Katz from London.

TONY HAYWARD

Personal
• Born: 1957
• Personal: Married, two children.
Career
• 2007: Named to succeed John Browne as chief executive officer of BP after he retires at the end of July.
• January 2003: Chief executive officer, Exploration and Production.
• November 2002: Chief operating officer, Exploration and Production
• April 2002: Executive vice president.
• September 2000: Group treasurer.
• 1999: Group vice president, BP Amoco Exploration and Production, and member of the upstream executive committee.
• August 1997: Director of BP Exploration in London.
• September 1995: President of the BP group in Venezuela.
• 1992: Exploration manager in Colombia.
• 1990: Executive assistant to Browne.
• 1982: Joined BP. Served in a variety of roles in exploration in London, Aberdeen, France, China and Glasgow.
Education:
•University of Edinburgh, Ph.D. geology 1982

Source: BP

Wall Street Journal
January 13, 2007

BP's CEO Browne Will Give Up Job Early
Departure From Energy Giant Comes Amid U.S.
Inquiries Into Oil Spills, Refinery Blast
By BHUSHAN BAHREE and CHIP CUMMINS
January 13, 2007; Page A3

http://online.wsj.com/public/resources/images/NA-AL806B_BP_20070112194829.gif

John Browne, who built BP PLC into a global oil power, will step down this summer, 17 months ahead of schedule, handing the reins to one of his longest-serving executives amid a series of politically damaging scandals in the U.S.

The surprise move to name BP veteran Tony Hayward as chief executive in August comes at a time when BP has been trying, with mixed success, to bounce back from oil spills in Alaska, a deadly accident at a Texas refinery and allegations of trading shenanigans in energy markets, which it has denied. (Read BP's statement.)

The change, said people close to the situation, is an attempt by the board to stave off a potentially crippling period of drift at BP -- which until two years ago was among the most highly regarded companies in the $3-trillion-a-year global oil industry.

A longtime front-runner for the post, Mr. Hayward has been a top lieutenant of Lord Browne's since 1995, when the CEO began turning BP from being a sluggish also-ran into a profit-gushing giant. Mr. Hayward has run BP's finance department and headed its exploration and production division, the heart and profit center of BP.

But he faces a steep road ahead. On Tuesday, a commission led by former Secretary of State James Baker is to issue a report on a 2005 explosion at a BP refinery in Texas that claimed 15 lives.

People familiar with the situation said the timing of Lord Browne's departure was unrelated to the various probes facing BP. BP's board had rushed a succession plan late last year, including designating Mr. Hayward as heir apparent, and that left Lord Browne feeling he risked becoming a lame duck amid drift, these people said. "An 18-month transition is not sustainable," said a person close to the matter.

Investors cheered the move Friday. BP's American depositary receipts closed at $64.64, up $3.05, or 5%. That was more than the gain of 4.5% recorded for all of last year. BP is one of the largest producers of oil and natural gas in the U.S., and is the nation's largest supplier of natural gas.

"Tony Hayward is the perfect choice," said Fadel Gheit, senior energy analyst at Oppenheimer & Co. "He is 10 years younger than Browne, and for 10 years he has basically shadowed Browne's ascension to the top."

Lord Browne will become the chairman of the non-executive advisory board of Apax Partners, a large London-based private-equity firm, after leaving BP, said people with knowledge of his plans.

Lord Browne's departure will mark the end of an era for the industry. He is one of three men who reshaped the business during the 1990s, along with Exxon Mobil Corp. CEO Lee Raymond, who retired last year, and Thierry Desmarest of France's Total SA, who is giving up his position as CEO next month. In a rash of deals set off by Lord Browne with BP's $62 billion takeover of Amoco Corp. in 1998, the three created the largest publicly traded oil companies.

"John Browne really was the leader in transforming the industry," said J. Robinson West, chairman of PFC Energy, an industry consulting firm based in Washington, D.C. "When he took over, BP was nearly bankrupt and adrift. He transformed the company and the industry." BP said that since Lord Browne became CEO in 1995, its market capitalization had increased fivefold and its earnings per share more than 600%, while its share price recorded gains totaling 250%.

That era is over now. The world's most influential energy companies today are owned or dominated by states such as Saudi Arabia and Russia as an industry once dominated by Americans and Europeans becomes much more global. BP has slipped from the No. 2 spot in terms of market capitalization to No. 5 -- trailing such newcomers as OAO Gazprom of Russia and Beijing-based PetroChina Corp.

Lord Browne in some ways is a victim of the rapid growth of his company. By 2003, after four major deals, BP had recognized that it needed to bring order to its sprawling operations. But it proved unable to master the operational complexities of its far-flung oil-pumping and -refining businesses, a failing at the root of the mishaps that have plagued it in the U.S. in recent years.

Charles Hamel, who has served as ombudsman for disgruntled BP workers in Alaska for many years, says Mr. Browne is paying the price for excessive cost cutting. He cites the company's giant Prudhoe Bay field in Alaska, where corrosion problems resulted in a series of oil spills last year. The company partially shuttered the field last summer, drawing federal scrutiny.

"The problems at Prudhoe Bay have been caused by Lord John Browne's cost-cutting policies," said Mr. Hamel, who lives in Alexandria, Va. A criminal investigation by the Environmental Protection Agency into BP's corrosion-control program at Prudhoe Bay is continuing; BP says it is cooperating.

Separately last summer, federal officials said they were pursuing allegations that BP traders manipulated the propane market in 2004, and they were also investigating BP gasoline- and oil-market trading.

But the company's biggest problem was the March 2005 explosion at its Texas City, Texas, refinery that killed 15 and injured scores more. Federal officials are still investigating the blast, and Mr. Baker's report, due out this coming week, is expected to be the latest in a series of reports critical of the company's safety and management.

BP has made changes in its American operations, naming a new America chief, Bob Malone, last year. Three of BP's top executives in Alaska -- including one who oversaw Prudhoe Bay -- have been reassigned jobs at BP outside of the state in recent months.

Despite the problems, Lord Browne seemed to be maintaining support from his nonexecutive board, headed by Irish politician Peter Sutherland. Yet behind the scenes tensions were stirring. Mr. Sutherland and Lord Browne clashed last summer over the uncertainty surrounding the CEO's retirement plans, according to people familiar with the situation.

BP had long maintained Lord Browne would stay on until he turned 60 years old in 2008. But people close to the situation said he sought to extend his stay, and even floated the prospect of succeeding Mr. Sutherland as chairman. Mr. Sutherland resisted and insisted on more clarity about Lord Browne's plans. In the end, BP's board agreed to a modest extension and Lord Browne announced that he planned to step down on Dec. 31, 2008.

The board immediately started searching for a successor, and in late December contemplated creating a new position -- a chief operating officer who would serve under Lord Browne until 2008. Mr. Hayward was tapped for the role, these people say.

Meanwhile, Lord Browne and directors began questioning whether the likely transition period was too long, according to two people familiar with the situation. Over a year-end vacation in Barbados, Lord Browne decided that it was time to go, said a person familiar with the situation. He informed Mr. Sutherland on returning to London this past week.

The scandals have hammered BP in the market. As of Friday's close, the DJ Wilshire Global Index of oil-exploration and -production companies was up 22.4% since the Texas refinery disaster in 2005; BP's American depositary shares were down 0.7% in the same span.

In a statement Friday, Mr. Sutherland praised Lord Browne's record at the company and said it was Lord Browne's decision to go early. "John decided that it would be in the company's interest to name a successor now in order to provide an orderly transition,'' he said.

Lord Browne, in a statement, said: "It has been a privilege to have had the opportunity to turn BP into an international company at the forefront of the energy industry. We clearly have important issues still to deal with which I am determined to address." He, Mr. Hayward and Mr. Sutherland declined to comment for this article.

The son of an oil executive at the company that later became the modern BP, Lord Browne joined his father's firm right after university and rose quickly through the ranks.

After attaining the top job in the mid-1990s, he convinced his board at the time that BP had to grow through acquisitions. In rapid succession in the late 1990s and early 2000s, he engineered the acquisition of Amoco and then Atlantic Richfield, two large U.S. rivals. In 2003, he won new admiration in the industry by forging a one-of-a-kind joint venture with a Russian oil producer, TNK-BP, giving BP access to that country's vast reserves.

Lord Browne's mergers set off copycat moves by Exxon and other rivals that led to a transforming consolidation of the industry. He also cut an unusual figure in the industry as an opera buff, wine enthusiast and avid collector of art, including modern photographs and the prints of John James Audubon. When entertaining at home, Lord Browne is known to play opera recordings on state-of-the-art sound systems.

Mr. Hayward, 50, is a geologist by training who joined BP in 1982. After a series of posts in Scotland, France and China, he became BP's exploration manager in Colombia in 1992 and president of the BP Group in Venezuela in 1995.

Mr. Hayward was among the first of the so-called turtles -- a company nickname for promising leaders who prepared for top leadership by being at Lord Browne's elbow nearly all the time for a year. Mr. Hayward shared in BP's rapid expansion under Lord Browne. After BP's merger with Amoco, Mr. Hayward became a group vice president and in 2000 he was appointed group treasurer, a position that included mergers and acquisitions at a time when BP was very active in such transactions. In 2002, Mr. Hayward became chief operating officer of BP's key exploration and production operations, a position that Lord Browne had held before becoming chief executive.

--Jim Carlton, Ann Davis and Steve LeVine contributed to this article.

Write to Bhushan Bahree at bhushan.bahree@wsj.com and Chip Cummins at chip.cummins@wsj.com

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New BP CEO, a Browne Protege,
Expected to Bring Safety Focus
By JAMES HERRON
January 12, 2007 5:19 p.m.

LONDON -- As U.K. oil major BP PLC moves to reposition itself following a series of recent U.S. operational woes, it has turned to Tony Hayward -- its current head of exploration and production -- to lead the way.

Mr. Hayward, appointed head of exploration and production in 2003, has recently positioned himself as the man to sweep through a company troubled by a series of safety scandals, most notably a huge refinery explosion in Texas and an oil-pipeline leak in Alaska.

Seen as the quintessential insider, Mr. Hayward, 49 years old, is expected to clean up the company's image without effecting a major structural overhaul, analysts said. His renewed focus on safety is likely to mean more to the market than his association with any previous debacles, they said.

"He is a down-to-earth guy, well grounded in exploration and production," said Jason Kenney, analyst at investment bank ING. "I wouldn't expect any U-turns. He has been long enough in BP to know where its strengths lie."

But while experts frequently attach words like "visionary" to Chief Executive John Browne's strategic entry to Russia, or his embrace of alternative energy, it isn't clear whether Mr. Browne's successor and protégé shares those strengths, analysts said.

Mr. Hayward recently set forth his focus on safety in comments on an internal BP Web site. "We have a leadership style that probably is too directive and doesn't listen sufficiently well," he wrote. "The top of the organization doesn't listen hard enough to what the bottom of the organization is saying." Mr. Hayward blamed BP's safety problems on "the mantra of 'more for less' .. that we can get 100% of the task completed with 90% of the resources."

Despite this tough talk, most industry observers see Mr. Hayward very much as an inside man, always the most probable successor and likely to follow closely in Mr. Browne's footsteps. Indeed, the breakthrough moment of Mr. Hayward's BP career is often cited as the moment in 1990 when, as a junior manager, he came to Lord Browne's attention at a company conference. Mr. Browne asked Mr. Hayward to become his personal assistant as Mr. Browne took charge of BP's exploration and production and division.

"It was the ultimate learning experience -- worth any number of MBAs," said Mr. Hayward on the BP Web site. "I learnt more in that 18 months than during any other period in my career."

Traditional BP Man

Mr. Hayward's BP career began in 1982, shortly after finishing a PhD in geology at Edinburgh University in Scotland. As a lover of the outdoors, Mr. Hayward was well suited to his early work as a rig geologist in Aberdeen, Scotland.

Mr. Hayward said he subsequently went "knocking on rocks all over the world, from Northwest Canada to Indonesia, China and Papua New Guinea," becoming an experienced field geologist.

In 1994, after two years as Mr. Browne's personal assistant, Mr. Hayward was sent to expand BP's Colombian operation to production of over 250,000 barrels of oil per day. In 1997, he returned to London as a director of BP Exploration, and following the merger of BP and Amoco, in 1999 he became a group vice president and a member of the upstream executive committee.

It is this history that has led many industry observers to see Hayward as a traditional BP man to the core.

ING's Mr. Kenney said Mr. Hayward is "a good all round guy to have at the top." He has proven he can deal with tough issues, such as hurricane damage to the Thunder Horse oil platform in the Gulf of Mexico in 2005, the oil spill and subsequent pipeline closure in Alaska in 2006. The successful completion of the Baku-Tbilisi-Ceyhan pipeline between Azerbaijan and Turkey and the expansion into Russia through joint venture TNK-BP show he is a strategic thinker, Mr. Kenney said.

But for these reasons, Mr. Hayward isn't a clean break from recent troubles that have tarnished BP's image. "Hayward was the man on deck when Alaska and Thunder Horse went wrong," he added.

Any negative revelations on the safety of the Baku-Tblisi-Ceyhan pipeline, in which Mr. Hayward was closely involved, would also reflect badly on the new man, he said.

Mark Gilman, an analyst with the Benchmark Company LLC in New York, who has been critical of BP recently, credited Browne with being "visionary." Hayward's ideas, Gilman said, are "certainly not well known."

Eye on Baker Report

The upcoming report by former U.S. Secretary of State James Baker, investigating safety failures at BP's U.S. operations, may even have smoothed Hayward's succession.

"If the [Baker] report is scathing, it would clobber [head of BP refining operations John] Manzoni's chances of becoming the top man and have left the field open for Hayward," said the London analyst.

With the Baker report due next Tuesday, Mr. Hayward's renewed focus on safety may indeed be the short-term prescription analysts seek.

"Business priorities can shift depending on the moment," Mr. Hayward said. "My enduring priorities are, firstly, continued improvement in the safety operations everywhere in the world."

--Leia Parker in London and John Biers and Jessica Resnick-Ault in Houston contributed to this article.

Write to James Herron at james.herron@dowjones.com

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BP Statement on CEO Change
January 12, 2007 2:05 p.m.

BP announced today that after more than a decade in the CEO role Lord Browne has decided to retire as chief executive at the end of July 2007.

The board is pleased to announce that Tony Hayward, currently BP's head of exploration and production, will succeed Lord Browne following his retirement as group chief executive.

Peter Sutherland, BP's chairman, said: "John Browne is the greatest British businessman of his generation and has transformed BP into one of the biggest energy groups in the world. His performance over the past 12 years has been extraordinary, which is no doubt why he has constantly been named by his fellow CEOs as the most impressive businessman in Britain. His vision, intellect, leadership and skill have been a wonder to behold and he will be a difficult act to follow.

"It is a testament to John's managerial skill that BP is blessed with having such an impressive managerial top bench to choose from and John and I are delighted to be able to announce that Tony Hayward will be succeeding him from August 1, 2007. Tony has an excellent track record and extensive knowledge of the sector and will be able to draw on John's wealth of knowledge over the next six months."

During Lord Browne's tenure as the chief executive of BP he has presided over a fivefold increase in the company's market capitalisation to £104.6 billion and profits to $22.3 billion; while the share price has gone up around 250 per cent to 532 pence and earnings per share have gone up over 600 per cent.

Lord Browne said: "It has been a privilege to have had the opportunity to turn BP into an international company at the forefront of the energy industry. We clearly have important issues still to deal with which I am determined to address. I am pleased that Peter and I have been able to work together to develop a successor in Tony in whom I have every confidence."

Source: BP

Financial Times
January 13, 2007

http://www.ft.com/cms/s/4847c03a-a25a-11db-a187-0000779e2340.html

Browne to step down from BP in July
By Ed Crooks and Carola Hoyos in
London and Sheila McNulty in Houston
Published: January 12 2007 16:39 |
Last updated: January 12 2007 17:46

Lord Browne is to stand down as chief executive of BP 18 months ahead of schedule following a series of problems for the oil and gas company.

Tony Hayward, BP’s head of exploration and production, will take over from the end of July.

The timing of the announcement comes days before publication of what is expected to be a tough report on the safety of BP’s US refineries by James Baker, former secretary of state.

The report, which was seen by BP on Wednesday, is expected to be critical of the company’s safety record and make a series of recommendations for change.

News of the departure prompted an immediate spike in BP’s share price, adding £3.3bn to BP’s market value from its pre-announcement trading level. BP’s shares were trading 7p lower at 530p but rallied to close at 546.5p, a gain of 1.8 per cent, making it one of the day’s biggest risers. The surge reflected relief that uncertainty about the succession had been settled.

Peter Sutherland, BP chairman, said Lord Browne was “the greatest British businessman of his generation”, who had “transformed BP into one of the biggest energy groups in the world”.

But Lord Browne’s stellar reputation has been tarnished by problems in the US in the past 18 months, including an explosion at the group’s Texas City refinery in 2005 that killed 15 people.

Last August, BP shut the eastern area of its Prudhoe Bay oilfield in Alaska following the discovery of pipeline corrision.

The group was probed last year by the Commodities and Futures Trading Commission in the US over alleged manipulation in 2004 of propane prices, and over trading in crude oil in 2003-2004.

Lord Browne, who joined BP in 1966 and became chief executive in June 1995, said it had been a “privilege” to head BP. “We clearly have important issues still to deal with which I am determined to address,” he said.

“I am pleased that Peter and I have been able to work together to develop a successor in Tony in whom I have every confidence.”

Lord Browne is understood to have favoured the appointment of Mr Hayward, who was selected by the board following final interviews just before Christmas.

BP had planned to appoint a chief operating officer in the first half of this year, who would have worked alongside Lord Browne as chief executive designate. But instead it has opted to avoid a long transition period in which responsibilities would be blurred.

Mr Sutherland and Lord Browne clashed last July over the timing of the chief executive’s retirement, which was settled when Lord Browne agreed to step down by the end of 2008, rather than February 2008, when he turns 60.

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Hayward a result-oriented ‘BP man’
By Carola Hoyos in London
Published: January 12 2007 21:27 |
Last updated: January 12 2007 21:27

Since his early thirties, Tony Hayward has been one of BP and Lord Browne’s “turtles” or golden boys.

And since the company’s succession battle began in earnest last year he has dominated the top of the list of five candidates that also included Andrew Inglis, his deputy head of exploration and production, John Manzoni, head of refining and marketing, Robert Dudley, head of TNK-BP, the Russian partnership, and Iain Conn, who oversees BP’s internal functions.

Mr Dudley, who has been least touched by BP’s troubles in Alaska, Texas and the US Gulf of Mexico, was for a short time suggested as having a possible outside chance.

But unlike Mr Dudley, who came to BP when it took over Amoco of the US in the late 1990s, Mr Hayward is a BP-lifer, having joined in 1982.

The boyish looking 49-year-old geologist is relatively unknown to investors and to even the energy ministers of the countries in which BP operates. Though he has been present at many high-level meetings, he remained in the shadows of his omnipresent chief executive and often declined to speak.

He is an avid sailor and far less of a statesman than Lord Browne.

Nevertheless, some bankers say he certainly does not lack in confidence.

His career has spanned some of the most critical operations at BP, even if his stints in Colombia and Venezuela in the 1990s resulted in, at best, mixed success.

As he was being groomed, his experience broadened to include finance, as head of treasury, and, more importantly, head of exploration and production.

The division he has lead since 2003 is BP’s single most important one and makes up 80 per cent of the company’s total value.

That made him the candidate to beat, even though in the position he was ultimately responsible for BP’s operations in Alaska and the Gulf of Mexico, scenes of two recent serious blunders.

To understand Mr Hayward’s approach and style better, it would have been good for investors and government ministers to have been privy to a town hall meeting he conducted for company employees in the US in December.

“We have a leadership style that probably is too directive and doesn’t listen sufficiently well,” he said.

One BP investor, who is complimentary about Mr Hayward’s record, says he expects to hear a lot more over the next few months about the need for a cultural change which will run through the group.

Despite his more sensitive approach, Mr Hayward, who is the eldest of seven children, is a driven and result-oriented “BP man,” people who have worked with him said.

That is just as well given that Mr Hayward’s many challenges appear to outweigh his opportunities in an industry that is finding it hard to operate in a world where 80 per cent of oil reserves belong to national oil companies.

Tony Hayward Profile
AGE 49

CURRENT JOB
Chief executive, BP exploration and production since January 2003

EDUCATION
University of Edinburgh PhD in geology, 1982

CAREER
Joined BP in 1982. Held roles in BP Exploration in London, Aberdeen, France, China and Glasgow. Then moved to Colombia as exploration manager and, in September 1995, became president of BP in Venezuela.
In August 1997, returned to London as a director of BP Exploration. In 1999, became group vice-president of BP Amoco Exploration and Production. In September 2000, he was appointed group treasurer

OTHER INTERESTS
non-executive and senior independent director of Corus; keen sailor

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How clouds gathered over the ‘sun king’
By Ed Crooks in London
Published: January 12 2007 20:31 |
Last updated: January 12 2007 22:04

Timing is everything. Had Lord Browne stepped aside two years ago, he would have been remembered as the most admired business leader of his generation.

However, by clinging on, he is leaving with his reputation tarnished, besieged by problems that have called his leadership into question and lost him the confidence of investors.

He is overshadowed, above all, by the explosion at BP’s Texas City refinery in 2005, the worst industrial accident in the US for a decade, in which 15 people died.

Far from being revered as a brilliant manager, he is accused of presiding over a culture of slack practice and corner-cutting, with fatal consequences. The Baker report on the safety of BP’s US refineries, due out next week, may be damning. As chief executive at the time, Lord Browne must bear ultimate responsibility.

The lavish re-branding of BP as “beyond petroleum”, which for a time succeeded in transforming the company’s image from a dirty old oil company to a bright new energy supplier, has been condemned as a sham.

The qualities that were so widely admired in Lord Browne are still there. He is sophisticated, charming and brilliant. Those who have worked with him talk with awe about his ability to cut to the heart of any subject; he is a profound thinker about the history and politics of his industry.

But those same qualities have increasingly come to be seen as weaknesses. When he was dubbed the “sun king” by an American competitor, the compliment was doubled-edged. The title raised doubts about his management style that have been expressed more vocally as BP’s problems have mounted.

In the investigations into the Texas City explosion, and into the corrosion in oil pipelines in Alaska that led to a partial shutdown in production from the Prudhoe Bay field last year, there have been persistent suggestions that BP’s managers did not listen enough to what their staff were telling them.

BP has recognised those concerns in appointing a US ombudsman, with whom problems can be raised. Tony Hayward, Lord Browne’s successor, admitted that, at least in his division, “the top of the organisation doesn’t listen hard enough to what the bottom of the organisation is saying”.

Investors and some inside the company have begun to suggest that that culture came from the top.

Less public, but potentially just as important for the future of BP, have been the questions about his strategy. Some analysts believe Lord Browne has been too slow to enter the new areas his competition was exploring, such as converting gas to liquid fuels and Canada’s huge reserves of oil sands.

BP’s great success of recent years has been the creation of its Russian joint venture TNK-BP. It was a personal triumph for Lord Browne, who has been the only western oil boss to do a big corporate deal in Russia, the largest oil frontier outside the Middle East.

But with Vladimir Putin, Russia’s president, becoming increasingly interested in tightening his grip on Russia’s oil and gas, none of the international oil companies’ projects looks safe any more.

The sadness for Lord Browne is that this ignominious end has obscured the genuine successes of his tenure. When he took over in 1995, memories were fresh of BP having to cut its dividend in 1992. Lord Browne transformed the company into a global player, for many years the world’s second-biggest oil company, with the acquisitions of Amoco in 1998, Arco in 1999 and Burmah Castrol in 2000.

The takeovers were well timed to exploit the weakness of the oil price around the turn of the decade: the price of oil and gas assets has risen steadily since then.

Lord Simon, Lord Browne’s predecessor as chief executive, told the Financial Times in 2002: “It is doubtful that anyone else would have had the financial knowledge, commitment and capacity to do the mergers. You need an enormous amount of energy to see through three major acquisitions in as many years.”

The end of his tenure has hardly befitted that record of success. After a bruising row with his chairman Peter Sutherland last year, Lord Browne secured a deal where he could stay on until the end of 2008, when he would be at BP’s retirement age of 60, so long as he made a public commitment to that date. As investors and the board pressed for more certainty, with the plan to appoint a chief operating officer who would be chief executive designate, Lord Browne is now going a year- and-a-half before he had wanted.

Anchorage Daily News
January 12, 2007

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Anchors break free of two BP oil tankers
DEFECTIVE: Ships hauled oil from Slope; Coast Guard investigates.
By WESLEY LOY
Anchorage Daily News
Published: January 12, 2007
Last Modified: January 12, 2007 at 04:20 AM

Two of BP's new double-hulled oil tankers are sitting idle off Washington state after each lost an anchor while sailing through rough North Pacific waters, company and Coast Guard officials said Thursday.

An investigation into how the anchors got away revealed "material defects" in the enormous steel claws, said Anil Mathur, president of Alaska Tanker Co., a Beaverton, Ore., company that hauls North Slope crude oil for BP.

Each anchor weighs 16 tons, stands more than 13 feet tall, and hangs at the bow of one of the identical 941-foot ships.

One ship, the Alaskan Navigator, discovered an anchor missing on Dec. 26 and the Alaskan Frontier lost one Dec. 23, Mathur said.

The tankers were hauling crude through rough seas to West Coast refineries when they lost the anchors, Mathur said.

The bodies of the anchors were cracked and that caused them to break off, he said. It wasn't a matter of the anchor chain or coupling breaking.

Exactly where the anchors ended up is a mystery. They're believed to be on the bottom somewhere in the Gulf of Mexico or perhaps in Puget Sound, Mathur said.

The two ships are among four new double-hulled tankers BP had built for $250 million each. The first of the tankers -- built by National Steel and Shipbuilding Co. of San Diego -- began work in the summer of 2004.

The lost anchors are the second glitch to hit the new fleet. In 2005, two of the tankers -- including the Alaskan Frontier -- were laid up for a time because of large cracks in their rudders.

The U.S. Coast Guard is investigating the lost anchors.

"The Coast Guard is absolutely concerned with the problems associated with these anchor failures," said Cmdr. Mark Huebschman in Seattle. But, he added, the Coast Guard also is confident the tanker operator is taking the right steps to protect the ships and the environment.

Mathur said it's rare but not unheard of for a ship to lose an anchor. He said the crew of each tanker discovered the anchor missing after plowing through heavy seas.

"Whenever we have heavy weather, we don't allow anyone on deck," Mathur said. "So once the weather passed and people went to do their rounds, they found the anchors were missing."

Winter weather in the Gulf of Alaska can be ferocious, with the bows of tankers sometimes plowing into enormous swells that send torrents of water cascading down the mesa-sized decks.

The Alaskan Frontier and Alaskan Navigator have unloaded their crude oil cargos and sit empty at Port Angeles, Wash., Mathur said.

Each can carry 1.3 million barrels of crude, or about a day and a half of average North Slope oil production.

The tanker company has scoured the globe for replacement anchors and plans to fly four from Holland to Seattle next week, Mathur said. The ships could be back working in two weeks.

Meantime, the company has four other ships to carry oil and no supply interruptions are expected, said BP spokesman Daren Beaudo.

All remaining anchors in the double-hull fleet will be inspected for problems, Mathur said.

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

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Ice forces tanker from Nikiski dock
SAFETY ISSUE: Ship was unloading oil when cable snapped; others were strained.
By WESLEY LOY
Anchorage Daily News
Published: January 12, 2007
Last Modified: January 12, 2007 at 04:58 AM

The Coast Guard is investigating a Tuesday incident in which heavy Cook Inlet ice strained ropes and cables holding an oil tanker to a Nikiski dock, forcing the ship to retreat to safer waters.

The ship, the Seabulk Pride, is the same tanker that broke away from the same dock last February, spilling some petroleum into the ice-choked waters and drifting powerless onto a nearby beach. Rescuers eventually refloated and saved the vessel.

Shipping watchdog groups said Thursday the latest incident shows continuing gaps in Cook Inlet shipping safety. Coast Guard officials, however, said the tanker operator appeared to have followed regulations and performed well.

About 8 a.m. Tuesday, the 600-foot Seabulk Pride was unloading crude oil at a dock near the Tesoro refinery at Nikiski when ice 6 inches thick and carried by a slow-moving tide pushed against the ship, straining some of the multiple ropes and cables securing it to the dock.

One cable snapped and four other lines at the bow were strained, causing winches to pay out a few more feet to slacken the lines and relieve the stress, said Coast Guard officials and a spokesman for the tanker operator.

The captain of the ship quickly decided it was safer for the ship to cast off and sail south to the safety of Kachemak Bay at Homer to inspect the ship for damage.

No oil spilled, no one was hurt and the ship sustained no serious damage, said Coast Guard officials and Jim Butler, a Kenai representative for the tanker's operator, Seabulk Tankers Inc. of Fort Lauderdale, Fla.

Coast Guard officers cleared the company's request for the ship to return to the Nikiski dock Thursday night to resume unloading oil.

Seabulk and Tesoro arranged to have two tugs stand by as extra protection against further trouble, Butler said. Ice was expected to clear out of the area.

Coast Guard Lt. Court Smith, who is investigating the incident, said the tanker crew seemed to be abiding by Coast Guard rules for operating in heavy ice, and performed appropriately.

A Coast Guard investigation into the Feb. 2 breakaway and grounding -- caused when an ice floe hit the ship -- was seriously critical of Seabulk and the tanker crew, citing inadequate training for deck hands and a lack of readiness on both the bridge and in the engine room. State pollution regulators continue to investigate that mishap.

Two watchdog groups, the Cook Inlet Regional Citizens Advisory Council and the Shipping Safety Partnership, on Thursday said the latest incident points up the need for further Cook Inlet shipping precautions.

The Shipping Safety Partnership called for a congressional investigation.

"Some apologists might argue the system worked because the tanker didn't end up on the beach again," said Bob Shavelson of Cook Inletkeeper, which is part of the Shipping Safety Partnership. "But any time you have an oil tanker forcibly removed from its berth, it's clear to most reasonable people there's a serious problem."

But Butler said the ship's crew and equipment performed capably.

"Navigating laden tankers in Cook Inlet in the wintertime presents unique challenges," he said. "Working with Tesoro and the Coast Guard, Seabulk will continue to look at ways to mitigate risks and make sure operations are conducted as safely as possible."

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

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Two pipeline entities agree to work together on gas line
NO GUARANTEE: Neither group is a shoo-in to build project, though.
By ANNE SUTTON
The Associated Press
Published: January 12, 2007
Last Modified: January 12, 2007 at 04:39 AM

JUNEAU -- The Alaska Gasline Port Authority and the Alaska Natural Gas Development Authority have signed a formal agreement to work cooperatively on developing a natural gas pipeline.

Officials with the two voter-approved entities announced Thursday that they signed a memorandum of understanding late last week.

"Alaskans working together is the best approach to developing a natural gas pipeline project," said AGPA chairman Jim Whitaker.

The cooperation does not mean the group will be picked to build a multibillion-dollar natural gas pipeline.

Voters created AGPA in 1999 to build a natural gas pipeline through Alaska. The authority says it has secured rights to the right of way and permits necessary for a trans-Alaska pipeline from Prudhoe Bay to Valdez and associated liquid natural gas facilities.

Former Gov. Frank Murkowski snubbed the LNG project in favor of a deal with three major oil producers to build a gas pipeline to Alberta and perhaps the Midwest.

His successor, Gov. Sarah Palin, has said she is willing to consider all proposals for getting North Slope gas to market.

ANGDA was authorized by the Legislature to ensure the distribution of natural gas and propane within the state as well as to pursue a natural gas pipeline.

ANGDA director Harold Heinze said Thursday that the formal agreement would allow two entities that share common interests to also share confidential information regarding proposed design and cost estimates.

"We can work together without this (memorandum of understanding), but what it does is allow that conversation to be in a much higher level of detail," Heinze said.

Heinze said the agreement does not bind either entity to a particular project or exclude similar agreements with other entities.

Gov. Sarah Palin said she was glad to see parties cooperating.

"I applaud any efforts by any potential applicants to join forces, including the three primary North Slope producers, in whatever manner they deem appropriate to eventually submit the most attractive and beneficial proposal for the administration's consideration under the new law," Palin said in an e-mail to The Associated Press.

Murkowski limited pipeline negotiations to the three largest North Slope producers, BP, Exxon Mobil and Conoco Phillips.

The $25 billion pipeline is intended to take an estimated 35 trillion cubic feet of natural gas -- the largest reserve of natural gas in the United States -- from Alaska's North Slope to Midwestern markets.

However, the Legislature never ratified the contract.

Palin took office Dec. 4 and the next day reopened negotiations with anyone interested in building the pipeline. She met with 12 separate groups or companies that week.

She is expected to introduce legislation at the beginning of the session that will guide the process of developing a new gas pipeline deal with oil and gas producers.

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Stevens fined for failure to disclose
CONSULTING WORK: He will pay top amount for another case, APOC decides.
By LISA DEMER
Anchorage Daily News
Published: January 12, 2007
Last Modified: January 12, 2007 at 04:35 AM

The Alaska Public Offices Commission on Thursday agreed to fine outgoing Senate President Ben Stevens $5,000, less than half the maximum, for failing to disclose clients of his consulting firm to the watchdog agency.

In a separate case against Stevens, APOC approved the maximum penalty of $630 for Stevens' failure to report more than $70,000 in compensation from Semco Energy, the parent company of Anchorage natural gas utility Enstar.

Both cases arose from complaints brought by Ray Metcalfe, a former Republican state legislator and frequent critic of Stevens.

Legislators must report their finances to APOC so that the public can learn who is paying them and how much. While Stevens has disclosed more than $1 million in consulting income in the past five years, his filings left out other significant sources of income. APOC's investigation found that Stevens failed for three years to report names and payments of six clients of his consulting firm, Advance North LLC. The clients, all in the fishing industry, paid Advance North a total of $392,500.

The commission's staff members had proposed the highest possible fine: $10,170, or $10 a day for every day he failed to report the information. That maximum fine hasn't changed since the reporting laws were first put in place 30 years ago, according to Brooke Miles, the commission's executive director.

Advance North LLC is a limited- liability company that was owned 50-50 by Stevens and Trevor McCabe, an Anchorage fisheries lobbyist and lawyer who used to work as an aide to Stevens' father, U.S. Sen. Ted Stevens. McCabe bought Stevens' share Oct. 1, 2005. Some of the companies in the APOC complaint sought assistance before Congress or the federal government, including two that wanted changes in the recently passed renewal of the Magnuson-Stevens Act.

Stevens didn't appear at the meeting. He sent letters to the commission in which he said he didn't think he had to list the clients, or the nearly $400,000 they paid him, because he didn't have a "controlling interest" in the firm.

He reported his ownership of the firm every year since it was created in 2003 and APOC never asked him to reveal more, he said. That changed after Metcalfe's complaints.

In another complaint involving Advance North that was filed against Stevens in 2005, APOC issued a decision that said, "Because the ownership interest of the Stevens family is at or below 50 percent, Senator Stevens is not required to disclose the clients of this business relationship."

The commission staff made a mistake in its reasoning but not in its conclusion in that matter, Miles said. The case was over whether Stevens had to disclose his partner, McCabe. APOC correctly ruled that he did not have to do so but should have specified that it was because McCabe was not a family member, not because Stevens didn't hold a majority interest, said Chris Ellingson, APOC assistant director.

That decision was issued Sept. 12, 2006, long after all the reports at issue were filed.

State law on disclosures doesn't mention limited-liability companies, a relatively new type of business in Alaska, but that shouldn't allow "an end run around the provisions of that law," assistant attorney general Jan DeYoung told the commission. She said the law needed to be changed.

Anyway, the form that Stevens has filed year after year is clear, APOC Chairman Larry Wood said.

It specifies that legislators must report sources of income for limited-liability companies if the amount is more than $5,000. They also must reveal the amount if the client had state business.

But commissioner Claire VanSciver Hall argued to give Stevens a break by dropping the fine to $5,000, as the commission staff had itself been confused.

"I have a little bit of sympathy for Sen. Stevens," she said.

Commissioner John Dapcevich argued for the maximum fine because Stevens has a history of failing to provide the information on his finances. The commission needs to be tougher on sophisticated politicians, he said during a break. But in the end, he and the other four commission members voted for the $5,000 penalty.

Regarding Semco, the Port Huron, Mich.-based company that owns Enstar, Stevens maintained that he didn't have to reveal his compensation, because he had elected to defer it. After a Daily News story revealed the arrangement, APOC asked him to review his finance statements. He did, and on May 18, 2006, he faxed over a single-page amendment that said he was paid by Semco but didn't list the amount.

Miles said she calculated the $630 fine at $10 a day from the time the report was due to when he sent over the amendment. The commission decided to tell Stevens that he must still report the amount of the compensation and if he doesn't, there will be an additional fine.

Metcalfe tried during the meeting to force Wood to recuse himself from voting on the Stevens cases. Metcalfe argued that Wood, who is assistant general counsel for Alyeska Pipeline Service Co., couldn't fairly consider the issue because Stevens also has been paid as a consultant for Veco, the oil field service company.

"I find something horribly wrong with that," Metcalfe said.

But Wood said he didn't see a conflict, and other commissioners said they thought he could handle the cases fairly.

The fines against Stevens are "too little, too late," Metcalfe said after the meeting. "The horse is out of the barn. In fact, it got away."

Daily News reporter Lisa Demer can be reached at ldemer@adn.com and 257-4390.

APOC fines levied against Ben Stevens

• $5,000: For failing to disclose clients of his firm Advance North LLC over three years.

• $630: For failing to reveal more than $70,000 in compensation in 2005 from Semco Energy, the parent company of natural gas utility Enstar. He also must provide to APOC the amount of the compensation, even if it is deferred, or face additional fines.

Anchorage Daily News
January 10, 2007

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Aleutian basin oil, gas OK'd for lease
BRISTOL BAY: President approves lifting ban on sales in richest red salmon grounds.
By WESLEY LOY
Anchorage Daily News
Published: January 10, 2007
Last Modified: January 10, 2007 at 02:50 AM

Photo: Bristol Bay
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The Bush administration Tuesday announced it had lifted a ban on offshore oil and gas leasing in Bristol Bay, ending months of speculation that the president was about to clear the way for what once was considered a taboo idea for the fish-rich region.

The state's top politicians generally hailed the action as a chance for Southwest Alaska to revive its threadbare economy.

But environmentalists and others panned the administration, saying that drilling and oil and gas development could ruin the bay's rich stocks of fish, sea mammals and birds.

The lifting of the ban, which dated to the presidency of Bush's father and otherwise was to remain in force until 2012, signifies a remarkable turnaround for a region where drillers long were shunned.

Drilling supporters say sentiments began to change in the late 1990s as the region's mainstay industry, salmon fishing, fell on hard times because of competition from foreign fish farmers.

They say oil and gas -- government geologists estimate the bay might hold large amounts of both -- could pump new economic vitality into the sparsely populated region, without hurting the fishing.

Bob Juettner, administrator of the Aleutians East Borough, the local government closest to the proposed leasing area, said the appeal of oil and gas is simple.

"It's money," he said. "It's money in the form of a new economy. It's money in the form of taxes."

But Juettner and others noted that years of work, including extensive environmental studies and other steps, remain before any drilling rigs go to work in the bay.

Federal officials have proposed offering 5.6 million acres for lease off the coast of the remote Alaska Peninsula. It's the same zone the government offered in a 1988 lease sale that drew $95 million in bids from oil companies.

Partly because of the catastrophic Exxon Valdez oil spill in Prince William Sound in 1989, the government bought back the drilling rights in 1995.

Interior Secretary Dirk Kempthorne said Tuesday that President Bush had lifted the leasing ban on Bristol Bay as well as on an area of the Gulf of Mexico south of Alabama.

Removing the ban clears the way for Bristol Bay lease sales, which the U.S. Minerals Management Service has proposed for 2010 and 2012.

Even though they were once booted out of the bay, oil companies are likely to show strong interest if acreage is again offered for lease, said Cam Toohey, a former Interior official who now works for Shell. The major oil company bought rights in 1988 and campaigned for lifting the Bristol Bay leasing ban.

U.S. Sen. Ted Stevens, R-Alaska, and other state politicians praised Bush's action, but said care must be taken not to damage the bay's extraordinary sea life.

"Imported farmed salmon, high energy costs and the region's remoteness have limited economic development and contributed to high poverty in the region," Stevens said. "The possibility of oil and gas development in Bristol Bay presents a series of new opportunities to the people of this region."

Alaska Gov. Sarah Palin, who herself has fished commercially in Bristol Bay, said she supports leasing "if we can be sure it will not threaten the fisheries that are the foundation of the region's economy and way of life."

While support for onshore drilling has been uniformly strong around the bay -- the state conducted a lease sale on the nearby Alaska Peninsula in 2005 -- support for offshore drilling has been far from unanimous.

Bay waters teem with the world's largest annual migration of sockeye salmon as well as king and snow crab, herring and bottom fish worth hundreds of millions of dollars a year. The bay also is rich in whales, walrus and other marine mammals important to Native subsistence hunters.

One whale species, the Northern Pacific right whale, is critically endangered, and leasing opponents say noisy seismic testing could disrupt the whales and other animals.

Bristol Bay is "really one of the last, best places in the world that we should subject to the very real risks of oil and gas development," said Rick Steiner, a University of Alaska professor who has spoken out globally about oil industry ills and spills.

"What I see over and over again is industry and the government overstating the potential benefits and understating the risks," Steiner said. "In this case, the risks dramatically outweigh the benefits."

Eric Siy, executive director of the Alaska Marine Conservation Council, said his group would call on the new Democrat-controlled Congress to restore the Bristol Bay leasing ban.

The Minerals Management Service sees the bay, also known as the North Aleutian Basin, as more of a natural gas prospect than oil. Government geologists estimate the zone could hold up to 23.3 trillion cubic feet of gas and 2.5 billion barrels of oil.

Shell representatives have been openly bullish about the bay's potential, showing groups of fishermen and others a vision of offshore platforms feeding natural gas to a port at Balboa Bay, near Sand Point, where the gas would be liquefied and loaded onto tankers.

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

Reaction to lifting the lease ban

"The president has opened the door for us. But we're going to walk through it very, very cautiously. We need to make sure development can work with the traditional commercial and subsistence fisheries we have relied on for thousands of years."

-- Stanley Mack, commercial fisherman and Aleutians East Borough mayor

"The decision gives residents of Bristol Bay the opportunity to look for new energy sources within their own region to meet their needs."

-- U.S. Sen. Ted Stevens

"Why risk ruining a billion-dollar fishery, a valuable sport hunting and fishing industry, a critical resource for Native Alaskans and one of the most important places for marine wildlife populations in the Bering Sea?"

-- Bill Eichbaum, World Wildlife Fund

"If we can be sure it will not threaten the fisheries that are the foundation of the region's economy and way of life, I'm all for it."

-- Gov. Sarah Palin

"The president's action today ends an admirable history of bipartisan protection for Bristol Bay."

-- Eric Siy, Alaska Marine Conservation Council

"This is not the end of the public process, but rather the start of a dialogue that could lead to important energy development in our state."

U.S. Sen. Lisa Murkowski

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Ben Stevens faces maximum fine
APOC: Move reverses an earlier decision on senator's failure to report income from clients.
By RICHARD MAUER and LISA DEMER
Anchorage Daily News
Published: January 10, 2007
Last Modified: January 10, 2007 at 03:01 AM

Outgoing state Senate President Ben Stevens should be fined the maximum penalty of $10,170 for failing for three years to disclose the names and payments of six clients of one of his consulting firms, the staff of the Alaska Public Offices Commission has recommended.

According to an APOC investigation made public Tuesday, the clients, all in the fishing industry, paid a total of $392,500 over the three years to Advance North LLC, a company owned 50-50 by Stevens and Anchorage fisheries lobbyist and lawyer Trevor McCabe.

In a separate case, the commission staff also recommended Stevens be fined the maximum -- $630 -- for failing to disclose more than $70,000 in deferred compensation he received as a director of Semco Energy, the parent company of Anchorage natural gas utility Enstar.

Both cases will come for decision before the bipartisan commission at its regular meeting later this week.

Before the latest investigation, Stevens already was known to be well paid for consulting work. He has disclosed payments of more than $1 million from Alaska and Seattle businesses with interests before the state and federal governments over the last five years. Many of those companies have benefited from earmarks and legislation delivered by Stevens' father, U.S. Sen. Ted Stevens.

Many of the companies newly disclosed in the APOC investigation were also seeking assistance before Congress or the federal government, including two that wanted changes in the recently passed renewal of the Magnuson-Stevens Act.

Ben Stevens, R-Anchorage, has repeatedly refused to say what he did for any of the consulting money. He didn't return calls for comment placed to his home or his state office in Anchorage on Tuesday. In his response to the APOC on Dec. 27, Stevens wrote that he had done nothing wrong and that all his activities were properly reported.

Stevens' office was targeted in search warrants executed by the FBI last summer. More recently, federal subpoenas served on fishing interests in Alaska and Seattle have named Stevens, McCabe and Advance North as subjects of the massive federal investigation into corruption in the Alaska Legislature. McCabe is a former congressional aide to Ted Stevens.

The Advance North case before the commission reveals a new set of clients of Stevens that hadn't been disclosed before.

The case derived from a complaint by Ray Metcalfe, a former Republican state legislator and long a foe of Ben Stevens.

Metcalfe had heard from a former salmon fisherman, Victor Smith of Friday Harbor, Wash., that the Southeast Alaska Seiners Association of Juneau had hired Stevens in 2004. But Stevens never reported the group as a client.

The organization, representing an economically depressed fishery, was trying to get money from Congress to buy out some of the fleet so the remaining vessels could earn more money.

In a decision in September, the commission appeared to reject the idea that Stevens was delinquent in disclosing anything related to Advance North LLC. The decision applied long-standing APOC rules on corporate ownership to the relatively new business entity known as a limited liability company: "Because the ownership interest of the Stevens family (in Advance North LLC) is at or below 50 percent, Sen. Stevens is not required to disclose the clients of this business relationship."

"In doing so, we erred," Brooke Miles, the commission's executive director, said Tuesday. "We can admit it."

LLCs closely resemble partnerships, Miles said. And legislators in partnerships and professional corporations, like law firms, must disclose their clients. If the clients have a "substantial interest" in state policies, the legislators must report their fees as well.

The APOC investigation turned up the contracts and payments from the seiners' association and five other companies or individuals. Several of the deals, like the seiner contract, provide for increased fees based on congressional or federal action.

All the contracts had strict confidentiality clauses. They listed Stevens as president of Advance North. And some of the contracts disclosed that lobbyists would be hired as subcontractors, paid out of Advance North's fees.

Two of the clients were related Seattle companies: Global Seas LLC and Mt. Mitchell LLC. Mt. Mitchell is a former government research vessel and Global Seas is in the seafood and vessel business. Advance North was to look for university, government or private clients to lease or purchase the Mt. Mitchell.

For the first year of the deal, 2003, Advance North was paid a retainer of $8,000 a month. If Advance North was credited with selling the boat, it would be paid an additional fee: $500,000 if the sale price was $10 million, and 12 percent of the price if it was $11 million or more.

The Web site for Mt. Mitchell says the ship is still associated with Global. A spokesman for the companies didn't return a phone call.

McCabe bought Stevens' 50 percent share of Advance North on Oct. 1, 2005.

Two other Advance North clients were participants in the Community Development Quota Program: the Bristol Bay Economic Development Corp. and the Yukon Delta Fisheries Development Association. They each made monthly payments to Advance North of $5,000 from June 15, 2004, to Dec. 31, 2005, not counting travel and other expenses to be billed separately.

The federal CDQ program provides a percentage of the harvest of halibut, crab, pollock and other fish to nonprofits in 65 Bering Sea and Aleutian communities. Advance North was directed to improve the CDQ program through amendments to the Magnuson-Stevens Act. The contract also calls for Advance North to "develop strategies" for governmental actions and to find "new opportunities" for the CDQ groups.

The sixth client disclosed in the APOC investigation is Richard Powell of Kodiak, who asked Stevens and McCabe to help him sell two crab vessels and his catch quotas by, among other things, changing laws and regulations. Powell paid Advance North $90,000 over two years.

Stevens' income from Semco, Enstar's parent company, came to light in an April 28 Daily News story.

Stevens was paid $35,000 a year for sitting on Semco's board and another $2,000 for sitting on the corporation's budget and audit committee in 2005. Plus, he received 7,000 shares of stock. The stock was worth $38,600 when the shares were released to him in June 2006, according to a letter from Semco to Stevens that was part of the APOC investigation.

But the public wouldn't have known any of that based on what Stevens reported to the APOC. In his original report to APOC covering 2005, he stated he was on the Semco board and that he was a shareholder, but not that he earned money from the company. When APOC, reacting to the newspaper story, asked him to report any income from Semco, he faxed a single-page amendment to his financial report that stated he received income from Semco, but not the amount.

Stevens maintained that because he chose to defer the energy company compensation for tax reasons, he didn't receive any income in 2005 so had nothing to report.

But Miles, the APOC director, said Alaska law governing legislative disclosures broadly defines income as "anything of value" and that the deferred pay and stock clearly fall into that category.

Daily News reporter Richard Mauer can be reached at rmauer@adn.com or 257-4345. Daily News reporter Lisa Demer can be reached at 257-4390 or ldemer@adn.com .

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Leak briefly closes trans-Alaska pipeline
500 GALLONS: Loose fitting on smaller bypass line drips crude for about six hours.
By RICHARD RICHTMYER
Anchorage Daily News
Published: January 10, 2007
Last Modified: January 10, 2007 at 03:34 AM

SPILL Location
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The trans-Alaska oil pipeline was shut down for about six hours Tuesday after workers found a slow leak on a bypass line near Coldfoot that dripped about 500 gallons of crude onto a gravel work pad.

Alyeska Pipeline Service Co., which runs the 800-mile line, said it shut it down the line at about 8:30 a.m. after a worker discovered the leak while doing routine maintenance and inspection.

The leak wasn't in the main pipeline but in a smaller bypass line used to control pressure in the main line. Oil was leaking through a threaded fitting on the bypass line, said Mike Heatwole, an Alyeska spokesman.

"It was about a turn-and-a-half loose," Heatwole said. "We're investigating how it got that way."

Workers stopped the leak, and crude was flowing through the line again by about 2:45 p.m., Heatwole said.

The pipeline, which was completed in 1977, carries roughly 800,000 barrels of crude a day from the North Slope to Valdez, where the oil is loaded onto tankers and shipped to refineries on the West Coast.

North Slope production was throttled back, but not halted, during the shutdown.

Alyeska asked BP and Conoco Phillips -- which operate the North Slope's fields on behalf of themselves and other owners -- to cut production to about 35 percent of capacity for about three hours, Heatwole said.

The spill site is roughly 225 miles northwest of Fairbanks near a tiny community called Coldfoot on the Dalton Highway. Workers had last inspected that section of pipeline about two days before the leak was discovered, Heatwole said.

It is not uncommon for the pipeline to be shut down briefly. It has been idled many times over the years, including twice last fall when severe weather knocked out a fiber-optic communication system used to manage the line and interfered with tanker loading in Valdez.

Shutdowns related to leaks and spills, however, are much less common. The last time was in 2001, when the pipeline was shut down for three days after a man shot a hole in it, spilling nearly 300,000 gallons of crude, Heatwole said.

The highly publicized pipeline spills last year occurred at the Prudhoe Bay oil field on the North Slope and didn't concern the trans-Alaska pipeline.

The spill discovered Tuesday was confined to an area about 25 feet by 5 feet on a gravel pad beneath the bypass line, and there has been no impact to any of the surrounding tundra or water drainages, said Ed Meggert, a state Department of Environmental Conservation official who is coordinating the cleanup.

A vacuum truck was on its way to the scene late Tuesday afternoon and a crew was set to work through the night on the cleanup, Meggert said.

National Weather Service meteorologists in Fairbanks were forecasting overnight temperatures lower than 40 below zero, possibly warming up to 20 below by morning.

The frigid temperatures might make for miserable working conditions, but they also helped mitigate the spill's environmental impact and make for a much easier cleanup, Meggert said.

The warm oil that dripped from the pipe fitting quickly turned to gel, keeping the oil confined to a small area and making it easier to scoop up. Workers will vacuum the mess, then dig out and replace the layer of gravel on which it had collected, Meggert said.

"Operationally, it's a pretty simple thing to do," he said.

The cleanup was expected to be done early today, he said.

Daily News reporter Richard Richtmyer can be reached at rrichtmyer@adn.com or 257-4344.

Fairbanks News Miner
January 10, 2007

http://newsminer.com/2007/01/10/4359/

Bush lifts ban on Bristol Bay drilling
By Sam Bishop
News-Miner Washington Bureau
Published January 10, 2007

WASHINGTON President Bush on Tuesday lifted a ban on offshore oil and gas drilling in Bristol Bay, drawing mixed reviews from local leaders and cautious support from Alaska’s statewide politicians.

Secretary of the Interior Dirk Kempthorne said the president’s action may allow petroleum leasing in a “small” portion of the bay, which supports a fishing industry worth up to hundreds of millions of dollars annually.

The Interior Department briefly opened part of the region to oil companies 19 years ago before reaction to the Exxon Valdez oil spill brought congressional and presidential moratoriums. Congress removed its ban in 2003.

Dan O’Hara, Bristol Bay Borough mayor in Naknek, said he had advocated lifting the presidential moratorium as well because development possibilities can now be studied.

“This is just a very small step in the process that’s going to take place in even the next five years,” O’Hara said Tuesday.

Although the borough supports the president’s action, O’Hara said, it may change its view if evidence indicates that petroleum work will endanger the area’s fishing economy.

Ralph Anderson, chief executive of the Bristol Bay Native Association, said the evidence already tells him that.

“At this point, I’m really disappointed with the president’s decision,” Anderson said.

Bush’s action lifts a presidential moratorium that covered all of Bristol Bay from Unimak Island, in the south, to a point in the ocean about 100 miles off Goodnews Bay, in the north.

Kempthorne said the Minerals Management Service, a division of his Interior Department, will consider selling leases in the same 5.6 million acres just east of the Aleutian Islands that the agency offered in 1988’s lease Sale 92.

The bulk of the triangular sale 92 area lies north of Unimak Island and the western end of the Alaska Peninsula. It narrows eastward to a point just north of Port Moller.

Oil companies paid the federal government $95 million in 1988 for rights to explore and develop 122,000 acres in the area. However, they drilled no wells before Congress and President George H.W. Bush imposed moratoriums on the entire North Aleutian Basin after the 1989 Exxon Valdez spill. The federal government bought back the blocked leases.

President Bill Clinton, in 1998, extended the presidential leasing moratorium through 2012. Tuesday’s action by Bush eliminates Clinton’s order.

O’Hara, the borough mayor, said he thinks people in his borough are divided over the proposed lease sales, with less support in the Dillingham area than around Naknek, where he lives.

O’Hara is also a board member with the Bristol Bay Native Corp., the for-profit regional company set up after the Native claims settlement of 1971.

Oil companies might want to use the Naknek area’s facilities, which include an ocean dock and a large runway at King Salmon built by the military, O’Hara said.

Still, “we may not be at the center of this thing,” he said. “It may be Cold Bay or Dutch Harbor.”

Anderson, whose nonprofit Native association delivers health care and other services, said the region’s pristine land and water is a provider for many people.

Lifting the moratorium “really threatens not only our culture and our traditions and our way of life, but also our primary economy, which is a fishing economy here in Bristol Bay,” he said.

Spilled oil carried on tides could threaten nearshore salmon spawning areas, he said. Sea mammals “would definitely suffer” in a spill, he added.

“Those concerns haven’t changed since 1988,” he said.

The industry has not yet demonstrated that it can clean up oil spills in broken ice conditions, Anderson said.

Two years ago when the M/V Selendang Ayu broke apart off Unalaska Island, he noted, no one was able to stop much of the ship’s 336,000 gallons of fuel oil from washing ashore. Cleanup crews removed oil from 37 miles of coastline after that incident, according to the latest U.S. Coast Guard information.

“In my mind, jiminy, we simply don’t trust the oil industry,” Anderson said.

He said he hoped the newly Democratic Congress would consider reinstating the moratorium. “That’s the first thought that came to my mind,” he said.

The president’s decision drew no opposition and some support from Alaska’s state and congressional leaders, though.

In a news release, Gov. Sarah Palin said it was “gratifying” that the nation is again looking to Alaska for energy.

“If we can be sure it will not threaten the fisheries that are the foundation of the region’s economy and way of life, I’m all for it,” she said.

Sen. Ted Stevens, R-Alaska, said Bush’s decision was “welcome news” to the people of Bristol Bay.

Stevens sponsored the first congressional moratorium in 1990. Thirteen years later, though, he helped repeal it at the request of the state, Native groups, local governments and Bristol Bay residents.

“Imported farmed salmon, high energy costs, and the area’s remoteness have limited economic development and contributed to high poverty in the region,” Stevens said in a news release Tuesday. “The possibility of oil and gas development in Bristol Bay presents a series of new opportunities to the people of this region.”

The Bristol Bay Economic Development Corp. reported in 2003 that the value of Bristol Bay salmon, which averaged close to $200 million a year in the 1980s and early 1990s, had fallen to less than $50 million despite strong runs.

Last year, the ex-vessel value of salmon rose on a strong sockeye run to about $94 million, about 80 percent of the 20-year average value, according to the Alaska Department of Fish and Game.

Sen. Lisa Murkowski, R-Alaska, offered no praise for Bush’s decision and requested that Alaskans continue to make themselves heard on the “merits and dangers” of oil development as the process unfolds.

The Minerals Management Service, which handles offshore leasing for the federal government, proposed leasing the old Sale 92 area in a five-year plan that it issued in August. Secretary Kempthorne is expected to make a final decision on the plan this spring.

Murkowski said she spoke with Kempthorne about the issue.

“I received an assurance from the secretary that if leasing is ultimately proposed for the waters, that it will only be conducted with stringent environmental safeguards to protect not just salmon, but also any crab, cod, pollock and whales, marine mammals and birdlife that live and pass through the Bristol Bay region waters,” she said.

Bush’s decision was anticipated for months. A variety of fishing, environmental and community groups from Alaska and around the nation in late November reported he was close to lifting the ban and appealed to him to drop the idea.

In a Nov. 29 letter to Bush, they said the moratorium is “vital” to protect marine life, fishermen and local communities from the “potentially devastating ecological, economic, social, and cultural impacts of offshore oil and gas development.”

Mayors of the Aleutians East, Bristol Bay and Lake and Peninsula boroughs disputed the assessment in their own letter to Bush a few days later.

“That Nov. 29th letter does not reflect the will of our local families, commercial fishermen or the wishes of the vast majority of our local communities,” the mayors said. “We urge you to immediately lift the presidential withdrawal impacting oil and gas production in the North Aleutian Basin.”

They said “a clean environment and healthy fisheries can co-exist” and that petroleum development would diversify the region’s economy.

The three mayors, in a news release announcing their letter, also said that “although (the Sale 92 area) is sometimes identified as Bristol Bay, it is located well from Bristol Bay salmon fisheries.”

The Minerals Management Service, in its proposed lease plan, estimated the “net benefits” to the nation from oil production in the proposed sale area at $7.7 billion. The agency said petroleum development could create “up to” 11,500 jobs and $340 million of income.

The agency said expanding the lease area to include not just the old Sale 92 but also the entire North Aleutians Basin wouldn’t add much to the net benefits.

“The location of the largest untested prospects with the vast majority of economic resource potential occurs in the Sale 92 area,” the agency explained.

The agency proposed two sales between 2007 and 2012. Each would require the federal government to write an environmental impact statement and open the proposals to more public comment as part of the process.

The area’s greatest potential is in natural gas, not oil, the Minerals Management Service said. The area could produce up to 5 trillion cubic feet of gas, which would be delivered to shore by pipeline, the agency said.

Murkowski said that natural gas, if it escapes, poses fewer environmental problems than oil.

Contact Washington, D.C., reporter Sam Bishop at (202) 662-8721 or sbishop@newsminer.com.

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Pipeline flowing after brief shutdown
By Eric Lidji
Staff Writer
Published January 10, 2007

Alyeska Pipeline Service Co. shut down the trans-Alaska oil pipeline for six hours Tuesday morning after a loose valve started leaking south of a pump station in the Brooks Range.

The valve was on a 6-inch bypass line and not the 48-inch main pipeline.

Alyeska spokesman Curtis Thomas said that 400 to 500 gallons of crude oil spilled onto a snow-covered gravel pad at Remote Gate Valve 32, located south of Atigun Pass near the North Slope Borough’s southern boundary.

A maintenance coordinator conducting routine inspection found the spill at 8:30 a.m.

Alyeska crews shut down the pipeline within five minutes and established an emergency team to manage the spill.

The federal-state Joint Pipeline Office and the Alaska Department of Environmental Conservation learned about the spill just after 9 a.m. and sent crews to the site.

Crews shut down remote gate valves 31 through 35, and diverted oil to Pump Station 5 to ease pressure at the valve.

Pump Station 5 acts as a “relief station” along the pipeline, storing as much as 150,000 barrels of oil during an emergency.

To decrease pressure on the pipeline, North Slope producers cut back production to 35 percent, or 280,000 barrels, according to Rhea DoBosh with the Joint Pipeline Office.

Alyeska crews donned protective equipment and sealed the valves off, then removed the 3.75-inch layer of insulation around the pipes.

At 12:50 p.m., they found oil leaking through the threading of a 2-inch O-ring fastened onto a valve.

When they tightened the valve, the leak stopped.

Slowly, the crews opened Remote Gate Valve 32 to 10 percent

When the bypass line did not leak, crews opened the line to full capacity.

At 1:45 p.m., Alyeska and the DEC decided to restart the pipeline.

Thomas said the pipeline went back online at 2:46 p.m. at Pump Station 1.

North Slope producers decided to wait until that oil passed Remote Gate Valve 32 before restoring production capacity.

Alyeska formed a team of 20 responders to start cleaning up the area two shifts of 10 workers rotating night and day as well as sending a spill trailer down from Pump Station 4, and calling for a vacuum truck to the site.

Thomas said cold temperatures in the region between 40 and 45 degrees below zero quickly turned the oil into a gel, keeping it contained to a 600-square-foot area on the snow-covered gravel site.

The DEC reported that Alyeska crews found oil under the 8 inches of snow cover on the ground.

However, Thomas said the surrounding tundra and water drainage had not been affected.

Alyeska has begun an investigation into the cause of the loose valve.

Valves do not typically loosen during normal use, and do not need to be regularly tightened, according to Thomas.

He did not believe the valve has been sabotaged.

Ed Meggert with the DEC said a bypass line at check valve 92 near Pump Station 10 north of Valdez leaked in 1995. That break occurred on a buried pipe, making it more difficult to repair than the above-ground stretch that leaked Tuesday.

Still, cold weather and limited daylight could slow repairs, Meggert said.

The valve site that crews will work on is located at mile 187.7 of the pipeline, about 35 miles south of Pump Station 4 and 321 miles north of Fairbanks.

Remote gate valves segment the main pipeline at regular intervals, around every five miles, and isolate the flow of oil during an emergency to minimize loss.

Each remote gate valve is paired with bypass pipes of varying sizes used to divert oil during repair and maintenance, stabilize pressure in the main pipeline and serve other operational needs.

The trans-Alaska oil pipeline moves 800,000 barrels of crude oil every day from the Prudhoe Bay oil field on the North Slope to the Valdez Marine Terminal in the Prince William Sound.

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

Anchorage Daily News
January 9, 2007

http://www.adn.com/news/politics/fbi/story/8549536p-8443334c.html

Delay sought in legislator's bribery trial
ANDERSON: Defense says it needs time to review 20 CDs of FBI data.
By LISA DEMER
Anchorage Daily News
Published: January 9, 2007
Last Modified: January 9, 2007 at 02:48 AM

Indicted state legislator Tom Anderson wants to delay the start of his trial so his lawyer can better prepare.

In a court motion filed Friday, Anderson's attorney, Paul Stockler, wrote that he is still working his way through 20 discs "which contain hours of audio and video recordings involving the defendant taken over an extended period of time."

The trial is now scheduled for Feb. 12, and Stockler said he wants to delay it until April 23.

The three-page motion provides the first mention of video recordings in the FBI corruption investigation of Anderson and other legislators. Anderson was indicted by a federal grand jury in December on seven felony counts including money laundering, extortion and bribery.

The indictment contains a number of references to recorded conversations between Anderson and two others: a local-government lobbyist for a private corrections company and a confidential source who had worked for the same company. The indictment doesn't specify whether any of the recordings were on video.

The indictment describes a conspiracy that began in July 2004 in which the lobbyist set up a shell company that existed to launder money to Anderson. The FBI gave money to the informant, who passed it on to Anderson and the lobbyist in exchange for Anderson pushing the interests of the corrections company. Anderson received less than $13,000, according to the indictment.

Anderson has pleaded not guilty to all the charges.

No one else has been charged in the multi-pronged investigation into corruption involving Alaska legislators, and federal officials will say only that the probe continues.

Federal agents executed search warrants in August for numerous sites around Alaska, including the offices of six legislators. According to two of the warrants, the FBI was seeking information on Veco, the oil services and construction company, including "anything of value" provided by Veco and two top executives to any public official. The FBI also has issued subpoenas to commercial fishing interests, including some based in Seattle, for records related to retiring Senate President Ben Stevens, son of U.S. Sen. Ted Stevens. Ben Stevens has been paid to work as a fishing industry consultant.

Stockler said he's listening to or watching the Anderson recordings himself because it's important to hear the speaker's tone. The government didn't provide a transcript and every hour of a recording takes two to eight hours "to decipher exactly what was said," Stockler's motion said.

He wouldn't describe the recordings or what is depicted on the videos.

Stockler also estimated the trial would take two weeks, if he puts on a defense. The government had estimated a week, his motion said.

Assistant federal prosecutor Joe Bottini didn't return a call on Monday but earlier said the government didn't oppose delaying the trial though wanted an earlier date in April than Stockler.

Anderson was elected to the state House in 2002 from East Anchorage but last year decided not to run again. He remains in office until Jan. 16 when new legislators are sworn in. He is married to Sen.-elect Lesil McGuire, who served three terms as a state representative.

Anderson worked as a consultant when he was a legislator, and one of his biggest clients was Veco. After last year's regular legislative session, he registered as a municipal lobbyist in Anchorage. He hasn't registered for 2007.

Anderson also was hired last year as executive director of the new Midtown Improvement District. But after Anderson was indicted, the organization's board and Anderson agreed he should step down, said Tom McGrath, interim board chairman and owner of electronic parts store Frigid North.

Daily News reporter Lisa Demer can be reached at ldemer@adn.com and 257-4390.

Financial Times
January 9, 2007

http://www.ft.com/cms/s/244a1550-9fc3-11db-9059-0000779e2340.html

Production and price falls hit BP
By Ed Crooks and Toby Shelley
Published: January 9 2007 09:30 |
Last updated: January 9 2007 13:36

BP shares extended their recent losses on Tuesday as the energy group said fourth-quarter production was 5 per cent down on the same period last year.

In a trading statement that early analyst notes said offered little encouragement, the company said production in the quarter was 3.82m barrels of oil equivalent a day, compared with 4.02m boe/d a year before, and the sixth consecutive quarterly fall on a year-on-year basis.

Production for the year as a whole averaged 3.923m boe/d, down from 4.104m in 2005, a fall of 4.4 per cent. In a note, Oriel Securities called the figures “disappointing” and Citigroup analysts said they now expected future production growth expectations to be scaled back.

The shares, which closed at an 18-month low on Monday, fell a further 2 per cent to 540½p on Tuesday morning.

Weather problems in Alaska, lower gas demand and reduced output due to production limits in Opec countries, plus lower entitlements under production sharing contracts, offset production from new profit centres in North Africa and Azerbaijan.

The partial shutdown of BP’s Prudhoe Bay field in Alaska following the discovery of pipeline corrosion has affected the year as a whole, but by the fourth quarter that effect was small: the field has been in full operation since October.

At the end of the year the problem was the warm weather, which has affected the demand for natural gas, especially in the US and UK.

Marker prices for both crude oil and natural gas are down on the fourth quarter of 2005. Brent crude fell more than $3 a barrel lower at $59.60 while gas prices in the US and UK have halved. Over a full year, a $1a barrel fall in crude prices reduces BP’s pre-tax operating profit by around $500m.

The downstream business in the fourth quarter is expected to suffer from higher maintenance costs. IFRS fair value accounting will have a significant negative non-cash effect.

At the same time the global refining indicator, which measures the margin achieved in refining, fell from $7.60 a year ago to $6.30 in the last quarter of 2006. Investec analysts said that figure was 8 per cent below their expectations.

BP’s full-year results will be released on February 6.

Anchorage Daily News
January 4, 2007

http://www.adn.com/money/industries/oil/story/8538203p-8432008c.html

Pipeline owners raise tariffs
LOST REVENUE: Every $1 increase costs the
state up to $90 million per year.
By SAM BISHOP
Fairbanks Daily News-Miner
Published: January 4, 2007
Last Modified: January 4, 2007 at 03:22 AM

Federal regulators have let owners of the trans-Alaska oil pipeline increase what they charge to ship oil through the line, but shippers could get refunds from the owners later if the government determines that the rates are too high.

Higher shipping rates result in less state revenue.

All five pipeline owners announced last month that they would increase their shipping rates for Outside-bound oil starting Jan. 1 by as much as 40 percent. The state of Alaska and two nonowner oil companies appealed to the Federal Energy Regulatory Commission to block the increase.

The commission last week put the appeal on hold pending the outcome of similar disputes over rate increases during the past two years.

In the meantime, the owners of the pipeline can start charging the new rates "subject to refund," the commission said.

The rate increases from the past two years have also gone into effect subject to refund.

Conoco Phillips Transportation Alaska Inc., which owns 24 percent of the pipeline, announced the largest increase for 2007, raising its rates to $5.29 from $3.78 per barrel of oil destined for out-of-state locations.

BP Pipelines (Alaska) Inc., which owns slightly more than half the line, and Exxon Mobil Pipeline Co., which owns 20 percent, both raised rates by $1.02 per barrel, from $4.08 and $3.93 respectively.

Higher shipping rates cut state revenue in two main ways:

• Reducing the value of the state's share of North Slope production. The state gets some of the oil as land owner. The value of this share is determined by subtracting shipping costs from the price refineries pay for the oil.

• Reducing oil company tax payments. Key state oil taxes are based on company profits, which fall as the shipping fee rises.

Every $1 increase cuts state revenue by $80 million to $90 million a year at current oil prices.

The state is forecasting that despite this year's increase, the pipeline shipping fee should fall strongly in the next few years.

Oil company representatives told FERC last month that the per-barrel price must rise because the pipeline's operating costs will be covered by less oil in the coming year. North Slope oil production is declining.

The commission Thursday said none of the parties to the dispute objected to its order on the 2007 rates, known in the industry as tariffs.

However, the underlying dispute over the rate increases has been hotly contested before FERC, with recent hearings featuring sharp cross-examination of witnesses.

Besides the state's objection, Anadarko Petroleum Corp. and Tesoro Corp. also opposed the rate increases. Neither owns a share of the pipeline.

Anadarko, which produces about 20,000 barrels per day from the Alpine field, does not pay the tariffs directly.

The state, Anadarko and Tesoro all pointed out in arguments before FERC that oil bound for destinations in Alaska flows at less than half the price of oil bound for Outside.

Pipeline owners say that's because the state regulatory commission has set a low shipping fee that refuses to recognize a long-standing settlement agreement between the state and the pipeline owners.

The state also argues that the pipeline owners spent too much money on a recent conversion to automate pipeline pump stations and shouldn't be allowed to recoup the expense through higher rates. The oil companies say their decisions on the "strategic reconfiguration" of the line were prudent under the circumstances.

The Daily News contributed to this article.

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Dow Jones Newswire
December 20, 2006

Slow Schedule For New BP Prudhoe
Piping Raises Questions
By John M. Biers
Of DOW JONES NEWSWIRES

BP PLC's (BP) planned construction project to replace its accident-prone Alaska pipeline network won't be complete until August 2008, a later timeframe than has been expected and one that has generated concern among federal regulators.

BP, which partially shut the giant Prudhoe Bay oil field in August after finding severely corroded pipelines, has described the project as a $150 million to $200 million venture that would need to be staged over two winters due to stringent environmental regulations. Other complicating factors include the challenge of procuring steel and some of the more sophisticated components that will be needed. BP restored full production in October, employing a patchwork of bypass pipelines that required some new construction.

BP spokesman Daren Beaudo declined to comment directly on the timeline, saying the company is "in the process of finalizing our detailed engineering and project timeline and will be reviewing it soon with regulators."

But U.S. regulators are concerned that Prudhoe's current pipeline system should not be used indefinitely. They have demanded a trove of additional documents updating the pipeline replacement project and describing the oil giant's strategy for safeguarding the backup system until the new one is in place. BP has two weeks to respond to a lengthy Dec. 7 document request by the U.S. Pipeline & Hazardous Materials Safety Administration.

The enhanced federal oversight shows that while BP's Alaska operations are months past the crisis stage, the company continues to face exceptional scrutiny after its Alaska corrosion problems shocked global energy markets, jeopardized output from the largest oilfield in the U.S. and sent benchmark oil prices soaring.

It comes as the company is grappling with several other probes of its U.S. operations. The oil giant last week disclosed that it expects an impending federal enforcement on its gasoline trading division, following a similar crackdown in June over allegations the company tried to manipulate the propane market. The company is also girding for a tough appraisal of its U.S. refining practices by an independent panel enlisted after a March 2005 Texas refinery accident killed 15 workers.

Lines Not 'Scabbed Together'

Facing intense pressure at the height of the Alaska debacle, BP in August announced a plan to replace 16 miles of "transit" lines that transport oil from Prudhoe Bay to the Trans-Alaska Pipeline, from where it feeds into U.S. refineries, predominantly on the West Coast.

The decision came after government-mandated testing pointed to severe corrosion in the eastern half of the field and after oilfield workers found a small oil spill in that area. The federal pipeline safety regulators ordered the tests after BP reported the largest oil spill in the history of North Slope production in March, also due to pipeline corrosion.

Of the 16 miles of pipe being replaced, BP continues to pump oil through about 10 miles of the transit lines. The company has permanently shut down about three miles of pipeline on each side of the field due to severe corrosion, according to BP and regulators.

BP's plan to continue using the bypass lines is safe because the lines "aren't just scabbed together," said Steve Schmitz, a natural resource specialist at the Alaska Department of Natural Resources. "These were fabricated and built just like any other lines up there."

The current system is "safe and reliable," said BP's Beaudo. "We know this because we have done extensive testing and have an aggressive maintenance and anti-corrosion program. We intend to run the system until we replace the transit lines."

While praising the current system, Thomas Barrett, administrator of the pipeline safety office, said it is "not a good long-term solution."

He said additional information is needed to determine whether maintenance needs to be adjusted given the lengthy timeframe for replacing the lines. The agency's letter to BP demands a litany of engineering plans, inventory logs and pipe replacement orders, as well as information on the bypass lines.

The pipeline replacement project wouldn't be complete until August 2008 under the baseline schedule being discussed, according to BP materials presented to regulators at a Dec. 6 meeting. The timetable suggests the work will need to be staged over two winter seasons to conform to environmental rules that bar some construction work on the arctic tundra during warmer months.

Barrett, who last visited Prudhoe Bay in October, plans another trip in January. "We've been on it closely, and I would expect us to stay on it closely for the foreseeable future until the new lines are in place," Barrett said.

Adjusting For Lower Output

Although corrosion is recognized as an endemic challenge across the global oilfield, a decision to replace miles of pipeline because of corrosion is rare, said Richard Kuprewicz, a Redmond, Wash.-based pipeline consultant.

Besides better maintenance, pipeline operators more typically bolster pipelines by reinforcing the wall in the sections that are corroded. Replacing so much pipe in Prudhoe Bay "sure seems like overkill for this issue," Kuprewicz said.

Part of BP's rationale for replacing, rather than bandaging, the pipe, is to readjust the size of the piping to correspond with lower output at Prudhoe Bay. BP says the diminished volumes on the lines allowed the buildup of solids and bacteria that caused the problem. When BP announced the plan in August, officials said they found 16 anomalies in 12 different locations, with wall thickness loss of 70% or more. BP's Beaudo said last week that the pits "are the size of a dime or smaller" and have been found "in dispersed and unpredictable locations."

Beaudo said more than 9 miles of transit line have been shipped so far, some of which is now being coated and insulated in Fairbanks. Beaudo declined to comment on whether BP is on track for securing the remaining steel, which it has said would be delivered in the fourth quarter.

Besides the pipe, BP also must procure new leak-detection equipment and sophisticated machinery for launching and accepting the smart-pig, a device that clears debris from pipelines and can detect corrosion. BP conceded in congressional hearings that it hadn't run a smart pig on some pipeline segments. These components usually must be ordered months in advance, state officials said.

Bruce Lanni, an analyst at A.G. Edwards, noted that BP's initial commentary suggested the project would be done by early 2008. However, the longer timeframe isn't worrisome, as long as BP is successful in its execution, Lanni said.

"They have to make sure they have all their ducks in a row and that they achieve the work in a safe manner," he said.

Since announcing the project, BP's plan has evolved with input from industry consultants and project co-owners ConocoPhillips (COP) and Exxon Mobil Corp. (XOM), Beaudo said. "As we delved more into the detailed engineering, a fuller picture emerged," Beaudo said. "We're looking at not only replacing bad pipe, but we're looking at the right system to maximize production for the long term."

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