June

Seattle Post Intelligencer
June 27, 2007

http://seattlepi.nwsource.com/local/321404_oilcouncil27.html

U-turn by Gregoire on oil-spill panel
Governor swings behind citizen-run watchdog group
By ROBERT McCLURE
P-I REPORTER

Gov. Chris Gregoire switched direction Tuesday and gave her strong endorsement to a citizen-run council set up by the Legislature to look over the shoulder of state regulators and the shipping industry on oil-spill prevention measures.

Gregoire late last year announced moves that environmentalists said would "defang" the Oil Spill Advisory Council, patterned in part on a similar group in Alaska and headed by former state legislator Mike Cooper of Edmonds.

The Legislature headed off that move, but before Tuesday Gregoire hadn't strongly endorsed the panel. Asked about her position on the council now, Gregoire said:

"It's so important. Only if public engagement continues are we going to make sure we don't have complacency. ... The public has to be engaged and involved, and Mike and his group are making sure that happens."

Gregoire's endorsement came after state Sen. Harriet Spanel, D-Bellingham, who sponsored legislation to set up the council, prodded Gregoire to re-endorse the council. The governor's support was key when the council was established in 2005.

Cooper said it had been "a long six months" since Gregoire proposed moving the independent commission under the Department of Ecology, which environmentalists have characterized as too deferential to the shipping and oil industries.

"I was very encouraged," Cooper said. "Her strong public statement today delivered a clear message to everyone that this was a priority for her. ... It's certainly the strongest public comment she's made" since the council survived the legislative session.

Gregoire's comments came after she appeared beside Elliott Bay with Coast Guard Rear Adm. Richard Houck to sign an agreement designed to better coordinate the oil-spill prevention and response activities of Ecology and the Coast Guard.

The agreement is a more extensive version of a 2001 pact worked out by the Coast Guard and the administration of Gov. Gary Locke in the wake of a U.S. Supreme Court decision.

The court's decision in a lawsuit brought by shipping interests and joined by the Coast Guard stripped the state of much of its ability to regulate marine safety, including requiring that ships' crews be proficient in English and that vessels be adequately staffed.

Washington's Oil Spill Advisory Council grew out of public furor over a nighttime oil spill in the waters off Vashon and Maury islands that ultimately was traced to the ConocoPhillips oil tanker Polar Texas. The company agreed to pay $2.3 million in fines and costs, but never admitted guilt.

The council is loosely patterned on the Prince William Sound Regional Citizens Advisory Council, which Congress set up to provide a professionally staffed, citizen-run counterweight to the oil industry and state government after the Exxon Valdez oil spill of 1989.

Unlike the Alaska council, though, Washington's includes industry representatives and, instead of a staff of 18, has two staffers -- half the number of, for example, the Washington Beef Commission.

P-I reporter Robert McClure can be reached at 206-448-8092 or robertmcclure@seattlepi.com . Read his blog on the environment at www.datelineearth.com .

Wall Street Journal
June 24, 2007

http://www.adn.com/money/story/9076695p-8992674c.html

New head of BP America vows to make changes
COMPANY CULTURE: Some observers say
transforming miserly mentality will be hard.
By ELIZABETH BLUEMINK
ebluemink@adn.com
Published: June 24, 2007
Last Modified: June 24, 2007 at 07:47 AM

BP is on a hiring, repairing and building binge to atone for last year's oil spills and rampant corrosion that led to the temporary, partial shutdown of Prudhoe Bay -- the nation's largest oil field.

The new head of BP America also has vowed to change the company's culture that enabled last year's fiasco.

Are BP's new efforts enough?

Depends on who you ask.

Some regulators said last week BP is making great progress on the Slope. Some other people disagree.

"They've already made changes that are significant," said Jonne Slemons, the state's new coordinator for pipeline integrity. As an example, she pointed out BP's creation of a 150-member technical team to review its budgets for adequate funding to address risks such as pipeline corrosion on the Slope.

But some BP watchdogs said they don't believe the company will overcome a tight-money corporate mentality that has reigned for years.

"It's very hard to buck the cost-cutting decision," said Richard Fineberg, an oil and gas analyst.

BP still isn't budgeting enough to resolve the pipeline problems, another BP critic said.

"They are fixing 16 miles of pipe, but not the rest," said Chuck Hamel, a long-time Alaska oil industry watchdog.

The corporate culture problem is not as easily addressed by spending more money.

Bob Malone, head of BP America, told Congress last month that the BP work force had "a false sense of confidence" in the condition of Prudhoe Bay's big transit pipelines and lacked "an adequate process to challenge their own assumptions."

Internal BP e-mails disclosed by Congress revealed worker frustration over constrained budgets for battling corrosion in recent years.

BROKEN CULTURE

Transforming a culture is a daunting task, but it's one Malone undertook before with some success.

In the mid-1990s, Malone became head of Anchorage-based Alyeska Pipeline Service Co., the oil-company-owned business that runs the 800-mile trans-Alaska pipeline and Valdez tanker port.

Alyeska was reeling from its disastrous response to the Exxon Valdez spill, from congressional and regulatory probes of how it ran the pipeline, and from stinging publicity of how it treated outside critics like Hamel and workers who flagged problems.

The oil producers, led by Malone, and regulators stepped in, eventually pinpointing thousands of problems at Alyeska, ranging from electric and construction code violations to environmental violations, said Jerry Brossia, a long-time employee at the Joint Pipeline Office, a collection of state and federal agencies that regulates the trans-Alaska pipeline. The oil companies stepped up their spending to make fixes.

And as he did last year at BP America, Malone set up a system within Alyeska where workers could bypass supervisors to vent complaints.

"In Alyeska's case, the key to the whole thing was listening to what internal whistle-blowers were telling you and fixing the things that needed fixing," Brossia said.

"The other piece of it was somebody like Bob coming along," he added.

Alyeska still generates legitimate whistle-blower complaints, but not nearly as many as during the heyday of the company's troubles, Brossia said.

Not everyone thinks Malone had the golden touch at Alyeska.

"I say that respectfully. He tried," said Fineberg, the oil analyst based in Ester who has questioned BP's budgeting decisions and also keeps a critical eye on Alyeska.

Hamel believes Malone's role at BP today is limited to damage control and that the key decisions always will come from BP's headquarters in London.

The only way to fix BP's aging, troubled infrastructure is to channel a larger share of the company's profits into Alaska, he said.

Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.

Wall Street Journal
June 22, 2007

US House Panel Strikes Forced Renegotiation Of Oil Leases
DOW JONES NEWSWIRES
June 21, 2007 11:30 p.m.
By Ian Talley
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--The U.S. House of Representatives' Appropriations Committee Thursday approved an amendment that strikes language in an Interior Department budget requiring oil companies to renegotiate 1998-99 lease contracts to obtain future exploration leases.

The Government Accountability Office estimates that around $1 billion in royalties have already been lost as a result of omission of price royalty thresholds in the contracts, and could cost tax payers an additional $9 billion in future royalties.

Earlier in June, Senator Dianne Feinstein, D-Calif., had included the language in the Interior budget in a markup in the Appropriations Subcommittee on Interior, Environment and Related Agencies.

"The effect of my amendment is to bring this challenging issue back to where it belongs-in an authorizing committee," said Pete Domenici, R-N.M., a member of the full panel, who sponsored the amendment. "The language inserted by Senator Feinstein into the Interior Appropriations Bill would have invalidated proper, legal contracts that were negotiated by the United States government," he said.

"At a minimum, this provision would have set off years worth of litigation, during which no solution would have been found to this problem." he added.

Although six companies, including BP (BP), Royal Dutch Shell (RDSA), ConocoPhillips (COP) and Marathon (MRO), have agreed to pay royalties on the leases on production from October 2006, they only represent a fraction of the total lease owners.

Around 40 companies representing 80% of the production haven't agreed to renegotiate the leases, including ExxonMobil Corp. (XOM), Total (TOT), Chevron Corp. (CVX) and Anadarko Petroleum Corp. (APC), according to Department of the Interior data. Democrats have been seeking royalty payments for all output from the leases.

The House Appropriations Committee passed an Interior Budget with language similar to Feinstein's, though the bill has yet to be voted upon in the chamber.

-By Ian Talley, Dow Jones Newswires, 202-862-9285; ian.talley@dowjones.com

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BP Sells Stake in Russia Gas Project
Sale to Gazprom Tightens Kremlin's Grip on Energy
By GUY CHAZAN in London and GREGORY L. WHITE in Moscow
June 22, 2007 10:58 a.m.

BP PLC said Friday it is selling its stake in a giant Siberian gas-field development to state-controlled gas giant OAO Gazprom, as Russia continues to tighten control over strategic energy assets.

BP said Gazprom will pay between $700 million and $900 million for the 62.9% stake that BP's Russian joint venture, TNK-BP Ltd., holds in the company licensed to develop Kovykta field. The companies also said they would form a $3 billion strategic alliance with an "aim to establish a venture that is strategic and long term with mutual benefits for the companies both inside and outside Russia."

"The company has a long list of projects in which we will invest," TNK-BP CEO Robert Dudley told reporters Friday. "The money which we will receive from this deal will be invested in TNK-BP."

Under the terms of the agreement, BP will also sell its 50% interest in East Siberian Gas Co., which is constructing the regional gasification project. TNK-BP said a longer-term call option for it to buy a 25%-plus-one-share stake in Kovykta, at an independently verified market price, had also been agreed with Gazprom.

The deal comes as the Kremlin increases its hold on the world's biggest hydrocarbons industry. Russian regulators have applied intense pressure, saying that the oil field operators were not meeting production targets.

Gazprom had been in negotiations with BP for months about entering the Kovykta project, but few observers thought the discussions would end with BP being pushed out of the field altogether. Russian regulators had threatened to revoke TNK-BP's license for Kovykta, which Russian officials say holds nearly as much natural gas as Canada, because BP and its partners weren't meeting production targets. Regulators had indicated Gazprom's entry into the project would resolve any license issues.

The deal is the latest example of the Kremlin squeezing foreign investors out of energy assets. Six months ago, Royal Dutch Shell PLC sold control of Sakhalin-2, an energy project in the far east of Russia, to Gazprom after Russian regulators threatened to shut down that venture for alleged environmental violations.

The deal leaves open the issue of the future of TNK-BP itself, a 50-50 venture between BP and three Russian billionaires. That structure no longer seems to fit with the Kremlin's desire for Russian control over large energy companies. While Gazprom has expressed interest in buying out the Russian shareholders, there is no sign a deal is imminent. The people familiar with the deal said it would have no bearing on the future of TNK-BP.

The fate of both Kovykta and TNK-BP are bellwethers for the Kremlin's willingness to allow foreign investment in the energy sector in a country that has the world's largest reserves of natural gas and is No. 6 in oil. BP has invested about $600 million in the Kovykta project, which is expected to cost about $20 billion. The project is in early stages, and BP never booked any of its reserves.

BP officials have stressed that Kovykta has no value in its current state, with the prospects for export routes uncertain and little infrastructure near the field. They repeatedly have said they wanted Gazprom to have majority control of the project because it has a monopoly on exporting Russian gas and officials had hoped to sell output to markets in China.

At an investment conference in Moscow Monday, BP Chief Executive Tony Hayward said TNK-BP, into which BP put $8 billion in 2003, "has been a very profitable investment for us." He noted that BP's share in TNK-BP accounts for a fifth of BP's global reserves, a quarter of its production and nearly a tenth of its global profits. As for Kovykta, he said: "I consider this issue to be no more than one of those bumps in the road."

President Vladimir Putin told reporters early this month that the government was losing patience with the investors in the project and raising questions about how the Russian shareholders in Kovykta acquired their stakes in the 1990s. He denied that Russia was targeting foreign investors in the Kovykta project, noting Russian shareholders were involved as well. He also denied the Kremlin wanted to see BP give up control over TNK-BP.

--Benoit Faucon contributed to this article.

Write to Guy Chazan at guy.chazan@wsj.com and Gregory L. White at greg.white@wsj.com

Houston Chronicle
June 21, 2007

http://www.chron.com/disp/story.mpl/business/energy/4907169.html

Refineries get new guidelines
Industry offers advice on distance for on-site trailers
By KRISTEN HAYS
Copyright 2007 Houston Chronicle

More than two years after 15 workers died in trailers as close as 121 feet to an explosion at BP's Texas City refinery, the U.S. oil industry unveiled new guidelines for distances between portable buildings and units that process flammable liquid.

The guidelines, which the American Petroleum Institute will formally put in place today, are just that. Red Cavaney, the institute's president and CEO, noted that a trade group can't enforce compliance like a regulatory agency.

"This is a recommended practice," he said. "How and when individual companies end up implementing it is a decision they end up making."

But in suggesting minimum safe distances between portable buildings and hazardous equipment, the final version released Wednesday goes further than a draft released last December. The draft outlined a risk assessment process refinery operators should take when placing trailers, but did not recommend specific distances.

William Wright, a member of the U.S. Chemical Safety and Hazard Investigation Board who had called the draft standard "open-ended and mushy," said he was encouraged by the revised standard, but wants more details about the group's research and conclusions.

The board will review the standard, discuss it with API, and then vote on whether the standard is acceptable.

"I'm not sure there's enough data to tell people precisely what the explosive impact would be," Wright said.

The API standard suggests three zones for placement of trailers that could be threatened by external vapor cloud explosions, such as the March 2005 blast at BP's Texas City plant.

The standard requires companies to conduct detailed blast safety analyses before placing any portable building closer than 1,930 feet to a process unit area. It sets distance limits between buildings and process unit areas depending on the unit's size.

All of the dead and many of the scores injured in the BP blast were working in trailers near a vent stack that spewed liquid and vapors that ignited.

Brent Coon, an attorney who represents hundreds of workers who have sued or are suing BP over the blast, said the new standard is insufficient because it still allows buildings to be within a few hundred feet of processing units.

"We personally would hope to see a complete ban on all temporary structures and all but essential, i.e. rare, use of even permanent buildings in close proximity to operating units," he said. "And the construction should always be able to withstand any calculated blast intensity."

After the 2005 blast, BP removed 200 trailers from the Texas City refinery alone and moved the approximately 800 workers who used them off site.

The London-based company also set out a new portable building placement policy in December 2005 that specified safe distances, such as 500 feet from a vent stack used for hydrocarbons or 330 feet from any elevated main flare used to relieve pressure.

"We have not waited for the standard to act," BP spokesman Neil Chapman said.

The new standard recommends against placement of light wood buildings closer than 330 feet to a process area. Other kinds of buildings that pass a detailed blast safety analysis can be closer than 330 feet depending on the size of the process unit.

The standard also suggests a distance of 570 feet or more for all portable buildings from larger units that process up to 1 million cubic feet of hydrocarbons.

"The bigger the process unit is, the farther away you need to put that trailer," said Ron Chittim, senior API refining associate.

A process unit is anything that processes or manufactures flammable hydrocarbons, such as units that increase octane in gasoline or convert crude to heating oil.

The standard wouldn't apply to storage tanks that just hold hydrocarbons, Chittim said.

The trade group further recommends that no workers whose jobs aren't directly related to running a process unit be in a building closer than 330 feet. Such non-essential personnel would include secretaries or timekeepers as opposed to welders or craftsmen, Chittim said.

Coon said the minimum distance under all circumstances should be 500 feet or more if a blast safety analysis shows potential risk of structural damage.

And he said no zone should allow any portable building without a blast safety analysis, as the API standard would allow beyond 1,930 feet from a process unit.

"A blast analysis should always be utilized when temporary structures are brought into the facility," Coon said.

Some companies already do such analyses. Valero Energy Corp., North America's largest refinery, already meets or exceeds the API standard unless internal risk analysis suggests more distance between buildings and process units, spokesman Bill Day said. Shell Oil Co. also uses its own computer-based risk assessment tool to determine safe trailer placement.

They and others that helped API develop the standard, including Exxon Mobil Corp., Chevron Corp, and ConocoPhillips, are evaluating it and have enhanced their own standards for portable building placement.

kristen.hays@chron.com

Xxxxxxxxxxxxxxxxxx

http://www.chron.com/disp/story.mpl/business/4909003.html

Plan for new taxes on oil companies stalls
By DAVID IVANOVICH
Copyright 2007 Houston Chronicle Washington Bureau

WASHINGTON Proposed new taxes on oil companies stalled in the Senate today when proponents failed to block a fillibuster, raising doubts about the future of a broader energy package.

The Democratic-controlled Senate has been struggling to finish work this week on legislation that would raise fuel mileage requirements for cars and trucks and dramatically expand the nation's reliance on renewable fuels.

The cloture vote today was on a proposal to slap oil and gas companies with $29 billion in new taxes to pay for alternative energy and cleaner coal projects. The vote to stop debate failed 57-36, three shy of the required 60 votes.

Senate Majority Leader Harry Reid, D-Nev., said earlier today that he would continue to push other aspects of the bill regardless of the outcome of the cloture vote.

Advocates on various sides of the debate had warned that the entire bill could be in jeopardy if the tax package were to die.

The package would have imposed a new severance tax ranging from 12.5 percent to 14 percent on oil and natural gas produced from the Gulf of Mexico's federal waters, although producers would be able to use their existing federal royalty payments as credits against the tax.

Critics say the provision was really aimed at companies that have escaped paying royalties on leases signed in 1998 and 1999, because the U.S. Minerals Management Service neglected to include the standard price thresholds to trigger royalty payments when oil prices reach certain levels.

The package also would have excluded the nation's five largest oil companies Exxon Mobil, Chevron Corp., Shell Oil Co., BP and ConocoPhillips from a scheduled rollback in the corporate tax rate. And it would increase the taxes the oil companies pay on their operations overseas.

The tax package passed out of the Senate Finance Committee on Tuesday by a 15-5 vote, with four Republicans voting for it. But the package infuriated other Republicans.

Sen. Kay Bailey Hutchison, R-Texas, likened it to the windfall profits tax imposed on the oil industry in 1980.

White House economic policy adviser Al Hubbard argued Wednesday that the severance tax was really a backdoor way to renegotiate the contracts with companies that currently hold the flawed leases signed in 1998 and 1999.

The tax package was only one hurdle in the effort to pass an energy bill.

The Senate on Wednesday delayed a vote on new fuel mileage requirements, an issue that splits Democrats in both houses along geographic lines. And Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, D-N.M., is pushing an amendment that would require that more electric power be generated from renewable sources such as wind, a measure facing fierce opposition from politically powerful utilities in the Southeast.

In the House, the tax-writing Ways and Means Committee on Wednesday approved a tax package that, like the Senate bill, would keep energy companies from enjoying the corporate tax break. But instead of limiting that provision to the top five integrated oil companies, the House bill would target all oil and gas companies.

While the tax package is moving forward in the House, however, Democrats there remain divided on a number of issues, including fuel mileage requirements and incentives for companies to make diesel and jet fuel from coal.

david.ivanovich@chron.com

Fairbanks News Miner
June 20, 2007

http://newsminer.com/2007/06/20/7574

The pipeline at 30
By Eric Lidji
Staff Writer
Published June 20, 2007

At the time, 66 minutes probably seemed like forever.

North Slope field workers were supposed to start pumping oil into the new trans-Alaska oil pipeline at 9 a.m. sharp on the morning of June 20, 197730 years ago todaybut didn’t push the final button until 10:06 a.m., the result of what one official at the time called, “a little bit of pre-startup jitters.”

Even through construction on the project had been fast-tracked by Congress with a tie-breaking vote from Vice President Spiro Agnew, the project had been in the works for a while. Petroleum engineers discovered the Prudhoe Bay oil field in 1968, and the 1973 Arab oil embargo had made having a large domestic oil supply seem like a necessity.

Oil didn’t just tumble into the pipeline unassisted, though. A procession of items went into the pipeline to prepare the way: Engineers first released nitrogen into the line, followed by the first mechanical pig to inspect the integrity of the pipe. The pig moved several miles down the line pushed by diesel fuel, which has a high flash point and would be less likely to explode in an accident.

Finally, crude oil began coursing across Alaska.

Since that day, the pipeline has moved more than 15.5 billion barrels of crude oil. It has also made Alaska wealthy in the process.

“Going down is just as difficult as going up.”

Throughput should be large and spills should be small.

That’s all the complexity of the oil pipeline business simplified to its basics.

Throughput measures the amount of oil moving from Pump Station 1 on the North Slope to the Valdez Marine Terminal in Prince William Sound. The past 30 years of throughput looks like a bell as production quickly “ramped up” over the first decade and slowly declined ever since.

“As anyone who climbs mountains knows, going down is just as difficult as going up,” Alyeska President Kevin Hostler told the Greater Fairbanks Chamber of Commerce on Tuesday.

Throughput peaked around 1988, when the pipeline averaged more than 2 million barrels every day. The pipeline now moves around 775,000 barrels daily.

The value of Alaska North Slope oil has more than tripled since 1988, but that doesn’t automatically balance out profit margins. Corrosion prevention has had to increase with the age of the pipeline and with the introduction of new technology. Plus, lower throughputs are more difficult and costly to move.

“The line really wouldn’t be making money if it was operating in the way it was operating in the high throughput years of 1977 through 1989,” said Bill Howitt, a former senior vice president for Alyeska in Fairbanks, who retired to Oregon last year. “It has to be more efficient.”

Howitt and a team of engineers conceived the Strategic Reconfiguration project in 2001 to comprehensively change the basic way Alyeska operates the pipeline, especially with less oil.

The project reached its first major milestone this year by replacing the diesel turbines at Pump Station 9 near Delta Junction with an electric pump system able to shift across a range of throughputs from 300,000 barrels each day to 1.1 million barrels if new oil fields come online.

“The public didn’t feel that way.”

“Even though we’re moving a lot of oil, we never want to see the oil,” said operations manager John Baldridge, another 30-year veteran.

Pipeline workers aren’t always that fortunate, though, Baldridge noted.

Including spills from shipping vessels and contractors, Alyeska reports spilling 288,515 barrels of oil in 755 incidents on the trans-Alaska oil pipeline, an average of 9,617 barrels and 25 spills each year.

Alyeska proudly boasts that corrosion has never caused a leak on the mainline of the pipe, which excludes pump stations and the Prudhoe Bay pipeline network. The three largest spills were largely out of Alyeska’s control, caused by a tanker crash, an act of sabotage and a bullet hole. The bullet hole came from a .338 Winchester Magnum rifle owned by Daniel Lewis, who is currently serving a prison term for shooting the pipeline near Livengood, causing a $13 million clean up effort.

The largest spill, though, is still the most famous.

The Exxon Valdez tanker ran aground in Prince William Sound on March 24, 1989, spilling 11 million gallons of oil into the waters.

“For a little while, people were ashamed to say they worked for the oil industry and ashamed to say they worked for Alyeska,” Howitt said.

The Exxon Valdez incident changed the culture of Alyeska, according to Elden Johnson, who has been working on the pipeline since design began in 1973. He now leads Alyeska’s System Integrity Team, which is responsible for keeping leaks from happening.

“That was such a shock to see that oil on Prince William Sound. I just never imagined it could happen,” Johnson said. “I think at Alyeska, we thought the pipeline ended at the tunnel. The public didn’t feel that way.”

“All that came from the pipeline.”

“Ask me again in 35 years,” environmentalist Jim Kowalsky told News-Miner reporter Sue Lewis in 1977, when she asked for his thoughts on the pipeline.

Kowalsky had spent the previous seven years working on environmental issues related to the pipeline, first through the Fairbanks Environmental Center, which preceded the Northern Alaska Environmental Center, and later as the Fairbanks representative for the Friends of the Earth, a national conservation group. Kowalsky recently retired from the Rural Alaska Honors Institute.

Though he still has five years left on his request to consider the long-term implications of the pipeline, Kowalsky, who passes the pipeline every day coming to and from his home on Chena Hot Springs Road, said he has become somewhat accepting of the pipeline.

“You can’t help but be resigned to it,” Kowalsky said. “It’s there, and it is a reality and it has tremendous economic force behind it.”

Kowalsky said the environmental groups fighting the pipeline accurately predicted some of the worst outcomes, including the Exxon Valdez oil spill, but also failed to predict some of the best outcomes.

He believes work in the days before the pipeline brought national attention to environmental issues and eventually led to expansion of the Alaska Native Claims Settlement Act in 1971 and the Alaska National Interest Lands Conservation Act in 1980.

“All that came from the pipeline,” Kowalsky said.

“Mother Nature’s final exam”

During the fall of 2002, many Alyeska higher-ups found themselves preoccupied with renewing the pipeline right of way. The pipeline had turned 25 that summer, and a renewed permit would allow the pipeline to keep its pathway through Alaska for another 30 years.

The renewal process included studies to check the soundness of the pipeline system, but Elden Johnson, Alyeska’s System Integrity Team leader, said “Mother Nature’s final exam in the authorization of TAPS” came on Nov. 3, when Alaska experienced the largest inland earthquake North America has seen in almost 150 years.

The magnitude 7.9 earthquake, however, fell well within the standards the pipeline had been intended to withstand, meaning any major damage would be an engineering problem.

Engineers knew little about the Denali fault system when they designed the pipeline.

“You had to stand up on the mountain top and eyeball a straight line of where you thought the fault line would be,” Johnson said.

Bill Howitt, then senior vice president of Alyeska in Fairbanks, had been downstairs in his Gold Mine Trail cabin when the earthquake hit.

“When that thing started shaking, I just had this vision of all the logs coming down on my head,” Howitt said.

He drove in to the Fairbanks office and opened the Alyeska emergency center.

Alyeska crews and outside contractors started pouring in and heading out to sites along the pipeline, but in the end, the earthquake just knocked the pipeline off its support beams in one place. No oil was spilled.

Three weeks later, the state renewed the pipeline right of way permit for another 30 years.

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

Petroleum News
June 17, 2007

http://www.petroleumnews.com/pnads/618348932.shtml

BP making changes
Brock gives Alaska legislators answers about what went wrong at Prudhoe
Kristen Nelson
Petroleum News

The reality of the past and the hope of the future collided June 7 when Tony Brock, head of BP Exploration (Alaska)’s new technical directorate, talked to the House Resources Committee about how BP is moving ahead to fix corrosion problems at Prudhoe Bay, both with a new oil transit line system and with organizational changes.

A number of the committee members, as well as other legislators who sat in, were more interested in some three dozen documents, including internal BP memos dating back a number of years, which focused on cost-cutting issues at the Prudhoe Bay field.

Brock, who arrived in Alaska in August to head up the technical directorate, answered some questions on terminology used in the documents, but said he was not in a position to comment on what went on in the past.

The committee’s concern was two-pronged: was cost cutting in the past responsible for the corrosion discovered last year which resulted in the shutdown of half of Prudhoe Bay for several months and how would the replacement oil transit lines BP is in the process of building impact state revenues under the new Petroleum Profits Tax, which passed the Legislature just as the second Prudhoe Bay leak of the year was being discovered and BP was announcing a field shutdown.

Referring to presentation materials which Brock had brought, House Resources Co-Chair Carl Gatto, R-Palmer, said it was a wonderful-looking brochure, “but these e-mails are the thing that really captures my attention.”

Gatto said he hoped Brock would convey to BP management the frustration of legislators that the brochure won’t “satisfy the difficulties we’re seeing with the record.”

Brock: actions BP has taken

Brock told Gatto he would take the message back to BP.
He agreed that “words are words; presentations are presentations. They actually don’t mean anything unless you take action.”

BP has taken action, Brock said.

Setting up the technical directorate which he heads is one step. The directorate is “an independent body,” he said. “So these types of inquiries and queries (represented by the e-mails) actually have a functional oversight rather than being buried within the line organization.”

The technical directorate, he said, has “independence when it comes to issues of safety or integrity of our facilities. We have an independent body now that has oversight on the decision-making process.”

The corrosion group was formerly “imbedded in the Greater Prudhoe Bay organization,” Brock said, but now reports directly to him and he, in turn, reports directly to Doug Suttles, the president of BP Exploration (Alaska). Brock said that means greater transparency, and issues such as those raised in the e-mails about the impact of cost cutting on corrosion “aren’t left buried in the organization itself.”

The company has also reassessed its understanding of risk, he said.

An analysis done for BP by Booz Allen indicated that cost cutting wasn’t the issue, but rather BP’s awareness of risk. In response, BP has put in place a rigorous risk review process. “And that process is being imbedded at the field level; it’s being imbedded at the technician level; (and) at the operator level” and is being “managed up through the field line to the senior members” of BP’s management team in Alaska.

That system will be reviewed on a regular basis, Brock said. “It’s my role to present that to Doug Suttles, the president of BP Alaska, and to ensure that we take proper action on these types of issues so they get resolved.

“Overall we’re focused on reducing risk within our fields.”

Frustration disappointing

Asked by Rep. Paul Seaton, R-Homer, about a 2003 e-mail which talked about risk impacts related to budget cuts, Brock said employees were obviously frustrated in “trying to get the balance right between what’s the right amount of expenditure to ensure that our systems are integrally safe and that we have a viable system.” Budget concerns are part of running any business he said, but “certainly the people were frustrated and they felt they were compromised in some of their choices.”
The company is making changes, he said.

The technical directorate currently has more than 150 technical experts. “That is different,” Brock said.

The corrosion management team reports to Brock. “If they have concerns about compromising the program then I will address them. And I will address them independently of the line (organization) whether it relates to production or to costs. My primary concern is about the integrity and the safety of our operations.”

The management team is “committed to changing some of the processes that we use to manage and make decisions,” he said and is also working on open communications. If “our employees have concerns, we want them to be able to communicate them to senior leadership without fear or concern.” Brock said BP is encouraging people “to raise these issues so they can be addressed.”

BP has a new leadership team in place and is starting to address “the systemic culture” and what that culture needs to be so that it can be “a leading operator in Alaska for the next 30 years.”

New pipelines smaller

In reviewing the replacement oil transit line system BP is now putting in place, Brock said the existing system was made for four times the capacity needed now and in looking at lessons learned from the corrosion found in 2006 BP determined it needed to redesign the system for the right level for the next 50 years, with smaller diameter oil transit lines. The new system will be sized right so that velocities in the lines prevent the leak-causing corrosion that occurred in 2006.
There will also be permanent pig launching and receiving facilities which can be accessed and used year round.

The work will include 20 new modules and skids.

Resources Co-Chair Craig Johnson, R-Anchorage, said he was concerned about the new system because of the way the state’s Petroleum Profits Tax is structured. “You’re responsible to your shareholders (and) we’re responsible to ours,” Johnson said.

Brock said BP believes a new system is necessary for the continued operation of Prudhoe Bay over the next 30 years. New facilities are necessary because more and more water is now produced with the oil. Viscous oil is being developed from the western side of the field, which requires modifying the pipeline system to handle that oil. Putting more viscous oil into the exiting lines would “actually further reduce the velocity,” he said. Reduced velocity is one of the factors identified as causing corrosion in the oil transit lines.

BP also has to address “integrity and standards issues” put in place by the U.S. Department of Transportation and the Alaska Department of Environmental Conservation, and now by the Petroleum Safety and Integrity Office.

Those standards are higher, he said, and meeting them with the current pipeline system would be a struggle going forward.

New leak detection system

BP is also trying a new leak detection system.

The Leos system “is sensitive to very small leaks,” Brock said. The existing system did not detect pinhole leaks where drops of oil were coming through.

The Leos system hasn’t been applied aboveground in the Arctic before. “We have a similar system on our Northstar transit line but that’s buried in the seabed,” Brock said.

Using the system above ground exposes it to a much harsher climate and “much greater swings in temperature.”

It will take a couple of years, through summer and winter operation, to prove up the system.

Two sections of the replacement oil transit line were constructed this winter, he said. “It has not been put in service yet; it needs modules to be constructed to allow us to do that.”

Overall replacement of 16 miles of the oil transit lines are expected to be commissioned in the fourth quarter of 2008, he said.

Extensive tests and inspections are being carried out on the existing system, Brock said, “to ensure the integrity of that system.”

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Slemons: changing direction a challenge

Jonne Slemons, coordinator of the State of Alaska’s new Petroleum Systems Integrity Office, updated House Resources June 7 on some of the regulatory issues related to oil transit lines and other oil and gas facilities.
Prior to 2006, she said, there was “general ignorance of the fact that there was a regulatory gap” for the oil transit lines, lines which take sales-ready oil from production centers to the trans-Alaska oil pipeline.

The Office of Pipeline Safety in the U.S. Department of Transportation typically regulates such lines, but North Slope lines were not covered because “there were some exemptions within the federal regulations … (for) lines that were in remote areas of very low population.”

That gap was filled by Congress in late 2006 when it expanded the authority of the Office of Pipeline Safety, Slemons said.

And the Alaska Department of Environmental Conservation was in the process even before the March 2006 spill of expanding its regulatory authority to cover flow lines, those lines that run between the wellhead and the production centers.

“In terms of pipelines, I believe that regulatory gaps have been addressed,” Slemons said in response to a question from Rep. Max Gruenberg, D-Anchorage.

One of the primary tasks of PSIO, she said, is to do a statutory and regulatory gap analysis “to ensure that any gaps remaining anywhere on state lands, regarding oil and gas, are discovered. And we are in the process of performing that gap analysis now.”

Rep. Paul Seaton, R-Homer, asked Slemons if she was comfortable with changes BP is making as operator.

“BP is implementing significant, very broad, very deep and far-ranging changes to their organization,” Slemons said, most of which are “in response to requirements placed upon them by the Office of Pipeline Safety through various consent orders that have come down.”

She said it is her impression that BP is “sincere in wanting to fix the problems that have been discovered and to mend their ways, if you will. My own personal concern is that a ship the size of BP doesn’t turn on a dime. And changing organizational culture is a very difficult thing to do.”

Slemons said BP has been responsive to the PSIO and she understands it has also been responsive to the Office of Pipeline Safety.

Asked by Seaton about the extent of PSIO authority, Slemons said facilities “such as production centers, modules, gas processing facilities, those kinds of things” have largely escaped regulatory oversight, other than labor, OSHA and fire detection.

“It is one of the missions of the PSIO to fill those gaps and we will be looking at facilities, not just pipelines, in the system integrity plans that we will be requiring from the unit operators.”

Slemons said PSIO will be assessing the technical sufficiency of the plans and will be performing on-site assessments to ensure the operators comply with the plans that are established.

Kristen Nelson

http://www.petroleumnews.com/pnads/270165613.shtml

BP applies to expand Prudhoe Bay pads

BP has applied to the Alaska Department of Natural Resource for approval to expand gravel facilities at Flow Station 1, Flow Station 2, Flow Station 3 and Skid 50 to accommodate new modules that are required as part of the replacement of oil transit lines in the Prudhoe Bay oil field. The pad expansion proposal has also been published by DNR for public review under the Alaska Coastal Management Program.

BP announced in February that it would rebuild the entire Prudhoe Bay transit line system in response to the leaks discovered in 2006 in the original field transit lines. The new system requires 20 new modules, to house facilities such as corrosion pig launcher and receiver systems; corrosion inhibitor injection systems; and leak detection systems. The pad expansions will accommodate the new modules, as well as allowing vehicle turning space and traffic flow space.

Alan Bailey

New York Times
June 17, 2007

Cold Spell
Up North, Looking for Direction
By WILLIAM YARDLEY

SCOURING the tundra for the source of the next big boom is the Alaskan way.

Skin it, mine it, fish for it, drill for it.

It has all paid off, at least for a while. It has also propped up the state’s place in the national mythology the alluring frontier detached on the map but also a critical supplier of the world’s wants.

Now, as oil production continues its steady decline, and the temperature creeps higher, it is far from clear what the next big boom might be, or what Alaska might become without one. Nearing a half-century of statehood, the wildest and most mysterious of American places could use a reliable map to the future. Fog seems to be rolling in instead.

Political scandal has erupted, leading to indictments for state lawmakers and even raising questions over the dealings of Senator Ted Stevens, “Uncle Ted,” the great provider for the Great Land. Global warming is puddling the permafrost and threatening coastal villages. The federal government, which spends more money on Alaska per capita than it does on any other state, may no longer be such a sugar daddy. The population, which once surged and plummeted with fortunes found and dashed, now relies more on trusty old biological reproduction for replenishment than some new rush of speculators.

“It’s sort of like this dance that keeps on changing, but it keeps us dancing,” said Neal Fried, an economist with the state’s Department of Labor. “In some ways you just have to sit back and say, wow, this is pretty amazing.”

Or you could confront it.

“Alaskans are kind of saying, What is the next boom?” said Senator Lisa Murkowski. “I think it is a hard question to answer and I think it’s wise for us to talk kind of beyond the boom-and-bust path we’ve been on. Why does it have to be a boom and bust? When will we get ourselves on a more sustainable path?”

Or you could drop all diplomacy.

“We’re basically divorced from reality up here,” said Andrew Halcro, a Republican who ran for governor last year as an independent. “People say: ‘Wow, we got a Gap or a Banana Republic, everything must be cool.’ But what you don’t look at is the big picture.”

In Alaska, of course, the picture is really big. In a state with 663,000 square miles and barely one person for each of them, it is easy to see things from a different point of view.

“We’ve been saying disaster is around the corner for years and we’ve been wrong many times,” said Gregg Erickson, an economist in Juneau who writes a newsletter about the state budget.

Asked what the future might hold once the oil finally does dry up, Mr. Erickson said: “Who knows? But we can see some outlines.”

Many ideas come straight out of the old extraction-economy playbook. The new Republican governor, Sarah Palin, a former suburban mayor, beauty pageant queen and exponent of something previously untranslatable in Alaska politics, “transparent government,” is pushing for a new pipeline that would pump trillions of cubic feet of natural gas from the North Slope to the lower 48 states, potentially delivering another Alaska boom, or at least a boomlet.

Still, even if that happens, and virtually everyone in Alaska hopes it does, most experts say the benefits will be far less than those of the Trans Alaska Pipeline, whose construction, completed 30 years ago, transformed the state.

Since the oil bust of the mid-1980s, the economy has been growing, slowly but steadily. A Target store, the first in Alaska, is set for construction outside downtown Anchorage, a stamp of retail arrival. But the backbone of the growth has been oil and federal money.

The underlying challenges are only expected to sharpen: The state has a small, aging population. It depends on oil for more than 80 percent of state revenue. While tourism, fishing and cargo shipping are growing, they are not about to supplant oil, and there is no other obvious source for major revenue that could. Not only is there no state income tax or many other fees, nearly every Alaskan gets a check each year from the state based on investments from oil revenues. Last year, the checks were for $1,107.

That tension is not new, but there is more. Beginning in the late 1990s, as Mr. Stevens, a Republican, became chairman of the Senate’s Appropriations Committee, federal spending in Alaska eventually doubled, going from $4.2 billion in 1995 to $8.4 billion in 2004. Now that Democrats have taken control of Congress, the senator is no longer chairman.

“They see about three years’ worth of federal projects in the pipeline, and then after that there’s nothing,” said Mr. Halcro, the former candidate for governor. “I’ve heard from very credible sources that the people of Alaska are going to be surprised at how little federal money is coming in.”

One of those sources was Senator Murkowski, also a Republican. She was appointed to office in 2002 by her father, Frank, who held the seat for 22 years before he left to run for governor. Ms. Murkowski said last week that with Democrats in control and so-called earmarks under greater scrutiny in both parties, “the way we have typically done business or operated as a state is changing.” Big building projects like, say, Ted Stevens Anchorage International Airport, may be on the way out.

“When you think about how the monies have come to the state, so much of it has been because we needed to build a certain capacity that states in the lower 48 have had for generations,” Ms. Murkowski said. “We were in that catching-up period. It wasn’t more than our fair share, it was our fair share. We were maturing as a state.”

Ms. Murkowski, 50, is among a younger generation of politicians, along with Ms. Palin, 43, and Mayor Mark Begich of Anchorage, a Democrat, who cast themselves as more inclined to find common ground than make deals behind closed doors.

Senator Murkowski uses words like “sustainable” when she talks about developing natural resources, and she expresses interest in alternative energy like ocean, wind, geothermal and solar. But like Senator Stevens and Don Young, the state’s sole representative in the House and also a Republican, she supports drilling for oil in the Arctic National Wildlife Refuge, a proposal that would increase oil revenues but has little support in the Democratic Congress.

Alaska has an emergency option should it ever need one, and it is like no other: the Permanent Fund, a $39 billion colossus built on oil revenues over the course of 31 years. The account earns the interest that provides residents with their annual dividend.

But the few politicians who publicly support tapping it for other purposes are usually met with an icy public response. Few are standing up for big new taxes, either. Calls for a “long-range plan” are drowned out in the search for a new resource boom. How about a controversial gold mine in Bristol Bay? The natural gas pipeline? Drilling in the refuge?

“People keep punting because they hope the next big development is going to bail us out,” said Stanley E. Senner, executive director of Audubon Alaska, who spends much of his time working to protect wilderness areas from some of those proposals. “That constant pressure is there. You have a lot of Alaska sort of collectively holding its breath.”

Anchorage Daily News
June 17, 2007

http://www.adn.com/news/politics/fbi/story/9013136p-8922071c.html

Grand jury examines Stevens' ties to Veco
INVESTIGATION: Expansion of senator's Girdwood home comes under scrutiny in Washington.
By RICHARD MAUER
rmauer@adn.com
Published: June 17, 2007
Last Modified: June 17, 2007 at 03:12 AM

A federal grand jury in Washington, D.C., heard evidence last month about the expansion of U.S. Sen. Ted Stevens' Girdwood home in 2000 and other matters connecting Stevens to the oil services company Veco Inc.

As the far-reaching federal investigation into corruption in Alaska politics spreads to Washington, Stevens family friend and neighbor Bob Persons was ordered to appear before a grand jury in Washington on May 25. The government directed him to produce documents related to the work on Stevens' Girdwood house, especially to work that might have been performed by Veco and contractors who were hired or supervised by Veco.

Another close associate of Stevens, Anchorage businessman Bob Penney, testified two weeks ago before the federal grand jury in Anchorage that has been gathering evidence in the corruption cases.

The house expansion project, first reported in the Daily News on May 29, more than doubled the size of the home. The Stevenses had asked Persons, who lives above the Double Musky restaurant he owns in Girdwood, to help them oversee the addition while they were in Washington.

The existence of the Washington grand jury investigation is the strongest indication to date that Stevens himself has become a subject of the wide-ranging federal probe that surfaced with FBI raids on state legislative offices last August. Former State Sen. Ben Stevens, Ted Stevens' son, was among the legislators whose offices were searched. Ben Stevens has denied wrongdoing.

The FBI said at the time that it also had executed a search warrant in Girdwood, among other places, although the location of that search has never been disclosed.

VECO GUILTY PLEAS

The investigation by the FBI and the Justice Department's Public Integrity Section has so far led to guilty pleas by former Veco chief executive Bill Allen, former Veco vice president Rick Smith and private-prison lobbyist Bill Bobrick. Four current or former state legislators have been indicted and are awaiting trial on corruption charges, three for taking bribes or attempting to take bribes from Veco, the other for taking bribes from the private prison interest.

How the Girdwood home fits in with the broader investigation, or what possible crimes are being investigated, is not clear.

Persons was ordered by the Washington grand jury to produce documents going back more than eight years, including all letters, e-mails and other documents involving Ted, his wife, Catherine, or Ben Stevens. Specifically mentioned were records about a race horse partnership, Alaska's Great Eagle, he manages for Ted Stevens, Allen, Allen's son Mark, Penney and others.

But the main focus was clearly on the Girdwood addition. Persons was directed to produce blueprints and other plans, photos and purchase and installation documents for all phases of the project, including the heating system, generators, ice-melt systems and decorative lights. His summons also told him to bring invoices, payments and other documents related to several Veco employees and to the main contractor, Augie Paone of Christensen Builders in Anchorage.

Persons' didn't return a call for comment last week.

In a brief interview May 18, a week after he received his subpoena and one week before his date with the grand jury, Persons acknowledged he would be testifying, but didn't say where or in what setting.

STEVENS GOES TO FRANCE

Stevens left for France on Thursday to be President Bush's official representative to the Paris Air Show. His spokesman, Aaron Saunders, said that in any event Stevens and his wife would continue to refrain from commenting on the investigation.

FBI spokesman Eric Gonzalez also declined to comment.

Penney would not discuss his testimony.

"All that stuff is confidential," he said from his home in Soldotna. Penney and Stevens are longtime friends and business associates. Every summer for more than a decade, Stevens and Penney bring VIPs to Alaska for the Kenai River Classic, a king salmon tournament that raises money for fish habitat.

Penney's attorney, Bruce Gagnon, said of Penney's appearance before the grand jury: "I think you know as well as I do what they're interested in." Asked whether that was Ted Stevens and Ben Stevens, Gagnon said, "Yeah, yeah."

"And why are they going off in Washington, D.C., as well as here?" Gagnon wondered out loud. "It may well be because they want to try this case back there."

Gagnon said he only knew of one witness -- Persons -- who had been called before the Washington grand jury.

In the face of two years of video surveillance of his company's suite in Juneau's Baranof Hotel and wiretaps on his telephones, Allen pleaded guilty in May to conspiracy, bribing legislators and violating tax laws. Smith, a fixture in that suite, also pleaded guilty. They face about 10 years in prison but hope to reduce their time by cooperating with prosecutors. Their sentencings have not been scheduled.

ALLUDING TO BEN STEVENS

The charging documents against Allen and Smith contained barely veiled references to Ben Stevens, alleging that "State Senator B" accepted $243,250 in phony "consulting" payments from Veco in exchange for advice, lobbying colleagues and taking official acts. Ben Stevens' legislative disclosures say he received that amount of money from Veco for consulting. But nothing in those documents appeared to refer to Ted Stevens. However, a seemingly out of place sentence in a paragraph on Veco described the company's activities: "Veco was not in the business of residential construction or remodeling."

In interviews with the Daily News in May, Paone said he was hired by Allen to complete the framing and other carpentry on the addition. He said he submitted more than $100,000 in invoices for the job to Veco. After Veco approved the invoices, he received a check in the mail from the Stevenses that appeared to have been written on a new account -- all the check numbers were in single or double digits.

Stevens' home sits about two blocks from the day lodge parking lot at the Alyeska ski area. It was a single story building until the expansion, when a house mover from Anchorage, Tony Hannah, jacked it up so a new living area could be inserted under the original house. A garage was also built.

Paone said he testified before a federal grand jury in Anchorage in December.

Last month, Stevens' office issued this statement about the investigation: "While I understand the public's interest in the ongoing federal investigation, it has been my long-standing policy to not comment on such matters. Therefore, I will withhold comment at this time to avoid even the appearance that I might influence this investigation."

ROLE OF GRAND JURIES

Legal experts in corruption cases said that while it's unusual for prosecutors to use grand juries in separate jurisdictions in an investigation, they may have sound reasons. The experts also cautioned that even though prosecutors may be presenting evidence to a grand jury, that doesn't mean crimes have been committed.

Paul Butler, a law professor at George Washington University and a former federal attorney who prosecuted a U.S. senator and several FBI agents, said it could simply be a matter of convenience for witnesses.

Jules Epstein, a law professor at the Widener University School of Law in Wilmington, Del., and a criminal defense lawyer, said the grand juries could be investigating separate, unlinked crimes.

Peter Henning, a law professor at Wayne State University in Detroit, said prosecutors might bring a case against a popular elected official in Washington to avoid being "home-courted."

Prosecutors don't take an investigation into a sitting member of Congress lightly, Butler said. They almost certainly must get the approval of the attorney general, he said.

Find Richard Mauer online at adn.com/contact/rmauer or call 257-4345.

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Potential threat to pipeline exposed by soccer mom
East Coast man charged in plot goes to trial
By KEVIN DIAZ
kdiaz@adn.com
Published: June 17, 2007
Last Modified: June 17, 2007 at 07:22 AM

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Rossmiller describes her personal jihad
http://www.adn.com/static/images/pdf/bomber/Rossmiller_ArticleReynolds_Terror_Indictment_10-4-06.pdf
Pennsylvania arrest

WASHINGTON -- Michael Curtis Reynolds, accused of plotting to blow up the trans-Alaska pipeline and headed to trial in Pennsylvania, claims he was actually a patriotic American trolling for terrorists on the Internet.

So was the Montana soccer mom whose cyber-spy moonlighting led to Reynolds' arrest two years ago during a clandestine money drop along a deserted highway outside Pocatello, Idaho.

Their online meetings in October 2005 sparked an elaborate FBI sting that will culminate in Reynolds' trial July 9 in a federal courtroom in Scranton. That's not far from Wilkes-Barre, where the 49-year-old jack-of-all-trades lived with his mother -- and reportedly boasted of connections to al-Qaida.

Reynolds' case is among a series of alleged plots involving home-grown jihadists -- some of questionable means and ability -- since the Sept. 11, 2001, terrorist attacks.

But terrorism experts say they can't take anything for granted.

"You have to take every one of these seriously," said Neil Livingstone, a Washington-based security consultant who has studied the Alaska pipeline. "Some are just 'fantasists.' Some are wanna-bes. Most never get there. But the problem is you can have someone like the Unabomber (convicted Montana bomber Ted Kaczynski)."

Reynolds' case in particular has brought renewed attention to the 800-mile-long pipeline, the target of several amateur attacks since it started carrying North Slope oil 30 years ago this month.

It also underscores the stakes in the debate in Congress over energy security, efficiency and shoring up domestic production to reduce American dependence on foreign oil.

Reynolds' mustachioed mug shot adds a new face to the threat of domestic terrorism.

The risks of a post-9/11 world have been underscored in recent months by the arrests of four Muslims from the Caribbean charged in a plot to sabotage fuel supplies at New York's Kennedy Airport, as well as six others arrested on charges of plotting to attack the Fort Dix Army base in New Jersey. Those cases followed last year's arrests of seven men in Florida accused of planning to attack the Sears Tower in Chicago.

Reynolds' purported scheme, like many of the others, never came close to really happening.

Thomas Marino, U.S. attorney for the middle district of Pennsylvania, issued a statement praising the FBI for intervening early and stopping Reynolds from "following through" with his plans, which Marino said included sabotage of a number of U.S. energy installations besides the pipeline.

Reynolds, who has dismissed several court-appointed attorneys, is representing himself at his trial. In a handwritten letter to U.S. District Judge Edwin Kosik, Reynolds accused Justice Department officials of fabricating evidence against him for political gain.

"Don't think for a minute that I would permit this court to railroad me for publicity," he wrote. "I won't be convicted no matter what laws you break. Give it up; send me home now. You yourself know for a fact that I will embarrass the FBI and I've already won."

Justice officials and Reynolds' court-appointed stand-in attorney, Joseph O'Brien, declined to comment, citing a gag order by the judge.

The case against Reynolds will rely in great part on the testimony of Shannen Rossmiller, a 38-year-old mother of three who turned out to be the fake al-Qaida online contact who arranged to give Reynolds $40,000 at a rest stop on Idaho's Interstate 15.

Rossmiller, a former Montana municipal judge, has made a name for herself as an online chameleon trolling Muslim Web sites and Internet chat rooms at night -- primarily in Arabic -- for would-be terrorist plotters and schemers.

Federal law enforcement officials decline to discuss her publicly, but they have shown an interest in her work before.

She first came to light in 2004, when her testimony helped convict Spc. Ryan Anderson, a National Guardsman at Fort Lewis, Wash., whom she spotted on an Arabic Internet forum shortly before he was slated for deployment to Iraq.

In an interview with McClatchy Newspapers, Rossmiller described herself as an all-American mother whose patriotism shifted into overdrive after 9/11.

"I felt the same emotion as many other Americans," she said. "I was always patriotic. But I didn't realize until 9/11 how important it was."

She devoted herself to learning Arabic and visiting jihadist Web sites. "It was just fascinating what I was looking at and reading," she said.

But it was on an English-language Yahoo chat group called OBLcrew (Osama Bin Laden Crew) that Rossmiller says she encountered Reynolds. He was using the moniker "Fritz Mueller."

Reynolds later told authorities he was doing the same thing as Rossmiller -- trying to smoke out terrorists.

A six-count federal indictment paints a different picture. Based partly on Reynolds' Internet communications with Rossmiller, officials charge he tried to retrieve $40,000 "that he believed constituted payment from al-Qaida in exchange for his services."

Those services allegedly included recruiting al-Qaida "crews" to strike at gas pipelines in Alaska, Pennsylvania, New Jersey and Wyoming.

Part of Reynolds' motivation, according to an e-mail he sent Rossmiller, was to undermine one of President Bush's frequent justifications for the war in Iraq: "The fuel is here, hes hanging on to the press backing him on the claim that since he waged war, no terrorist attacks have been successful, hence the war is just."

Reynolds was staying at the Thunderbird Hotel in Pocatello on Dec. 5, 2005, when he was arrested at the intended highway rendezvous outside of town. He's been in jail ever since.

Neither Rossmiller nor federal officials will say whether Reynolds ever got to Alaska. "That will come out in court," Rossmiller said.

There is evidence that he traveled to Thailand and Australia, though it's unclear why.

Richard Danise, Reynolds' former father-in-law, was once quoted by the Philadelphia Inquirer calling him a "John Wayne wanna-be."

Rossmiller said it's not her job to assess whether Reynolds posed a threat.

"It's not my place to judge that, or I'd be acting like a vigilante -- judge, jury and prosecutor," she said. "The guy might not have a full deck, but he's got the means available to him. He can act on his emotions."

Reynolds has a record of violence, including a 1978 conviction for attempted arson, apparently part of a feud with his parents. Also among the pending charges against him: illegal possession of hand grenades.

Despite questions about his mental health, he was found competent to stand trial this year.

Meanwhile, Alaska pipeline officials remain on guard, mindful of an unsolved intentional explosion in 1978 near Fairbanks, as well as a 2001 incident in which a drunken gunman shot a hole into the pipeline near Livengood.

"We are aware that we are a major energy infrastructure," said Mike Heatwole, a spokesman for the Alyeska Pipeline Service Co., which operates and maintains the pipeline. "We work closely with all the homeland security agencies."

Find Kevin Diaz at kdiaz@mcclatchydc.com.

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http://www.adn.com/money/story/9006637p-8922086c.html

CH2M Hill, Veco agree to terms
DEAL: Colorado-based company sees chance for growth in energy sector.
By DON HUNTER
dhunter@adn.com
Published: June 17, 2007
Last Modified: June 17, 2007 at 03:18 AM

A month of negotiations produced an agreement this weekend for Colorado-based CH2M Hill to acquire the Alaska oil field services and construction company Veco Corp. for about $365 million, spokesmen for the companies said Saturday.

The talks began in mid-May, a little more than a week after Veco's former chief executive, Bill Allen, and former vice president Rick Smith pleaded guilty to federal conspiracy and bribery charges in an ongoing political corruption investigation in Alaska.

The $365 million purchase price covers core assets, projects and people, CH2M Hill spokesman John Corsi said in a telephone interview from Denver on Saturday. The overall value of Veco was put at $463 million, including some real estate and other assets CH2M Hill will not be acquiring, Corsi said.

Additional details remain to be worked out. Corsi said the acquisition should be finalized in August.

"But we've reached agreement," he said. "The terms of the acquisition have been agreed upon."

Corsi and Tim Woolston, a spokesman for Veco, said the purchase will benefit employees of both companies.

Veco has about 4,700 employees working in oil fields and construction jobs in several countries. CH2M Hill, an employee-owned company, has about 19,000 workers engaged in engineering, construction, transportation and environmental services projects around the world and annual revenues of about $4.5 billion, Corsi said.

"When I say we're global, the only continent where we're not serving clients right now is Antarctica," he said,.

Still, Corsi added, "We think the Veco acquisition improves our geographic footprint," particularly in the energy industry.

Corsi described CH2M Hill as a company "with a stellar reputation." He said the company is not concerned that the federal investigation swirling around Allen, Veco's founder, will carry a shadow.

"Absolutely not," he said. "We feel this issue is isolated to a few key people at the top. ... What attracts us to Veco is the quality of the work force -- we think it's top-notch."

One of the outstanding issues is whether Veco will retain its name, Woolston and Corsi said.

In a press release issued Saturday, Tammy Kerrigan, Veco's chairwoman, called the deal "a wonderful outcome for Veco," adding that the pairing of the companies is "a natural fit for our business and work force."

Lee McIntire, president and chief operating officer of CH2M Hill, said in the same written statement that the merging of the companies brings together skills "that will benefit our clients and the communities we serve."

Find Don Hunter online at adn.com/contact/dhunter or call 257-4349.

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http://www.adn.com/outdoors/story/9011307p-8926775c.html

Kittiwake-up call in Prince William Sound
Shoup Bay serenity broken only by seabirds' conversation
By MELISSA DeVAUGHN
mdevaughn@adn.com
Published: June 17, 2007
Last Modified: June 17, 2007 at 05:15 AM

PRINCE WILLIAM SOUND -- The first thing we noticed as we motored into Shoup Bay State Marine Park was the noise. The cacophony of black-legged kittiwake chatter was so loud we had to yell to each other, just an arm's length away, to be heard.

"Wow! That's a lot of birds," I said to Andy, stating the obvious as thousands of white-bodied seabirds buzzed overhead, landed on the water or circled on a nearby rock islet splattered with their droppings.

At an estimated 20,000 birds, Shoup Bay is one of the largest black-legged kittiwake rookeries in Prince William Sound and one of the fastest growing, despite a recent downturn in fledging success. There are also about 3,000 glaucous-winged gulls, as well as eagles, arctic terns and several species of waterfowl.

And the birds seem busy all the time.

It was one of the unexpected treats of our four-night family kayaking trip to this small marine state park, tucked into a shallow bay some five miles southwest from the port of Valdez. The C-shaped bay leads to the rapidly receding Shoup Glacier, which calved thunderously on several occasions during our stay.

In fact, Shoup Bay is a study in sensory overload -- the ongoing bird concert, the pervading scent of seawater and the shocking sensation of the cold water on bathing-suit clad bodies.

Even when the sun dipped behind a thick blanket of fog and that familiar Prince William Sound rain came, we were undaunted. We simply added another layer of clothing, slipped on some gloves and paddled on.

A ROUGH LIFE

Shoup Bay State Marine Park is perhaps best known for a reported 150-foot tidal wave, which supposedly surged in and out of the bay three times during the 1964 earthquake. In a photograph reprinted in "8.6 --The Great Alaska Earthquake," the U.S. Geological Survey documented spruce trees in Shoup Bay with a diameter of 2 feet that were snapped like matchsticks by waves as high as 101 feet above the low-water mark.

Since then, the bay is a different place, serene despite the unending kittiwake chaos. Surrounded by mountains spilling over with waterfalls and a glacier that calves at all hours, the area is a kayaker's dream. The water is tame, and paddling alongside the shoreline offers a chance to see Alaska wildlife up close.

One afternoon, Colleen Mueller and I decided to take one of our rented double kayaks to the far end of the bay while our children and the other adults stayed behind at the Kittiwake and Moraine public-use cabins, stoking the fire that warmed the water for the homemade portable hot tub that had been brought along.

As we passed the kittiwake rookery, the birds gave us no notice, busily flying to and from their perches with twigs, mud and other debris for their cliffside nests. Birds stamped on their nests with sticklike legs, patting them down perfectly in preparation for the eggs that would soon arrive.

Earthwatch biologists living in field camps nearby said the first kittiwake egg showed up on May 21, three days prior to our arrival. That was a whole week and a half earlier than the year before, when the first egg was spotted on June 1.

The birds were indeed busy, and we floated by without paddling, just watching the birds do what birds do. What a seemingly simple, single-minded life they must have with no care other than to raise a chick. With at least 9,000 nesting pairs of birds, one might expect this rookery to grow exponentially.

But that is not the case.

Aly McKnight, principal investigator for the Shoup Bay Earthwatch project, noted that in 2004, fewer than 40 kittiwakes fledged. In 2006, the number was down to 26.

The number is staggering. Researchers blame three juvenile eagles as well as other predatory birds for ransacking the nests, helping decimate the population.

On another day, Colleen and I, steering with our children in the front seats of our respective kayaks, looked up at the mountainsides and noticed a white patch that at first looked like snow.

Upon closer examination through binoculars, though, it turned out to be a mountain goat perched on the impossibly steep slope. McKnight said she's been coming to the field camp for years and had never seen a goat before.

UNUSUAL PASTIMES

Paddling around the rookery on another morning, Colleen and I searched for icebergs small enough to haul ashore and use as ice in our drinks and coolers.

While these icy behemoths can be dangerous, tipping unexpectedly and flipping a boat in a second, we were not intimidated. The pieces we sought out were driftwood size.

We found one such piece floating just beyond the rookery, and while I steered in the rear, Colleen called on her Iowa farm-girl skills to lasso the barbell-shaped ice chunk like a steer.

It was slippery business to work the lasso tightly. Then we had to paddle back to camp, no small task considering the ice seemed to weigh about as much as our combined body weight and kept clunking the boat like a playful porpoise.

Still, we managed to get our prize to shore, returning to camp as proud of our slab of ice as the men are when they come home with big, dead fish.

The men, meanwhile, concentrated their efforts on gathering firewood. Occasionally, they'd take Sam Dennis' Zodiac out to search various areas for dead and downed trees to avoid denuding the cabin area, which is more sensitive to overuse. They'd return hours later, laden with gnarled, graying wood, dried and primed for the fire.

They would then move on to the wood-chopping phase, splitting the chunks into manageable pieces so the fire would burn perfectly. Dennis, a longtime river runner with his wife, Liz Shen, and their children, is a bit of an innovator who's perfected the portable hot tub for camping trips such as ours.

A simple inflatable swimming pool is loaded with water. Then a large copper coil, from which two hoses are attached, is inserted into the fire.

A portable solar panel powers a pump that circulates the water through one hose into the coils through the fire and back out the other hose into the "tub." Presto: A bayside hot tub.

That is when the bathing suits came out, and the idea of swimming in Shoup Bay did not appear too crazy at all.

It started with the children, who spent a large portion of their time piled into the hot tub. As the water heated, their little Alaska bodies couldn't take the heat. On the first night, it was 8-year-old Olivia Mueller, the daredevil among them, who declared that she was going swimming.

The others said she was crazy -- no way were they getting into that blue-gray ice water. Have fun, they said. Then, their eyes got big as Olivia stood up, walked down the rocky beach in bare feet and dove right in. To prove her point, she swam around a little with an impish grin, saying, "See? It's not bad."

Then she marched back out and plopped into the hot tub next to Carly Dennis, who decided maybe she'd try it too. Within minutes, they were all out of the steaming hot tub -- even the 6-year-olds -- and slipping into Shoup Bay as if they were at a summer lake in the Midwest, cooling off.

This became an obsession among the kids, seeing who would run in and out of the water the most. They transformed Sam's Zodiac into a dock and jumped in over their heads. They played "I dare you" games, going in to their necks or dipping their heads for brief seconds. They seemed impervious to the cold, emboldened by their own sense of adventure.

We adults monitored from the campfire, wrapped in our fleece and flannel and wondering if we would be that brave (we were, but once was enough). Only in Alaska, we said to each other, proud that our children were able to have a good time no matter the circumstances.

THE MORE, THE MERRIER

Shoup Bay is an ideal family trip because the two public-use cabins, about 600 yards apart and separated by new-growth alder and spruce, create a haven from the often-rainy Sound. Each can sleep up to eight -- or more, if they are child-sized.

Our three-family expedition consisted of six adults and seven children all under the age of 10. Five slept in one cabin, while the other eight camped in the second. Two families arrived in their own small boats. Another paid passage on a local water taxi and were brought right to the cabin.

We had four double kayaks between us, and we took turns going out into the bay to explore. Just off the lagoon where we tied off Sam's Zodiac and anchored our own wooden dory, we set up a small tent to keep things dry when the rain occasionally passed through. But for the most part, the Prince William Sound weather remained calm and partly sunny, bringing in just enough clouds to keep us in long sleeves and pants.

The day before we were to leave, we decided to make the trek out to the glacier. From the lagoon it looks only minutes away, but in reality it takes about an hour to reach the other end. Colleen, Andy and I steered while three of the kids sat up front, occasionally dipping their paddles and helping out, but for the most part enjoying the scenery and dragging their hands in the water.

Once again we paddled around the rookery and then slipped in alongside the shoreline to get out of a growing but gentle wind. Liz had noticed earlier in the week the steady stream of kittiwakes flying in and out of the bay, making a beeline with nest materials. "Kittiwake highway," she called it, and McKnight confirmed that's essentially what it is. The birds zone in on where the best nesting material is and they go back and forth, transporting it to their nests.

On this day, a new kittiwake highway seemed to have developed, following our course to a nondescript bare patch of rock along the mountainside. It looked no different than its surroundings, but for some reason it had become the new nest-materials gathering site for the birds. We watched them come and go, their beaks overflowing.

About a quarter mile beyond that site, as the sounds of the birds faded and we were lulled with the slap-slap of our paddles against the water, Colleen pointed to a smaller, less frantic-looking rookery of about 50 kittiwakes, who had inexplicably chosen this rock outcropping instead of the massive one a half-mile back.

"Look, that's the small town outside the city," she said of the rookery, and in my mind I thought to the kittiwakes, "Yes, that is where I would prefer to live if I were one of you."

A CHANGING FACE

Shoup Glacier is, of course, the crowning jewel of the bay. About a quarter-mile from its face, we pulled our kayaks onto a rocky outcropping filled with slimy glacial silt. We piled on the rocks like sea lions and spread before us all the leftovers of the past four days of feasting: pistachios, granola bars, sandwiches, apples and a bag of potato chips that the Muellers had miraculously kept from crushing.

The kids ate ravenously -- the fresh air and activity kept their tanks constantly on empty. Then, quick as that, they were gone, scrambling over the rocks like the mountain goat we had seen earlier in the week.

Find Melissa DeVaughn online at adn.com/contact/mdevaughn or call 257-4482.

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Valdez offers three state marine parks where tent and cabin camping is available. Sawmill Bay, Shoup Bay and Jack Bay marine parks offer a variety of recreational opportunities. Shoup Bay is the only one accessible by trail.

A fourth park, the Shoup Glacier Marine State Park, is tucked behind Shoup Bay and undeveloped.

• Sawmill Bay: The peaceful forest-ringed bay, 15 miles from Valdez and three miles southwest of Valdez Narrows, offers protected anchorages and two tent platforms for camping.

• Jack Bay: For island camping with tent platforms and a fair-weather anchorage, this marine park, 15 miles from Valdez, southeast of Valdez Narrows, is excellent.

• Shoup Bay, closest of the three parks, is only five miles from the Valdez port. It has tent platforms for camping as well as three public-use cabins. McAllister Cabin is at the head of the bay. Kittiwake and Moraine cabins, about 600 yards apart, are off a rocky beach within the lagoon. The lagoon is accessible on most high tides by small, shallow-draft boats.

For information, contact the Kenai-Prince William Sound Area Office at 1-907-262-5581 or go to www.alaskastateparks.org to reserve a cabin. Contrary to the Web site information, the Moraine cabin is available for rent -- not reserved for the U.S. Fish and Wildlife Service, as stated.

Access to Shoup Bay is via the 11-mile Shoup Bay Trail, which suffered flood damage in October 2006 and was considered impassable at the time. We met a hiker who reached Shoup Bay from the trail in late May.

Alternate access is via boat. One family in our group used water taxi services available through Pangaea Adventures, which also rents kayaks and guides tours. Other options include the longtime company Kimberlin's Water Taxi ( www.kimberlinswatertaxi.com , 1-907-835-8294), which also offers tours in the area; and Anadyr Adventures ( www.anadyradventures.com , 1-907-835-2814), which features an all-day Shoup Glacier kayak trip and kayak rentals.

Other information on visitor services is available at the Valdez Convention and Visitors Bureau, 1-907-835-4636, www.valdezalaska.org .

-- Melissa DeVaughn

Houston Chronicle
June 15, 2007

http://www.chron.com/disp/story.mpl/front/4892125.html

It's all about safety, new BP chief says
By KRISTEN HAYS
Copyright 2007 Houston Chronicle

New BP CEO Tony Hayward asserts that his company shines when it comes to finding oil and gas or amassing an impressive portfolio of energy assets.

Operations are another story. An explosion at its Texas City refinery killed 15 people. A corroded pipeline allowed oil to spill at the nation's largest oil field in Alaska. And design and operational problems have delayed getting key Gulf of Mexico oil platforms up and running.

In his first media interview since taking BP's helm six weeks ago, Hayward said he is committed to improved safety, a culture in which all concerned voices are heard and making good on promises of improved performance.

"The task is to restore confidence. It has obviously been a pretty challenging couple of years at BP," Hayward said in an interview at BP's U.S. base in Houston.

"You earn your reputation through performance, through being clear about what you're going to do and then doing it," he said.

Composed and confident, with an open-neck pink-striped shirt at the complex where few wear ties, the 50-year-old geologist outlined his vision for the London-based oil giant.

Abrupt resignation

Formerly head of BP's exploration and production unit, Hayward was announced as former CEO John Browne's successor in January, when Browne moved up his retirement by more than a year to July.
Instead, Hayward took the post last month when Browne abruptly resigned after acknowledging that he had lied to a British court about where he met a former companion.

Hayward said BP has learned from its mistakes and has embraced an extensive report from an investigative panel headed by former Secretary of State James Baker III as a road map for righting safety wrongs at U.S. refineries.

The company also aims to ensure that employees have the right skills to do their jobs and that operations that are down are restored, including half of the Texas City plant's capacity.

Investors and the Texas City community have heard such promises already. Robert Kessler, an analyst with Simmons & Co. International, said he's watching for action, not words.

"The jury is still out in the BP story from an execution standpoint," Kessler said. "We just need to see good intentions translate into results for the company."

Hayward said improvement efforts could take up to five years. But the Baker panel's report, which he called a "real gift for BP," can guide the company in setting a new benchmark for industrial safety.

He declined to comment on an ongoing criminal investigation by a federal grand jury in Houston related to the Texas City blast.

Hayward visited the Texas City facility last month and spoke to workers as he walked around the plant for several hours. "They really do think a lot has changed," he said.

But last week's electrocution of a contractor at the plant was a "vivid and tragic reminder" of how far BP has to go to improve safety in work that is inherently dangerous, Hayward said.

"It's the refining industry, so what?" he said. "We have to have a work environment where people don't get injured or killed, period."

The Baker panel's recommendations focused on improving process safety proper operation of equipment and handling of hazardous materials.

It found that before the 2005 blast, BP focused more on personal safety prevention of incidents like slips and falls.

Independent monitoring

As a result, BP gained false confidence about its process safety, the panel said, though it found no evidence that BP intentionally ignored operational safety.
"I think it's a mandate for change for me," Hayward said of the Baker report. "And we've taken it and we're going to implement it."

Last month BP took a first step the panel recommended, appointing an independent monitor to oversee other improvements. The monitor, Duane Wilson, is a retired vice president of refining, marketing, supply and transportation for ConocoPhillips, who also served on the panel.

The U.S. Chemical Safety and Hazard Investigation Board reached harsher conclusions after an exhaustive two-year investigation into the Texas City blast. Its investigators said budget cuts imposed in the years before the blast reduced attention to safety and laid the foundation for the tragedy.

Hayward acknowledged BP and its peers cut costs in the late 1990s and in the early part of this decade to combat low oil prices and sagging refining margins.

But he reiterated the company's position that no link exists between the cuts and the Texas City blast or the oil spill at Prudhoe Bay on Alaska's North Slope.

"We spent a lot of time looking at that and there is no way you can say there is a direct correlation," he said.

Dan Horowitz, spokesman for the Safety and Hazard Investigation Board, said investigators stand by their report.

"There was a clear linkage between budget cuts and inadequate investment and the serious safety lapses in Texas City," he said.

While Hayward disagrees with that finding, he said cutbacks in skilled engineers and other professionals in the same time period did lead to BP's problems with Thunder Horse, its ambitious oil platform.

Originally slated to begin producing up to 250,000 barrels per day more than any other Gulf structure in 2005, the platform has faced repeated delays.

Two of its four pontoons took on water during Hurricane Dennis in 2005, then corrosion problems on equipment at the sea bed pushed production to 2008.

Hayward noted that Thunder Horse, in 6,000 feet of water, was the highest pressure, highest temperature development undertaken in the deepwater Gulf when BP tackled it.

In hindsight, he said BP lacked engineering capacity to handle its scale and complexity.

"We set off on what was, for the oil industry, putting a man on the moon without really the engineering underpinning to achieve that. I think if you step all the way back, you'd say that's the real root cause of all the issues we've had at Thunder Horse," he said.

2nd platform delayed

The problems prompted BP to hold back on rushing Atlantis, its 200,000-barrel-a day platform in 7,000 feet of water, into production this summer. It is now slated to begin operation by year's end.
A key Thunder Horse lesson is the need to maintain engineering skill through down cycles of low oil prices and refining margins not just when prices are high, as they are now, Hayward said.

Hayward said BP also is intent on restoring the Texas City refinery to full capacity.

Texas City, which can process 460,000 barrels a day, is at half capacity amid ongoing repairs and restarts after Hurricane Rita prompted its first complete shutdown in 40 years.

"They still have an enormous task to complete. We are rebuilding a refinery piece by piece," Hayward said.

kristen.hays@chron.com

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http://www.chron.com/disp/story.mpl/business/steffy/4891625.html

New boss has plenty to do to repair BP's image
By LOREN STEFFY
Copyright 2007 Houston Chronicle

The numbers show the magnitude of what BP still needs to do at its Texas City refinery.

You can see it in the statistics that show the fatality rate has accelerated in recent years. Twenty-three workers died there in the 30 years prior to the March 2005 explosion at the refinery. Seventeen workers have died since then, including the 15 killed in the blast, which also injured 500.

You can see it in the dire warning, revealed in an internal BP document from 2005, that predicted another BP worker would die at Texas City in 12 to 18 months. One died 15 months after the 2005 explosion.

Another died 11 months after that just last week when a worker was electrocuted at the refinery.

"It was a vivid and tragic reminder that we still have a very long way to go," Tony Hayward said Thursday in his first interview since becoming BP's chief executive six weeks ago. "I'm not worried about the image. I'm actually worried about the guy who died."

BP, though, is a company fighting for its image as much as for its operational improvements. It's a company that's investing $8 billion in alternative fuels, reducing carbon emissions and generally promoting an environmentally friendly agenda. That green image is at odds with failings that include the fatal Texas City explosion, leaking pipelines in Alaska, and the pictures of the listing Thunder Horse platform in the Gulf of Mexico.

Thunder Horse's problems were related to engineering, not safety. I mention them because Hayward did, as a lesson in how cutbacks can hurt future performance.

The platform, 150 miles southeast of New Orleans and in 6,000 feet of water, is among the most ambitious offshore projects ever undertaken. Hayward likened it to the energy industry's equivalent of a moon shot.

But it was more Apollo 13 than Apollo 11.

Thunder Horse, which weighs almost 60,000 tons, was scheduled to begin production in 2005. That same year, after the crew left the platform ahead of Hurricane Dennis, two of the platform's four pontoons took on water, causing it to list 20 degrees. Repairs cost $100 million. The platform also has been plagued by corrosion problems that have delayed production into next year.

Handling a project of that magnitude, Hayward said, requires extensive engineering expertise that BP lacked. During the lean years of the late 1990s, when oil prices fell below $11 a barrel and refining margins grew as tight as 2 percent, BP, like many companies, pared staff to save money.

"People sort of forget how tough times were," Hayward said. "If you wanted to survive you couldn't carry lots of engineers. If you step all the way back, you'd say that's the real root cause of all the issues we've had at Thunder Horse."

The lesson applies not just to engineering, but also to refinery safety. And to pipeline maintenance.

In a scathing report released in March, the Chemical Safety and Hazard Investigation Board found cost-cutting undermined safety programs and training at Texas City and delayed the installation of equipment
that might have prevented the blast.

During the tough times, BP remained profitable on an annual basis, but it appears profitability came at the expense of lives, safety and future investment.

Hayward doesn't agree with that conclusion.

"We can't find any direct linkage," Hayward said. "Everything that we can find suggests that the budget cuts per se did not contribute to either the tragedy at Texas City or the spill in Alaska."

While he can't find the linkage, Hayward doesn't gloss over BP's shortcomings. He lauds a report released in January by an independent panel chaired by former Secretary of State James A. Baker III that criticized BP's safety programs but stopped short of blaming cost cutting.

Hayward called it "a mandate for change."

But the Chemical Safety Board report is, too. It shows a company that lost sight of how cost pressures affected operations. It shows a company whose workers' safety, indeed their very lives, ultimately depended on high oil prices.

Hayward's leadership represents a new era at BP, a commitment to listening to worker concerns, to improving the company's operational shortcomings.

"You build your reputation through performance," Hayward said. "It's pretty clear, for a couple of years now, in the matter of our core operations in the U.S., our performance has not been adequate."

You can look at the numbers and see how much work still needs to be done.

loren.steffy@chron.com