March 2007 News Stories

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Anchorage Daily News
March 24, 2007

http://www.adn.com/money/industries/oil/pipeline/story/8734851p-8636461c.html

Exxon, BP proposals frustrate legislators
NO SPECIFICS: Changes sought in pipeline bill but no details are given.
By SABRA AYRES
Anchorage Daily News
Published: March 24, 2007
Last Modified: March 24, 2007 at 01:38 AM

JUNEAU -- In testimony before state lawmakers Friday, both Exxon Mobil and BP called for changes to proposed legislation aimed at setting criteria for building a natural gas pipeline from the North Slope.

Representatives from the two companies made their pitch before the Senate Resources Committee, but the day ended with some lawmakers frustrated at what they said was the lack of specifics in their appeal.

Exxon Mobil and BP representatives agreed a producer-owned pipeline would be the best value for both the state and North Slope gas producers. But applicants who bid to build and operate the pipeline project should be allowed to set their own terms of inducements and financial certainties instead of being restricted by the criteria laid out in Gov. Sarah Palin's Alaska Gasline Inducement Act, the companies told the committee.

"The best way to allow competition is to allow applicants to come up with whatever inducements they feel are necessary," David Van Tuyl, the commercial manager for BP's Alaska Gas division, said during his testimony on the governor's gas line bill.

Palin's AGIA bill sets out requirements and incentives for applicants wishing to bid on a state license to build a gas line. But both BP and Exxon Mobil said the proposed legislation also needed more clarification on how the state would ensure financial stability for the project.

Uncertainties about the bill's financial terms pose serious risks for potential pipeline builders, said Martin Massey of Exxon Mobil.

The bill has a provision for a 10-year freeze on gas production for producers willing to commit their gas to the project. But producers indicated Friday they would prefer a longer, locked-in rate from the state.

The companies also said the bill's provision requiring the pipeline owner to share the cost of any capacity expansion via transportation fees could increase the financial risks.

"We are willing to take on the geologic, cost and future commodity rate risks, but we can't take on the risk of any unknown changes to the fiscal terms," Massey said.

A plan proposed last year by former Gov. Frank Murkowski teamed the state's three largest producers -- Exxon Mobil, BP and Conoco Phillips -- together to build the pipeline. The contract would have allowed a 30-year tax freeze on oil and a 45-year tax freeze on gas. The contract was criticized by lawmakers for giving away the state's ability to tax its largest revenue sources.

Lawmakers Friday pushed the producers to be more specific in what sort of financial stabilizing terms they would prefer. Both Van Tuyl and Massey, however, hedged on giving specifics, saying there were several possibilities that could make the project's risks manageable.

"I don't think we need new legislation," Van Tuyl said. "But I believe AGIA can be amended to allow the project applicants to specify what that risk-reward ratio should be."

The vagueness of both Exxon Mobil's and BP's request provoked frustration among several of the committee's members. Some members tried various ways of questioning to get the producers to clearly spell out what financial terms they would prefer to be included in AGIA.

Their attempts failed.

"I would genuinely like to see what kind of inducements they want or need," said Sen. Bill Wielechowski, D-Anchorage. "We have a process here where people can come forward with suggestions on legislation. We can do this without the producers, but I think it's preferable to do it with them."

At least one natural gas exploration company expressed concern Friday about a producer-owned pipeline.

Anadarko Petroleum Corp., which is currently exploring in the North Slope, said an independently operated pipeline would provide more access to the pipeline's capacity for explorers coming on line after the pipeline's construction.

"An independent pipeline owner is motivated to solicit more capacity," Mark Hanley, the public affairs manager for Anadarko, told lawmakers.

Legislators will conduct a second public hearing on AGIA today, followed by more committee hearings on the bill next week.

Sen. Charlie Huggins, R-Wasilla, has said that as chairman of the Resources Committee, he would like to see AGIA get to the Senate floor before the end of April.

Daily News reporter Sabra Ayres can be reached at sayres@adn.com   or 1-907-586-1531.
 

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Chemical Safety Board

03_23_2007 Chemical Safety Board Final Report on the BP Texas City Refinery Explosion
can be found at:

http://www.csb.gov/completed_investigations/docs/BP%20Final%20Report%203.23.07.pdf

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Anchorage Daily News
March 23, 2007

http://www.adn.com/money/industries/oil/prudhoe/story/8729830p-8630578c.html

FBI digs deeper in probe of North Slope
DEC: Political appointees accused of punishing state regulators who got tough.
Daily News staff and wire reports
Published: March 22, 2007
Last Modified: March 22, 2007 at 02:03 PM

NEW YORK -- The FBI is investigating whether Alaska political appointees improperly punished state regulators who tried to enforce environmental rules against oil companies operating in Alaska.

The inquiry, which is being conducted by the Federal Bureau of Investigation and the U.S. attorney's office in Anchorage, is connected to an ongoing criminal investigation of BP for allowing pipelines it operates to corrode enough to cause a large oil spill on Alaska's North Slope in 2006. Similar pipeline corrosion discovered later that year forced the partial shutdown of Prudhoe Bay, the most productive U.S. oil field.

Now, the actions of the Alaska Department of Environmental Conservation, which is responsible for overseeing oil operations in the state, have come under scrutiny from federal investigators, according to a story from Dow Jones Newswires.

Critics of the department say senior political appointees are partly to blame for the state's environmental woes such as last year's oil spills. They say these appointees repeatedly shielded oil companies from enforcement actions that would have required better maintenance and oversight of the industry's facilities and pipelines.

"We're aware of the allegations, and we are looking into it," said FBI spokesman Eric Gonzalez. He declined to comment further.

One DEC critic is Susan Harvey of Eagle River, who quit the department in 2002 after she said her responsibility for North Slope oil spill prevention and response was taken away. Harvey has said she believes it was because of her firm stance as a regulator. She also has said she received a federal subpoena and has talked with investigators.

The FBI has interviewed Steve Taylor, the director of environmental policy at BP Alaska in 2001, about a meeting he had in September 2001 with Michele Brown, then DEC commissioner, in her office. Taylor said that, during the meeting, a lobbyist with the Alaska Oil and Gas Association telephoned Brown complaining about Harvey's enforcement of environmental rules. Judy Brady, the lobbyist, asked Brown to remove Harvey from her job overseeing the oil companies on the North Slope, Taylor said.

Harvey often didn't see eye-to-eye with oil company officials. In October 2000, for example, Harvey's office prohibited BP's offshore Northstar field from producing oil when the Arctic ice was partially thawed because the company had failed several drills testing its ability clean up a spill in those conditions. Harvey says her staff also resisted efforts by Phillips Inc., now part of Conoco Phillips, to extend the winter drilling season, due to concerns that companies wouldn't be able to clean a spill in warmer weather when the tundra was thawing.

"Brady was complaining about Susan Harvey and demanding they get rid of Susan," Taylor said. This type of pressure from Brady, he added, "was not an uncommon thing."

Taylor has since retired from BP, though he still consults for the company, he said.

Brady, a former state natural resources commissioner, adamantly denied the allegation that she tried to get rid of anyone, and said the telephone call described by Taylor never happened. She said her group didn't attempt to remove Harvey from her job.

"You'd be a fool to do such inappropriate things," she said.

At the time, Brady said, her organization was trying to iron out with state officials a clearer understanding for oil companies of how DEC would apply requirements for spill response plans. Several companies were concerned that the rules seemed inconsistent, she said.

The goal was to get a better process, not get rid of regulators, Brady said.

Brown, the former DEC commissioner, said she recently was interviewed by FBI agents, but mostly they wanted to review how the state and oil industry developed a 1999 "charter agreement" that, among other things, required regular reports from BP and what is now Conoco on how they were dealing with corrosion in pipelines.

The agents said the state is not the target of the investigation, Brown said.

As for Harvey, she tended to overreach in her regulatory demands and seemed to have an inflated sense of her own importance within the DEC organization, Brown said. Under Harvey, reviews of industry "contingency" or spill-response plans lagged by two years or more, Brown added.

"Her tendency was, there is my way and there is only my way and you will do it my way," Brown said.

DEC spokeswoman Lynda Giguere issued a statement Wednesday:

"To our knowledge, the FBI is not investigating senior DEC political appointees concerning allegations they punished regulators for being tough on the oil industry. Rather, the FBI as part of the federal grand jury investigation of BP's actions on the North Slope has interviewed past and current DEC employees concerning BP's North Slope oil spills."

Giguere said state law forbids the department from discussing Harvey or other personnel matters.

BP spokesman Daren Beaudo said the company wasn't aware of any federal investigation into state environmental regulators and declined to comment further.

Conoco Phillips and Exxon Mobil Corp. hold stakes in the Prudhoe Bay field, which is operated by BP.

An Exxon Mobil spokeswoman said the company didn't seek to have Harvey removed from her position at the department overseeing the North Slope, nor has it been contacted by the FBI.

A Conoco spokesman didn't a return a call seeking comment.

According to performance assessments reviewed by Dow Jones Newswires, Harvey's supervisors at the department gave her an "outstanding" rating in all four performance categories for the year preceding Aug. 15, 2001. But a later review for the period between August and December 2001 said her performance was "average" and rated her "unacceptable" in "interpersonal relationships" and "supervisory."

Harvey's disintegrating relationship with her supervisors came at a time when tensions between her office and the oil industry were mounting.

"There was a decade of neglect of environmental enforcement," Harvey said in an interview. "We were making headway too fast. Some huge shift happened in the fall of 2001. All of a sudden, I'm a rogue employee."

Daily News reporter Wesley Loy contributed to this story. He can be reached at wloy@adn.com   or 257-4590.
 

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U.S. Hs. of Rep., Education & Labor
Full Committee Hearing
Thursday, 3/22/07

Hearing on "The BP-Texas City Disaster and Worker Safety," scheduled at 10:00 a.m. in room 2175 Rayburn H.O.B.
Archived Webcast ››
http://boss.streamos.com/wmedia/edwork/fc/fc032207.wvx


CSB Congressional Testimony
http://www.chemsafety.gov/index.cfm?folder=news_releases&page=news&NEWS_ID=358

Testifying before House Committee on Education and Labor, Chairman Carolyn W. Merritt Calls for Increasing Oversight of Refining Industry by OSHA

For more information, go to: Chairman Merritt's Written Testimony
http://www.csb.gov/news_releases/docs/MerrittLaborCommitteeTestimony3.22.07.pdf

Washington, DC, March 22, 2007 - Carolyn W. Merritt, Chairman of the U.S. Chemical Safety Board (CSB), told a congressional committee today there should be increased oversight of the oil refining industry by the Occupational Safety and Health Administration (OSHA) in order to prevent accidents such as the one that occurred at the BP refinery in Texas City, Texas, in 2005. She spoke before the House Committee on Education and Labor, chaired by U.S. Rep. George Miller of California who convened the hearing "to examine what we can learn from the missteps that preceded this disaster in order to help prevent future ones."

Chairman Merritt said the CSB's exhaustive investigation into the BP accident, the results of which were released two days ago in Texas City, showed the company had not followed OSHA process safety regulations, and that OSHA had not adequately inspected the facility to see if BP was complying with those regulations. As a result, she said, cuts in training, staffing, maintenance, equipment modernization, and safety, which the investigation found were a result of significant budget cuts ordered by BP, left the Texas City facility vulnerable to catastrophe.

Ms. Merritt said, "The CSB found that regulatory oversight of this refinery was ineffective. In recent years, OSHA has focused its inspections on workplaces with high injury rates, but these rates do not predict the likelihood of a catastrophic process accident at a facility."

Ms. Merritt noted that the BP facility, like thousands of other petrochemical plants, is regulated under OSHA's Process Safety Management standard, issued in 1992. "Rigorous application and enforcement of this rule - including its preventative maintenance and incident investigation requirements - would almost certainly have prevented this tragedy," she said. She noted the BP refinery had a long history of deadly accidents and dangerous hydrocarbon releases from the same equipment that was involved in the Texas City accident.

The work of the CSB received bipartisan praise from committee members for the CSB's investigation of the BP tragedy and other accidents. Several expressed concern about the paucity of regulatory inspections in the petrochemical industry.

Chairman Miller said, "Protecting the safety of refinery and chemical workers is reason enough to get this right. But the safety of our refineries and chemical facilities also has broader implications for the communities surrounding these plants. The disaster at BP Texas testifies to the steep price we pay as Americans for not enforcing the nation's laws that are supposed to protect working men and women in this country." He said further hearings may be convened.

Following Chairman Merritt's testimony, other panelists addressed the committee, including Eva Rowe, who lost both parents in the explosion. They were among the 15 contract workers meeting in work trailers at the time of the blast. The CSB found the trailers were sited in a hazardous location at the plant, near a blowdown drum which spewed highly flammable hydrocarbons that were ignited by an idling pickup truck. The agency has recommended to the American Petroleum Institute (API) that trailer siting guidelines be revised.

Other panelists included Kim Nibarger, health and safety specialist for the United Steelworkers (USW), Frank L. "Skip" Bowman, retired admiral and member of the BP Refineries Independent Safety Review Panel, which was instituted on the recommendation of the CSB and headed by former U.S. Secretary of State James Baker III, and Red Cavaney, American Petroleum Institute president and CEO.

The CSB is an independent federal agency charged with investigating industrial chemical accidents. The agency's board members are appointed by the president and confirmed by the Senate. CSB investigations look into all aspects of chemical accidents, including physical causes such as equipment failure as well as inadequacies in regulations, industry standards, and safety management systems.

The Board does not issue citations or fines but does make safety recommendations to plants, industry organizations, labor groups, and regulatory agencies such as OSHA and EPA. Please visit our website, www.csb.gov.

For more information, contact Sandy Gilmour at (202) 261-7614 / (202) 251-5496 cell.
 

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Wall Street Journal
March 21, 2007

US Rep Dingell: To Review BP's Performance After Mishaps
DOW JONES NEWSWIRES
March 21, 2007 7:30 a.m.
(This article was originally published Tuesday)
By Ian Talley
Of  DOW JONES NEWSWIRES
 
WASHINGTON (Dow Jones)--The chairman of the U.S. House of Representatives Committee on Energy and Commerce said Tuesday he plans to hold more hearings on the lessons learned from major mishaps at BP PLC's (BP) Texas City, Texas, refinery and Prudhoe Bay, Alaska, oil fields.

Rep. John Dingell, D-Mich., said he hoped to review whether the company's performance since the incidents had improved.

The announcement followed a Chemical Safety and Hazard Investigation Board, or CSB, report published Tuesday that found the company didn't take sufficient action to ensure plant safety at the ill-fated Texas City refinery, despite repeated warnings about mechanical integrity problems in the years leading to a fatal March 2005 accident.

Fifteen people were killed and 180 workers were injured in the March 23, 2005, explosion at BP Texas City, which is located just south of Houston.

Last year, Congress held numerous oversight hearings on BP's Prudhoe Bay oil leak, which temporarily shut down the U.S.'s largest producing field. Investigations revealed the company had known about the potential for such leaks but hadn't adequately addressed the problem before the leak occurred.

According to the CSB report, cost-cutting by corporate leaders, inadequate corporate oversight, outdated mechanical equipment and a culture that discouraged the reporting of safety problems were central causes of the Texas City explosion. Repeated budget cuts left the Texas City refinery "vulnerable to a catastrophe," the report said.

Dingell said he intends to hold hearings soon to review BP's performance and determine whether the company has implemented lessons learned from both the Texas City explosion and last year's major oil spill at Prudhoe Bay, his office said in a statement.

"The most tragic thing about what happened in Texas City is the fact that this disaster could have been prevented," Dingell said. "We are committed to making sure BP implements the changes necessary to secure their oil refineries and, more importantly, protect American workers."

Dingell's office said that though previous investigations had been conducted by the Occupational Safety and Health Administration, CSB found that OSHA failed to identify the likelihood for a catastrophic accident and take necessary enforcement action, despite obvious warning signs and the fact that 10 fatalities have occurred at the BP Texas City refinery over the past two decades.

"In light of the Texas City blast and the Prudhoe Bay spill, BP's management must make safety their top priority," Dingell said. "The millions of dollars in fines that were levied against BP after the explosion have done little more than close the door after the horse had left the stable.

"It's clear that both additional oversight measures and sweeping cultural changes are critical," he said.

On Thursday, the House Education and Labor will hold a hearing called "BP Texas City Disaster and Worker Safety." Witnesses will include Eva Rowe, whose parents were killed in Texas City explosion; Carolyn Merritt, the head of CSB; and Red Caveny, the president of the American Petroleum Institute.

George Miller, chairman of the Education and Labor Committee, said, "The Chemical Safety Board report paints an extremely troubling picture of gross negligence on the part of BP and OSHA." He said the hearing would "examine what we can learn from the missteps that preceded this disaster in order to help prevent future ones."

"We can't bring back the 15 men and women who died in the Texas City explosion, but in their honor, we can and must take steps to prevent future tragedies," Miller added.

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

(John Biers in Houston contributed to this report.)
 

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Chemical Safety Board
March 20,2007

http://www.chemsafety.gov/index.cfm?folder=current_investigations&page=info&INV_ID=52

BP America Refinery Explosion
Texas City, TX, March 23, 2005

Incident Description
At approximately 1:20 p.m. on Wednesday, March 23, a series of explosions occurred at the BP Texas City refinery during the restarting of a hydrocarbon isomerization unit. Fifteen workers were killed and about 170 others were injured. Many of the victims were in or around work trailers located near an atmospheric vent stack. CSB investigators have reported that the explosions occurred when a distillation tower flooded with hydrocarbons and was overpressurized, causing a geyser-like release from the vent stack.


Investigation Status
The Board will convene a public meeting at 6 p.m. central time, Tuesday, March 20, 2007, at the Nessler Center, Wings of Heritage Room, 2010 5th Avenue North, Texas City, TX 77590, to release and consider the CSB's final investigative report on the accident.
 

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Anchorage Daily News
March 18, 2007

http://www.adn.com/money/industries/oil/story/8719256p-8621309c.html

Conoco included in pipeline probe
CORROSION: Largest producer subpoenaed
for 11 years of records.
By ELIZABETH BLUEMINK
Anchorage Daily News
Published: March 18, 2007
Last Modified: March 18, 2007 at 06:09 AM

A federal grand jury in Alaska investigating pipeline corrosion at North Slope oil fields has subpoenaed up to 11 years' worth of records from Conoco Phillips concerning how well the fields have been run.

The huge oil company, the largest oil producer in Alaska, confirmed Friday that its legal department recently instructed employees to preserve years worth of records relating to North Slope oil transport pipelines, including records relating to the lines' maintenance, corrosion, inspection, integrity and operations.

"Conoco Phillips is cooperating fully with the DOJ's request," said Natalie Knox, spokeswoman for Conoco's Alaska subsidiary, about the subpoena that came out of the U.S. Department of Justice.

She said the company was asked to provide the information to the grand jury to support its ongoing investigation of last year's Prudhoe Bay pipeline leaks.

The grand jury opened its criminal investigation and subpoenaed BP after the company's 201,000-gallon crude oil spill last winter at Prudhoe Bay, the nation's biggest oil field. It was the largest North Slope oil spill ever.

A report in August of severe corrosion in Prudhoe transit pipelines, followed a few days later by another oil spill, prompted BP to temporarily shut down part of the field, disrupting the U.S. oil supply and spawning several ongoing state and federal investigations.

With the new Conoco subpoenas, the Alaska grand jury investigation appears to be expanding.

BP runs Prudhoe on behalf of itself, Conoco, Exxon Mobil, Chevron and Forest Oil. But BP doesn't get the largest share of Prudhoe production -- Exxon and Conoco do. Conoco also has interests in most of the other two dozen North Slope fields, and it runs the second and third largest fields.

Conoco's legal department sent out a legal hold order dated Feb. 28 asking its employees to maintain and not destroy certain documents related to North Slope pipeline maintenance.

The hold order, obtained by the Daily News, stated that the Justice Department's Alaska office served the grand jury subpoena.

The order covers the following documents:

• A current version of the Prudhoe operating agreement between Conoco, BP and other companies holding leases there.

• All records related to Prudhoe Bay working group meetings on pipeline integrity, including maintenance, corrosion and inspections at Prudhoe Bay, dating from January 2000 to the present.

• All records related to budget requests, approvals, disapprovals and final budgets regarding Prudhoe Bay transit pipelines.

• All records related to corrosion management strategy for transit lines operated by Conoco from January 1996 to the present.

In the order, the legal department told employees to contact the department if they have such documents. The legal department would decide if the records were relevant to the investigation, the order stated.

It's not the first time Conoco has been drawn into the BP pipeline spill controversy.

Last August, state lawyers subpoenaed BP, Conoco and their three Prudhoe partners for records pertaining to last year's oil spills and pipeline maintenance. Unlike the federal grand jury's investigation, those subpoenas were civil, not criminal in nature.

Prudhoe's transit pipelines are major trunk lines that transport oil out of the vast field and feed it into the larger trans-Alaska pipeline, which carries the crude 800 miles south to the tanker port at Valdez.

Daily News reporter Elizabeth Bluemink can be reached at ebluemink@adn.com  or 257-4317.
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Anchorage Daily News
March 17, 2007

http://www.adn.com/money/industries/oil/story/8715342p-8617341c.html

Pipeline owners, state war over tariff
ALASKA PIPELINE: Analyst says the state loses $404 a minute.
By WESLEY LOY
Anchorage Daily News
Published: March 17, 2007
Last Modified: March 17, 2007 at 03:11 AM

Long-standing complaints that the owners of the trans-Alaska pipeline are overcharging to ship oil -- costing private companies and the state hundreds of millions of dollars -- recently got a potential boost from federal lawyers.

Staff attorneys for the Federal Energy Regulatory Commission, which oversees pipelines, said the companies that own the 800-mile Alaska pipe have done a poor job of justifying their high rates, known as tariffs.

The Feb. 16 legal brief comes amid a massive, multiyear legal fight involving the pipeline owners, other companies that ship oil through the pipe, and the state.

The five pipeline owners -- BP, Exxon Mobil, Conoco Phillips, Koch Industries and Chevron -- currently charge an average of more than $5 per barrel to carry oil from the North Slope to the tanker port in Valdez.

Lawyers for the state as well as two energy companies that ship crude on the line -- Anadarko and refiner Tesoro -- argue that the oil companies are grossly overcharging. They say the tariff ought to be what state energy regulators in 2002 ruled it should be -- less than $2 per barrel.

At stake is a possible refund to the state of more than $800 million, should the commission order the $2 rate, state tax director Jon Iversen told state lawmakers this month.

Why? Because higher pipeline transportation costs mean lower tax and royalty collections for oil produced from state land. These costs are deducted from the price refineries pay for crude, and the greater the deductions, the lower the taxable value of the oil.

The pipeline owners are vigorously defending their rates as fair, and they are fighting on two fronts to maintain them -- at the federal commission in Washington, D.C., and in the Alaska Supreme Court, where the oil companies are trying to kill the 2002 state order.

The Feb. 16 legal brief from the commission's staff attorneys was big, said Robin Brena, a lawyer for Anadarko and Tesoro. Brena said the pipeline owners, over the 30-year life of the pipeline, have booked billions of dollars in undeserved profits by cheating the state and gouging companies such as Anadarko and Tesoro.

Because the state has only one pipeline off the North Slope -- what Brena calls a "monopoly pipeline" -- higher transportation costs hurt chances that smaller oil fields will be developed, and that refiners such as Tesoro can afford to make fuel products within the state, he said.

"There's a huge amount at stake for Alaska's future in this," Brena said.

Lawyers for the pipeline owners, however, insist their rates have been and remain fair.

Steven Brose, an attorney for the owners, told state lawmakers during a March 5 hearing on the pipeline tariff fight that the five-member federal regulatory commission often doesn't agree with the opinions of the agency's staff lawyers.

The commission's lawyers, in the Feb. 16 brief, said the pipeline owners had made arguments that are "contrary to some of the most basic notions of calculating just and reasonable rates" and conflict with prior commission orders. They recommend that the pipeline tariffs be cut.

Richard Fineberg, an Ester analyst and longtime oil industry critic, recently completed a study in which he calculated that the state is losing $404 a minute due to excessive charges on the oil pipeline, amounting to billions of dollars over the life of the pipeline.

He said a 1985 legal settlement between the state and the pipeline owners establishing a method for setting pipeline tariffs -- a deal that's now at the center of the legal fight -- was a big mistake for the state.

The state has a long legacy of battling with oil companies over pipeline tariffs, royalties and taxes, and this latest struggle isn't likely to end soon.

The case before the federal commission is densely complicated. Filings routinely exceed 100 pages, and at least a dozen law firms are involved from Anchorage to Houston to Washington.

An administrative law judge is expected to rule in the commission case by May 18. After that, the commission itself is expected to consider the matter, possibly ruling by the end of the year, a commission spokesman told state lawmakers.

After that, the parties can carry the battle into the federal courts, and are likely to, Brose said.

Daily News reporter Wesley Loy can be reached at wloy@adn.com   or 257-4590.
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Anchorage Daily News
March 16, 2007

http://www.adn.com/money/industries/oil/story/8712389p-8614571c.html

Alyeska shifting oil line, tanker port control to Anchorage
RECONFIGURATION: A backup facility is also being constructed in Palmer.
By WESLEY LOY
Anchorage Daily News
Published: March 16, 2007
Last Modified: March 16, 2007 at 02:44 AM

The company that runs the trans-Alaska oil pipeline is building two new control centers, the main one in Anchorage and a backup in Palmer, to operate the line and the Valdez tanker port by remote control.

The new centers will replace the existing control center in Valdez, the end point of the 800-mile pipe.

Mike Heatwole, spokesman for Alyeska Pipeline Service Co., said a main goal of the relocation project is to bring the control center closer to company headquarters in Anchorage.

Technological advances such as high-speed Internet and fiber optics allow for remote control of pipelines, and stationing controllers closer to corporate headquarters has become a trend in the nation's energy industry, Heatwole said.

Around 15 Alyeska employees will transfer to Anchorage from Valdez or Fairbanks, or will commute here to work in the new control center, which should be ready by late this year, he said.

Alyeska is remodeling space in two buildings to house the control centers. In Anchorage, the main center will go in the AT&T building on Government Hill. AT&T is Alyeska's telecom contractor, Heatwole said.

The Palmer center will be a backup in case something goes wrong in Anchorage, he said. He declined to name the building involved, citing security concerns.

The remodeling is a $2 million project, Heatwole said.

The Anchorage control center will be a 24-hour operation to keep the oil moving. Workers there will control everything from flow rates and valves along the main pipeline to tanker loading at the port in Valdez, he said.

The high-tech control centers won't really save Alyeska money, Heatwole said. But they will make operations more efficient by bringing employees closer together and reducing cumbersome telephone conferences, he said.

The control center relocation is part of a broader modernization campaign on the pipeline, which has been moving oil since 1977.

Since early 2004, Alyeska has been working to overhaul and automate four main pump stations along the line, converting them to unmanned outposts. The goal is to reduce staff and costs as oil production declines from Prudhoe Bay and other North Slope fields. Oil flow down the pipeline exceeded 2 million barrels per day in 1988, but has since dwindled to around 800,000 barrels.

The original plan was for the two-year, $250 million reconfiguration project to be done by now.

But the project, which Alyeska calls "strategic reconfiguration," has overshot both the schedule and the budget.

The plan now is to overhaul the pump stations one at a time, not all at once, Heatwole said. Upgrades have been completed only at Pump Station 9, just south of Delta Junction. That work finished in February, and lessons learned there will be applied to future pump station overhauls, he said.

"The current plan is to do one station a year for the next three years," he said.

The projected budget for pipeline upgrades is now more than $400 million, Heatwole said.

Alyeska is a consortium of companies that own the pipeline. BP holds the biggest share at 47 percent. The other owners are Exxon Mobil, Conoco Phillips, Koch Industries and Chevron.

Daily News reporter Wesley Loy can be reached at wloy@adn.com   or 257-4590.
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Alaska Report
March 9, 2007

http://www.alaskareport.com/kim-elton19013.htm

Exxon: Exxorbitant, Exxtortionists
a VIP policy letter from Alaska
Senator Kim Elton
    
Note to self: The oil industry is not our friend. Especially Exxon.

This note to self is inspired by a series of unfortunate events that are Exxon-centric.

     First: "The State of Alaska does not have a good track record on fiscal stability. Not trying to single them out or be critical, but they've changed fiscal terms on us 13 times over the last couple of decades." (Rex Tillerson, ExxonMobile chairman and president speaking to Wall Street analysts Wednesday.)

     This is inflammatory on so many levels but let's leave his statement by noting it is an untruth so bold it twists the innards.

     Second: I'm a bit fried that the Exxon honcho who reportedly made about $13,700 an hour last year can so blithely spout such nonsense to Wall Street analysts. If the Exxon board is going to pay someone that much they should at least demand he tell the truth. If he can distort reality as much as he did Wednesday when speaking to financial analysts, how can his board be sure he's being transparently truthful with them?

     Third: Exxon, not trying to single them out or be critical (to borrow Mr. Tillerson's predicate before speaking this week about Alaska), for well over a decade has been stiffing Alaska's fishermen by not paying billions of dollars of court-ordered restitution--restitution ordered, remember, when their drunk skipper fouled our shores in 1989.

     Fourth: Federal Energy Regulatory Commission (FERC) staff recently opined that Exxon and other owners of the Trans Alaska Pipeline have been stiffing the state with unfair oil pipeline tariffs. The state could have lost as much as $800 million in just four years. That FERC staff report is in line with a 2002 finding by the Regulatory Commission of Alaska (RCA).

     If FERC agrees with their professional staff and the RCA, litigation on this latest corporado tactic by Exxon and others could drag on for years as we try to recoup money they diverted to their bottom line by artifice.

     Fifth: How do we know that Exxon won't do what's right on oil pipeline tariffs if FERC accepts their professional staff analysis? Well, we don't know for sure. Remember though, they fought the state for well over a decade on royalty oil disputes before they and others paid us back hundreds of millions they took from us. Remember too, the years and years of litigation to avoid paying Alaska fishermen. The tiger in their tank doesn't change its stripes.

     Sixth: Exxon is the company that's been sitting on the resources at Pt. Thompson for three decades. They were warehousing resources that terms of their lease with Alaska compelled them to develop. The state finally cancelled the lease. Predictably, instead of sending drillers to the slope, Exxon is sending lawyers to court to try and defend their 30-year violation of lease terms.

     Seven: Exxon's profits were nearly $40 billion last year. That broke the previous record for U.S. corporate profits set, by the way, in 2005 by Exxon. The 2005 record set by Exxon broke the previous record for U.S. corporate profits set in 2004 by Exxon. Exxon's been gushing money. The obvious question, given their Alaska history, is how much of their record setting profits really belong to Alaskans.

     So, there's my first seven rebuttal points to Mr. Tillerson's Wednesday comments. Given this history, I guess we can conclude the least egregious behavior by Exxon over the past several decades of operating in Alaska is the blatant disregard for the truth Mr. Tillerson demonstrated this week. Not being truthful, I guess, isn't the worst of their offenses: they don't pay our fishermen for their bad; they don't pay us fairly for our royalty oil until compelled by courts; they are charged with overcharging us and others for shipping oil through TAPS; they sit on our resources at Pt. Thompson, and their definition of profit sharing with the owners of the resource is akin to the definition espoused by robber barons.

     Finally, this column has focused on Exxon's egregious behavior. Alaska has had its disputes with other multi-national oil companies. But there is an opportunity the others now have--they can set the record straight in the wake of Mr. Tillerson's distortions or they can allow his distortions to stand. Their choice.

     Note to self: The oil industry is not our friend. They can be our partner if we are vigilant, but they are not our friends.

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Anchorage Daily News
March 6, 2007

http://www.adn.com/money/industries/oil/pipeline/story/8687906p-8585083c.html

Palin's plan for gas line takes first public licks
NEW ENERGY: About 30 people air views on governor's legislation.
By RICHARD RICHTMYER
Anchorage Daily News
Published: March 6, 2007
Last Modified: March 6, 2007 at 02:17 AM

A week before state lawmakers are scheduled to take their first crack at Gov. Sarah Palin's natural gas pipeline legislation, members of her pipeline project team took the proposal directly to the people.

Revenue Commissioner Pat Galvin, Resources deputy commissioner Marty Rutherford and other Palin administration officials gave an overview of the governor's bill during a town hall-style meeting in Anchorage on Monday night. They also took questions from the group of about 30 people who showed up for the event.

Many who turned out voiced comments or aired concerns instead of asking questions.

For example, one man said he was pleased that the legislation included provisions aimed at ensuring Alaskans get to work on the project but was disappointed that it didn't require a project-labor agreement. Another voiced concerns about how the state, since it would be soliciting proposals from a wide range of potential builders, would be able to fairly weigh drastically different pipeline plans against one another.

This was the first of several public meetings Palin officials said they plan to hold throughout the state in the coming weeks. The governor wants to get the bill passed before the Legislature adjourns in mid-May.

She unveiled her pipeline plan, called the Alaska Gasline Inducement Act, on Friday. The 21-page bill would provide cash and other incentives to potential builders of a pipeline that would carry the North Slope's vast reserves of natural gas to Lower 48 markets.

Legislative committee work on the bill isn't scheduled to begin until next week. In the meantime, members of Palin's pipeline team got a head start addressing some of the questions that are expected to emerge in the Legislature.

One of the biggest inducements in Palin's bill is a state gift of up to $500 million, to be matched by a pipeline builder, to help offset early upfront costs.

That was the first issue that came up during Monday's question-and-answer session.

"Why should the state of Alaska subsidize Exxon, Conoco Phillips and BP to get natural gas to market to the tune of $500 million?" an audience member asked.

Galvin defended the plan, asserting that in return for that money the state would be "buying" project terms that are valuable to Alaska.

"It's not a subsidy. It's actually a purchase," Galvin said.

Among the givebacks are a pipeline that can be expanded to allow a wide range of gas explorers to tap it; commitments by a pipeline builder to provide at least five places where the gas could be drawn off for in-state use at rates below those charged to Lower 48 buyers; and project timelines and benchmarks, the governor's people said.

Some of the questions narrowly focused on specific points in the legislation. For instance, why does Palin's proposal call for five in-state taps instead of four, as proposed in former Gov. Frank Murkowski's plan?

The answer, Rutherford said, is that the number of taps isn't as important as ensuring a good supply of gas for Alaska. Other components of the legislation, such as requiring the builder to set rates for in-state gas that only charge for transportation from the North Slope and not all the way to the end of the line, are more important.

Murkowski last year presented a deal with Exxon, Conoco and BP setting tax and other terms for a possible pipeline. That deal died after most state lawmakers criticized it as giving too much to the oil companies.

The former governor's critics cast doubt on his plan, arguing that it was impossible to know if the deal he struck with the producers was the best deal for Alaskans because there hadn't been adequate public scrutiny of other proposals.

Palin's plan allows for anyone interested in building a pipeline to submit a project plan and for all the proposals that meet the state's guidelines be released for public review before state officials select the winner.

That might achieve the transparency that the new governor has promised in the process, but some participants in Monday's meeting said that might ultimately weaken the state's bargaining position.

Galvin acknowledged the quandary.

"It's all going to be laid out there, and within that framework is one of the problems that we just inherently have to recognize," he said. "We're a democracy, and we have to make a public decision. That by its nature puts us at a disadvantage."

Reporter Richard Richtmyer can be reached at rrichtmyer or 257-4344.

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http://www.adn.com/money/industries/oil/pipeline/story/8687906p-8585082c.html

Pipeline tariff fight key to gas line plan
SHIPPING: If cost is too high, exploration efforts may suffer.
By SABRA AYRES
Anchorage Daily News
Published: March 6, 2007
Last Modified: March 6, 2007 at 02:17 AM

JUNEAU -- A dispute about how the owners of the trans-Alaska pipeline set shipping fees could influence future debates on who should build the natural gas pipeline, lawmakers said Monday.

Smaller oil companies that ship oil through the existing pipeline say the rates charged by the consortium of BP, Conoco Phillips and Exxon Mobil are arbitrary and too high.

Anadarko and Tesoro, two of the oil companies using the pipeline, in December 2004 challenged the interstate rates charged by the pipeline owners with the Federal Energy Regulatory Commission.

In a separate complaint filed by Tesoro and Williams, the Regulatory Commission of Alaska ruled that in-state rates set by the producers also should be lowered.

A judge is expected to make a ruling on the FERC challenge in May. After that, a series of appeals could keep the rate challenge in the courts for some time, lawyers for the oil companies said.

The Department of Revenue gave estimates to lawmakers Tuesday suggesting that if the challenge is upheld, the state could receive as much as $818 million in reimbursements because the high fees lowered the value of Alaska's oil.

The reimbursement estimates were based on fees collected between 2005 and 2007.

Lawmakers said the current debate on shipping fees is particularly relevant as the legislature begins debating Gov. Sarah Palin's proposed gas line legislation.

If it passes, pipeline builders would get money and tax incentives in return for a commitment to build the gas line.

"When it comes to the gas line, bar none, the three most important factors will be the tariff, the tariff and the tariff," said Rep. Carl Gatto, R-Palmer, who is the co-chairman of the House Resources Committee.

"If we have no control over how the tariffs are calculated, then I'm fearful about getting the independent explorers to get out and look for the gas, which is absolutely what we need to find in order to make the gas line an economic reality."

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

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Financial Times
March 5, 2007

http://www.ft.com/cms/s/7e6fd90e-cabe-11db-820b-000b5df10621.html
FRONT PAGE

BP fought off Texas safety controls
By Sheila McNulty in Houston
Published: March 5 2007 02:00 |
Last updated: March 5 2007 02:00

BP successfully lobbied against tighter environmental controls by regulators in Texas, saving $150m (£77m) in monitoring and equipment upgrades prior to the fatal Texas City refinery explosion in 2005, internal documents show.

The proposed controls would have forced BP to invest in upgrading the exhaust system on the unit at the refinery that exploded, to include a flare.

The US Chemical Safety Board said the upgrade would have prevented - or at least mitigated - the blast that killed 15 and injured 500.

John Mogford, BP's group vice-president for exploration and production, who led the company's internal investigation into the blast, said in his May 2005 report that a "conversion to a flare system would have reduced the severity of the incident".

A flare would have contained and safely burned off most, if not all, emissions, preventing them from catching a spark on March 23 2005, according to the CSB.

Until the accident, BP was considered the "greenest'' of the big oil companies and was able to convince regulators not to impose such tough controls.

Susan Moore, BP regulatory affairs manager, was nominated for a $1,000 bonus for her efforts.

"On behalf of BP, Susan Moore lobbied for and gained agency support to exempt Brazoria and Galveston Counties from new highly reactive volatile organic compound [HRVOC] short-term and long-term emission caps,'' wrote her superior, Watson Dupont, in a nominating e-mail.

The Texas City refinery is in Galveston county.

In the December 20 2004 e-mail, he noted: "We also delayed and maybe avoided $150m in additional costs by lobbying against the expansion of the definition of HRVOC. An expansion of there gulated chemical list would have doubled and, in some cases, tripled, monitoring costs."

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http://www.ft.com/cms/s/bc3eb314-cabd-11db-820b-000b5df10621.html

Civil litigation focus on BP manager laptop
By Sheila McNulty
Published: March 5 2007 02:00 |
Last updated: March 5 2007 02:00

Susan Moore, BP's regulatory affairs manager, finds herself at the centre of BP civil litigation arising from the Texas City refinery blast

On January 26 2007, she admitted in a sworn deposition to deleting documents after plaintiffs' lawyers subpoenaed her laptop on an anonymous tip that she had information useful in the lawsuits from those injured and killed in the refinery explosion. The lawyers are seeking all deleted documents from BP.

Internal documents from when the regulatory issue was first raised, seen by the Financial Times, include a June 27 2002 e-mail by Matthew Brewer, a process engineer, to staff saying that the new rules would probably require the installation of a flare, meter and other equipment: "This would be a huge expense, as well as a large design effort. Probably not achievable by December 2003."

In a June 9 2002 e-mail, David Harlan, a BP engineer, told staff the proposed rule required that "after December 2003, any atmospheric relief valve in VOC [volatile organic compound] service must be routed to the flare upon any second venting occurrence".
BP had had a number of instances whereby VOCs had "vented'', or been released, from the blowdown drum in the Isom unit - the part of the refinery that exploded - according to John Mogford, BP's group vice-president for exploration and production, who led the internal investigation into the blast.

The Chemical Safety Board documented six previous releases from the "antiquated" blowdown drum since 1994, any of which could have led to a disaster. After what was to have been the December 2003 deadline, BP had three such releases, on March 26 2004, November 29 2004 and February 25 2005.

Ronnie Chappell, BP spokesman, said: "Even if the environmental regulations had required the Isom unit to have a flare, the time between what was the effective date of the regulations (December 23 2004) and the tragedy - three months - would have made it almost, if not, impossible to engineer, permit, obtain materials for and install a flare at the Isom unit prior to the incident.''

Rerouting would have been required within one year of the second venting.

In the end, BP did not undertake that rerouting process until after the unit exploded.

Mr Mogford said in his investigation report that BP had not seized opportunities to upgrade to a flare in spite of admitting: "Blowdown stacks have been recognised as potentially hazardous for this service, with the industry moving more towards closed relief systems to flare.''

Mr Chappell said at the time that the new regulations were being discussed, the "blowdown system remained in use because process hazard reviews did not recognise the possibility that multiple, prolonged procedural failures could result in such a massive flow of fluids and vapours to the blowdown system. Operated properly, we believed this unit was safe.''

So, on July 12 2004, a BP PowerPoint sent to John Manzoni, BP's chief executive of refining and marketing, ahead of his visit to the site, boasted of how - by fighting off tighter regulations and successfully influencing the "drivers" of regulation to reduce capital expenditures by more than $100m (£51.5m) on the highly reactive volatile organic compound emissions - BP had "eliminated expensive, burdensome monitoring requirements, which only reduced emissions minimally".

Other oil and gas companies had joined BP's lobbying effort against the tighter regulations but only BP suffered the consequences.
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Anchorage Daily News
March 1, 2007

http://www.adn.com/news/alaska/story/8677428p-8572195c.html

BP warns against more tax
LEGISLATURE: An amendment would ban certain deductions.
By SABRA AYRES
Anchorage Daily News
Published: March 1, 2007
Last Modified: March 1, 2007 at 02:43 AM

JUNEAU -- A BP representative told lawmakers Wednesday that adopting proposed changes to the state oil and gas tax to disallow energy companies from deducting expenses incurred from improper facility maintenance would result in fewer investment dollars for Alaska's energy industry.

The state's Petroleum Production Tax, which lawmakers passed last year, already taxes energy companies at a rate that is too high, said Tom Williams, a senior tax consultant for BP. The proposed amendment on repair costs as a result of improper maintenance is unclear and could hurt the state's future energy industry, he said.

"The PPT is suboptimal for the state because the rate is too high," Williams told the Senate Resources committee. He added that the PPT as written already addresses repair costs. Passing the amendment would mean the state would be "double-dipping" into existing provisions, he said.

The bill was introduced by Sen. Tom Wagoner, R-Kenai, and signed on by 17 other sponsors from both sides of the aisle. A similar House bill has an equally high number of bipartisan sponsors.

The measure was sparked by pipeline leaks last year that resulted in the largest oil spill ever on the North Slope and a decrease in production as Prudhoe Bay pipelines were shut down for repair.

BP, which runs Prudhoe on behalf of itself and other major owners, including Exxon Mobil and BP, is under investigation by federal authorities and has been criticized by members of Congress and federal pipeline regulators for lax pipeline maintenance.

Last month, BP told the Legislature it planned to deduct the cost of the repairs, a move that would save the oil producer as much as $11 million on its tax bill.

Lawmakers argue that the pipeline corrosion that caused the oil spill was a result of years of neglect and the state shouldn't have to pay for the repair costs. Sponsors of the bill said they had hoped to protect the state from the high costs of improper maintenance practices.

But despite the bipartisan popularity of the bill, it has run into several roadblocks, and now more questions are being raised about how to get a passable version of the bill written.

Energy producer groups argue that the bill's terminology is problematic, particularly in how to define "improper maintenance."

While gross negligence is clearly defined, no such standard exists in the bill for what constitutes improper maintenance, said Jason Brune, executive director of the Resource Development Council for Alaska, a nonprofit organization representing energy producers and resource businesses.

"The predictability just isn't there with this bill," Brune said.

Representatives from the Department of Natural Resources' Division of Oil and Gas said they supported the idea behind the bill but also had concerns with the difficulties in defining improper maintenance.

The state should look to Outside certification agencies, like the American Petroleum Institute, for ways to create standards when defining what is gross and improper maintenance, said the chairman of the Alaska Oil and Gas Conservation Commission, John Norman.

Sen. Lesil McGuire, R-Anchorage, a sponsor of the bill and a member of the committee, agreed. McGuire said the legislation wouldn't do the job "unless we put out what our rules and standards are."

The bill also calls into question whether and how far back the proposed legislation could retroactively apply. While many sponsors have said they hoped passing the bill would block BP from deducting repair costs incurred after last year's oil spill, some feared the legislation could tie the state up in future legal battles.

In a letter to Wagoner, the legislative counsel said the bill's language would allow the legislation to work retroactively to April 1, 2006, the date the PPT took effect.

But according to testimony from Robert Mintz, a consultant for the Department of Revenue, cases involving retroactive changes to existing state tax laws "have seen an uphill battle" in the courtroom.

"The Legislature should be cautious when changing laws targeted at a particular entity or event," Mintz said.

Both House and Senate versions of the bill failed to move out of committee, but were rescheduled.

Wagoner, the main sponsor of the legislation, expressed frustration Wednesday at the bill's lack of progress.

"It seems that we are being dragged back into the PPT debate, which never had any discussion on the maintenance issue," he said.

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

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http://www.adn.com/money/industries/oil/prudhoe/story/8677754p-8572162c.html

Conoco's profits hit $2.3 billion
2006: Prudhoe Bay leaks and other factors cut output by 31,000 barrels a day.
By WESLEY LOY
Anchorage Daily News
Published: March 1, 2007
Last Modified: March 1, 2007 at 02:29 AM

Conoco Phillips made a monster $2.3 billion profit on its Alaska oil production last year, despite a partial shutdown of the giant Prudhoe Bay field due to leaks from corroded pipes.

PROFITS GRAPHIC
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Powered by continued high oil prices, the company's profit was only slightly lower than its record 2005 tally of $2.6 billion.

The profit figures are contained in an annual report the Houston-based oil company filed Friday with the U.S. Securities and Exchange Commission.

Conoco is Alaska's top producer of crude oil and natural gas, and the firm's financial disclosures contain more Alaska-specific detail than those filed by the state's other two major oil producers, Exxon Mobil and BP. Those firms are larger than Conoco and they don't break down Alaska financial information to the same degree.

Conoco owns a 36 percent share of BP-run Prudhoe Bay, the nation's largest oil field. Conoco also owns majority stakes in the state's next two largest oil fields, Kuparuk and Alpine, as well as a 28 percent share of the trans-Alaska oil pipeline. The company also owns the most prolific Cook Inlet natural gas field.

The company's average daily crude production slipped by 31,000 barrels last year to 263,000 barrels. Conoco attributed about a third of the decline to the partial shutdown of the Prudhoe Bay field from early August to October.

Among other disclosures in Conoco's annual report:

• The company said it drilled seven exploration wells in 2006, two of which turned out to be dry holes with the other five striking "commercial quantities of oil." Three of the finds were in the West Sak field, believed to hold billions of barrels of thick and sticky crude known as heavy oil, with the others in the vicinity of Prudhoe Bay and Alpine.

Dawn Patience, a Conoco spokeswoman in Anchorage, said Wednesday the company is drilling five exploration wells this winter -- three in the Kuparuk field and two in the National Petroleum Reserve-Alaska.

• The company plans capital spending of $783 million this year in Alaska, down slightly from the $820 million in 2006. Some of the money will go toward exploiting the West Sak oil and developing small "satellite" fields that will feed oil by pipeline to Alpine for processing.

Two such satellites, called Nanuq and Fiord, started up last year. Conoco said it plans to drill dozens more wells to boost output at the satellites. And it plans to develop a third satellite on the Qannik discovery announced last year. Production from that satellite is expected to begin by late 2008, the company said.

• Federal investigations into possible environmental violations aboard two of the company's new double-hull tankers remain unresolved, Conoco said. The company reported receiving subpoenas from the U.S. Attorney's Office in Anchorage in 2004 and 2005.

• On a per-barrel basis, oil production in Alaska became considerably more expensive last year, averaging $6.38 per barrel compared with $3.91 the prior year, Conoco said.

Elsewhere, the company reported averages last year of $4.85 per barrel in the Lower 48, $9.05 in Canada and $4.51 in the Middle East and Africa.

A decline in overall oil production can mean higher per-barrel costs, but Patience wasn't able to fully account for the steep rise in Alaska production costs.

Alaska long has been a cornerstone of Conoco's business, dating back to 1968 when the company, then known as Atlantic Richfield or Arco, confirmed its wildcat well had made a big strike at Prudhoe Bay, a find that would catapult both the company and Alaska's economy.

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