May 2007 News Stories

Houston Chronicle
May 30, 2007

http://www.chron.com/disp/story.mpl/business/4846241.html

Exxon Mobil could get an earful
Shareholder proposals up for vote today address emissions, renewables
By KRISTEN HAYS
Copyright 2007 Houston Chronicle

Exxon Mobil could get an earful Pension fund angry over climate strategy Exxon Mobil Corp.'s reticence to invest in renewable and alternative energies beyond research in the short term could dominate its annual shareholder meeting today.

Shareholder proposals up for votes include investment in renewables and adopting goals on reducing greenhouse gas emissions.

Management opposes both as unprofitable or redundant, recommending shareholders reject them as they have similar proposals in past years.

"The corporation's traditional business areas remain critical and promise far greater value than renewables, which currently lack the scale and economic competitiveness of our core business opportunities," the company said in its annual proxy statement.

Exxon Mobil cites its $100 million investment in renewable and alternative energy research at Stanford University when asked about lack of spending on such initiatives.

It does so in the proxy responding to the climate change-related shareholder proposals.

But the Stanford Board of Trustees Advisory Panel on Investment Responsibility, which oversees the university's endowment securities, is voting for the greenhouse gas shareholder proposal.

Kirk Miller, a Stanford engineering alumnus who led a petition drive to get the panel's support for that proposal, said the university's graduates "greatly appreciate" Exxon Mobil's investment in Stanford's Global Climate and Energy Project, which was launched in December 2002.

Exxon Mobil, along with founding corporate sponsors General Electric, Toyota and Schlumberger, agreed to invest a collective $225 million over 10 years for research on renewable and alternative energies, according to the project.

'Walk the walk'

"We believe that GCEP is a very valuable project. However, we ask that our corporate donors walk the walk," Miller said, citing Toyota's Prius hybrid and General Electric's eco-friendly initiatives from solar energy to light bulbs.

The greenhouse gas proposal, by the Sisters of St. Dominic of Caldwell, N.J., notes that Exxon Mobil has made "incremental improvements" in energy efficiency and emissions reductions through cogeneration, advanced lubricants, flaring reductions and carbon capture.

But it says the company's goal to improve energy efficiency by 10 percent through 2012 across its U.S. refining operations doesn't address greenhouse gas emissions.

So the proposal asks Exxon Mobil to adopt quantitative goals for reducing emissions from its products and operations and report to shareholders by September on its plans.

The company's response

Exxon Mobil responded in its proxy that it already discloses information about emissions cuts at its facilities on its Web site and will follow any greenhouse gas laws and regulations.

The company also said that despite its efforts to boost efficiency, emissions will rise with oil and gas production needed to meet ever-growing demand.

"Even with extensive efficiency and emissions improvements, and with policy steps to address emissions, nearly all outlooks project that rising global demand for oil and natural gas will result in larger emissions of greenhouse gases from these sources," the company said.

The renewable energy investment proposal is from Stephen Viederman, former president of the Jessie Smith Noyes Foundation, an environmental group. It pushes Exxon Mobil to invest in and produce renewable energy in addition to fossil fuels.

The company response includes that it's seeking to reduce emissions at its operations. It also cited energy demand outlooks predicting fossil fuels will continue to supply 80 percent or more of the world's energy over the next quarter-century despite growth in renewables such as biofuels, solar and wind energy.

Chief hurdle

Such technologies now depend on subsidies to be profitable, which Exxon Mobil has cited as a chief hurdle to investment. BP, Chevron Corp., Royal Dutch Shell and most recently ConocoPhillips all have varying degrees of investment in renewables and alternatives, in addition to supporting research.

Improved technology that will lead to alternatives that are profitable without subsidies is key, the company said in the proxy.

"We chose to be a founding GCEP sponsor because we are committed to the belief that step-out, game-changing research is required to accelerate the development of commercially viable energy technologies that can lower greenhouse gas emissions on a global scale," Exxon Mobil spokesman Gantt Walton said.

kristen.hays@chron.com

xxxxxxxxxxxxxxxxxxxxxxxx

http://www.chron.com/disp/story.mpl/business/4846243.html

Pension fund angry over climate strategy
Major investors want director ousted from board
By JOE CARROLL
Bloomberg News

Exxon Mobil could get an earful Pension fund angry over climate strategy The California Public Employees' Retirement System, the largest public pension fund in the U.S., is seeking the removal of Exxon Mobil Corp. director Michael Boskin over the company's strategy on climate change.

Calpers joined two dozen other institutional investors to oppose the reappointment of Boskin, who heads the board's public issues committee, at Exxon Mobil's annual meeting today in Dallas.

Boskin has refused to meet with investors to discuss Exxon Mobil's strategy on the issue, Calpers and Ceres, a coalition of environmentalists and investors, said in a statement on Tuesday.

Exxon Mobil, the world's largest oil company, is lagging behind competitors in addressing global warming, the statement said.

Chevron Corp. is spending more on renewable fuels, and ConocoPhillips moved ahead of Exxon Mobil earlier this year when it joined an industry group that backs mandatory U.S. limits on emissions of carbon dioxide and other gases that warm the Earth, according to critics.

"Exxon Mobil's inaction on global warming stands in stark contrast to industry peers such as BP, Shell, Chevron and ConocoPhillips, which are all beginning to manage the risks and seize opportunities from climate change," Mindy Lubber, the president of Boston-based Ceres, said in the statement.

Royal Dutch Shell and BP are the two biggest European oil companies, while Chevron and ConocoPhillips are the second- and third-largest U.S.-based energy producers.

Since late 2005, Boskin has refused five times to meet with investors on the climate issue, according to the statement.

Directors should be accessible to shareholders and management should be accountable to directors, Calpers Chief Investment Officer Russell Read said in the statement.

"We have a fundamental problem when directors refuse to meet with the people they're elected to represent," Read said. "Especially one who has a leading role on a company's board."

Boskin, 61, is a professor of economics at Stanford University and a former chairman of the President's Council of Economic Advisors.

Exxon Mobil spokesman Gantt Walton said that Chairman and Chief Executive Rex Tillerson has been designated to speak on behalf of the directors on climate change issues.

"He meets with shareholder groups quite frequently," Walton said. Investors "have a lot of access to the company and to the board's position."

Wall Street Journal
May 30, 2007

BP Refining CEO Manzoni Leaves
For Talisman; Succeeded by Conn
By KEVIN KINGSBURY
May 30, 2007 9:14 a.m.

John Manzoni, the chief executive of BP PLC's refining and marketing operations, is leaving the company to become president and CEO at Talisman Energy Inc.

Mr. Manzoni, part of former CEO John Browne's inner circle, will leave BP on Aug. 31 and assume his duties at Calgary-based Talisman the following day.

Iain Conn, who duties at BP include safety and operations, will succeed Manzoni effective June 1. Mr. Manzoni will stay with the company for a three-month transition period.

New BP CEO Tony Hayward faced a tough call over what to do with Mr. Manzoni, a close associate of Lord Browne.

The company's U.S. refinery operations have been harshly criticized by U.S. regulators and a BP-appointed independent committee headed by former Secretary of State James A. Baker III. In an internal BP report on management accountability released earlier this month as part of a court case in Texas, Mr. Manzoni is taken to task for not recognizing major problems at the Texas City refinery where 15 workers died in an explosion in March 2005.

And in a series of embarrassing emails and internal documents, leaked to the media or made public by legal and regulatory proceedings, Mr. Manzoni came off as out of touch with looming problems at Texas City, according to The Wall Street Journal. He told BP executives conducting research for the accountability report that despite visiting the plant himself, he "did not know which questions to ask, did not ask the right questions and was not told" about plant conditions, according to notes of his interview. The notes haven't been made public but were reviewed by the Journal.

Mr. Conn, 44 years old, was appointed an executive director of BP in July 2004 with functional responsibility for safety & operations, technology, marketing, human resources, information technology, procurement and supply-chain management. He also had regional responsibility for Europe, Africa, Middle East, Russia, Caspian and Asia Pacific.

Mr. Manzoni, who was with BP for 24 years and spent the last five in his current post, succeeds Jim Buckee at Talisman. Mr. Buckee, who has been president for 16 years and CEO as 14, intends to retire.

Chairman Doug Baldwin said, "The depth and breadth of John's international strategic and operational experience, his proven focus on generating results and his leadership skills made him the Board's unanimous choice to lead the company through the next stage of its development. His mandate will be to build upon the strength of our underlying assets, maximize the pursuit of our business strategies and generate additional growth and value."

Talisman, a former BP subsidiary, has drilling operations in the North Sea and Southeast Asia in addition to North America. Its shares closed Tuesday at $20.03 and climbed to $20.30 in premarket trading.

Write to Kevin Kingsbury at kevin.kingsbury@dowjones.com

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

BP Refining CEO Manzoni Leaves For Talisman;Replaced By Conn
DOW JONES NEWSWIRES
May 30, 2007 9:03 a.m.
By Benoit Faucon
Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--John Manzoni, BP PLC's (BP) refining and marketing chief executive, is leaving to head Talisman Energy Inc. (TLM) and will be replaced by fellow executive Iain Conn, BP said Wednesday.

BP said Conn's appointment will be effective Friday.

Manzoni has been criticized for his handling of safety management after a blast that killed 15 workers occurred at a BP Texas refinery in March 2005.

But a BP spokesman denied that there was any link with the departure and said it was caused by Manzoni's not being appointed CEO.

Manzoni's leaving is "absolutely not" tied to the accident, he said. "He was one of those in the running" to replace former CEO John Browne, who was replaced by Tony Hayward on May 1, the spokesman said. "When not appointed" in January, he "looked for other opportunities," he added.

Analysts have previously said that the Texas accident would hinder Manzoni's chances to replace Browne.

BP said Conn replaces Manzoni, who has agreed with the board that, following a three-month hand-over period, he will step down as a group managing director and leave BP on Aug. 31.

Conn is already a member of BP's executive committee in charge of strategic resources, which includes responsibility for most regions outside the Americas as well as safety and operations and human resources.

BP said Conn's current responsibilities for functions and regions will be shared with other executive colleagues.

Separately, Canada-based oil independent company Talisman announced it had appointed Manzoni as president and CEO to replace Jim Buckee, who is retiring, from Sept. 1.

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

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

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxx

ExxonMobil, BP, Chevron Paid $7M In State Taxes Over 3 Years
DOW JONES NEWSWIRES
May 29, 2007 8:59 a.m.
THE ASSOCIATED PRESS

Three big oil companies - ExxonMobil Corp. (XOM), BP PLC (BP) and Chevron Corp. (CVX) - paid about $7 million in Wisconsin corporate income taxes while making nearly $166 billion during a three-year period.

Two other oil companies - Royal Dutch Shell (RDSB) and Murphy Oil Corp. (MUR) - paid no corporate income taxes from 2003 to 2005. Shell had profits of $56 billion during those years. Murphy Oil's profits were nearly $2 billion.

Governor Jim Doyle said those profits justify his proposal for a new 2.5% gross receipt tax on oil company sales in Wisconsin.

The oil companies say the tax is unfair because they have no significant business presence in Wisconsin.

ExxonMobil spokesman Gantt Walton says Doyle wants to tax money they make in Nigeria or Alaska and that's not good for business. Walton says comparing corporate profits generated worldwide to the amount of tax paid in Wisconsin "is absurd."

Information from: Milwaukee Journal Sentinel, http://www.jsonline.com

Corrected May 29, 2007 9:00 ET (1300 GMT)

Three big oil companies - ExxonMobil Corp. (XOM), BP PLC (BP) and Chevron Corp. (CVX) - paid about $7 million in Wisconsin corporate income taxes while making nearly $166 billion during a three-year period.

("ExxonMobil, BP, Chevron Paid $7M In State Taxes Over 3 Years" at 7:47 a.m. EDT didn't include the state in which the taxes were paid.)

Financial Times
May 30, 2007

http://www.ft.com/cms/s/817c14ec-0eab-11dc-b444-000b5df10621.html

Manzoni to step down as BP head of refining
By Toby Shelley
Published: May 30 2007 14:05 |
Last updated: May 30 2007 14:05

John Manzoni, once seen as a possible successor to Lord Browne as BP chief executive, is to step down as the UK oil group’s head of refining and marketing at the end of August, the company said on Wednesday.

The move, which comes four weeks after Tony Hayward took over as chief executive, was described in a BP statement as one that Mr Manzoni “has agreed with the board”. He will take up the post of chief executive of Talisman, the Canadian upstream oil and gas company, in September.

Mr Manzoni, who has been with BP for 24 years, was the board member with responsibility for the Texas City refinery blast in the US in 2005, which killed 15 people.

In February, an internal BP investigation into the Texas City refinery blast in 2005, which killed 15 people in one of the worst industrial accidents ever in the US, found that Mr Manzoni should have looked much deeper into conditions at the Texas City plant after “clear warning signals” from previous incidents.

Prior to that, Mr Manzoni had suffered the embarrassment of being pressed to read out in court an e-mail to a colleague that he had written days after the fatal explosion. In that he appeared perturbed that the incident had disrupted his holiday.

Mr Manzoni will be succeeded as BP’s head of refining and marketing by Ian Conn, who who takes up the post from June 1. There will be a three month handover period with his predecessor.

Mr Conn, a 21-year BP veteran, has been on the BP board since 2004. In 2000-2002 he was responsible for marketing operations in Europe and for the integration of Veba Oel, the German oil group, into BP. He was appointed head of petrochemicals in 2002 and is a non-executive directive of Rolls-Royce.

Anchorage Daily News
May 29, 2007

http://www.adn.com/news/politics/story/8928969p-8829178c.html

Feds eye Stevens' home remodeling project
GIRDWOOD: Veco approved some invoices for 2000 upgrade at senator's house, says builder.
By RICHARD MAUER
Anchorage Daily News
Published: May 29, 2007
Last Modified: May 29, 2007 at 03:13 AM

The FBI and a federal grand jury have been investigating an extensive remodeling project at U.S. Sen. Ted Stevens' home in Girdwood that involved the top executive of Veco Corp. in the hiring of at least one of the key contractors.

Three contractors who worked on the project said in recent interviews with the Daily News that the FBI asked them to turn over their records from the job. One said he was called to testify about the project before a federal grand jury in Anchorage in December.

The remodeling work, which more than doubled the size of the house, occurred in the summer and fall of 2000. The four-bedroom home, about two blocks from the day lodge parking lot at the Alyeska ski resort, is Stevens' official residence in Alaska.

An old friend of Stevens in Girdwood, longtime Double Musky restaurant owner Bob Persons, has been questioned by the FBI about the project. He monitored the remodeling for Stevens and his wife while they were in Washington, D.C.

"I will be testifying. That's all I can tell you," Persons said in a brief interview last week. "It is an ongoing investigation that I'm not supposed to talk to or see anybody about it."

Persons would not elaborate on whether he meant that he would testify before a grand jury, at a trial, or both, or for whom. He said he believed Stevens did nothing wrong.

Ted Stevens and his wife, Catherine, declined to answer questions about the Girdwood house. In a prepared statement issued by his office, Stevens said: "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."

The FBI and the U.S. Justice Department's Public Integrity Section, which are in the midst of a broad investigation of corruption in Alaska, would not comment.

"This is a pending investigation and we're just not going to confirm or deny any aspect, any rumors, any allegations out there," said FBI spokesman Eric Gonzalez.

INQUIRY SURFACES

Ted Stevens, the most senior Republican in the U.S. Senate and Alaska's most famous political figure, has not been directly connected with the corruption investigation.

The wide-ranging federal inquiry surfaced in August when agents raided six legislative offices, including those of then-Senate President Ben Stevens, one of Ted Stevens' sons. 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 officially disclosed.

Veco, an oil-field service company that has long been a strong lobbying presence in Juneau, was one of the early targets of the agents, according to some of the search warrants that became public. On May 7, the company's longtime chief executive, Bill Allen, and a vice president, Rick Smith, pleaded guilty to federal conspiracy, bribery and tax charges. They are now cooperating with authorities.

The investigation spread to the commercial fishing industry, including Ben Stevens' consulting clients and associates. Federal subpoenas served on fishing companies in Seattle last year sought records concerning both Ben and Ted Stevens.

Four current or former Alaska state lawmakers have been indicted and are awaiting trial on corruption charges, and an Anchorage lobbyist has pleaded guilty to federal corruption charges.

Ben Stevens has not been charged. But the charges pleaded to by Allen and Smith alleged Ben Stevens improperly accepted $242,000 from Veco for "giving advice, lobbying colleagues, and taking official acts in matters before the legislature."

How the Girdwood home fits in with the broader investigation, or what possible crimes are being investigated, is not clear. There was a brief, unexplained reference to residential remodeling in the government's statement of facts that accompanied Allen's and Smith's guilty pleas. The sentence, preceded by a listing of a dozen Veco-related enterprises around the world, said: "Veco was not in the business of residential construction or remodeling."

Asked whether that line related to the construction at Stevens' Girdwood home, Persons first said, "I'm sure it does." When pressed, he said he wasn't certain.

WHERE THE BILLS WENT

Augie Paone, owner of Christensen Builders Inc. of Anchorage, said in a recent interview that it was Bill Allen who hired him to complete the framing and most of the interior carpentry at Stevens' home. Before he could send a bill to Stevens for work in progress, he was directed to provide it first to Veco, where someone would examine it for accuracy, he said. When Veco approved the invoice, he would fax it to the Stevenses in Washington, he said.

Paone said that as far as he knew, Stevens and his wife, Catherine, paid his bills themselves. He said he sent at least $100,000 in invoices to the Stevenses in Washington. They paid him from what he said appeared to be a checking account opened for the project. The checks, imprinted with the couple's names, had single- and double-digit serial numbers, he said.

According to Paone and other contractors, the renovation involved a technique often used with older dwellings in Girdwood -- jacking up a single-story house, building another floor on the original foundation or pilings, then lowering the original structure onto the new one. The result is a two-story home.

City and state records show the Stevens home was originally built in 1971. Catherine and Ted Stevens purchased it in August 1983. Plans show the house had two bedrooms, a living room, a kitchen and a single bath before the 2000 expansion.

Toney Hannah, a house mover from Anchorage, said he had initial discussions about a jack-up project with Ted and Catherine Stevens in 1999 but didn't hear any more about it until the next summer.

On July 26, 2000, Stevens faxed a letter to Anchorage building safety officials, saying Persons had authority to act in his and Catherine's name "in regard to construction at my house in Girdwood."

Stevens often relied on Persons to look after his Girdwood residence, according to Stevens' long-term neighbor there, Julie Peterson. She said she would call Persons if she saw a problem at the house.

Stevens and Persons also have a business relationship. Persons is the managing partner of Alaska's Great Eagle LLC, a racehorse-owning partnership that includes Stevens, Bill Allen and Allen's son Mark, along with several other Alaska businessmen.

On July 31, 2000, Persons obtained an Anchorage land-use permit for the Stevens remodeling. He listed the value of construction as $84,878 -- much less than the actual total turned out to be.

Most of the tradesmen who worked on the project couldn't be identified to answer questions from the Daily News about how they were hired, paid and supervised. While Girdwood is within the Anchorage municipality, its local building rules are more lax. With no inspections required, city building records don't name the electrician, plumber, furnace installer or others who may have worked on the project.

Hannah, the house mover, was found because Persons originally listed him in the permit file as the contractor.

Hannah said Persons contacted him in July or August 2000 to start the project. His crew jacked up the home. Hannah said Persons seemed to be in a hurry to get the job done.

A framing crew went to work on the first floor. But Hannah said that when he returned to Girdwood to lower the house, the framing was unacceptable, forcing him to delay the next phase. He said he didn't know who did the faulty carpentry.

Paone said he was called in late that summer to rescue the project.

"Bill Allen and some of the Veco boys, some of the Veco guys, were the ones that approached me and wanted to know if I could give them a hand," Paone said. "I did it more as a favor, you know. It's one of those things when somebody is the head, and packs that much power and asks you for a favor, it's kind of hard to say no."

JUST IN CASE

Paone said his name was on file at Veco because he had worked as a carpenter remodeling a Veco office building in Anchorage several years before. He had also remodeled the basement of the home of Veco's chief financial officer, Roger Chan. Chan and Allen both asked him to work on Stevens' home, he said.

Chan didn't return a phone call seeking comment and Veco's lawyer, Amy Menard, said the company's agreement to cooperate with federal authorities barred her and officials from talking.

Like Hannah, Paone said he didn't know who botched the framing.

"My understanding is that there was just a bunch of guys trying to do it on a weekend basis, and mostly they were friends of the senator's or something," he said. "But they didn't know what they were doing and they were so far behind that there was absolutely no way they could have completed it by late October, early November," he said.

Paone took over the framing and completed the interior walls, some of the cabinetry in the kitchen, the insulation and painting. He purchased the supplies and sent invoices for materials and labor to Stevens.

Paone said he couldn't recall the names of other tradesmen who worked on the project -- electricians, plumbers and a mechanical contractor who installed a new gas furnace and the forced-air heating system. A neighbor said someone brought over a crane to hoist Stevens' barbecue grill to the second floor deck. Another neighbor said a cherry picker showed up to install decorative lights on the eaves.

Paone said that by the time he finished his work in late October or early November, he had sent Stevens more than $100,000 in invoices for his own work.

Paone said he charged normal rates but was uncomfortable with the arrangements because he hadn't provided an estimate before starting the work. He said he protected himself by retaining all the records on the project.

"I didn't suspect anything, but I just wanted to make sure," he said. "When you work with a house of a legislator or a senator, you make sure you hold on to all the billings, just in case something happens."

Current city property records show the 10-room home contains 2,471 square feet of living space. With its quarter-acre lot, its assessed value for 2007 is $440,900.

'A VERY SAD SITUATION'

Last year, some six years after the project was completed, Paone said, "the FBI came over to me and I gave them all the paperwork I had on it." When he was questioned by the FBI, he said, agents seemed particularly interested in Veco and its officials. The government already had copies of most of his invoices on the Stevens home, having obtained them from Veco files, he said.

Paone said he followed that up by testifying before a federal grand jury in December.

About a year ago, Hannah, the house mover, came to work at his yard in South Anchorage and found an FBI agent's card on his office door, he said. When he called the agent, he was told the government was going to subpoena his records on the project. He said he sent his father downtown with all the files. He hasn't gotten them back, he said.

He said Catherine Stevens had paid his bill with a check, but he said it happened too long ago to remember details.

The contractor who did earth-moving for the project, Bob Redmond of Girdwood, also provided his records to the FBI, according to Jean Redmond, his stepmother. She also said the bills were paid by Stevens.

Paone said that as far as he knows, Stevens paid every invoice sent to him.

"Now, I'm not sure if everything was given to him," Paone said. "It's just that he was never around. He didn't know what was going on. My personal opinion is that if he got something for nothing, he absolutely didn't know about it."

Persons, of the Double Musky, said he believes Stevens has done nothing wrong, though he was unable to say what he knows.

"It's a very sad situation," he said during the brief interview outside a bank in South Anchorage. "I have to tell you that my attorneys have told me not to talk to anyone. And I can't even talk to my friends. Anybody. I can't talk to anybody."

Persons said he didn't think he was in any legal trouble.

"I don't know why I would be," he said.

"To me, it's a tragic situation," Persons added. "I don't think Sen. Stevens has done anything wrong and I don't know what's going on. I think it's a witch hunt."

Contact reporter Richard Mauer at 257-4345 or at rmauer@adn.com .

Los Angeles Times
May 28, 2007

http://www.latimes.com/business/la-fi-reserve28may28,1,5809749.story?track=crosspromo&coll=la-headlines-business&ctrack=1&cset=true

State's access to oil now a federal issue
Officials are confronting the fact that the western U.S. lacks an emergency supply of crude.
By Elizabeth Douglass
Times Staff Writer
May 28, 2007

As California becomes increasingly reliant on oil from elsewhere, state and federal officials are trying to figure out how to get enough energy to the West Coast if disaster strikes.

The need became clear in August, when corroded BP pipelines threatened to halt supplies from an Alaskan oil field that fed West Coast refineries. The Bush administration quickly offered to tap the Strategic Petroleum Reserve to offset the shortfall and blunt a price spike that pessimists predicted would yield $4-a-gallon gasoline.

Ultimately, the outage was half as bad as first thought, and consumers in the West were hit with a relatively small price hike. It was a lucky turn of events that spared federal officials from facing an uncomfortable fact: In an oil-supply crisis, the western U.S. would be on its own.

The U.S. stockpile along the Gulf Coast, the nation's $23-billion oil insurance policy, would be of little use to California in a crunch. The massive cache of crude isn't connected to the West by pipeline and is at least 16 days away from California by tanker.

For federal energy experts, the BP scare "was sort of a wake-up call," said Gordon Schremp, senior fuels specialist at the California Energy Commission.

Now, after spending more than 30 years focused on the Gulf Coast, strategic reserve officials are weighing their options in the West for the first time.

"The reserve has to take a closer look at how it can respond to a crisis on the West Coast, such as what happened with BP and the Alaska production," said David Johnson, director of planning and engineering in the Energy Department's office of petroleum reserves.

"It's becoming a big issue. The West Coast is a growing demand area," he said. "We have to have a plan of some sort to meet their needs."

Johnson and reserve economist Jeremy Cusimano visited California in March, and Cusimano returned this month to get a feel for the region's supply challenges.

The news was grim.

Oil-rich California, once self-sufficient, now relies on imports for 60% of the oil that flows through its refineries roughly 20% from Alaska and 40% from Saudi Arabia, Ecuador and other foreign countries. With oil production declining in California and Alaska, state officials expect foreign oil imports to more than double during the next 15 years.

That kind of dependence is a concern not just for California, but also for Arizona and Nevada, which get most of their fuel from California ports and refineries. A major supply disruption at the Los Angeles-Long Beach port complex whether from an accident, a terrorist act or an earthquake would be quickly felt across the West.

"If we lose one of our major crude oil import facilities, there would be significant consequences," Schremp said. "There would be a turndown in refinery production … with significant price impacts and some economic harm."

The government's new willingness to rethink its reserve strategy is driven primarily by the growing thirst for foreign oil on both coasts. But it also reflects a recognition that energy companies are holding smaller backup inventories of oil and fuel and that the nation's crucial network of ports, pipelines and refineries is maxed out and vulnerable.

Recent events show that such worries aren't unfounded.

This year a fire at a Texas refinery crimped the flow of gasoline into Arizona from the east, forcing California to send extra supplies to Phoenix for the last few months further straining regional fuel inventories. Last week BP acknowledged that a water pipeline problem forced it to shut down a quarter of its production in the same Alaskan oil field that made news last year.

Philip K. Verleger Jr., an economist who helped the Ford administration launch the Strategic Petroleum Reserve in 1975, believes a federal oil inventory in the West is overdue.

"If the United States is going to put any more oil in the reserve," he said, "it should be on the West Coast."

Not everyone thinks a West Coast reserve is necessary.

Executives at Tesoro Corp. are among the doubters. And that hesitancy is of particular note because, with no oil of its own and three West Coast refineries to feed, Tesoro is more vulnerable to disruptions than its larger brethren.

Lynn Westfall, chief economist at San Antonio-based Tesoro, downplayed the Alaskan oil disruption late last year as "a blip," and said that the Strategic Petroleum Reserve could provide indirect help to the West by adding oil to the worldwide mix.

"If you release crude from the SPR, it will free up crude somewhere else that we can then access," said Westfall, who said he conveyed that view to reserve officials in a recent meeting.

"Plus, we're not subject to things like hurricanes out here that might cause a release from the SPR."

For California and other Western states, any federal help is years away, if it's coming at all. The new reserve study is tied to President Bush's January proposal for a second expansion of the petroleum reserve starting in 2015.

Johnson's team, which will make recommendations by the end of the year, also is assessing needs on the East Coast and whether there should be a federal reserve of gasoline, diesel or jet fuel in addition to crude oil. "All the options are still on the table," Johnson said.

The first expansion ordered by Bush to 1 billion barrels of oil from the current 727-million-barrel capacity has been mapped out. It's set to begin in 2010 and would add oil at two existing facilities and a new site in Mississippi.

The oil reserve was created more than 30 years ago in response to the Arab oil embargo and was meant to protect the country against a similar supply cutoff.

There were no worries about the West Coast. California had plenty of oil, and until 1998, the federal government owned a good portion of it as part of the Elk Hills Naval Petroleum Reserve near Bakersfield. That supply, sold to Occidental Petroleum Corp. in 1998, was never available for immediate use because it was held underground in its natural state and would have to be pumped out in traditional fashion.

Federal officials have sold oil from the strategic reserve only a few times: after Hurricane Katrina in 2005, in 1996-97 for nonemergency price relief and during the 1990-91 war in the Persian Gulf.

Some in California believe the state would have more use for a government-owned gasoline bank that could release fuel in a daily auction, boosting in-state inventories and loosening refiners' control over supplies.

Stillwater Associates, an Irvine consulting firm, studied that option for the California Energy Commission in 2002, concluding that a gas bank would be costly but would save consumers money by reducing price volatility and blunting the effects of price jumps caused by refinery outages.

The oil industry opposed the idea, and state energy officials declined to study it further, citing concerns over unintended consequences.

"We still see price spikes that are driven by lack of supply, and I would argue that it's worse now than when we first looked at it," said David Hackett, president of Stillwater.

"I think it's time to look at it again."

The federal government, which in 2000 provided oil from the strategic reserve to establish a heating oil reserve in the Northeast, doesn't seem interested in contributing to a West Coast gasoline stockpile.

Johnson said he had reviewed the gas bank study. "It's good if the state wanted to do that," he said. "But I don't think it's a federal issue."

Johnson's group is focused on crude oil in the West, but he has concerns. There are no salt formations to provide low-cost oil storage, and that leaves the option of building large, above-ground tanks somewhere near the state's refineries.

"It doesn't look good on the West Coast, environmentally and in terms of trying to build something out there," he said. "It would be very hard."

But Energy Secretary Samuel Bodman said recently that he hadn't ruled anything out.

"This is a 20-year program, so it will be a number of years before all the questions get asked and they all get answered," he told reporters at an energy conference in February. "We're in the very early stage of looking at it."

elizabeth.douglass@latimes.com

Chicago Tribune
May 28, 2007

A 2 part series on BP --- Part 2
http://www.chicagotribune.com/news/local/chi-mon_bp_sidemay28,1,4104839.story?ctrack=1&cset=true

Today's installment of the "KEEPING THE OIL FLOWING" series has been posted online in two parts

Safety focus tightens after refinery blast
By David Greising
Tribune chief business correspondent
May 28, 2007

TEXAS CITY, Texas -- Outside Gate 1 of the second-largest oil refinery in the U.S., a block-lettered sign carries a seemingly simple message: "What You Say Leads to Action."

Sloganeering signs do not a culture make, but the placard at least puts in writing what the people running BP's Texas City refinery are trying to accomplish. The March 2005 explosion that killed 15 people and seriously injured 170 exposed a workplace culture in which fear and fealty to tight-fisted budgets trumped safety and common sense.

Now BP is trying to change that. And what happens at Texas City -- changing work processes while spending part of the $1 billion BP has set aside for U.S. refinery and pipeline repairs -- is a template for what BP is trying to accomplish through its vast U.S. production and refinery system.

The 83-year-old plant, large parts of which have been shut down for rebuilding and repair almost continuously since the blast, is emblematic of the woeful state of U.S. refineries.

No refineries have been built in 30 years, and the existing plants have needed so much rehabilitation lately that the shutdowns, fires and production halts have affected gasoline supplies and contributed to record-high pump prices.

So far this year, U.S. refiners have kept only 93 percent of their capacity in action. That's a 15-year low and a sharp decline from utilization rates that hovered around 99 percent a decade ago, according to data from the U.S. Energy Information Administration.

To Robert Malone, who was brought in as president of BP America after a series of mishaps that started with Texas City and wound up with 200,000 gallons spilled on the Arctic tundra in Alaska, the job of updating BP's refineries is tied tightly to the effort to change the corporate culture.

One example: At any refinery, one of the most dangerous periods comes when equipment comes back on line. Malone is trying to change BP's culture to make the process safer.

The Texas City refinery explosion occurred during a restart after repairs. An employee left open a valve, allowing a large exhaust pipe called a blow-down stack to fill with combustible fluid. A nearby idling pickup truck ignited the flammable vapor and set off the deadly blast.

Now, no equipment comes back on line at BP without a thorough safety check backed up with signed assurances that procedures have been followed. Supervisors also must be present, which wasn't the case when the lone operator left open the valve at Texas City. Every worker has the right to stop the restart process, no questions asked, if anything seems amiss.

Safety campaigns can be hard to assess, but Malone says there is evidence that this one is taking hold. Last month, BP's Toledo refinery was shut down because of a stress fracture in one of the units. During the restart process, Malone said, he got a call from the refinery manager: An employee had requested a hold because one of the safety checks had not been cleared.

"There is no doubt in my mind that that call wouldn't have come in to me before," said Malone. "The person who had that job would never have had the authorization to interrupt the process."

Malone has initiated other changes designed to improve safety and keep BP's refineries running. He is accelerating the pace at which repairs are planned and executed and adding safety inspectors. A BP ombudsman, who operates outside the corporate hierarchy, has the right to invite employee complaints, inspect any plant and report directly to Malone.

Malone also is moving some workers out of the refineries.

At Texas City most of those killed were working in temporary trailers next to the blast site, but could just as easily have worked far away. Today, non-essential employees work in a former Kmart building near the refinery complex.

BP is not expected to fix its culture overnight. Numerous studies prompted by the Texas City accident, including a scathing review by the U.S. Chemical Safety Board and another by a commission led by former U.S. Secretary of State James Baker, have exposed a culture of management-union conflict and an environment so toxic that employees were afraid to show up at work for fear of being injured in accidents.

Brent Coon, a Texas lawyer who reached an estimated $32 million settlement with BP after the explosion, said culture change goes only so far.

Even after updating is done, the antiquated refineries at BP and throughout the U.S. just can't keep up with high demand and the changing needs of refiners, he said.

"You're asking an Edsel to run with a Corvette," Coon said. "You can fix it up and make it run well enough, but if you ask it to keep up with a Corvette, it's going to fall apart."

Inside the Texas City refinery, though, there is optimism that the changes in technology and culture can take hold and make a difference.

Uwe Klingler, an operations manager who came to BP from another company after the Texas City explosion, said oil refining is inherently risky.

"It was always, and will always be, about managed risk," Klingler said. "There is risk involved. What we've got to do is manage the risk."

- - -

About this story

Chief Business Correspondent David Greising spent six months reporting on BP PLC's attempts to fix three major problem sites within its huge North American unit. Greising, along with Tribune photographer Bob Fila, reported from Deadhorse, Alaska, site of the Prudhoe Bay oil spill last summer; Texas City, Texas, the location of a deadly refinery explosion that killed 15 in 2005; and atop BP's Thunder Horse oil platform in the Gulf of Mexico, which nearly toppled into the sea during a hurricane in 2005. The Tribune is the first news organization to visit all three sites since the disasters and the only one ever to set foot on Thunder Horse in the gulf.

----------

dgreising@tribune.com

IN THE WEB EDITION: Read Part 1 of the series, plus the Tribune's David Greising describes his visit to BP's facilities and how the oil giant is struggling to rebuild in a video at chicagotribune.com/bp
Copyright © 2007, Chicago Tribune

Xxxxxxxxxxxxxxxxxxxxxxxxxx

Today's installment of the "KEEPING THE OIL FLOWING" series has been posted online in two parts

Troubles run deep on Gulf oil platform
Repairs a daunting challengeTechnology leads BP to drill where it once could not, but the race for new fields carries high costs and risks
By David Greising
Tribune chief business correspondent
May 28, 2007

THUNDER HORSE PLATFORM, Gulf of Mexico -- The day after massive Hurricane Dennis churned through the Gulf of Mexico in July 2005, a commercial vessel traveling past BP PLC's hulking Thunder Horse oil platform radioed the bad news to its owner: The platform's top deck was listing into the water.

When a landing party from BP arrived at the platform two days later, they had to tie onto rails near the control tower to haul themselves up the platform's 30-degree incline.

"It looked like a ship that had been sunk," recalled Stan Bond, BP's head of subsea operations for the Gulf of Mexico.

The workers were surprised to learn that the platform, evacuated before Dennis hit, had not taken on water from a leak through its hull. Rather, an incorrectly plumbed, 6-inch length of pipe had allowed water to flow freely among several ballast tanks. That began a chain of events that caused the platform to tip into the drink.

Now BP is attempting to do what no oil company has done before: essentially rebuild the entire architecture of an oil field on the sea floor some 6,000 feet beneath the waves.

At $250 million, the job is costlier, and riskier, than putting the equipment on the gulf floor in the first place. On the frontier of oil exploration, the margin between riches and disaster can be as small as a 6-inch piece of pipe. Yet for BP, rebuilding the platform is critically important because the company desperately needs the oil flowing as reserves in formerly rich fields such as Prudhoe Bay in Alaska dwindle.

Politics have made oil from the Middle East, Africa, Russia and South America is increasingly out of reach. And new discoveries around the world are more rare and continue to shrink in size.

"We have passed the peak for world discoveries," said Robert Gillon, an analyst at oil-industry research firm John S. Herold Inc. "It's hard to see how the industry can do anything whatsoever to materially increase its oil reserves or production."

Against this backdrop, Thunder Horse, sitting atop a reserve that possibly holds 1.5 billion barrels, promises to deliver up to 250,000 gallons of oil a day, making it one of the gulf's biggest producers. For U.S. consumers now paying an average of $3.10 a gallon for gas, Thunder Horse would relieve some of the price pressure: Fully operational, it would boost total U.S. production by 5 percent.

For BP, the troubles at Thunder Horse have turned the oil platform into a dual symbol. Like Janus, the two-faced Roman god that glimpses both the past and the future, Thunder Horse stands as a reminder of BP's mistake-prone recent track record. Looking forward, though, it holds out the prospect of a lucrative, rewarding future.

The Thunder Horse mishap followed by nearly four months BP's worst-ever accident on U.S. soil, a refinery explosion in Texas City, Texas, that killed 15 people. Then, last spring, BP spilled 200,000 barrels of oil onto the Arctic tundra, the first of several pipe leaks that ultimately led BP to temporarily shut down half of North America's largest oil field.

Yet getting Thunder Horse on line will not be easy. The deep Gulf of Mexico is challenging in its own right. Removing and reassembling an oil field at such depths has never been attempted.

One daunting challenge: delicately lifting miles-long strings of steel pipe from the sea floor. If the pipes stress or twist too much, they might weaken and perhaps spring a leak one day, resulting in disaster.

"It will not be easy to pull off," Bond said. "You're trying to change things to make something good. You've got to make sure you don't change things and make them worse."

Exploring the 'Dead Sea'

BP's history in the deep waters of the gulf began inauspiciously. Though the company had drilled in the shallows since the 1980s, in 1991 it began focusing on finding new reserves under water greater than 2,500 feet deep.

The early effort did not go well. At the outset, BP drilled a series of dry holes. At a cost well beyond $100 million, BP was learning why others in the industry had given the gulf a derisive nickname: "The Dead Sea."

"Drilling a succession of dry holes, it was almost the definition of insanity," said Cindy Yeilding, a leading geologist for BP's Gulf of Mexico effort. Executives at BP's London headquarters agreed. For two years, they would not approve any additional deep-water gulf drilling.

But that thinking changed. After a reassessment, BP's oil explorers decided on a new strategy that focuses all the company's energy on seeking big reserves, dubbed "elephants." And the company put big resources behind the new approach: as much as $2.5 billion annually in recent years on gulf exploration.

That's nearly double the amount spent in BP's next-largest target, Azerbaijan, and roughly 20 percent of BP's total exploration and production budget.

The allocation makes sense for BP, because the gulf's deep waters today float above one of the hottest oil prospects on the planet, matching up with Angola and a small handful of lesser places at a time when new huge prospects are not on anyone's maps.

BP is able to move so aggressively in large part because of its $55 billion purchase of Chicago-based Amoco in 1999. Until then, the efforts of BP, like those of other oil giants, had been stymied in the deep Gulf of Mexico by thick layers of liquefied salt that sit like opaque blankets over much of the gulf's oil deposits.

But Amoco had world-class imaging technology, as well as data-mining capability and mathematical algorithms that could interpret the data it collected.

Combining Amoco's tools with some of its own, BP developed a unique exploration approach: It began placing sensing nodes on the floor of the gulf floor. Combining the sea-floor node data with information collected by the conventional method of towing sensors behind a large boat, BP could look through salt from several angles. Suddenly, the opaque blanket was lifted.

Exploration was not cheap, though. These days, it costs about $50 million to fully map a potential oil reserve. To drill an exploratory well costs an additional $100 million. Both those figures are huge jumps from what they would have been a decade ago, when shallower, less complex oil reserves were still available to tap. Back then, roughly $10 million would cover the cost of an exploratory hole.

Such costs and technology hurdles are what drove BP to adopt its "elephant hunt" strategy: Focusing only on the potentially biggest and most lucrative prospects, and ignoring the rest.

An aggressive lease-acquisition strategy, paying $300,000 and more a pop for rights to explore and pump oil from a 9-square-mile plot of the ocean floor, backed the effort. Taking advantage of a controversial Clinton administration program that drastically reduced royalties on deep-water gulf leases sold after 1995, BP stocked up.

And for good reason. Like most oil companies, BP has seen its exploration opportunities diminish over time. Its reserve replacement ratio, which measures whether a company adds new oil reserves at the same rate it depletes its existing resources, has fallen steadily in recent years.

BP's replacement ratio had a modern-day peak of 191 percent in 2001, meaning BP added almost twice as much in reserves as it sold. But that number dropped below full replacement in 2004 and 2005 before climbing above the break-even line again last year, to 113 percent.

By 2006, BP held leases on 650 tracts in Gulf of Mexico water deeper than 1,250 feet. After 15 years of effort, BP was vying with longtime deep-water player Chevron to become the largest leaseholder in the deep gulf.

A host of productive exploratory wells followed. Going by names like Atlantis, Neptune, Mad Dog and Holstein, they are among the gulf's richest finds.

One, at first called Crazy Horse, got a name change after descendants of the Native American warrior protested. Today it's called Thunder Horse.

The $250 million pipe

At a cost of $1 billion to build, and physically imposing with a top deck that rises 15 stories above the water's surface, the Thunder Horse platform appears to be invulnerable to the forces of nature and a wonder of technology. After all, more than 18 major parts on the platform have Serial No. 001 -- meaning they were invented just for this job.

It turns out Thunder Horse is vulnerable to both the power of nature and the shortcomings of modern technology.

The platform was designed to handle hurricanes as strong as Dennis. But the evacuation for the hurricane, combined with just the slightest shifting in Dennis' strong winds, set in motion an unlikely chain of events that caused the platform to tilt. That, in turn, has led to the delay that is costing BP billions in lost revenue -- and serving for the industry as an example of what can go wrong at the outer limits of technology.

The platform rests on four hollow, airtight legs that are as wide across as a two-bedroom apartment. Normally, the legs give the platform buoyancy, and horizontal connecting sections add stability.

After workers evacuated in advance of Hurricane Dennis, though, the misplumbed pipe allowed water to cascade through ballast and bilge tanks. The force of the flow forced open valves that in turn allowed the water to gather in the two port-side legs of the platform.

As Thunder Horse's top deck tilted toward the water, ballast pipes that normally pump water out began taking water in.

The support legs filled with water, and all manner of calamity set in. Some 30 car-size pumps and motors were ruined. A corroding process started that ran through the platform's 25 miles of electric cable and wiring like oil being sucked up by a wick.

"There's the $250 million pipe," said Sammy McDaniel, BP's head of Gulf of Mexico operations, a wry smile on his thin face as he showed a visitor the cleaned-up inside of one of Thunder Horse's large, hollow legs.

Neither McDaniel nor Bond had set foot on Thunder Horse before the mishap. On the first helicopter flight in, they agreed to work together, with McDaniel focusing mainly on the platform's operations and Bond zeroing in on the bottom of the ocean.

"We knew this one was going to be a bear," McDaniel said.

In the weeks after the landing party first boarded Thunder Horse, three days after the storm, the platform became a hive of frantic activity. With 150 workers living on a ship anchored nearby, working with lamps on their hard hats until electricity could be restored, McDaniel and Bond led a frantic cleanup and restart effort.

Work stopped only for hurricanes. After the devastating successive storms, Katrina and Rita, came through, the workers stayed off the platforms while trying to help their colleagues piece their lives back together.

BP's corporate brass told the public that it believed Thunder Horse could restart by late August 2006. Privately, Bond and McDaniel thought they could get the platform back in operation before the end of 2005. Rushing to meet the deadline, workers piled up nearly 4 million man-hours on the cleanup alone.

With start-up approaching, the recovery team in May of 2006 used water to pressure-test the subsea system of pumps, wellheads, piping and gathering centers that sprawl over an oil field on the ocean floor that covers an area nearly as wide across as the North Side of Chicago.

Then the unthinkable happened: The system leaked.

"We were this close," said McDaniel, holding a thumb and forefinger close together. "Then, 'Damn! What went wrong?'"

Sleuthing at 6,000 feet

Perhaps a valve was left open. Perhaps a coupling on a pumping station wasn't properly tightened. "We figured we would find out in our spare time," McDaniel said.

Two weeks passed, then a month. One pressure test held for eight hours, and then failed. The team injected ink into the piping network and sent a remotely operated, unmanned submarine 6,000 feet down into the water to photograph what was going on.

Outfitted with cameras and high-precision robotic arms, the sub was capable of spotting any problems, and fixing many potential mishaps.

As the robot's operators watched on a black-and-white video monitor inside a cramped control room, the camera focused on an image of a sea-floor metal structure, a manifold. The size of the container on the back of a semi-truck, the manifold is a key piece of equipment that ties together the lines from dozens of sea-floor wells, and then helps transfer oil up toward the platform.

Most of the huge manifold looked fine. But on the side, on one of the large pipes that snaked through the frame that formed a sort of exoskeleton for the structure, was a shocking sight: an inch-wide gash slashed through a weld. The leak was found.

Perhaps it was just one bad weld, but McDaniel and Bond had to determine if there were any more. They directed the submarine to another manifold and found a second ruptured weld. Inspection of other welds in the subsea equipment turned up even more cracks.

Thunder Horse's oil reservoir is nearly 5 miles below the water's surface. At that depth, oil will gush from the drill pipes at a temperature of 275 degrees Fahrenheit, under a metal-crunching 17,400 pounds per square inch of pressure.

Those conditions can stress even the mixture of high-strength steel and alloy that make up the half-inch welds on the manifolds and pipes of the Thunder Horse oil fields. But the equipment had gone through severe tests -- at 125 percent of the worst stresses that the Thunder Horse field might exert.

There had to be something else.

"We're operating at the edge of what is known," said Kenny Lang, BP's head of Gulf of Mexico operations. "When you're at the edge, you're creating knowledge. And when you create knowledge, you sometimes stub your toe."

Now the hunt was on for a new spot of knowledge: What caused the problem?

Lang flew in a team of experts in subsea oil production, welding and metallurgy from around the world to Houston to determine the cause of the weld failures.

Meanwhile, he directed others to touch base with the manufacturers of every component built into the sea-floor manifolds. He asked for testing of the anti-corrosion materials and insulation that enshrouded the subsea pipes. He wanted no clue missed.

"Ultimately you say, 'What if I'm wrong about what caused this? We put our equipment back on the seabed, and it fails?' " Lang said. "You can't risk that."

Lang also wanted other oil companies to be aware of the dangers. Learning that Shell Oil Co. was due to submerge manifolds at depths similar to Thunder Horse in the fourth quarter of last year, he made certain Shell was notified of the possible risks.

Even as the investigation started, though, pressure mounted onboard Thunder Horse.

BP had commissioned the Balder, one of only two ships in the world capable of lifting the manifolds and other heavy equipment from the sea floor, to visit the platform in December. After that, the Balder wouldn't be available again for almost a year.

By late September 2006, the manifold investigation team delivered its verdict. The welds, indeed, were the problem thanks to an unforeseen chemical reaction.

While the manifolds sat idle for a year after the platform tilted, the crushing pressure at the bottom of the sea forced hydrogen atoms into the mix of steel and high-strength alloy that made up the welds. The hydrogen caused the metal to become brittle, and when water was forced through the piping during the restart testing, the welds failed.

Drilling toward Mardi Gras

In the meantime, Bond hadn't been waiting for a verdict. He knew he only had until the end of 2006 to have all the sea-floor equipment ready to be lifted. That meant sealing wellheads, cutting pipes and planning logistics. It also meant working around the schedules of the 280 people onboard Thunder Horse, some of whom continued drilling new holes even as the rest of the sea-floor operation stood idle.

Drilling, after all, is what Thunder Horse was built to do.

On a recent spring day, a team of workers operated the ship's drill rig, pulling up a drill bit that had gone more than 20,000 feet below the seabed floor. Nearly 3 million pounds of pipe stretched from the drill rig to the bottom of the hole.

Spinning furiously, with "mud" that is used to lubricate them spitting out of the hole, the drilling pipes came out in 95-foot sections. As each joint emerged, workers stood by as a huge, mechanized clamp twisted off the coupling that separated it from the long line still stuck in the ground.

Directed by operators using joysticks in an air-conditioned control studio, an overhead winch grabbed the newly freed section of pipe and hung it on a rack. The pipes knocked together, sounding like a supersize wind chime.

Nearby, in the main Thunder Horse control room, BP workers monitored huge computer displays that showed the pressure, temperature and fluid volumes in all of the oil platform's piping systems.

There was something eerily missing on the screens, though: Not an ounce of oil was anywhere to be found.

Today, Thunder Horse's crews have removed about three-quarters of the equipment that once nestled on the seabed. They are putting new insulation and anti-corrosion coatings on some, replacing other pieces entirely.

The most delicate operation -- pulling the pipe up from the seabed without bending it -- is necessary, Bond said, because it's the only way he can reassemble the equipment that's needed on the oil field. The deep-sea robots can cut the pipes at the point they connect to the equipment 6,000 feet below the surface. But robots can't weld.

So Bond must oversee an operation that pulls up the freed pipe and brings it within reach of the Thunder Horse deck. There workers can weld it back to the huge, heavy pieces of equipment. Then BP workers must carefully lower the joined pieces back down, all without causing any new problems.

No one says it will be easy. But everyone onboard says it must happen on time. They will need the Balder for some of work, and demand for that ship is so high that it only comes by every 18 months or so.

"We've just been going full speed for a long time, and there's no letting up," said McDaniel, the operations chief.

"What we want to do is prove to ourselves and the world that we're ready," he said. "We just need to get all this stuff under us, and begin operation."

Leading a reporter on a tour of the complex onboard systems that separate oil, water and gas, McDaniel pointed to a pipe from the platform that plunges deep into the ocean. By the time Thunder Horse goes into production, the pipe will connect to Mardi Gras -- a $1 billion pipeline BP is building that one day will carry half of all the oil pumped from the deep-water gulf."This is the top end of the Mardi Gras pipeline," McDaniel said. "When the oil leaves here, it's gone."

For BP, and for gas-hungry consumers across the U.S., it can't happen soon enough.

- - -

About this story

Chief Business Correspondent David Greising spent six months reporting on BP PLC's attempts to fix three major problem sites within its huge North American unit. Greising, along with Tribune photographer Bob Fila, reported from Deadhorse, Alaska, site of the Prudhoe Bay oil spill last summer; Texas City, Texas, the location of a deadly refinery explosion that killed 15 in 2005; and atop BP's Thunder Horse oil platform in the Gulf of Mexico, which nearly toppled into the sea during a hurricane in 2005. The Tribune is the first news organization to visit all three sites since the disasters and the only one ever to set foot on Thunder Horse in the gulf.

----------

dgreising@tribune.com

IN THE WEB EDITION: Read Part 1 of the series, plus the Tribune's David Greising describes his visit to BP's facilities and how the oil giant is struggling to rebuild in a video at chicagotribune.com/bp
Copyright © 2007, Chicago Tribune

Chicago Tribune
May 27, 2007

A 2 part series on BP -- Part 1
http://www.chicagotribune.com/news/local/chi-bp_note_0527may27,1,4073646.story

Chief business correspondent David Greising spent six months reporting on BP PLC's attempts to fix three major problem sites within its huge North American unit. Greising, along with Tribune photographer Bob Fila, reported from Deadhorse, Alaska, site of the Prudhoe Bay oil spill last summer; Texas City, Texas, the location of a deadly refinery explosion that killed 15 in 2005; and atop BP's Thunder Horse oil platform in the Gulf of Mexico, which nearly toppled into the sea during a hurricane in 2005. The Tribune is the first news organization to visit all three sites since the disasters and the only one ever to set foot on Thunder Horse in the gulf.

Read Part 1 of the series, plus the Tribune's David Greising describes his visit to BP's facilities and how the oil giant is struggling to rebuild in a video at chicagotribune.com/bp

GRAPHIC
http://www.chicagotribune.com/business/chi-05-26-07-onebp_gfx,1,2860562.graphic

BP ALASKA Graphic
http://www.chicagotribune.com/business/chi-05-26-07-twobp_gfx,1,7115825.graphic

http://www.chicagotribune.com/news/local/chi-sun_bpmay27,1,571452.story

Risky business: Big Oil's billion-dollar juggling act
It's a high-stakes gamble, where even a tiny pinhole in a pipeline can cost billions and drive up the cost of filling your gas tank.
By David Greising
Tribune chief business correspondent
May 27, 2007
DEADHORSE, Alaska -- First of two parts

DEADHORSE, Alaska -- Painful reminders of the fallout from the cheap-oil era of a decade ago are never far from Robert Malone, the top North American executive of oil giant BP.

In March, he traveled 250 miles north of the Arctic Circle to look in on BP's efforts to rebuild the pipeline system that leaked 200,000 gallons of oil last spring onto Alaska's North Slope. But before donning an arctic parka to head into the 52-degrees-below-zero wind chill, Malone had to interrupt a meeting with workers to mark a solemn occasion: the moment, precisely two years earlier, when an explosion at the oil giant's Texas City refinery killed 15 people.

"One thing about a BP person, you'll get a can-do attitude," Malone told the group before quieting the room for the silent observance. "We've got to take that can-do and say: Can do, will do -- but we've got to do it right."

The can-do culture of BP's past pushed it to explore the depths of oceans, deal with unsavory political regimes, pioneer the era of oil-industry consolidation and test the limits of technology. Malone was in Alaska trying to reignite BP's can-do spirit after nearly a decade in which the company scrimped on routine maintenance and ignored safety issues that led to the disaster in Texas and the spill in Alaska.

And now, an inability to tackle daunting technological challenges has forced BP to delay pumping from one of its brightest prospects for the future: BP's massive Thunder Horse platform in the Gulf of Mexico. A nearly 3-year delay in the startup of the world's largest floating oil platform, which covers an area the size of three football fields, is setting back the arrival of enough oil to boost total U.S. production by nearly 5 percent.

Rarely has one company faced such grave trouble at so many places in such a thin slice of time. The breakdowns form a composite of the challenges an oil giant faces at a time when fields like Prudhoe Bay are running short of oil, the refinery infrastructure in places like Texas City is out of date and overtaxed, and the prospects for success in exploration are dicier than ever.

The crisis at BP is symptomatic of challenges oil companies face in trying to slake the world's thirst for oil. The six "super-major" independent oil companies together take in nearly $1.5 trillion each year. Yet the residue from the cutbacks and scrimping during the days of $10-a-barrel oil in the late 1990s has left the industry ill-equipped to handle even the slightest hiccup.

The U.S. got a taste of the industry's fragile state when Hurricanes Katrina and Rita hit in 2005 and took out more than 25 percent of U.S. refining capacity, forcing shortages and price hikes. And now consumers are paying the price again: As the summer driving season gets under way this weekend, Americans are paying a record nationwide average of $3.10 a gallon at the pump.

The BP connection is hitting perhaps hardest of all in Chicago. In part because of recent problems at BP's Whiting refinery, Chicagoans are paying among the highest gas prices in the U.S.: about $3.59 a gallon.

The Chicago connection is more than an ironic happenstance. Many of BP's problems can be traced to its 1999 acquisition of Amoco Corp. The Amoco purchase, followed soon after by BP's merger with Arco, transformed BP from a mid-size major into one of the world's very largest oil giants. Yet, because of Amoco's own poor maintenance record, the deal saddled BP with a huge backlog of trouble just as the industry's finances were hitting bottom. BP's immediate response to the tight times, a 25 percent cut in fixed costs, may have contributed to its problems at Texas City and Prudhoe Bay.

BP may operate with billion-dollar budget cycles, but the problems that take it down can start with something as tiny as a pinprick. A hole that size in the Prudhoe Bay pipeline system forced a months-long shutdown of half of North America's largest oil field beginning in August 2006. The Texas City explosion occurred because a single valve was left open too long. And Thunder Horse is behind schedule, costing BP $3 billion in lost revenue, because a 6-inch length of pipe was not correctly plumbed.

Getting to the root of the problems, and fixing them, would be a huge job under any circumstances. At BP, the world's third-largest independent oil producer, with revenues of $266 billion last year, the complexity is compounded by turmoil at the top. BP's visionary longtime leader, John Browne, was forced to step down in early May after admitting he lied to a court in an effort to conceal how he used company assets to help his boyfriend start a business.

Now the pressure is on Malone, a 55-year-old BP career oil man who hails from scrubby Daingerfield, Texas, population 2,517. Malone, his soft-spoken Texas twang intact though he has lived in Ohio, Alaska, and London much of his adult life, was installed as head of BP's North American operations soon after the Prudhoe pipes first leaked in spring 2006.

In his prior job, heading BP's global shipping operation, Malone moved oil tankers through the Persian Gulf and the pirate-infested Straits of Malacca. Yet his new assignment, turning around BP's American operation, he considers more difficult. And the hardest part, Malone said while inspecting repairs in Alaska and trying to charge up workers to do their work quickly and correctly, will be changing the corporate culture.

The challenge

As Malone's corporate jet set down at the tiny Deadhorse airport in late March, the first part of his mission was fairly simple: assess progress on the reconstruction of the Prudhoe pipeline system that twice sprung leaks last year. The first dumped 200,000 gallons of oil onto Alaska's North Slope in March 2006. But the second incident was almost worse: Two small leaks in August that exposed a pipeline that in many places had corroded almost entirely through.

Fixing and replacing the pipes is costly, laborious work. The tougher task, though, is the job of transforming a corporate culture that had allowed oil to eat through the Prudhoe pipes unnoticed. Years of cost-cutting and management shuffles had created frustration among Prudhoe managers. And now, in the year since the first spill, rampant overtime work and intense pressure have exhausted workers and taxed their ability to finish the job.

Much is riding on Malone's changes, not only for Prudhoe but for all of BP America from the Arctic Circle to the Gulf of Mexico. To compete in the new era of high prices, climate-change activism and cutthroat competition for oil resources, BP and others in the industry are quickly finding there is no room for error.

Over a two-year period BP will replace 16 miles of pipe at Prudhoe, the central spine of the system that pumps up to 10 percent of U.S. production into the 800-mile Trans-Alaska Pipeline System.

It's difficult and daunting work, as Malone witnessed first-hand.

There is extreme cold, for starters. Polar bears too. Some buildings have steel-caged entrance chambers from which workers scan the horizon for polar bears before walking to their blue Ford Excursion trucks whose engines idle all day because they might not start until spring if ever they freeze.

Yet everyone realizes the cold is a necessary ally, too. Without it, work on the Prudhoe Bay field could not be done.

The hard freeze that sets in each November enables BP workers to begin spraying enough water on the tundra to form foot-thick ribbons of ice that can support the weight of the boom trucks and tractor trailers that are needed to replace the pipe. By early December the ice roads crisscross Prudhoe Bay's 335-square-mile network of pipelines, wells and processing centers.

Work in the oil field thus is a race against nature and a sprint against time. When the winter freeze sets in each fall, work crews fly in on chartered Boeing 737 jets for two weeks of 12-hour shifts. Workers pair up in quarters the size of a cruise-ship stateroom, half working days, half working nights -- though night seeps into day once the sun sets for good each November and does not rise again until late January.

Crews fly in from places as far away as Texas, Louisiana, Tennessee and Georgia. Their Prudhoe Bay lifestyle -- isolated from family and friends, and hard physical work often involving decades-old technology -- seems like a throwback to the logging camps of the Paul Bunyan stories.

But they all seem energized by the knowledge that BP needs the Prudhoe Bay field operating at peak efficiency, and it needs the work completed quickly. And those twin needs have created a demand for work that puts money in their pockets.

"The whole reason we're up here is to make money," said J.C. Robinson, an oil-field worker for 27 years. "People are tired, but they're glad to have the work."

Still, the rush toward recovery has led to more problems.

Early on, the U.S. Department of Transportation, one of several agencies charged with inspecting the work, was rejecting 8 percent of the welds on BP's new pipes, said Rob Guisinger, a pipeline inspector for the agency.

The Steelworkers Union, representing many BP field workers, is worried about the stresses workers are facing. Kristjan Dye, president of the union local, this week worked an 18-hour day, then two 12-hour days, followed by another 18-hour day. It's tough, Dye said, but the Prudhoe Bay workers are benefiting from the lessons BP learned at Texas City, where management's refusal to listen to worker complaints may have contributed to the deadly blast.

"I can tell you, a few years ago, management was not OK with it if you refused to work overtime," Dye said. "Now, because of Texas City, they're a lot more accepting of it. We were moving toward a safer workplace even before the leaks last year."

Guisinger has seen a change even in the last few months.

"They were pushing their people awfully hard to get the work done," he said. "But my concerns have dropped off considerably. We're in a good place right now." Today, the rejection rate on pipe welds has dropped to less than 1 percent, well below the industry average.

A hiring wave is improving conditions too. BP has taken on 40 operators and technicians at Prudhoe Bay in the last six months. What's more, BP has uncorked $550 million for the repair effort on top of the $320 million it spends annually on maintenance.

Malone hopes the infusion of money will send a signal to workers that the company cares about doing things right. Even so, Malone said, no one should get the idea that BP will just throw money at the problem and not care how it is spent.

"The day someone says budget doesn't matter, well, then I'm working at the wrong company," he said after his Prudhoe Bay tour, while traveling on a leased jet en route to Houston and a weekend at his Texas ranch.

Bashfulness and bad dreams

The afternoon of his arrival at Prudhoe Bay, Malone meets with a room of workers at Prudhoe. Dressed incongruously in a crisply pressed blue jumpsuit that contrasts with the sweaty coveralls of the workers around the table, Malone is a quiet and conversational speaker. But he's direct when he wants to make a point.

Working from person to person among the dozen in the room, Malone asks questions about the coatings on pipes designed to prevent leak-inducing corrosion from the outside. He hears about how a switch to smaller-diameter pipes will increase the velocity of the crude oil moving through the pipes -- something that will help cut corrosion from the inside, which is harder to detect and is the sort that ate through BP's Prudhoe Bay pipes.

Malone also wants to know about dangers -- dangers to workers and to the environment. He asks one contractor if his people are reporting all their accidents and making BP aware of any unsafe conditions.

"Our people are not bashful," responds Matthew Lanagan, safety and environmental manager for Houston Construction, a major contractor on the Prudhoe Bay field.

"That says something about your company: that you've come a long way," Malone shoots back. "We were all struggling with that a little while ago." It is a polite criticism not just of Houston, but of BP's own problems of employees not alerting higher-ups over their safety and maintenance concerns.

Then Malone turns the conversation to what at first seems almost a minor, technical point.

"And my nightmare, documentation?" he asks the people in the room. "You knew I was going to ask about documentation. That's my nightmare."

Malone's comment focused on the record-keeping required to comply with regulators in the wake of the spills. BP must track every new weld, every radiographic inspection of pipe, every time it tests corrosion rates by inserting metal tabs into the flow of oil. The scrutiny is relentless, and Malone wanted to ensure that every worker understood how significant a role paperwork will play in getting the company back on track.

But when he got back to work in Texas, Malone soon learned that documentation was creating an entirely different sort of bad dream for him. Congressional investigators believed BP was holding out on delivering key documents -- e-mails and other internal memoranda created in the years running up to the 2006 spills.

Malone already had endured a blistering congressional hearing in September. With gas prices jumping because of the Prudhoe Bay shutdown, lawmakers criticized BP's safety practices and accused the company of conspiring to hike prices. Malone was too new to the job to say much of substance. But he did promise one thing: BP would be candid and honest in its dealings with Congress and the public.

But a few days after returning from his March tour of the BP fields, Malone received disheartening news: An internal BP search had uncovered a batch of e-mails containing years of in-depth discussion claiming budget cuts were compromising the company's fight against corrosion at Prudhoe Bay. Worse yet, it was the kind of incriminating communication that BP previously had said did not exist.

Conditions for disaster

"Reliable funding and resources is a yo-yo, accurate schedule [of corrosion-fighting] activities is a joke, and predicting ... impacts is even further out of the realm of reality," wrote one of BP's top corrosion fighters, in an e-mail almost a year to the day before the spill.

The note, one of dozens turned over to the Investigations and Oversight Subcommittee of the House Energy & Commerce Committee just days before its hearing in late May, is a cry for help. It appears to reflect the frustration of a dedicated employee seeking to reconcile corporate rhetoric about safety with the reality of repeated budget cuts in the field.

Ultimately, Kip Sprague, the corrosion manager, grudgingly agrees to provide a "placeholder" request for resources -- a number to give his boss while suspecting all the time that it's unlikely he will get any help.

"Bitch, bitch, bitch ... ," Sprague writes in response to his boss' request for information. "I will try to wrestle down some middle ground between the reality of the situation and some feel-good placeholders, just to get people off your back. However, I will not run/sacrifice an inspection strategy and program with limited resources. ... That, in my opinion, is negligent."

Corrosion -- the chemical reaction between water, bacteria and steel -- can take years to eat through a high-strength carbon-steel oil pipe. The caustic stew of management budget cuts and oversights that allowed corrosion to burrow through Prudhoe Bay's pipes built over a period of years too.

The Prudhoe Bay operation at the peak of its 30-year life span produced 1.5 million barrels of oil per day. But after that 1989 high point, production rates dropped sharply. A skimpy 500,000 barrels were coming out of Prudhoe's 1,273 miles of pipes each day prior to the 2006 spills.

The 1989 peak coincided with two other important events. Oil prices were plummeting by almost two-thirds from their $66 peak in 1981. At the same time, BP was tapping into new oil sources that delivered viscous, highly corrosive crude. From that point forward, oil flowing through BP's eastern operating area would be increasingly thick and slow flowing, and thicker oil is far more corrosive, thanks in part to sand that settles in the bottom of pipes and deflects anti-corrosion chemicals away from the metal they are intended to protect.

With prices skidding toward their bottom of about $9 a barrel in late 1998, the bosses at headquarters began rejecting requests for materials and programs necessary to keep the Prudhoe Bay pipes from rotting.

A 25 percent budget cut instituted in 1999, after the Amoco merger, meant that one crucial corrosion-fighting method -- sending cylindrical probes called "pigs" through the pipes to both clean and inspect them -- was abandoned virtually altogether, company records show. The BP e-mails also show that at one point, the top corrosion-fighting executive, Richard Woollam, also stopped buying corrosion-fighting chemicals, again in an effort to meet budget targets.

A review of e-mails shows that workers began fretting at least a decade ago that the slowing velocity of oil in the lines might dangerously create conditions for corrosion. At the same time, they saw no help coming from headquarters.

"My impression ... is that we will not be getting any relief on the budget," Woollam wrote in a 1999 e-mail. Prudhoe Bay's budgetmakers believe it is important to fight corrosion, he writes, "but, no one is prepared to let loose the purse strings."

Two days later, a colleague writes that, "due to budgetary constraints, the decision has been made to discontinue" a corrosion-fighting chemical treatment.

Two years later, in mid-2001, the budget pressure had not let up. A corrosion employee talked about "new bloodbath numbers" in the budget. Though an inspection pig had not been sent through the line for a decade, he suggested discontinuing plans for that, as well as for manual inspections of the pipes' exterior surfaces.

By 2003, BP was setting concrete plans to pig Prudhoe Bay's lines. But there was a problem: New, high-technology "smart" pigs were too long to fit through many of the bends in the Prudhoe Bay system.

When BP proposed spending $2.5 million to adapt the system to the new pigs, its minority partners in the Prudhoe Bay field -- ConocoPhillips and ExxonMobil -- did more than say no, according to one e-mail. They also requested that BP formally withdraw the request, thereby putting the proposal to rest for good.

By that point, the western half of the Prudhoe Bay oil field had not been pigged in 15 years.

The eastern half of the field, which BP acquired as part of its buyout of Arco in 2000, had never been pigged. By the time of the leaks last August, the key oil transit lines in the eastern area were so corroded that BP ultimately decided to replace the entire 8-mile network rather than attempt a risky, piecemeal repair. At the same time, BP had cut back on crews doing external monitoring of the pipes.

Discovery of the leak

On March 2, 2003, a worker driving along the pipeline on the western part of the Prudhoe Bay field smelled oil. Co-workers rushed to the site and quickly discovered the 200,000-gallon spill. BP's automatic detection system had missed the slow-flowing leak, which had appeared an estimated five days earlier.

BP sent a smart pig through the western section of the Prudhoe Bay field. To get a smart pig into the pipes, though, BP workers had to set up a temporary, plywood shed and specially rig the transit line to accept the long, cylindrical object. Meanwhile, a cleaning pig sent through the section for the first time in nearly two decades caused nearly 22 barrels of sludge to break free from the pipe walls.

The March spill also raised concerns about the eastern half of the Prudhoe Bay field.

Under orders from regulators, BP sent a smart pig through those eastern pipes found 16 anomalies in 12 locations, including 80 percent of the pipe wall eaten away in some points. When the oil leaked from two spots in August, BP shut down the line.

The Prudhoe Bay corrosion-control system had hardly changed since the early 1990s, and budget cuts had forced significant reductions in corrosion-fighting efforts, despite an internal audit that called for action.

Malone, who had served four years as CEO of Alyeska, the entity that runs the Trans-Alaska pipeline, got called back to North America in July. Giving up the job running BP's shipping business, and knowing the crisis he faced, Malone insisted on having unique powers in his new position.

He wanted authority to approve budgets to get pipeline problems fixed. And he wanted the power to appoint an independent person, a "technical directorate," who would review practices at the Prudhoe Bay operation and report any safety or environmental concerns directly to him.

Malone quickly replaced half of Prudhoe Bay's top managers. Malone also dumped BP's command-and-control approach, instead insisting that workers at all levels send up signal flares when they see something wrong. Malone hopes to show workers through the reactions they get that the company is listening to their suggestions. In digging into management processes that set the stage for trouble in Alaska, he determined that the turnover of senior managers was a factor, as was poor coordination and communication between BP operations on Alaska's North Slope and management in Anchorage.

Malone also has tried to instill a sense of a future for Prudhoe Bay. Specifically, he began focusing attention on BP's plans for a "50-year future" for the field. Oil may be running out, he has said, but natural gas from the Prudhoe Bay reserve is plentiful. BP is negotiating with the Canadian government for a new gas pipeline that would carry gas to Chicago and the Midwest. Still, there are more challenges ahead. "I'm not naive," Malone said. "You're talking five or seven years before you can say this culture is permanently changed."

The big fix

When foremen for the Prudhoe Bay field work gather at 6 each morning, the sun -- when it rises at all -- still has an hour to go before peeking over the horizon. In a sparsely furnished room that smells of coffee, not-quite-clean clothes and a hint of diesel exhaust from the trucks idling outside, two dozen foremen meet to compare notes on their progress in rebuilding the Prudhoe Bay pipeline system.

"We're sort of getting crunched on our time limit," says Lanagan, the Houston Construction contractor. "But we're not going to cut no corners."

Craig Flippo, operations representative for BP, reports on his discussion with design engineers based in Anchorage. "We're working with the operations team to make certain we're following our management-of-change process."

He underscores the point by reminding the Prudhoe field workers how their jobs are affected by the change in management systems. Before any major new work can proceed, Flippo reminds the foremen, they must file a detailed safety analysis, an analysis of environmental hazards, agree with Anchorage on the scope of work and get clearance to proceed.

George Nyftler, foreman for the 240-person contingent from Houston Construction, said high prices are keeping oil workers busy all over the U.S., so it can be hard to recruit workers to Prudhoe Bay. He notes that the base starting pay of about $80,000 a year -- and more overtime available than many people care to work -- can be a lure.

"It's to the point where special skills and special equipment, anything specific to the Arctic, are in short supply and hard to come by," Nyftler said.

Later, with the arctic sun at its mid-day peak, work is going full tilt. One team is placing stanchions in the ground. Instead of using concrete footings, they pour a rock-and-water slurry into the post hole: The permafrost will freeze it as hard as concrete. Barring a catastrophe of global warming, it should never melt.

Half a mile away, welders sit in a warming hut as a team of workers prepare two 80-foot sections of pipe to be joined. With the minus-52 wind chill a glass of water thrown into the air will freeze before it hits the ground. A huge gas jet heats the ends of the two steel pipes until they are warm enough to be worked with a welding torch.

That's when three welders leave the hut to take turns on each joint. The most skilled welder lays down the first, most critical bead. Two others complete the joint. Once completed, it must be X-rayed for quality. BP, the State of Alaska and the U.S. Department of Transportation review slides of each weld.

Malone, on his inspection tour, steps outside of a Ford Excursion truck as a group of workers prepares to lift part of a 3,000-foot-long section of pipe onto its stanchions. A treaded vehicle sidles up to the pipe. The workers sling a thick chain underneath the pipe, then connect it to a boom extending from the side of the vehicle.

When the boom operator begins lifting, the seemingly endless string of insulated 18-inch-diameter pipe wriggles and squirms like a piece of boiled pasta.

At one point, Malone watches as a worker absent-mindedly strays toward a pipe section being held aloft by a boom. It is a violation of company policy, not to mention dangerous, to walk under a suspended load.

Two co-workers call out to their wayward colleague. He steps back from the brink of danger.

The incident strikes Malone as a sign that, 250 miles above the Arctic Circle, the 5-year process of changing BP's culture is starting to take root.

- - -

About this story

Chief business correspondent David Greising spent six months reporting on BP PLC's attempts to fix three major problem sites within its huge North American unit. Greising, along with Tribune photographer Bob Fila, reported from Deadhorse, Alaska, site of the Prudhoe Bay oil spill last summer; Texas City, Texas, the location of a deadly refinery explosion that killed 15 in 2005; and atop BP's Thunder Horse oil platform in the Gulf of Mexico, which nearly toppled into the sea during a hurricane in 2005. The Tribune is the first news organization to visit all three sites since the disasters and the only one ever to set foot on Thunder Horse in the gulf.

--------

MONDAY: Trouble on Thunder Horse oil platform.

IN THE WEB EDITION

The Tribune's David Greising describes his visit to BP's facilities and how the oil giant is struggling to rebuild in a video at chicagotribune.com/bp

Anchorage Daily News
May 26, 2007

http://www.adn.com/money/industries/oil/story/8920947p-8820936c.html

North Slope plant resuming production after leak repair
RESTART BEGINS: BP says leaky pipe wasn't responsible for emergency shutdown.
By WESLEY LOY
Anchorage Daily News
Published: May 26, 2007
Last Modified: May 26, 2007 at 02:39 AM

BP workers have replaced a leaky pipe in a key oil-processing plant and could have the giant Prudhoe Bay field back to full production by Sunday, a company spokesman said Friday.

Oily water leaked through a hole about the diameter of a pencil, forcing a shutdown early Monday of Gathering Center 2, on the west side of the sprawling field.

The day before, the same plant came to a halt after an electrical contractor accidentally disconnected a wire that triggered the emergency shutdown system.

Sunday's emergency shutdown and Monday's pipe leak appear to be two unrelated events that just happened to occur on consecutive days, BP spokesman Daren Beaudo said.

Investigators aren't sure whether corrosion, abrasion or something else caused a spot on the inside of the steel pipe to thin to such a degree that a hole developed, he said.

"We have not conclusively determined what caused this," said Beaudo.

BP's maintenance practices have come under fire from Congress and regulators in recent months for a string of corrosion-related pipeline leaks in the nation's largest oil field.

Monday's shutdown of Gathering Center 2 -- one of six Prudhoe plants that separate oil from water and natural gas -- knocked out about 100,000 barrels of daily oil production, or nearly a quarter of the field's normal output.

Workers installed a piece of replacement pipe and were in the process of restarting the gathering center Friday, along with dozens of wells in the area that feed crude oil into the plant, Beaudo said.

"Our expectations are that we would have full production returned by the end of the weekend," he said. "It's a large facility. It usually takes a couple of days to bring all the wells back up and get all the equipment operating."

The pipe that leaked is 12 inches in diameter and carries water from which most of the oil has been separated out, Beaudo said. Workers were surprised it leaked because they'd never seen a similar case in the plant, he said.

The ruptured pipe will undergo metallurgical analysis to determine the cause, Beaudo said.

On Sunday afternoon, Gathering Center 2 went into a brief emergency shutdown after an electrical worker inadvertently disconnected "an emergency shutdown wire," he said.

That triggered the plant's automated shutdown system, which worked just as it should have, Beaudo said.

Because the plant went idle, dangerous natural gas that normally would cycle out needed some place to go, so it was burned off in large outdoor flares, causing some black smoke.

Such flaring is fairly uncommon, said Moses Coss, an environmental engineer with the Department of Environmental Conservation in Fairbanks.

A DEC inspector is investigating two "black-smoke events" lasting about eight minutes each, Coss said. Some flares are restricted to smokeless operation, and the inspector will look to determine whether any excess emissions occurred, he said.

BP runs Prudhoe, the nation's largest oil field, on behalf of itself and the other owners: Exxon Mobil, Conoco Phillips, Chevron and Forest Oil.

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