May 2007 News Stories
xxxxxxxxxxxxxxxxx
Financial Times
May 31, 2007
http://www.ft.com/cms/s/34f4374e-0f14-11dc-b444-000b5df10621.html
Manzoni
quits BP after losing race for top spot
By Rebecca Bream in London and Sheila
McNulty in Houston
Published: May 31 2007 03:00 |
Last updated: May 31 2007 03:00
John Manzoni, once seen as a successor to Lord Browne as BP chief executive,
is stepping down as the UK oil group's head of refining and marketing to
become head of Talisman Energy, the Canadian oil group.
He will be replaced by Iain Conn, whose current responsibilities at BP include
the Asia-Pacific, Africa and European regions as well as safety, operations
and human resources.
Mr Manzoni's departure comes four weeks after Tony Hayward took over as BP
chief executive. He will leave the oil group at the end of August following a
three-month handover with Mr Conn.
BP said Mr Manzoni's departure was agreed with the board and declined to give
details of any pay-off.
Mr Manzoni has worked at BP for 24 years and has run the refining and
marketing operations since 2002.
He had been considered a strong contender to succeed Lord Browne, who stepped
down as group chief executive this month after it emerged he had lied in court
in an effort to prevent a newspaper publishing details about his personal
life.
Mr Manzoni's reputation was tarnished by an explosion at BP's Texas City oil
refinery in 2005, which killed 15 and injured 500 in the US's biggest
industrial accident in a decade.
Mr Manzoni had board responsibility for the refinery at the time of the
explosion.
The US Chemical Safety Board, charged with investigating the blast, said
cost-cutting at the refinery had left it vulnerable to the catastrophe.
Its two-year probe uncovered audits and safety reportsrevealing the
deterioration at the Texas City site.
The Financial Times reported in February that an internal BP probe into the
blast found that Mr Manzoni should have carried out a "much deeper dive" into
the true state of the refinery after "clear warning signals" from previous
accidents.
The confidential BP report concluded that Mr Manzoni lacked refining
experience and had failed to obtain the information needed to understand
better BP's biggest refinery and the risk of a serious accident there.
The report cleared Mr Manzoni of "serious neglect or intentional misconduct",
but said he should have taken more steps to consider and mitigate the risks
long before the disaster occurred.
xxxxxxxxxxxxxxxxxxxxxxxxxx
Anchorage Daily News
May 30, 2007
http://www.adn.com/news/politics/fbi/story/8931729p-8831947c.html
Judge
delays Kohring trial
OCT. 22: Defense
says it needs more time to sort through evidence.
By KYLE HOPKINS
Anchorage Daily News
Published: May 30, 2007
Last Modified: May 30, 2007 at 02:27 AM
Hundreds of hours of video recordings, plus hundreds more of audio, added to
thousands of pages of documents. As federal investigators silently tracked and
secretly taped Alaska politicians and business leaders in a sweeping
corruption investigation, they built a digital mountain of evidence, according
to testimony in federal court Tuesday.
It's all too much to sift through by July, the defense lawyer for Rep. Vic
Kohring told U.S. District Judge John Sedwick.
The judge agreed.
In a brief Anchorage hearing that shed just a little light on the scope of the
investigation, Sedwick delayed Kohring's trial more than three months, until
Oct. 22.
Kohring, R-Wasilla, is accused of selling his vote on oil taxes last year to
the oil field services company Veco Corp. Veco executives Bill Allen and Rick
Smith pleaded guilty to conspiracy, bribery and tax charges on May 7.
Prosecutor Edward Sullivan said two computer hard drives full of evidence in
the Kohring case include a number of conversations "intercepted" in Suite 604,
a reference to Veco's room in Juneau's Baranof Hotel, as well as telephone
conversations involving Allen and Smith recorded over 11 months beginning in
September 2005.
Kohring has pleaded not guilty and says he's innocent.
"I feel in my heart that things are going to work out just fine for me and I'm
going to be exonerated," he said in a phone interview Tuesday.
Kohring called his legal bills "astronomical." He said he recently sold his
Wasilla home and may have to sell his home in Beaverton, Ore., to pay legal
fees that he expects to top $100,000.
The charges against Kohring say the longtime Valley legislator asked for help
paying a $17,000 credit card debt and that he accepted cash from Veco
executives.
Kohring said he couldn't answer specific questions about the case before it
goes to trial.
"All I can say is that people have to remember that I am innocent until proven
guilty," he said.
Kohring's lawyer, John Henry Browne of Seattle, said federal prosecutors gave
him a tower of evidence in the corruption case only last week.
Browne said only a fraction of the evidence directly involves Kohring and that
in the rest he expects to find ammunition to use in cross-examining Allen and
Smith, who are expected to testify against his client.
"The government was probably recording these guys for a reason ... my guess is
that this material will contain information that I can use to impeach them
when they testify, about their conduct, behavior and general reputation for
honesty," Browne said.
Kohring said people still support him and he has refused calls to give up his
seat in the Legislature. He said he needs surgery on his neck, which could
keep him from attending a possible special legislative session in the fall.
Until Tuesday's delay -- which drew no objection from prosecutors -- Kohring's
trial was to begin July 9.
Daily News reporter Kyle Hopkins can be reached at
khopkins@adn.com.
Xxxxxxxxxxxxxxxxxxxxxxxxxx
http://www.adn.com/news/politics/fbi/story/8929221p-8829429c.html
FBI
corruption investigation includes audio, video
By KYLE HOPKINS
Anchorage Daily News
Published: May 29, 2007
Last Modified: May 29, 2007 at 01:13 PM
Evidence in the corruption case against Rep. Vic Kohring, R-Wasilla, includes
thousands of pages of documents and hundreds of hours of audio and video
recordings, Kohring’s lawyers said today in federal court.
Defense lawyers asked for more time to sift through all that information, and
U.S. District Judge John Sedwick agreed, delaying the trial from July 9 until
Oct. 22.
Kohring faces bribery and extortion charges. He was originally scheduled to go
to trial in early July, but federal prosecutors didn’t fight his request for
more time.
Only a fraction of the evidence in the case specifically mentions Kohring,
said defense lawyer John Henry Browne. Still, Browne said, he and his staff
have to review all evidence - including nine computer discs filled with
documents and recordings, plus two hard drives full of information - and there
was no way to do that by early July.
“This is a lot of information, to say the least,” Browne said.
Kohring is accused of selling his vote on oil taxes last year to the oil field
services company Veco Corp. Veco executives Bill Allen and Rick Smith this
month pleaded guilty to conspiracy and bribery charges.
Prosecutor Edward Sullivan said the evidence includes a number of
conversations “intercepted” in Room 604, a reference to Veco’s suite in
Juneau’s Baranof Hotel, and telephone conversations involving Allen and Smith
recorded over 11 months beginning in September 2005.
The short hearing took place in a nearly empty courtroom. Kohring, his lawyers
and the federal prosecutors all participated by phone.
Daily News reporter Kyle Hopkins can be reached at
khopkins@adn.com.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
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."
xxxxxxxxxxxxxxxxxxxxxxx
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.)
xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
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.
xxxxxxxxxxxxxxxxxxxxxxxxxxxx
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
.
xxxxxxxxxxxxxxxxxxxxxxxxxxx
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
xxxxxxxxxxxxxxxxxxxxxxxx
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
xxxxxxxxxxxxxxxxxxxxxxxxxx
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
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Fairbanks News Miner
May 27, 2007
http://newsminer.com/2007/05/27/7200
State
needs to become major player in TAPS tariff case
By Richard Fineberg
Published May 27, 2007
Every minute of the day, while high-paid attorneys and accountants pepper each
other and regulators with obscure and sometimes ridiculous legal arguments,
the state treasury loses another $400 in excess trans-Alaska pipeline system
(TAPS) shipping charges, or tariffs. Most of that money goes directly into the
pockets of BP, ConocoPhillips and Exxon Mobil, which control more than 19 out
of 20 barrels of North Slope crude oil and own a similar share of the pipeline
system.
This long-running revenue hemorrhage stems from the difference between the
TAPS tariffs for in-state oil, set by the Regulatory Commission of Alaska
(RCA) about 11 percent of TAPS oil and the much higher tariff the oil
companies charge for transporting the remaining 89 percent of TAPS shipments
bound for the Lower 48.
With the notable exception of recent columns by Dermot Cole in this newspaper,
the press tends to ignore this problem. It’s just too complicated. And when it
is covered, it is liable to be misreported. Take, for example, the initial
reporting of the recent decision of a Federal Energy Regulatory Commission (FERC)
administrative law judge. That decision supported the claim of independent
TAPS shippers Anadarko and Tesoro that TAPS tariffs for Lower 48 shipments are
excessive. Determining that Anadarko and Tesoro made a strong case, the judge
recommended that the commission should reduce tariffs to a level near that of
the RCA’s 2002 order.
We’re talking about RCA tariffs of about $2 per barrel versus current FERC
tariffs of more than $5 per barrel. Every dollar per barrel in tariff charges
costs the state 25 cents in reduced royalty and production tax revenue.
According to initial press reports, the recent decision at FERC “revolves
around an inconsistency in the cost to move a barrel of oil through the
pipeline.” How does inconsistency figure into the picture? The state’s
principal argument in this case was that different tariffs for the same
service are discriminatory. Near the end of her decision, the administrative
judge noted that the reduced tariffs she was recommending would render the
state’s argument moot. Elsewhere in the lengthy decision, the FERC judge
mentioned state arguments only occasionally. In sum, Tesoro and Anadarko did
the heavy lifting, arguing against excessive tariffs; the state’s main
argument was largely irrelevant.
When the state has so much at stake in the outcome of the TAPS tariff case,
how did it become a minor player? This question deserves consideration for
more reasons than lost revenue and litigation expense. The state wants
independent companies to find the yet-undiscovered natural gas necessary to
make the gas line project economic. But excess tariffs penalize the
independent companies, along with the state. Laughing all the way to the bank
as they pocket excess revenue from oil pipeline overcharges, the Big Three
must smile to think that the gas pipeline tariff plays an even more
significant role in that project’s economics, providing new opportunities for
them to plunder other shippers.
The May 17 TAPS case ruling is the latest in a string of decisions that call
into question the 1985 TAPS tariff settlement, negotiated with the TAPS owners
by the Department of Law and its consultants. The law firm of Morrison &
Foerster was Department of Law’s leading consultant in that case and has been
the state’s principal pipeline tariff aide ever since. According to the Alaska
Budget Report, between July 2003 and the end of 2006, that firm also received
$12 million for its assistance on the proposed gas pipeline contract far more
than any other firm.
After the FERC administrative law judge’s recent decision on TAPS tariffs was
announced, the governor issued a statement saying she was “pleased with the
FERC decision.” The governor stated that “[t]he state’s attorneys are
reviewing the decision and preparing to participate in the next phase of the
litigation.” I wonder what the consulting lawyers are making as they jog
around the regulatory track while the state treasury continues to hemorrhage
at the rate of $400 per minute.
After serving in the governor’s office two decades ago, I prepared a report to
the state Legislature that penetrated the wall of confidentiality and
confusion surrounding TAPS tariffs to document 20 examples of delayed
information, needless opacity, important omissions and even misinformation
that contributed to the approval of the 1985 TAPS settlement that haunts the
state today. At that time, I ended another report to the Legislature with this
question: If war is too important to be left to the generals, should petroleum
litigation policy be left in the hands of the lawyers?
Gov. Palin: Tear down this wall!
Richard Fineberg, an independent oil and gas analyst from Ester, served as
senior policy adviser to the governor on oil and gas policy between 1987 and
1989. In 2001 he prepared and presented expert testimony in the Regulatory
Commission of Alaska’s TAPS tariff case for the RCA’s Public Advocacy Section.
Additional background on TAPS tariff issues can be found at his Web site (
www.finebergresearch.com
).
xxxxxxxxxxxxxxxxxxxxxxx
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.
xxxxxxxxxxxxxxxxxxxxx