May 2007 News Stories

Houston Chronicle
May 30, 2007

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

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

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

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

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

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

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

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

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

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

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

'Walk the walk'

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

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

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

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

The company's response

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

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

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

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

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

Chief hurdle

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

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

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

kristen.hays@chron.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Wall Street Journal
May 30, 2007

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

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

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

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

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

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

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

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

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

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

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

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

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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

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

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

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

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

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

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

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

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

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

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

Financial Times
May 30, 2007

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

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

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

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

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

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

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

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

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

Anchorage Daily News
May 29, 2007

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

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

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

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

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

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

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

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

Ted Stevens and his wife, Catherine, declined to answer questions about the Girdwood house. In a prepared statement issued by his office, Stevens said: "While I understand the public's interest in the ongoing federal investigation, it has been my long-standing policy to not comment on such matters. Therefore, I will withhold comment at this time to avoid even the appearance that I might influence this investigation."

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

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

INQUIRY SURFACES

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

The wide-ranging federal inquiry surfaced in August when agents raided six legislative offices, including those of then-Senate President Ben Stevens, one of Ted Stevens' sons. The FBI said at the time that it also had executed a search warrant in Girdwood, among other places, although the location of that search has never been officially disclosed.

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

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

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

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

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

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

WHERE THE BILLS WENT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

JUST IN CASE

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

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

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

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

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

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

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

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

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

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

'A VERY SAD SITUATION'

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

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

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

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

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

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

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

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

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

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

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

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

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

Los Angeles Times
May 28, 2007

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

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

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

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

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

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

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

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

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

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

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

The news was grim.

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

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

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

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

Recent events show that such worries aren't unfounded.

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

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

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

Not everyone thinks a West Coast reserve is necessary.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

elizabeth.douglass@latimes.com

Chicago Tribune
May 28, 2007

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Malone also is moving some workers out of the refineries.

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

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

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

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

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

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

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

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

- - -

About this story

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

----------

dgreising@tribune.com

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

Xxxxxxxxxxxxxxxxxxxxxxxxxx

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Exploring the 'Dead Sea'

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The $250 million pipe

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Then the unthinkable happened: The system leaked.

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

Sleuthing at 6,000 feet

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

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

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

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

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

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

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

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

There had to be something else.

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

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

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

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

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

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

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

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

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

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

Drilling toward Mardi Gras

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- - -

About this story

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

----------

dgreising@tribune.com

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

Chicago Tribune
May 27, 2007

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The challenge

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bashfulness and bad dreams

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

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

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

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

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

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

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

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

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

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

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

Conditions for disaster

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Discovery of the leak

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

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

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

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

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

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

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

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

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

The big fix

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

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

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

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

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

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

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

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

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

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

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

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

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

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

- - -

About this story

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

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MONDAY: Trouble on Thunder Horse oil platform.

IN THE WEB EDITION

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

Anchorage Daily News
May 26, 2007

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Anchorage Daily News
May 23, 2007

http://www.adn.com/money/industries/oil/prudhoe/story/8911334p-8811311c.html

Water leak at Prudhoe plant cuts flow of oil
840 GALLONS: Spill was contained at Gathering
Center 2; interrupted oil flow is worth $6.6 million a day.
By WESLEY LOY
Anchorage Daily News
Published: May 23, 2007
Last Modified: May 23, 2007 at 03:02 AM

Prudhoe Bay oil production is down by almost a quarter due to a ruptured pipe, and BP workers and state inspectors are checking to see whether corrosion is again to blame for a bobble in the nation's largest oil field.

The bad pipe doesn't run overland. Rather, it's part of the plumbing inside a key processing plant called Gathering Center 2 on the field's west side, said BP spokesman Daren Beaudo.

The carbon steel pipe, 12 inches in diameter, is used to drain water out of a large tank that separates the mix of oil, natural gas and water coming in from dozens of wells, he said.

About 1:45 a.m. Monday, workers discovered a leak coming from a weld in the T-shaped piece of piping, Beaudo said.

About 840 gallons of water leaked, but the water went into a sump and none escaped the building, he said.

The pipe rupture forced BP to idle Gathering Center 2, cutting Prudhoe oil output by about 100,000 barrels per day or roughly 12 percent of total North Slope production.

The outage marks a long string of breakdowns since early last year in Prudhoe, which BP runs on behalf of itself and the other owners: Exxon Mobil, Conoco Phillips, Chevron and Forest Oil.

BP has come under a hailstorm of criticism from members of Congress and federal pipeline regulators for what they called lax maintenance leading to corrosion and leaks. Federal criminal investigators continue to probe a corrosion-caused spill last March from a major overland pipeline connected to Gathering Center 2. At an estimated 201,000 gallons, it was the largest oil spill ever on the North Slope.

Investigators won't know whether corrosion is to blame for Monday's pipe rupture until workers can remove the faulty piece and examine it, Beaudo said.

The plant is expected to be down "a few days" while workers replace the piping, he said.

BP didn't publicly announce the production cut because the company considers it a routine event that inevitably happens in a major oil field, Beaudo said.

But a Michigan congressman who heads a U.S. House Energy and Commerce investigative subcommittee looking into the Prudhoe problems saw it differently.

Rep. Bart Stupak, a Democrat, sent out a statement Monday night after hearing of the leak inside Gathering Center 2.

He noted his subcommittee recently reviewed e-mails from BP employees suggesting the company might have reduced or eliminated corrosion-suppressing chemicals needed to prevent leaks in Prudhoe Bay water lines.

"While I have not seen all the facts on this most recent leak, it appears to be yet further evidence that BP's cost-cutting culture has put our nation's economy at risk," Stupak's statement said. "My subcommittee will continue to hold BP accountable."

Beaudo said BP had no comment on Stupak's statement.

Gathering Center 2 is one of six major oil-gas-water separation plants in the vast Prudhoe Bay oil field.

The plant has experienced several major glitches in recent months. Last August, it went down after a gas-handling compressor quit. It was idled again in April after a crane hit a nearby power line.

World oil traders noticed the Prudhoe production loss, but it wasn't significant enough to drive up prices. North Slope crude oil for delivery to West Coast refineries closed at $66.32 a barrel Tuesday, down $1.30 from Monday's finish.

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

At a glance

• WHAT: A leaky pipe prompted the shutdown of a major Prudhoe Bay oil processing plant.

• RESULT: Daily North Slope oil production is down by 100,000 barrels, or 12 percent, for "a few days," BP says.

• COST: At Tuesday's closing price, the interrupted oil flow is worth $6.6 million a day. Prudhoe Bay production breakdowns

• MAY 21: Daily production falls by about 100,000 barrels after pipe springs leak inside Gathering Center 2, causing a plant shutdown.

• APRIL 23: Daily production falls by 90,000 barrels after crane hits power line, shutting down Gathering Center 2.

• OCT. 10, 2006: Nearly entire field is hobbled, with daily production down by 310,000 barrels, after dust storm short-circuits electricity grid.

• AUG. 23, 2006: Daily production falls by 90,000 barrels after gas-handling compressor fails in Gathering Center 2.

• AUG. 6, 2006: Daily production falls by about 200,000 barrels for several weeks after corroded pipe leaks on Prudhoe's east side.

• MARCH 2, 2006: Daily production declines by nearly 100,000 barrels for more than a month after corroded pipeline on Prudhoe's west side near Gathering Center 2 spills record 201,000 gallons of oil.

Source: Anchorage Daily News research

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http://www.adn.com/news/politics/story/8911305p-8811300c.html

Corruption case prompts ethics action in Assembly
INFLUENCE: Convicted felons can't register to be lobbyists on city business.
By KYLE HOPKINS
Anchorage Daily New
Published: May 23, 2007
Last Modified: May 23, 2007 at 02:32 AM

The Anchorage Assembly voted unanimously to tighten city lobbying rules Tuesday night, banning anyone convicted of a felony from registering as a lobbyist.

"What we're trying to do is basically maintain the integrity of those who try and influence public officials," said Assemblyman Dan Sullivan, who co-sponsored the proposal along with Assemblyman Paul Bauer.

Bauer has said he proposed the changes partly because Anchorage's most prominent lobbyist, Bill Bobrick, had been linked to the corruption case against former Anchorage Rep. Tom Anderson. Bobrick has pleaded guilty to conspiracy to bribe Anderson, and no longer has any clients before the city, according to the latest city lobbyist lists.

Only one person -- Jed Whittaker, who left right after he spoke -- testified about the changes. He told Assemblymembers they allowed Bobrick to influence them for years without complaint until now.

"If you really want to say to the public that you cannot be bought, then pass an ordinance that publicly funds elections to the Assembly," Whittaker said.

No one on the Assembly had any questions for him.

The new guidelines adopted Tuesday say a person can't register to lobby city officials if he or she has been convicted of a felony within the previous 10 years.

Ethics may be a hot topic in Alaska but the lobbying rules drew little attention. By the time Assembly members were deep in debate over how to define the type of crimes would-be lobbyists aren't allowed to commit and how much to charge them for registration, two people sat in the audience.

Preparing for a few weeks off from regular meetings, the Assembly ended the meeting relatively early. Assemblywoman Debbie Ossiander said fumes from a large, smelly new screen -- used to view voting results -- behind the Assembly seats was giving her a headache.

Daily News reporter Kyle Hopkins can be reached at khopkins@adn.com or 257-4334.

Fairbanks News Miner
May 23, 2007

http://hosted.ap.org/dynamic/stories/A/AK_BP_OIL_SHUTDOWN_AKOL-?SITE=AKFAI&SECTION=HOME

BP shuts down one-fourth of its Prudhoe Bay production
By STEVE QUINN
Associated Press Writer

JUNEAU, Alaska (AP) -- BP officials said Tuesday it was too early to determine what caused a water pipe leak that led to the second partial shutdown in 10 months of the nation's largest producing oil field.

"The best estimate is that it's going to be a few days where we are going through a repair plan," said BP spokesman Daren Beaudo. "We will work as quickly and as safely as we can."

Production at Alaska's Prudhoe Bay was cut by one fourth after the company discovered the leak early Monday morning, company officials said.

Some 400,000 barrels a day of oil are pumped at Prudhoe Bay, about half of the total North Slope production.

Beaudo said the company discovered a hole about the size of a pencil's diameter to a water line in a facility used to separate oil, water and natural gas.

About 20 barrels of water leaked from the pipe, which is about 12 inches in diameter, before the it was discovered around 1:45 a.m. Monday, Beaudo said.

BP is Prudhoe Bay's operator, and it has a 25 percent stake in the field it shares largely with ConocoPhillips and Exxon Mobil Corp., which hold 36 percent interest each.

The British company said its production loss would be 25,000 barrels per day; losses for the two majority owners would be about 36,000 barrels a day each.

Light sweet crude for June delivery fell $1.36 to $64.91 a barrel in electronic trading on the New York Mercantile Exchange.

The facility where the water leak occurred is the same one where the largest-ever oil leak on the North Slope occurred, last year.

It's an area still under heavy scrutiny as a place identified by critics for poor maintenance practices.

For decades, some critics charge, lax government enforcement along with corporate unwillingness to make costly repairs caused corrosion and other wear-and-tear issues to fester.

"We should be expecting these kinds of things," said Dan Lawn, who previously worked for the Alaska Department of Environment Conservation, but now is with watchdog group Alaska Forum for Environmental Responsibility. "That's why all of this needs to be looked at well.

"If water and sludge in oil lines are responsible for making corrosion to oil lines, one would think it's natural to know the same material taken out of oil lines and put in any other lines would cause the same kind of problem."

Energy analysts, however, downplayed the significance of the event, at least for the world markets and for U.S. energy consumers.

"It's not that (this lost production) can't be made up elsewhere in the world," said Alaron Trading Corp. analyst Phil Flynn "But we would like to get production here rather than elsewhere."

Last week, members from a House committee investigating last year's spills, admonished the company for what it believed to be scaled back anticorrosion efforts in order to save money.

U.S. Rep. Bart Stupak, chairman of the Energy and Commerce investigations subcommittee said in a statement it's these lines that remain a huge concern for federal lawmakers.

"While I have not seen all the facts on this most recent leak, it appears to be yet further evidence that BP's cost cutting culture has put our nation's economy at risk," Stupak said. "My subcommittee will continue to hold BP accountable."

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Water leak shuts down BP facility
By Eric Lidji
Staff Writer
Published May 23, 2007

BP Plc. shut down about a quarter of its Prudhoe Bay production Monday after finding a small leak in a water line on the North Slope facility.

Production will be cut by about 100,000 barrels a day for “a few days” while crews repair the line, according to BP spokesman Daren Beaudo.

Beaudo said a quarter-inch hole was found around 1:45 a.m. Monday in a 12-inch water line at Gathering Center 2, a facility on the western side of Prudhoe Bay used for separating oil, gas and water.

“As a result of that leak we’ve had to shut down the whole system,” Beaudo said, referring to the gathering center.

Crews diverted the water in the pipe to a sump tank and collected around 20 barrels before stopping the leak.

Beaudo did not know how much the line had leaked before it was discovered.

The cause of the the water leak remains unknown.

Beaudo said there were no adverse environmental impact from the leak.

A spokeswoman with the Alaska Department of Environmental Conservation, which monitors spills across the state, said the water had not left the containment area.

Gathering Center 2 has been the site of two recent leaks at Prudhoe Bay.

In March 2006, corrosion on a transit line connecting Gathering Center 2 to another Gathering Center caused a quarter-inch hole that leaked around 200,000 gallons of oil onto the frozen tundra.

Last December, a hole in the bottom of a separation tank at Gathering Center 2 spilled more than 250,000 gallons of water and 126 gallons of crude oil.

The caused of that leak has still not been identified.

Beaudo said that the two previous leaks were not connected to Monday’s leak because each was part of a different system at the facility.

BP was under scrutiny last week during a congressional hearing to determine whether extreme budget cuts lead to previous leaks at the North Slope oil field, including a partial shutdown last August caused by a leak on the eastern side of Prudhoe Bay that spiked oil prices around the country.

Rep. Bart Stupak, D-Mich, who chairs the investigative subcommittee that held the hearing, released a statement on Monday connecting the current leak to a long line of problems at the country’s largest oil field.

“While I have not seen all the facts on this most recent leak, it appears to be yet further evidence that BP’s cost cutting culture has put our nation’s economy at risk,” Stupak said. “My subcommittee will continue to hold BP accountable.”

Internal e-mails released at the hearing indicate BP stopped using corrosion inhibitors on the water lines at Gathering Center 2 in 1999 because of budget restraints despite evidence that the chemicals were working.

BP runs the Prudhoe Bay oil field on behalf of a consortium of companies that includes the Exxon Mobil Corp. and ConocoPhillips, which both have a larger interest in the field than BP.

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

Anchorage Daily News
May 22, 2007

http://www.adn.com/money/industries/oil/story/8907593p-8807582c.html

BP checks prospects for Ugnu site on Slope
TECHNICAL DIFFICULTIES: Shallowest, heaviest of oil accumulations considered.
By Petroleum News
Published: May 22, 2007
Last Modified: May 22, 2007 at 04:20 AM

BP Exploration (Alaska) Inc. has begun permitting for an extended Ugnu well test operation next year, a huge but troublesome and undeveloped oil field.

Ugnu is the shallowest and heaviest of North Slope oil accumulations. Oil companies have long known about Ugnu because their wells to deeper fields go through it.

The formation is not in production because technical problems of producing the cold, heavy oil that lies in unconsolidated formations have not been solved.

BP filed paperwork last week proposing to add to a work pad in the Milne Point field for testing Ugnu. Work this year would include gravel placement so that the gravel can compact and settle before an extended Ugnu well test operation next year, BP told state regulators.

BP told the state that pre-pilot well testing is expected to be an extended operation, the exact length of which is not now known.

GETTING AT ONE-FIFTH OF UGNU

BP talked to legislators about the planned Ugnu production test in late January.

BP's Milne Point resource manager, Scott Digert, told the state House Special Committee on Ways and Means that BP planned to spend about $25 million this year to do pilot tests for technology the company thinks could be used to produce the heavy oil at Ugnu.

Although there has been no production from Ugnu, heavy oil has been taken from the Schrader Bluff and West Sak fields, which are somewhat deeper below the ground.

Some 100 million barrels of heavy oil has been produced on the North Slope to date, compared to 15 billion barrels of light oil from such fields as Prudhoe Bay, Kuparuk River and Alpine.

An additional 100 million to 1 billion barrels of heavy production is possible.

Digert said the first Ugnu wells would use cold heavy oil production with sand technology, where oil is produced along with massive amounts of sand that come with it. The sand would be separated on the surface, he said, and the oil would have to be warmed before it could be transported with light oil.

Digert said BP thinks that with certain techniques it could get at some 20 percent of the Ugnu formation.

BP also plans to try other technologies in the future such as steam injection or other thermal recovery methods, but not the mining used in some shallow Canadian heavy oil fields. Digert said Ugnu can't be mined, because it's 2,500 to 3,500 feet below the service, and permafrost lies above it.

He said steam injection is also expected to be less effective on the Slope than in Canada because the Ugnu is colder and because of the challenge of getting steam down through the permafrost and warming up the colder oil. The North Slope rock is also different from Canada, where the oil sands are "blocky, very massive sands," he said, allowing for easy vertical movement. "Ours tend to have layers of shale within the sand that tend to block that vertical movement of oil."

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http://www.adn.com/opinion/view/story/8908388p-8808390c.html

Go or stay?
Credible bribery charge means lawmaker is compromised
Published: May 22, 2007
Last Modified: May 22, 2007 at 05:15 AM

The first session of the 24th Alaska Legislature is over but the stain of the federal corruption investigation remains unbleached. The most notable symbol of the scandal is Wasilla Republican state Rep. Vic Kohring. He's the only sitting lawmaker who has been indicted.

In defending his refusal to resign, Rep. Kohring is half right.

He says, "I have a steadfast desire to continue serving my constituents, and only in the event my work is compromised would I consider resigning."

That's an appropriate standard to set -- he just doesn't realize his work is hopelessly compromised.

He stands accused of taking bribes from the state's most powerful lobbyist, working on behalf of the state's most powerful industry, on an issue worth billions of dollars to the state.

That same issue will be back in play in the Legislature this fall, with a special session on oil taxes. With the cloud of a bribery indictment hanging over him, Rep. Kohring cannot credibly represent his constituents during that critically important legislative session. Resigning now would give Wasilla Republicans plenty of time to recommend a competent replacement for Gov. Sarah Palin to appoint.

The case against Rep. Kohring is not a "he-said, she-said" deal. The evidence against him does not come from a disgruntled source who has an axe to grind. The federal charges suggest Rep. Kohring's acts are electronically recorded. It was not a sting operation where he might plausibly argue entrapment. One of the people who allegedly bribed him has pleaded guilty.

"I would like to be afforded my constitutional rights of innocence until proven guilty," Kohring says.

Fair enough -- as far as deciding whether he should go to jail. But his fitness to serve his constituents is a different matter. Asserting "innocent until proven guilty" does not settle the fundamental question here.

Is his ability to represent his constituents compromised while credible charges of bribery are pending?

The answer should be obvious.

BOTTOM LINE: Indicted Rep. Vic Kohring is hopelessly compromised. He should resign.

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More Don Young speaks! (Not.)

Part two of the ground-quaking Web interview with Don Young. His thoughts on belugas, tree-huggers and silence. Remember, this is a cartoon, we made this up. Any similarities between this and the real Don Young are probably just luck.

http://community.adn.com/mini_apps/vmix/player.php?ID=1349505&GID=118

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http://www.adn.com/news/politics/story/8908419p-8808406c.html

Lobbyists with felony convictions face ban
ASSEMBLY: Spotlight on ethics in state politics may bring issue to a vote tonight.
By KYLE HOPKINS
Anchorage Daily News
Published: May 22, 2007
Last Modified: May 22, 2007 at 02:41 AM

Until he pleaded guilty to conspiracy to bribe a state politician, Bill Bobrick was the go-to guy if you wanted to lobby the Anchorage Assembly.

Tonight that same Assembly -- some of whom got frequent campaign donations from Bobrick -- could decide whether to ban him or anyone convicted of a felony from lobbying.

Bobrick's plea was the latest in a string of corruption cases that saw four current or former state lawmakers indicted and two corporate executives admitting to bribery.

The proposal now before the city would bar felons from registering as lobbyists within 10 years of their conviction, and considering the spotlight on ethics in Alaska politics, Assembly members said this won't be a hard decision.

"I don't think we have really any choice," said Assemblyman Dick Traini, who plans to vote for the new rules.

Assembly chairman Dan Coffey said he expects the proposal to succeed tonight.

"I can't image that it wouldn't in this climate," he said.

Assemblyman Paul Bauer proposed the new lobbying rules at least partly because of Bobrick's case, Bauer said last week.

Compared with the scores of people lobbying the state Legislature, the pool is relatively small in Anchorage. Bobrick was the biggest fish, representing a dozen clients last year. According to the latest city list, he no longer has any clients.

Bauer and Bobrick aren't friendly, but the longtime lobbyist has supported many past and current city leaders. Over the years, he donated thousands of dollars to the political campaigns of Mayor Mark Begich and at least $1,000 each to Assembly members Allan Tesche, Dan Sullivan, Traini and Coffey, according to state records.

Though he rarely sides with Bauer and Sullivan, who co-sponsored the new rules, Begich said Monday he supports the proposal.

"I have no problem with it," he said.

Assembly members said Bobrick's past contributions won't influence their vote.

"It's just business," said Traini, who also talked about how the spotlight has been hard on Bobrick's family and said the lobbyist has "done a lot of good things for this town" with groups such as Standing Together Against Rape.

Tesche said it's no surprise that many city leaders received money from Bobrick: "Understand that he is Anchorage's almost exclusive full-time lobbyist, so one would expect him to be involved in a number of campaigns if he's the only guy in town."

Coffey, who said during his most recent campaign that he doesn't accept money from lobbyists, returned Bobrick's donation according to his campaign disclosure reports.

Sullivan co-sponsored Bauer's proposal and downplayed Bobrick's donations to his campaign, saying the lobbyist probably gave them only begrudgingly.

Bobrick couldn't be reached for comment Monday.

Tesche, who appeared at Bobrick's plea hearing last week, proposed new ethics rules of his own that will also be discussed tonight: He wants to bar city leaders from putting pressure on companies that do business with the city to hire or fire specific people. Bauer couldn't be reached for an interview Monday, but said last week the new lobbying rules are meant to protect the public trust.

"I don't want us turning into the Alaska state Legislature," he said.

Bobrick has agreed to testify against former Anchorage Rep. Tom Anderson and admitted to a scheme to funnel money to Anderson through a sham corporation. In December, Anderson pleaded not guilty to bribery, extortion and other charges.

Last year, Anderson registered to lobby the city too.

Daily News reporter Kyle Hopkins can be reached at khopkins@adn.com.

Anchorage Daily News
May 21, 2007

http://www.adn.com/money/story/8905587p-8805546c.html

Regulators strengthen their oversight of BP operations
PROGRESS: Watchdogs find firm more cooperative after Alaska pipeline leaks.
By JEANNETTE J. LEE
The Associated Press
Published: May 21, 2007
Last Modified: May 21, 2007 at 02:59 AM

The federal office in charge of pipeline oversight has issued a new round of requirements to oil company BP PLC as it continues repairs on a faulty network of crude oil transit lines at Prudhoe Bay, the agency chief said Sunday.

The guidelines laid out by the Pipeline and Hazardous Materials Safety Administration direct the company to intensify its corrosion monitoring program, remove leftover oil from out-of-service pipelines and submit monthly updates on the progress of construction upgrades and corrosion monitoring at the nation's largest oil field.

BP's latest plans to refurbish production and transport operations on the North Slope prompted the new set of orders, which the company received on April 27, PHMSA administrator Thomas Barrett said Sunday by phone from Washington, D.C.

The company plans to install an improved inspection system and pipeline entry ports for corrosion-prevention fluids. It is also downsizing the diameter of its pipelines to speed the movement of oil and reduce the build-up of sludge, one of several precursors to corrosion.

"Our interest is in monitoring their progress and watching out for the existing system as the new one comes forward," Barrett said.

BP has said the infrastructure should be in place by December 2008.

The latest order is part of an evolving set of requirements set forth by the federal agency, which imposed stricter oversight over the company's North Slope operations following the first of two spills last year.

The first, in March 2006, was the largest in the field's history, with up to 267,000 gallons spilled onto the tundra. In August, another leak in poorly maintained pipelines led to a partial shutdown in production at Prudhoe Bay.

"Today, right now, I'm satisfied with the progress they're making. Their commitment looks positive to me," Barrett said. "That was not the case last summer."

PMSHA employs three people in Alaska and has been rotating oil field experts through the North Slope since last March, Barrett said.

A BP spokesman on Sunday could not immediately comment on the order. However, spokesman Daren Beaudo earlier told the Fairbanks Daily News-Miner that the company intends to cooperate.

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http://www.adn.com/news/government/legislature/story/8905571p-8805543c.html

Ethics law takes a bite out of Legislature perks
REFORM: Putting $15 limit on meals lobbyists can buy lawmakers was part of effort to regain trust lost in scandals.
By TOM KIZZIA
Anchorage Daily News
Published: May 21, 2007
Last Modified: May 21, 2007 at 03:01 AM

JUNEAU -- Some nights, it's just a round of drinks, sent over by the smiling lobbyist across the restaurant.

More often, it's dinner, and a lobbyist at the table picks up the tab. There are stories, too, of legislators who drop their restaurant bill on a lobbyist's table as they head for the door.

And lawmakers speak of colleagues with running bets about who can go the longest without having to pay for dinner.

Tales like that, told out loud this month on the state Senate floor -- with no names attached -- helped pass a new law requiring lobbyists to report any meal or drink over $15 bought for a legislator or legislative staff.

The bar-tab rule was one of the last additions to this year's far-reaching ethics-reform package.

In a legislative session haunted by federal bribery and extortion charges against current and former lawmakers, the old perk of the free meal may not seem like much of a sin. But supporters say the new rule will strike a blow at what has become a too-easy relationship between elected officials and those paid to influence them.

"The $15 limit is the only thing in that law that will make a real difference in the culture here," said Rep. Mike Doogan, D-Anchorage, a former columnist and freshman legislator who has stuck to his newspaperman's habit of always picking up his own tab.

The rule, added in the state Senate, drew bipartisan support.

"You get down here away from your family, and some people lose their compass," said Sen. Lesil McGuire, R-Anchorage, speaking on the floor in behalf of the limit.

Senate minority leader Gene Therriault, R-Fairbanks, said the limit should be even lower. He said he didn't want lawmakers asking themselves, "Do I slip in under the wire if I order the penne pasta?"

The new law doesn't make it illegal to get a free meal. It just requires a report of that meal, so the public knows who's dining with whom.

The paperwork requirement -- imposed on lobbyists, not on the legislators themselves -- inspired some grumbling along the padded bench on the Capitol's second floor where lobbyists gather to prod their Blackberries.

And as is often the case with ethics rules, enforcement against those who violate the requirement could be difficult.

CLOSED LOOPHOLES

The new ethics law passed both houses of the Legislature this year by overwhelming margins.

New rules will require fuller disclosure of outside income by legislators, slow the revolving door between state employment and private-sector lobbying, and bar from lobbying anyone with a felony conviction for a crime of moral turpitude.

The law closes loopholes. For instance, it defines the value of an investment that constitutes a conflict of interest as $5,000. In 2005, two investigators reached different conclusions about whether then-Attorney General Gregg Renkes' $126,000 investment in a company he'd helped promote was a conflict because the old law had no defined limit.

Democrats sought many of the same changes last year, but their efforts were rebuffed. This year the majority Republicans joined in, pushed by Gov. Sarah Palin -- and the FBI raids of six legislative offices last fall.

"Ethics and the public trust were on the top of each and every legislator's mind opening the session," said Rep. John Coghill, R-North Pole, after the bill passed. "We listened, we came together, and we drew bright lines and stringent guidelines to follow."

AN INCH OR A MILE?

Some critics outside the Legislature say the reforms didn't go far enough because they didn't address enforcement.

"I view it as a public placebo intended to make the public think it's been dealt with. It has not," said Ray Metcalfe, a former legislator who was pushing for investigations of lobbying powerhouse Veco Corp. and former state Sen. Ben Stevens long before the FBI's interest became public last August.

Metcalfe said state law enforcement and campaign finance officials refused to do anything when he brought them evidence -- and they can refuse in the future, even with the new rules.

Metcalfe said the Legislature needs to create a new public offices commission within the court system, where it can be shielded from threats of budget cuts, and fund several "public integrity" investigators in the Alaska State Troopers.

"They've moved an inch when they needed a mile," Metcalfe said.

When this year's ethics measure finally reached the Senate May 9, several lawmakers objected to the $15 limit on reporting meals and drinks. Among them was Sen. Albert Kookesh, D-Angoon, who said legislators of good character should be able to draw the line themselves.

Sen. Bert Stedman, R-Sitka, said only a few legislators were abusing the old system.

"Unfortunately when you draw 60 people, there's always going to be a handful who have the evening lifestyle," Stedman said. "Most of us know who they are."

"The problem is, the public doesn't know," responded Therriault.

PUTTING A PRICE ON CONFLICTS

The point of the reporting limit had been slow to sink in. One day earlier, in the Senate Finance Committee, the original $10 limit was raised to $50 on a 5-1 vote. Stedman, the co-chairman, said it should "cover a reasonable meal, nothing too elaborate."

Sen. Donny Olson, D-Nome, said in his district you could hardly get a hamburger for $50.

Only Sen. Kim Elton, D-Juneau, objected in committee, noting that a string of $50 dinners added up to quite a sum.

By the next day, committee members had second thoughts and dropped that limit to $30. It was dropped further that afternoon on the Senate floor to $15 at the urging of its original sponsor, Sen. Hollis French, D-Anchorage.

"It has the veneer of friendliness," French said later of the lobbyist-paid meal, "but they're only doing it because they want to have an hour to talk to you. It's not inherently corrupt. But not reporting it is."

So will Juneau end up the home of the $14.99 lunch special? Many legislators predict fewer friendly meals out, because elected officials won't want their names to show up on public reports.

Rep. Les Gara, D-Anchorage, said the net result would be less influence in Juneau by monied interests.

"Foster kids aren't taking people out to dinner here," Gara said.

Reporter Tom Kizzia can be reached at tkizzia@adn.com or in Homer at 1-907-235-4244.

Fairbanks News Miner
May 20, 2007

http://newsminer.com/2007/05/20/7087

State should examine rights, duties under 1985 oil shipping deal
By Dermot Cole
Staff Writer
Published May 20, 2007

TAPS CASE: The companies that own the trans-Alaska pipeline say the formula for setting transportation costs is not the sum of its parts.

Disregard the specifics in the 1985 settlement with the state, the oil companies say. There are words like “depreciation” embedded in the text, but such words are meaningless labels outside the context of the settlement.

The only thing that matters, the pipeline owners argue, is that the formula is a package deal that establishes a way to set maximum rates.

The oil companies challenging the pipeline owners say that understanding the depreciation rate and every other element in the 1985 settlement is essential to determining how much the owners should be allowed to collect for shipping a barrel of oil from Prudhoe Bay to Valdez.

Six years after Tesoro protested the cost of shipping oil instate, the Regulatory Commission of Alaska found in 2002 that key financial mechanisms in the settlement dealing with accelerated depreciation and other benefits had allowed the oil companies to recover 97 percent of the pipeline’s cost by the end of 1996.

The RCA said that the 1985 settlement “provided the carriers the opportunity to earn over $9.9 billion in excess of the reasonable and prudent costs of providing service” as of 1997.

The owners of the pipeline led by BP, Exxon and ConocoPhillips insist that the numbers about depreciation and other items included in more than 100 rate filings with the Federal Energy Regulatory Commission are not what they appear.

The only relevant fact, the companies argue, is that the 1985 settlement was accepted by the owners of the pipeline and the state as a way of producing reasonable rates until 2011.

To look at what the oil companies reported in the rate filings for depreciation and apply that calculation in setting a transportation rate for companies that didn’t sign the deal is “cherry picking,” the pipeline owners contend.

Anadarko and Tesoro don’t agree. As non-owners of the pipeline, they are pushing for lower transportation costs, which would make their oil more valuable.

On Thursday an administrative law judge agreed with their claim that the specifics of the 1985 settlement should be used in constructing an accurate record of the pipeline’s financial past. She decided that interstate transportation rates should be cut in half, to about $2 a barrel.

This subject has more twists and turns than the Tanana River and that includes the way the state has played or misplayed its position.

Tariffs are important because every dollar in excess transportation costs represents a loss to the state of about a quarter. The total runs to hundreds of millions of dollars a year, according to some reports.

I’ve written here before that the state’s record on seeking lower tariffs is inconsistent. Contradictory might be a better word.

The 1985 deal includes this provision: “State and TAPS carriers shall cooperate, each at its own expense, in securing all necessary governmental approvals for this agreement and in defending against any litigation affecting the validity and enforceability of this agreement or any provision thereof.”

The state’s actions of the past few years should lead the Palin administration and the Legislature to examine just what Alaska’s responsibilities are under that provision.

Richard Fineberg, an independent Fairbanks oil analyst, has authored authoritative and exhaustively researched reports on the tariff situation over the past two decades. Most of those reports have been ignored by the political establishment and not given the credence they deserve by the news media.

I say this because key findings identified by the FERC staff and the administrative law judge tend to echo the analysis that Fineberg has been making for nearly 20 years.

Fineberg said that upon reading through the judge’s decision he pictures the state starring as “The Dog that Didn’t Bark.”

“As Judge Cintron works through the various arguments around which TAPS tariffs and the decision revolved, on most of the major points she has no need or reason to mention the state. Considering both the state’s interests and the breadth and detail of the decision, I find the state’s absence from the decision noteworthy,” Fineberg said.

The heavy lifting in the case is being done by Anadarko and Tesoro, not the state, he said. The state’s claim in this proceeding is limited to a narrow point about whether it is discriminatory to have interstate transportation rates more than twice as high as intrastate rates.

The pipeline owners claim the state’s position is disingenuous and conflicts with arguments Alaska has made in other proceedings before the FERC, RCA and in state court.

Fineberg said the 1985 settlement does not define what the state must do to cooperate and defend the agreement. He has long questioned whether the state could live up to its bargain without actively fighting the efforts of companies like Anadarko and Tesoro to get lower rates.

The state opposed Tesoro’s RCA case for many years and then joined with the pipeline owners in appealing the RCA order to an Anchorage Superior Court. The state claimed the RCA had “abused its discretion,” but the court affirmed the RCA ruling in all respects.

In an appeal of the RCA order for lower rates three years ago, the state agreed with the pipeline owners that the “TSM depreciation” based on the 1985 agreement wasn’t “actual depreciation.” That view has been rejected by the RCA, a Superior Court judge, the FERC staff and the administrative law judge.

In a document filed in July 2004, an attorney for Tesoro said “The state’s focus in the proceeding and on appeal seems simply to be that of a party trying to justify a bad settlement.”

In February 2006 the state withdrew from an appeal of the RCA tariff ruling, a dispute now leaving the pipeline owners alone before the Alaska Supreme Court.

The withdrawal raises new questions about what was required from the state in terms of cooperating to defend the 1985 settlement.

Dermot Cole can be reached at cole@newsminer.com or 459-7530.

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http://newsminer.com/2007/05/19/7070

Judge finds pipeline owners charge too much for shipping oil
By Dermot Cole
Staff Writer
Published May 19, 2007

TAPS TARIFF:
It’s not final, but the ruling from the administrative law judge on the trans-Alaska pipeline tariff case represents another victory for Anadarko and Tesoro and a setback for the companies that own the trans-Alaska pipeline.

The five-member Federal Energy Regulatory Commission will next consider the matter and a challenge in federal court is likely to follow.

The thrust of the decision is that the pipeline owners are charging about twice as much as they should to pump a barrel of oil from Prudhoe Bay to Valdez.

Judge Carmen Cintron ruled Thursday that the correct figure is closer to $2 than $4 per barrel.

The difference is important because lower tariffs mean that North Slope oil is more valuable, particularly for companies like Anadarko and Tesoro that don’t own part of the pipeline. The transportation cost is also important to the state because lower tariffs translate into higher oil revenues from royalties and taxes.

On almost every major point in this complicated fight, Cintron sided with Anadarko and Tesoro, rejecting the arguments of the pipeline owners, a group that includes BP, ConocoPhillips, ExxonMobil, Koch Alaska and Unocal.

She said the owners are charging transportation rates that are “unjust and unreasonable” to ship oil out of state.

The lower rates established through a lengthy proceeding by the Regulatory Commission of Alaska for oil used within the state are closer to the mark.

The transportation cost for oil that leaves the state from Valdez is under the jurisdiction of the FERC.

All the combatants in the case agree that it makes no sense to charge about $2 to ship a barrel of oil to Valdez for instate use and to charge more than twice as much for a barrel of oil that is loaded on a tanker and consumed elsewhere.

The parties differ on what to do about this discrepancy, however.

Anadarko, Tesoro and the state want the lower RCA intrastate rates to apply to all oil, not just the 10 percent or so used in the state.

The pipeline owner companies want the FERC to order an increase in the tariff for oil used in Alaska, claiming the lower tariffs are “an undue burden on interstate commerce” and give Alaska refiners an unfair advantage over refineries in the Lower 48.

Robin Brena, an attorney for Anadarko, said the pipeline owners have been charging excessive rates for shipping oil through the pipeline for 30 years.

“Their excessive rates have cost their shippers and the state of Alaska billions of dollars,” said Brena, who has argued this issue in regulatory proceedings for many years.

He said the initial decision of the judge is a “major step toward establishing fair rates” for the pipeline system.

“If upheld, the initial decision will significantly lower transportation costs for ANS (Alaska North Slope) crude oil, increase royalty and severance taxes to the state of Alaska, increase the value of ANS reserves and encourage the further development of those ANS reserves,” he said.

One of the central points of the dispute is the 1985 agreement between the oil companies and the state to settle pipeline tariffs.

The pipeline owners say that the individual elements in that agreement listing costs, rates of depreciation and other specifics were never meant to be relied upon by those who did not sign the agreement.

For example, the owners say that that Tesoro and Anadarko can not look at the annual rate filings in which the pipeline owners account for depreciation and say that the numbers are accurate.

Tesoro and Anadarko say the published numbers show exactly what happened and how much money the oil companies collected beyond what they should have been allowed to receive.

The judged rejected the idea that the 1985 settlement is an “inseparable package” and the pipeline owners’ claim that Tesoro and Anadarko are “cherry picking.”

She said the rate filings made by the companies over the past two decades are the most convincing evidence of the pipeline’s financial past.

The FERC allows pipeline owners to recover their investment in a project, but prohibits double recovery. She said she gave no weight to the contention by the pipeline owners that it would be best, for purposes of setting rates, to act as if the 1985 settlement with the state had never occurred and to draw numbers from other sets of books kept by the companies for accounting purposes.

The rate filings made under the 1985 agreement show how much has been recovered.

Richard Fineberg, an independent oil analyst from Fairbanks who has followed this issue for more than two decades, said he had two immediate reactions to the judge’s 116-page ruling.

The first was the extent to which the judge agreed with the FERC trial staff in its “stinging rejection” of the arguments from the pipeline owners.

The second was “the state’s apparent irrelevance to the decision.”

I’ll have more to say on that second issue in Sunday’s column.

Dermot Cole can be reached at cole@newsminer.com or 459-7530.

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http://newsminer.com/2007/05/13/6976

Oil companies still say pipeline’s ‘economic life’ ends in 2011
By Dermot Cole
Staff Writer
Published May 13, 2007

TAPS TARIFF: The arcane battle over trans-Alaska pipeline tariffs in Washington, D.C., is a financial struggle between those who own a piece of the pipe and those who do not.

As the main owners of the pipeline, BP, ConocoPhillips and Exxon don’t mind paying themselves a hefty fee for shipping a barrel of oil from Prudhoe Bay to Valdez.

The economic theory is that a dollar in the right hand is worth just as much when it is moved to the left hand.

Tesoro and Anadarko are not pipeline owners, however, so they can’t shift this expense from one subsidiary to another.

They’d like to see transportation costs as low as possible, which would make oil on the North Slope more valuable.

The two companies have challenged the pipeline transportation rates as “unjust and unreasonable” in a case being argued before the Federal Energy Regulatory Commission.

For the past decade Tesoro has been pushing this point, first before the Regulatory Commission of Alaska and now before the federal board.

The state has a big interest in what happens next. One estimate is that for every $1 collected by the companies in excessive transportation costs, the state loses 25 cents in royalties and taxes. The loss is roughly $500,000 a day, according to Fairbanks researcher Richard Fineberg, who has followed this debate for decades.

You would think that the state would have long been fighting for lower tariffs and looking for ways to make North Slope oil more valuable, which could entice more companies to look for oil on the North Slope. But you would be wrong.

The state has been inconsistent in its arguments on transportation costs. It signed a deal with the big oil companies in 1985 on a financial formula for deciding transportation costs and promised to defend it.

After opposing Tesoro’s case before the RCA, the state now contends that in challenging the transportation rates it is still defending the deal it is just attacking the way the oil companies are implementing certain provisions.

In the first detailed look at developing a cost-based rate for pipeline tariffs, the RCA found that the oil companies had recorded $20 billion in expenses and $50 billion in income by 1996.

Nearly $10 billion of the income was “in excess of the reasonable and prudent costs of providing service,” the RCA found.

In the current case about interstate rates, an administrative law judge is expected to rule shortly on whether the pipeline owners are charging themselves too much to move oil.

The 1985 deal between the oil companies and the state contained many flaws that would never have passed muster before the FERC because they were not based on costs. Even the oil companies admit that.

The state agreed to the deal, however, and FERC accepted the settlement, leaving the door open for future challenges by those who had not signed the agreement.

The essence of the current dispute is that Tesoro and Anadarko can seek a “just and reasonable” transportation cost derived from a process based on actual costs and precedents established throughout the United States.

The attorneys on the FERC staff agree that the settlement “inherently produces unjust and unreasonable rates that fail to comply with applicable cost-based ratemaking standards.”

The big oil companies say the 1985 tariff settlement is binding as a total package, not as a series of individual elements, and that the claims of their opponents are “groundless.”

Tesoro and Anadarko say the Alaska settlement “resulted in massive overcollections of revenue” by the oil companies, producing a 99.28 percent return on equity in 2005 and a 105 percent return in 2006.

One of the big issues is accounting for depreciation, which is the way in which assets are written off for tax purposes.

The 1985 settlement allowed the oil companies to get those tax benefits on an accelerated basis, meaning the pipeline value would go down faster than through traditional “straight line” depreciation.

This allowed the companies to recover a large part of their investment early in the operational phase of the pipeline’s history. The RCA found that 97 percent of the pipeline’s cost had been recovered by the end of 1996.

This is relevant because costs that have already been recovered should mean a lower rate base and lower transportation costs.

One argument in the debate concerns the life of the pipeline. The shorter its life, the quicker the companies recover their investment and the higher the expense, creating higher transportation costs.

The oil companies are still acting as if the pipeline’s useful life will end in 2011, even though everyone thinks a more realistic date is 2034.

This discrepancy inflates the current depreciation expense by tens of millions of dollars, the non-owners say.

The oil companies argue that they are allowed to say the pipeline’s economic life will end in four years because the FERC has never told them to use a new number.

“Because the TAPS carriers are not the proponents of changing the approved depreciable life ending in 2011 and the commission has not approved such a change, that end-life remains in effect until modified prospectively,” the pipeline owners said.

The non-owners claim the oil companies should have submitted updated depreciation studies that reflect reality.

In general, the pipeline owners say that the depreciation rates determined from the 1985 settlement are an illusion.

They argue that since the FERC did not explicitly say it was approving the accelerated depreciation schedule in the agreement, but merely described it, the formula is not binding.

They say that the commission, in dealing with Tesoro and Anadarko, should act as if the 1985 settlement with accelerated depreciation never existed.

The FERC staff described this argument as “silly,” adding that accelerated depreciation has been applied by the pipeline owners in more than 100 rate filings.

Xxxxxxx

VECO VALUES: The Voice of the Times section in the Anchorage Daily News removed the name of Bill Allen, who was publisher, as of Thursday. Now that space is blank, but the contract to publish the section was with Allen.

Allen, who pleaded guilty to bribing legislators and told one of them, “I own your ass,” resigned Thursday and his daughter became head of his company.

Still on the VECO Web site is its list of “VECO Values.”

The second one is honesty: “We maintain integrity by always matching our actions with our words. We don’t lie. We don’t cheat. We don’t steal.”

Dermot Cole can be reached at cole@newswminer.com or 459-7530.

Anchorage Daily News
May 19, 2007

http://www.adn.com/money/industries/oil/pipeline/story/8899636p-8799524c.html

Tariff ruling may boost earnings for state
INCONSISTENT: Cost of moving barrel of oil through pipeline varies too much.
The Associated Press
Published: May 19, 2007
Last Modified: May 19, 2007 at 05:50 AM

FAIRBANKS -- An administrative law judge's ruling that rates have been too high for shipping oil through the trans-Alaska oil pipeline could mean higher earnings for state coffers.

The 116-page ruling released Thursday by Carmen Cintron, the judge with the Federal Energy Regulatory Commission, said past pipeline shipping rates were too high and the consortium of companies that own the pipeline should refund excess revenue collected over the past two years.

It also sets the stage for future oil revenues coming into the state treasury to increase "very significantly," according to Antony Scott, an economist with the state.

"It's a good ruling," Scott said.

The state collects its percentage of oil revenues after tariffs have been levied on the wellhead value of a barrel of oil. Lower tariffs mean the state percentage per barrel is worth more.

The case revolves around an inconsistency in the cost to move a barrel of oil through the pipeline, a cost set annually by pipeline owners that include BP, Exxon Mobil and Conoco Phillips.

Currently, tariffs for oil sent through the pipeline bound for sale out of state are higher than for oil sold within Alaska, even though the oil is moving through the same stretch of pipe.

In December 2004, the state, Anadarko Petroleum Corp. and the Tesoro Corp. challenged that inconsistency by arguing that the higher rates should be lowered to around $2 per barrel. Pipeline owners recently proposed to raise the lower rates as high as $5.29 per barrel.

Cintron's ruling sided with the state but is only a recommendation to the full FERC board, which will meet on the matter later in the year.

If the FERC agrees with the ruling, it will mean the pipeline owners will have to refund excess revenue collected over the past two years. It will also mean that the proposed tariffs for 2007 have been negated and must be filed again.

After the FERC makes a final ruling, the parties will have the opportunity to appeal the decision to the U.S. District Court.

Gov. Sarah Palin on Thursday said the decision bolsters the state's argument that tariffs will be an important element in a future gas pipeline contract.

"This reaffirms the need to ensure low tariffs on oil and gas lines," Palin said. "This is why we spent a great deal of time working on structuring the Alaska Gasline Inducement Act to maximize value for the state and ensure low tariffs. We're pleased with the FERC decision and we look forward to continued progress on this issue."

Spokesmen for Anadarko and BP said they were reviewing the document and were not ready to comment.

Xxxxxxxxxxxxxxxxxxxxxxx

http://www.adn.com/money/story/8898490p-8798382c.html

Colorado company interested in Veco
BID TO BUY: CH2M Hill signs a letter of intent to discuss the purchase.
By WESLEY LOY
Anchorage Daily News
Published: May 19, 2007
Last Modified: May 19, 2007 at 05:03 AM

A Colorado company is negotiating to buy scandal-plagued Veco Corp., the Anchorage oil-field services and construction company whose former chief executive pleaded guilty this month to federal bribery and conspiracy charges.

CH2M Hill, based in the Denver suburb of Englewood, and Veco have signed a letter of intent giving the Colorado engineering firm an exclusive 90-day period to discuss a purchase, John Corsi, a CH2M Hill spokesman, said Friday.

The sale is not guaranteed, as the firm must do a management and legal review of Veco, Corsi said.

"This has to fit both ways," he said.

Neither of the privately held companies disclosed any proposed terms Friday.

Veco is one of the largest companies in Alaska, with about 2,000 employees in the state and a similar number in operations around the world.

"The business combination with CH2M Hill is an excellent opportunity to move our company forward," said Tammy Kerrigan, who took over as Veco chairwoman after her father, Bill Allen, pleaded guilty May 7 and subsequently stepped down from his corporate posts.

"CH2M Hill is consistently recognized as one of the most respected companies in the engineering and construction industry and we are very interested in the significant value created for our clients by combining the skills and resources of the two firms," said Kerrigan, of Grand Junction, Colo. "This transaction would also provide a great home for our dedicated and skilled work force."

"We are very enthusiastic about the prospect of this deal. The outstanding employees at Veco are respected worldwide for their heritage of service to the energy industry," said Rob Smith, president of CH2M Hill's energy, chemicals and industrial systems business group. "Their commitment to client service would be an excellent fit with CH2M Hill's culture. Veco's core energy business and locations fit our corporate growth strategy extremely well."

CH2M Hill is an engineering, construction, management and design firm with $4.5 billion in revenue last year. The firm is owned entirely by its employees, and no employee owns a dominant share, Corsi said.

Veco is heavily involved in oil-field services and construction on the North Slope, and also has projects in the Lower 48, Canada, Barbados, Russia's Sakhalin Island and the Middle East. The company has annual revenue reaching $1 billion, Allen has said.

The Allen family owns much of Veco.

Allen, who helped build Veco starting in 1969, pleaded guilty to bribing state lawmakers in exchange for their votes or influence on legislation important to the oil industry, including last year's production tax reform.

Another Veco executive, Rick Smith, also pleaded guilty to federal charges, and both he and Allen face probable prison time.

Amy Menard, an attorney for Veco, had said in the wake of the guilty pleas that FTI Consulting Inc., a large Baltimore-based firm, would review the company's corporate operations and practices, with initial results expected by this week. Menard did not return a phone call seeking comment Friday.

Federal authorities have not accused Veco, as a company, of any crime.

THE ALASKA WORK

Among Veco's major customers is British oil giant BP, which runs Prudhoe Bay, the nation's largest oil field.

BP spokesman Daren Beaudo offered a prepared statement on Veco's possible sale:

"CH2M Hill is a respected international company. Our interest is in a solution that would allow thousands of hard-working Alaskans to continue to provide quality oil-field services on the North Slope and elsewhere."

One of Veco's main rivals for oil-field contracts in Alaska is ASRC Energy Services, a unit of Arctic Slope Regional Corp., the Barrow-based Native corporation for the North Slope. The company had no comment Friday on the possible emergence of a larger competitor in CH2M Hill, ASRC spokeswoman Carol Richards said.

CH2M Hill has a deep history of work in Alaska, Corsi said.

It began with the devastating 1964 Alaska earthquake, which spawned business for the company from the U.S. Army Corps of Engineers, he said.

The firm has an office on Northern Lights Boulevard in Anchorage, and its 70 Alaska employees work on energy, transportation, water and environmental projects, Corsi said.

Clients include the Corps, the Defense Department, the state Department of Transportation, the North Slope Borough, the City of Anchorage, the Alaska Department of Fish and Game, energy companies and others.

The name CH2M Hill is built from the initials of its four founders -- including two named Howland and Hayes -- plus the name of a firm, Hill, picked up in a merger.

"The CH2M Hill enterprise, dating back to 1946, is built on honesty, ethics and morals," according to its Web site.

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

CH2M Hill • What: Global engineering, construction, management and design company

• Headquarters: Denver

• 2006 revenue: $4.5 billion

• Employees: 19,000

• History: Founded in 1946 in Corvallis, Ore.

• Alaska connection: Firm has an Anchorage office and 70 Alaska employees. Has worked on more than 3,000 Alaska projects since the 1964 earthquake. Clients include state Department of Transportation, Army Corps of Engineers, City of Anchorage, North Slope Borough, energy companies.

• Web site: www.ch2m.com

CH2M Hill

Anchorage Daily News
May 18, 2007

http://www.adn.com/money/industries/oil/story/8894819p-8794859c.html

Relationship matrix underpins BP tactics in Alaska
IN CHARGE: Report lists oil company's execs and the state, federal agencies they handle.
By WESLEY LOY
Anchorage Daily News
Published: May 18, 2007
Last Modified: May 18, 2007 at 04:58 AM

BP has a game plan for dealing with state and federal regulators, maintaining a "formal relationship matrix" for assigning certain executives to deal with certain officials or agencies.

The matrix is mentioned in a report by a consultant BP commissioned to investigate corrosion-related oil pipeline spills last year in Prudhoe Bay, the nation's largest oil field. BP manages that field on behalf of itself and other owners including Exxon Mobil and Conoco Phillips.

The report offers a rare glimpse inside the London-based oil giant's corporate tactics in Alaska.

The consultant, Booz Allen Hamilton of McLean, Va., writes that BP Alaska's vice president for external affairs, Phil Cochrane, is responsible for maintaining a matrix designating who from the company will handle particular regulators.

For example, the president of BP Alaska -- currently Doug Suttles, who replaced Steve Marshall in the wake of last year's Prudhoe troubles -- is to deal with the commissioner of the Department of Natural Resources. The department has great authority over BP, acting essentially as landlord for Prudhoe and other oil fields BP runs.

The Prudhoe Bay field manager, formerly Maureen Johnson and now Mike Utsler, also deals with the Department of Natural Resources but also with the Alaska Oil and Gas Conservation Commission, which regulates drilling activity.

The matrix assigns BP's senior attorney for health, safety and the environment as well as regulatory matters to the Alaska Department of Environmental Conservation, which regulates pollution, including oil spills. The attorney, Randal Buckendorf, is a former DEC employee who manages the relationship with the department "as a result of long-standing personal friendships and professional interactions," the Booz Allen report says.

Other BP executives deal with federal agencies such as the Environmental Protection Agency and the Department of Transportation.

The Booz Allen report says BP antagonized some regulators after last year's pipeline leaks and "many regulatory relationships have become strained."

One DOT agency, the Pipeline and Hazardous Materials Safety Administration, has "become very aggressive" in ordering more corrosion testing and better maintenance of the major pipelines that leaked, the report says.

Daren Beaudo, a BP spokesman in Anchorage, said the company would not comment in detail on specific findings in the Booz Allen report, which BP has provided to congressional members investigating the spills.

As for the relationship matrix, "there's nothing novel about it at all," Beaudo said.

The idea is to find the people best suited in BP to keep regulators informed, he said.

"We feel we have an obligation and the regulators and government officials appreciate having good, consistent lines of communication and we feel that's the right thing to do," Beaudo said.

He wouldn't comment about how relations between BP and some regulators had been strained. He also said Cochrane and Buckendorf were not available to comment Thursday.

Cathy Foerster, an engineer who holds one of three seats on the Oil and Gas Conservation Commission, said the agency does tend to hear from the same BP people. But she said it's not like BP employees are trying to curry favor or forge friendships with, say, a lunch or tennis date.

"Nobody calls to see if I'm having a good day. They just don't do that," Foerster said. "And if they did that, I would tell them to stop. They call to tell us stuff they think we need to know."

Foerster, who used to work as a manager for oil company Arco, which is now part of Conoco, said major oil companies such as BP have a long list of regulators and others they're expected to keep informed in the event of something unusual, such as a spill or an oil field shutting down unexpectedly.

To fill in everyone quickly, the phone calls must be divvied up, she said.

"Every agency thinks that they're the most important one," Foerster said.

People from Conoco, which operates Alaska's second and third largest oil fields in Kuparuk and Alpine, don't call as often, she added.

"Conoco has just been luckier, I think" in avoiding mishaps in its fields, she said.

Conoco spokesmen could not be reached for comment on how the company deals with regulators.

Larry Dietrick, a longtime Department of Environmental Conservation regulator in charge of spill prevention and response, said he'd talked with Buckendorf, the BP attorney, "once in a while."

But generally, the department doesn't deal so much with individuals, Dietrick said. Rather, it works broadly with corporate units such as the health, safety and environment staff BP and other companies employ, he said.

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

Xxxxxxxxxxxxxxxxxxxxxxxx

http://www.adn.com/news/government/legislature/story/8894814p-8794856c.html

Special session planned on the petroleum tax
LEGISLATURE: Gov. Palin wants to revisit oil tax, but not in Juneau.
By SABRA AYRES
Anchorage Daily News
Published: May 18, 2007
Last Modified: May 18, 2007 at 04:55 AM

JUNEAU -- Gov. Sarah Palin said Thursday she intends to call state lawmakers into a special session this fall to revisit the Petroleum Production Tax and would be looking to save money by holding the meeting somewhere other than Juneau.

In declaring her plans less than 12 hours after the regular legislative session ended for the year, Palin did not specify another venue, but hinted Anchorage would be a contender because of the city's proximity to a large percentage of lawmakers.

"We're not moving the Legislature, and we're not moving the capital," the governor said. "But we'll be looking for somewhere to meet that will be less expensive."

Palin said the previous Legislature spent an "outrageous" $2.1 million on special sessions. The government must pick up the bill for legislators' travel costs to a special gathering and for housing costs while House and Senate members are in session. State lawmakers went through three special sessions last year and one in 2005.

Juneau has been the capital of the state since territorial times. The prospect of moving state government elsewhere has been raised several times in the state's history and always creates heated resistance in the Southeast Alaska city.

"We do get concerned when the Legislature contemplates meeting in a place other than Juneau," Juneau Mayor Bruce Botelho said Thursday.

Botelho, who served as state attorney general from 1994 to 2002, said, "But Palin has been clear that Juneau is the capital, and I don't think this is a situation that should trigger a three-alarm fire."

Proponents of moving the capital say Juneau is too isolated from the rest of the state, making it difficult for voters to access their state government. With no roads in or out of the city, Juneau can be reached only by plane or ferry. Lawmakers whose planes have been delayed because of bad weather say they have had to miss critical session days.

Palin said the recent guilty pleas from two Veco Corp. executives who admitted to bribing legislators during last year's approval of the PPT was evidence enough that a thorough review of the tax law was warranted.

"Our oil tax formula was changed under a dark cloud of suspicion," she said Thursday.

When the PPT was created, it fundamentally changed the way the state taxes oil producers, and supporters of the tax structure were hopeful it would bring more revenue into state coffers. But first receipts last month came in $137 million short of projections.

LOOPHOLE ALSO ON AGENDA

Bill Allen and Rick Smith of Veco have pleaded guilty to charges they paid off lawmakers in exchange for their influence during the PPT debate in the Legislature. One current and two former lawmakers face related bribery and extortion charges.

Palin announced after the indictments earlier this month that her administration would begin examining how effectively the tax was working.

The governor said she would ask lawmakers during the special session to take up a bill dealing with a loophole in oil tax expenditures left hanging after Wednesday night's late adjournment.

The bill, which more than half the members of the Legislature endorsed, would keep oil companies from deducting for pipeline repairs in cases of "improper maintenance."

House Minority Leader Beth Kerttula, a Democrat who represents Juneau, said she was happy to hear the governor intended to ask the Legislature to take up the tax again.

She stressed that she was not worried that Palin, a Wasilla native, was trying to move the capital.

Holding public hearing and testimony in another Alaska city to involve more of the public would benefit the entire state, particularly on a tax law debate that "didn't go right the first time," Kerttula said.

"This is a pragmatic governor," she said. "I'm sure she will be willing to work this out with us. I'm not concerned she meant anything more than that."

If it came down to drafting new tax legislation and voting on it, lawmakers would need to be in Juneau to access the expertise of the Legislature's legal and finance offices located in the capital, said Rep. Kurt Olson, R-Soldotna.

"We can't do it without them, and it would be too expensive to move anywhere else," he said.

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

Fairbanks News Miner
May 18, 2007

http://newsminer.com/2007/05/18/7067

Ruling may allow higher oil revenues
By Eric Lidji
Staff Writer
Published May 18, 2007

An administrative law judge has determined that past rates for shipping oil through the trans-Alaska oil pipeline were too high and has ordered the consortium of companies that own the pipeline to refund any excess revenue collected over the past two years.

The 116-page ruling released on Thursday by Carmen Cintron, the judge with the Federal Energy Regulatory Commission, also sets the stage for future oil revenues coming into the state treasury to increase “very significantly,” according to Antony Scott, an economist with the state.

“It’s a good ruling,” Scott said.

Because the state collects its percentage of oil revenues after tariffs have been levied on the wellhead value of a barrel of oil, lower tariffs mean the state percentage per barrel is worth more.

The case revolves around an inconsistency in the cost to move a barrel of oil through the pipeline. The cost is known as a tariff and is set annually by a consortium of pipeline owners that includes BP, Exxon Mobil and ConocoPhillips.

Currently, tariffs for oil sent through the pipeline bound for sale out of state are much higher than for oil sold within Alaska, even though the oil is moving through the same stretch of pipe.

In December 2004, the state, along with Anadarko Petroleum Corporation and the Tesoro Corporation, challenged that inconsistency by arguing that the higher rates should be lowered to around $2 per barrel. The pipeline owners recently proposed to raise the lower rates as high as $5.29 per barrel.

Cintron’s ruling sided with the state but is simply a recommendation to the full FERC board, which will meet on the matter later in the year.

If the FERC agrees with the ruling, it will mean the pipeline owners will have to refund any excess revenue collected over the past two years. It will also mean that the proposed tariffs for 2007 have been negated and must be filed again.

After the FERC makes a final ruling, either side will have the opportunity to appeal the decision to the U.S. District Court.

In a statement Thursday, Gov. Sarah Palin argued that the decision bolsters the state’s argument that low tariffs will be an important element in a future gas pipeline contract.

“This reaffirms the need to ensure low tariffs on oil and gas lines,” Palin said in a statement on the ruling. “This is why we spent a great deal of time working on structuring the Alaska Gasline Inducement Act to maximize value for the state and ensure low tariffs. We’re pleased with the FERC decision and we look forward to continued progress on this issue.”

Spokesmen for both Anadarko and BP said they were still reviewing the document on Thursday afternoon and were not yet able to comment on the ruling.

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

Xxxxxxxxxxxxxxxxxxxxxxx

http://newsminer.com/2007/05/18/7066

Gas line glory to budget bickering:
Lawmakers reflect on time in session
By Stefan Milkowski
Staff Writer
Published May 18, 2007

JUNEAU Despite political hurdles and regional wrangling, the Legislature ultimately came together on important legislation and approved a state spending plan that works for Fairbanks even if it’s too big overall, local lawmakers said Thursday.

“We got a lot of major things done,” Rep. Mike Kelly, R-Fairbanks, said.

In the first session of the 25th Legislature, which ended Wednesday night, lawmakers approved a comprehensive ethics package covering the legislative and executive branches and passed Gov. Sarah Palin’s gas pipeline legislation, which sets up a competitive bidding process for prospective pipeline builders. They worked on proposals to address public employers’ unfunded retirement debts, reshape K-12 education funding, and provide long-term revenue sharing, but in the end held off on long-term fixes to all three.

Local lawmakers mostly pointed to the passage of Palin’s gas line bill, the Alaska Gasline Inducement Act, as their biggest accomplishment and a step toward getting a natural gas pipeline built.

“The proof’s in the pudding,” Sen. Joe Thomas, D-Fairbanks, said, “but at least there’s a plan, a structure, and I think that’s good.” Rep. David Guttenberg, D-Fairbanks, said he was confident the bill would result in enough applications to make the project a reality.

Rep. Jay Ramras, R-Fairbanks, voted for the bill but expressed concerns about it.

“It passed just like the governor wanted,” he said. “It’s her new administration, it’s her plan, but I think we would have all benefited from a more elastic process that brought more potential applicants to the table.”

Lawmakers also expressed support for the ethics reform, but members from both parties said there’s only so much that can be done through new legislation.

“When you got a rotten cowboy, that’s not going to stop him,” Kelly said.

As for the trio of intertwined issues that dominated the session’s end education funding, retirement debt, and revenue sharing lawmakers said they liked the level of funding provided as one-year fixes in the capital budget, but were disappointed that lawmakers never settled on long-term solutions.

“To not have those things fixed yet was sort of a downer,” Rep. Scott Kawasaki, D-Fairbanks, said.

In the final days, House and Senate leadership split on the question of whether the retirement debt could be addressed long-term even if education and revenue sharing weren’t.

Most local lawmakers agreed with the House majority that it could, and they pushed for the passage of SB 125, a Senate bill establishing how much public employers such as school districts and municipalities would have to contribute over the coming decades.

Senate leadership failed to budge, and the bill, versions of which passed both bodies, never got final approval.

“It just got balled up,” Sen. Gary Wilken, R-Fairbanks, said of the cost-share bill and the other two pieces.

Wilken and Sen. Gene Therriault, R-North Pole, both members of the Republican Senate minority, joined House members in criticizing the bi-partisan Senate coalition for holding up the bill.

Senate leaders argued the fix would throw off a complex balance of state aid to local communities and discourage urban lawmakers from addressing education funding in the future.

Rep. John Coghill, R-North Pole, on Wednesday said he was glad the Legislature finished on time but noted the temporary nature of the fix meant there would be lots to do next year.

Fairbanks and North Pole lost some clout this year when four of the eight local lawmakers ended up in the House and Senate minorities. Last year, the two cities were represented by seven Republicans and one Democrat, with seven members in the majority.

This year, they’re represented by five Republicans and three Democrats, with only four members in the majority.

Guttenberg, the House minority whip, criticized the House majority for working on major issues such as education funding in private discussions rather than through the formal committee process.

“It really needs to be done out in focus, out in the public, so people can understand what’s going on,” he said.

Wilken and Therriault also described a “secrecy” surrounding proposals by the Senate majority, but said they were still able to have an effect on the process by teaming up with sympathetic majority members and by raising their voices on issues.

“The system allows you to figure out a way to get around those that throw up the roadblocks,” said Therriault.

Lawmakers suggested the power shift contributed to what they said was a paucity of Fairbanks projects in the state’s capital budget.

“We had nothing coming over on the Senate,” said Kelly, the only local member of the House Finance Committee.

Kelly said he was pleased at the Fairbanks projects added by the House, but “steamed” that funding was never added for the University of Alaska biological sciences facility proposed for the Fairbanks campus.

Thomas, the only local member of the Senate Finance Committee, said he was ultimately pleased with the capital budget.

“I of course would have liked to see a few more things for the Fairbanks area, but overall I think it turned out pretty good,” he said.

Majority and minority members both challenged the overall level of spending in the capital and operating budgets, and Wilken, a former Senate Finance Committee co-chair, said he will push for reform in the capital budgeting process.

“Clearly the system we have is fraught for abuse,” he said.

Ramras, a member of the House majority, complained of another shift in Capitol politics.

He said he enjoyed his new role as chair of the House Judiciary Committee but was disgusted by an anti-business climate and extreme suspicion of lawmakers’ motives.

“After 20 years of having rock-solid integrity in the private sector, my integrity was called into question just for showing up to work,” he said.

Kawasaki, a freshman lawmaker, was more upbeat.

“I got a couple more gray hairs, a couple more pounds under the belt, but overall I think I had a positive first session,” he said.

Contact staff writer Stefan Milkowski at 388-6141 or smilkowski@newsminer.com.

Alaska Report
May 17, 2007

http://www.alaskareport.com/vs_32111_exxon_valdez.htm

Short Circuiting Justice at the Ninth Circuit Court
May 17, 2007
By Victor Smith

Finally, after eighteen disillusioning years of waiting for compensation for the Exxon Valdez oil spill, someone has called foul on the rank politics that have been obscuring and delaying settlement of the case.

On March 31 of this year, the public advocacy Community Rights Council (CRC) issued a press release titled "Exxon, Punitive Damages, and Judicial Junkets" that fingered Judge Andrew Kleinfeld, one of the three "randomly assigned" 9th Circuit judges, for having ties to Exxon.

According to CRC, "for more than a decade, Exxon Corporation has waged a comprehensive campaign against punitive damages awards…An important part of Exxon's punitive damages campaign has been to fund organizations such as [George Mason University's] Law and Economics Center (LEC) which hosts junkets for federal judges that focus on topics including punitive damages….This campaign paid off handsomely in December 2006, when [the 9th Circuit Court] reduced Exxon's punitive damages liability for the Valdez spill by $2 billion…Judge Kleinfeld…who wrote the opinion in favor of Exxon in December… serves on LEC's Board of Judicial Advisors and reports taking at least three LEC-funded trips in recent years."

Although Kleinfeld contends that Exxon's contributions to LEC and the junkets "are just small potatoes," some would disagree. According to Media Transparency, " George Mason University has been a magnet for right-wing money for over a decade….From 1992 through 1994 the University placed third among all academic and non-academic grantees."

These endowments fund LEC's "mission to educate judges in how to apply principles of economic analysis to the law. By 1991, the Center had provided such training -- with seminars held at resort locations to enhance their attractiveness -- to over 40 percent of the federal judiciary…with corporate and foundation sponsors covering 'all travel, lodging and meal expenses for the most powerful players in the legal system--judges.'"

As flipside.org explains, " George Mason University 's Law and Economics Center has as its mission to teach federal judges that the goal of the law should be to maximize the wealth of society by promoting the efficient use of scarce resources. Thus conceived, the law is no longer about the Constitution, or about ethics or justice. In this view, courts become an appendage of the market, promoting efficiency, not equity."

To get on LEC's board, it probably didn't hurt that Kleinfeld had been a long time admirer of the Federalist Society and organizations like the Institute for Justice. Like LEC, the Federalist Society and the Institute seek nothing less than to reshape the landscape of the U.S. judiciary by promoting right-wing judicial activists to positions of power who will push the country rightward and end government regulation of businesses. Think of it as an under-the-radar parallel to the Bush administration's scandalous politicization of our U.S. attorneys.

Putting LEC's agenda in context with present attempts to break up the 9th Circuit Court, imagine the opportunity to place corporate-favoring judges anticipated by the establishment of a new Alaskan court. Breaking up the 9th has long been the goal of Judge Kleinfeld and his Republican Alaskan boosters: Senator Ted Stevens, former Senator Frank Murkowski, and Representative Don Young, none of whom have been particularly vocal in pressing Exxon for a settlement. They must find it cruelly amusing that Kleinfeld's endless delays trying to reduce the lower court's settlement could serve double duty by making the Exxon case a poster boy for splitting up the court.

This is not that far-fetched, especially when you look at the corruption so much of the Alaskan Republican power structure engaged in with the oil companies to secure passage of Gov. Murkowski's oil tax bill that rips off the state for $2 billion annually. Why wouldn't one expect that the bribes and extortion extend to trying to save the oil companies several more billions on the Exxon case while at the same time avoiding a precedent for environmental accountability?

Make no mistake about it; avoiding the precedent of reasonable compensation to fishermen' is at least 51% of what Exxon has been shelling out the money for and what the hopefully soon-to-be-indicted Stevens, Murkowski, and Young have been shilling for. As evidenced by riders they passed in 2003 limiting the public's ability to sue over environmental issues in the Tongass National Forest , it is doubtful these three would favor giving fishermen a dime. In fact, they're pushing ahead for more development with less protection than was had before without even making sure Alaska 's fishermen are compensated for abuses that happened eighteen years ago.

A final question raised by CRC's news release is, "Why was it left to the eleventh hour (well, hopefully it's the eleventh hour) for a third party to blow the whistle on Kleinfeld?" Why didn't some Alaskan official do it, or one of plaintiff's attorneys? as certainly this hasn't been a secret.

When Alaska wanted a certain outcome in the Bristol Bay price-fixing case the usual politicians jumped all over it. One must now discount their claims that the Exxon case was 'being left up to the courts'.

Likewise, plaintiffs may have questions about their own attorney's political involvement in the case. Last year, plaintiff's attorneys organized a political campaign, ostensibly to bring political pressure to bear on Exxon to settle. To accomplish this they hired Washington 2 Advocates, a Washington based right-wing Republican lobbying group comprised mostly of aides to former Washington Senator Slade Gorton. This was a foolish and hollow strategy, at best, because W2A wasn't going to do anything that would focus attention on Republican Congressmen who put the interests of their big-contributing oil companies before the public's interests.

Thank goodness for law enforcement though; there's nothing like an FBI raid to focus your attention. Perhaps the FBI will be able to tell us if it was just multiple cruel twists of fate that conspired to "randomly" place the fortunes of 35,000 victims of Exxon's negligence in the hands of Judge Kleinfeld: the judge with the big agenda that's not your agenda. If you are still confused by all the protestations of innocence and high integrity, just remember the old saying, "Whose bread I break, his song I sing." It is appalling that Kleinfeld is involved in the Exxon case.

Victor Smith, longtime Alaska fisherman

Anchorage Daily News
May 17, 2007

http://www.adn.com/news/government/legislature/story/8892958p-8793071c.html

Palin plans to call special session in fall
By SABRA AYRES
Published: May 17, 2007
Last Modified: May 17, 2007 at 03:50 PM

JUNEAU -- Gov. Sarah Palin said Thursday she intends to call lawmakers into a special session this fall to revisit the Petroleum Production Tax but would be looking to save state dollars by holding the meeting somewhere other than Juneau.

“We’re not moving the Legislature, and we’re not moving the capital,” Palin said in a press conference less than 12 hours after lawmakers wrapped up for the year. “But we’ll be looking for some where to meet that will be less expensive.”

Palin said the previous Legislature spent an "outrageous” $2.1 million on special sessions to cover transportation and housing costs for legislators in Juneau.

Having lawmakers work outside the capital city in Southeast Alaska could raise eyebrows in Juneau, where residents are sensitive to any motions to move state government to another city.

Moving state government out of Juneau has been raised several times in the state’s history. Lawmakers have considered the idea in proposed legislation, but none have managed to pass.

Proponents of the idea say the Southeast city is too remote from the rest of the state, making it difficult for voters to access their state government. With no roads in or out of the city, Juneau can only be reached by plane or ferry.

Daily News reporter Sabra Ayres can be reached at sayres@adn.com .

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Top lobbyist admits scheme
Influence money funneled to Rep. Tom Anderson, Bobrick testifies
By LISA DEMER
Anchorage Daily News

Published: May 17, 2007
Last Modified: May 17, 2007 at 06:48 AM

Lobbyist Bill Bobrick admitted in federal court on Wednesday that he conspired to bribe former state Rep. Tom Anderson.

Asked by U.S. District Judge John Sedwick how he pleaded to a felony charge of conspiracy, Bobrick answered in a clear, steady voice: "Guilty, your honor."

For years, Bobrick has stood out in Anchorage as the lobbyist claiming the longest list of private clients with city business. Some of the biggest players in the development and retail worlds have hired him over the years, including JL Properties, Wal-Mart Stores and Marlow Development Corp. This year, he had five clients, but all say they have dropped him in recent days and weeks because of his legal troubles.

"I've been a professional lobbyist for the last 20 years," Bobrick said at Wednesday's court hearing.

He accepted responsibility for a scheme to funnel payments to Anderson through a sham company so the legislator would do the bidding of a private corrections company. Details of the company in court filings match a description of Cornell Companies Inc. of Houston, Texas, which has tried and failed to win support for a private prison in Alaska.

The conspiracy to commit extortion, bribery and money laundering started in July 2004 and continued until March 2005, charging documents say. In all, $26,000 changed hands, court papers say.

Bobrick, 52, now is cooperating with the government. He has agreed to testify against Anderson, who was indicted in December on seven charges including bribery, extortion and money laundering. Anderson has pleaded not guilty.

Bobrick will be sentenced after Anderson's trial, which is scheduled to begin June 25. Bobrick faces 2 to 2 1/2 years under sentencing guidelines, but that can be reduced based on his cooperation.

"The judge was pretty clear today. It's a serious crime. He might give you a sentence that is more than the government recommends. That is a risk that Bill decided to take because he wants to do the right thing. He is really trying to move forward," said Doug Pope, Bobrick's defense lawyer.

At one point in the hearing, as the judge questioned Bobrick on whether he was suffering from any condition that could impair his judgment, the accused man said he was being treated for depression. He said he takes medication and receives counseling, but didn't feel his condition affected his ability to go forward.

RELEASED ON BOND

Anchorage Assemblyman Allan Tesche sat next to Bobrick's sister Elizabeth in the courtroom. When the 30-minute hearing ended, prosecutor Joe Bottini huddled for a moment with Bobrick.

Tesche shook Bobrick's hand but wouldn't talk to reporters. Elizabeth Bobrick said she didn't want to be interviewed either. She came from her home in Connecticut to be with her brother, Pope said.

Bobrick was stone-faced as he walked out of the courtroom and into another area for processing. He didn't acknowledge a request for comment.

Essentially, Bobrick now must be ready for "continuous cooperation with the government," Pope said. "It's out of my hands."

Bobrick was released on a $5,000 unsecured bond. With permission of a federal probation officer, he'll be allowed to travel out of state, including to visit his wife, a medical student in Minnesota.

According to court papers, an FBI informant working for the corrections company paid $24,000 to Bobrick's Pacific Publishing. Bobrick gave $10,828 to Anderson and kept the rest, the documents say. Anderson later complained he wasn't getting enough and was paid another $2,000 by the government informant, according to the indictment against him.

Bobrick created Pacific Publishing to ostensibly publish a Web site about Alaska government and politics that Anderson would write for. But in reality, the company was just a way to get money to Anderson and hide the real source, court papers say.

In a secretly recorded conversation on July 21, 2004, Bobrick told the informant that he and Anderson were "pitching a bunch of people" to try to get money for Anderson. If the corrections company paid up, Anderson would be "our boy in Juneau," Bobrick told the informant.

Between August 2004 and March 2005, Bobrick was aware of "multiple official acts" that Anderson took to benefit the government informant, the charging document said.

CLIENTS CUT TIES

All five clients Bobrick worked for this year have cut their professional ties to him. They are: Marlow Development Corp.; garbage hauler Alaska Waste; Lantech, a surveying company; Cook Inlet Housing Authority; and mall developer P.O'B. Montgomery.

"You need to have the confidence of elected officials that you are dealing with them on the straight up," developer Marc Marlow said. He had turned to Bobrick for help on a number of projects, including a tax break for the renovated McKinley Tower downtown. He said he severed his relationship with Bobrick in April after news broke about the coming guilty plea.

Lantech vice president Tom Dreyer said the company gave Bobrick the benefit of the doubt in recent months, but in the past few days saw what was coming. The company had hired him to monitor the Anchorage Assembly, which has been rewriting the city's land use code.

Bobrick worked as a technical consultant to the housing authority on a tax break it just won for an 80-unit development in Muldoon, said Amy Burnett, a spokeswoman for Cook Inlet Housing. In mid-April, it canceled its contract, she said.

Alaska Waste inherited the Bobrick lobbying contract when it bought the assets of Waste Management in May 2005, said Bobby Cox, general manager of Alaska Waste. But now its relationship with him is over, too.

Daily News reporter Lisa Demer can be reached at ldemer@adn.com and 257-4390.

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Who did Bill Bobrick work for?
Published: May 17, 2007
Last Modified: May 17, 2007 at 06:48 AM

Bill Bobrick long was the lobbyist in Anchorage with the most clients doing business before the city. The following list comes from his reports to the municipal clerk's office from 2001 through 2007. He worked for some just a year or two; for others longer. He no longer has any clients because of his legal troubles.

Alaska Interstate Construction LLC

Alaska Regional Hospital

Alaska Waste

American Fast Freight

Anchorage Board of Realtors

Anchorage Cultural Council

Anchorage Downtown Partnership

Anchorage Home Builders Association

Anchorage Horticulture Coalition

Anchorage Mutual Housing

Anchorage Neighborhood Housing Services

Anchorage Police Department Employees Association

Anchorage Refuse

Anti-Tobacco Coalition

Carr-Gottstein Properties

Compass Northwest LLC

Cook Inlet Housing Authority

Cornell Companies Inc.

Eklutna Inc.

Forest Heights LLC

Goldenview Land Co.

International Association of Fire Fighters Local 1264

JL Properties

Lantech

Marc Marlow

Marlow Development Corp.

Marlow Towers LLC

Paratransit Services

P.O'B. Montgomery

Siebert Brandford Shank & Co.

Simon Property Group

Smart Growth

Wal-Mart

Waste Management

White Raven Development

Williams Alaska Petroleum Inc.

Anchorage Daily News
May 17, 2007

http://www.adn.com/money/industries/oil/story/8892602p-8791712c.html

Savings undercut pipeline upkeep
BP: Overconfidence in leak prevention among its consultant's findings.
By WESLEY LOY
Anchorage Daily News
Published: May 17, 2007
Last Modified: May 17, 2007 at 03:12 AM

BP lacked a good process for assessing corrosion risk in Prudhoe Bay pipelines, and corrosion fighters were forced to make "tradeoffs" to meet budget targets, a BP-hired consultant found.

The report from Booz Allen Hamilton, a McLean, Va., consulting firm, emerged Wednesday as BP's top U.S. executive, Bob Malone, took a grilling from a congressional panel.

Congressmen said the report, coupled with e-mails BP recently turned over, suggest the London-based oil giant's emphasis on cost-cutting led to corroded pipelines and spills last year in Prudhoe, the nation's largest oil field, and a 2005 explosion that killed 15 people at a BP refinery in Texas.

BP hired Booz Allen last year to look into two Prudhoe pipeline leaks -- one discovered in March 2006 involving an estimated 201,000-gallon spill on the North Slope tundra, and another on Aug. 6 that led to a partial shutdown of the field, driving up world oil prices.

Booz Allen said it wasn't looking for evidence that could be used in court to show negligence or unlawful conduct. But the report's authors said they "saw no information to suggest that any BP employee or contractor acted in anything other than good faith."

Aside from Congress, federal pipeline regulators, Alaska pollution regulators and federal criminal investigators are scrutinizing the Prudhoe problems.

Among the findings in the 132-page Booz Allen report:

• BP lacked an adequate process for assessing corrosion risk in pipelines and for making adjustments -- for example, when the composition of oil changes, possibly increasing corrosion.

• BP's corrosion control team was isolated, out of touch with senior BP management, and felt a sense of "overconfidence" in preventing leaks because it had been regarded as a top-notch unit within BP.

• The corrosion unit made "tradeoffs" in part to meet budget targets. For example, there was a "reasonable and well-documented reluctance" to use pigs -- probes that slide through pipes testing for corrosion or other defects. However, larger budgets alone wouldn't have prevented the pipeline leaks because "fundamental changes" were needed in maintaining pipelines.

• BP manages 1,273 miles of pipelines across Prudhoe Bay, but the 16 miles of key "oil transit lines" -- major trunk lines that funnel crude oil into the trans-Alaska pipeline and which were the site of last year's leaks -- were an afterthought. BP's corrosion control unit was fractured into "town" and "field" units, and no one took ownership of the transit lines. These pipes carried pure oil and no corrosive water, and thus BP viewed them as invulnerable to holes caused by corrosion. They hadn't failed over Prudhoe's 29-year history.

• Since last year's pipeline spills, BP has antagonized government regulators and "relationships have become strained."

The report outlines BP's "deeply ingrained" cost-control efforts during years of low oil prices in the 1990s, the steep decline of Prudhoe oil production, and BP's takeover of Amoco and Arco, which led to reorganizations that pushed the corrosion control unit down deeper in the BP hierarchy.

Booz Allen makes a raft of recommendations, many of them urging BP to beef up its procedures for ranking and managing pipeline corrosion risks. It also urges BP Alaska to be less insular, to "immediately reach out from Alaska" to tap pipeline maintenance expertise from other industries such as chemicals, nuclear power, the Navy and NASA.

The consultant says BP has made some progress toward improving pipeline maintenance, including a big hiring surge for its corrosion unit, moving corrosion control higher up in the organization and replacing miles of pipelines. But much work remains, the report says, noting "risk management is still a work in progress."

The report also includes some bits of news.

BP is working with the state Department of Environmental Conservation on a new and better leak-detection system for oil transit lines. The report notes that leak detectors last year "did not provide ample warning of the leak."

Booz Allen said it conducted its investigation over 10 weeks starting last November.

The firm lists the names of 75 current and former BP employees it interviewed. One name not on the list, however, is Richard Woollam, who was BP's corrosion manager through November 2004.

Woollam, who was transferred to Houston and is said to be on administrative leave, last September appeared before a congressional committee but refused to answer questions, invoking his Fifth Amendment right against self-incrimination.

Reach reporter Wesley Loy at wloy@adn.com or 257-4590.

BPXA (BP Alaska) had a deeply ingrained cost management ethic as a result of long periods of low oil prices, constrained budgets, and multiple cost/headcount reduction initiatives. CIC (BP's corrosion team) made important project and activity tradeoff decisions to meet its budget targets. Larger budgets alone would not have prevented these incidents without fundamental changes in corrosion and integrity management.

Booz Allen report's key findings

BP lacked adequate process for assessing corrosion risk in pipelines.

BP's corrosion control unit was isolated, felt "overconfidence" in preventing leaks.

Corrosion unit made "tradeoffs" to meet budget targets, larger budgets alone wouldn't have prevented leaks.

Since two pipeline spills last year, BP has antagonized regulators and "relationships have become strained."

Report didn't seek to gather evidence of negligence or crimes, but nothing was found to suggest any BP employee or contractor "acted in anything other than good faith."

Source: Booz Allen Hamilton report

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Legislature kills oil tax deductions,
low-income senior aid bills
By TOM KIZZIA and SABRA AYRES
Anchorage Daily News
Published: May 16, 2007
Last Modified: May 17, 2007 at 12:22 AM

JUNEAU The state House yielded at the 11th hour Wednesday night, allowing the Legislature to adjourn with a one-year funding plan for education and a promise to work on long-term changes that could mean more school money for rural Alaska.

But the House also insisted on a last-minute shift in a $48 million revenue-sharing plan that moved more money to urban areas.

Three unresolved issues education funding, pension liability relief for schools and cities, and municipal aid stood in the way Wednesday as the Legislature approached the midnight deadline for adjournment.

The Republican-led House pushed for a long-term fix to help cities and schools with looming pension deficits. They offered one-year programs for education and municipal revenue-sharing, with a study of long-term reforms to education funding to come later.

The bipartisan Senate majority, which includes some powerful rural members, pushed for all three issues pensions, municipal aid and school money to be funded only for next year. They want long-term fixes for pensions and education to be considered together later.

The Senate majority has been reluctant to address pension relief by itself as that money would especially help bigger cities, leaving it without some leverage when seeking more money for small-town schools. Some say rural schools have been shortchanged over the years.

In the end, the House agreed to a $185 million one-year bill to help meet community pension needs. The budget as a whole adds $350 million in new money for education, raising the total to $1.2 billion for next year, lawmakers said.

A task force was charged with recommending by a Sept. 1 a new, fair formula for distributing education funds.

Meanwhile, two popular bills died on oil company tax deductions and aid to low-income seniors. Efforts by House Democrats on Wednesday to force votes on the measures were defeated

23-16, with votes coming on party lines.

House Republicans also cut money for the new Ocean Ranger monitoring program aimed at controlling cruise-ship discharges. Republicans turned back Democratic efforts Wednesday to boost funds to the voter-created program.

Gov. Sarah Palin called this week’s last-minute gamesmanship frustrating.

“I’ve been told over and over that’s just the culture here in state government,” she said Tuesday. “Well, I think that culture needs to change.”

The Legislature was moving swiftly until it crashed into the dispute over education funding at the end.

Major issues like Palin’s gas pipeline bill and ethics reform were handled earlier.

Flush with cash from high oil prices, lawmakers approved a $9 billion operating budget and wrote one of the biggest capital budgets ever at $1.8 billion, including some $550 million in state funds. Much of that money is going to pet projects earmarked by individual legislators.

Oil-tax changes dead

Two bills died in committee despite evidence of popularity among legislators.

A bill that would have prevented oil companies such as BP from deducting the costs of pipe repairs caused by “improper maintenance” had passed the Senate unanimously and had 21 of 40 House members as co-sponsors. But it arrived late in the key House Finance Committee and Republican leaders wouldn’t move it to the floor for a vote.

The industry called the bill unfair and unworkable. It remains alive for next year. Republican leaders also suggested it might make sense to discuss the deduction as part of a future review of the Petroleum Production Tax, or PPT, adopted by last year’s Legislature.

But the bill’s backers say another year’s delay could make it hard to apply the law retroactively to repairs stemming from BP’s spills from corroded pipelines last year on the North Slope. They said as much as $100 million in lost taxes could be at stake, with the state in effect subsidizing poor maintenance practices.

Money for seniors killed

The Legislature also failed to provide funds for the “longevity bonus” once paid to seniors and apparently killed a welfare program for low-income seniors that was created to replace the bonus in 2003. Democrats tried several times in the last

36 hours of the session to force a vote to save the senior-aid program.

Republicans said they had worked out a deal earlier in the session to fund an expanded program if the longevity bonus could be struck from the books. That deal fell apart when Democrats and some Republicans voted to keep the bonus program in place even without funds.

Republicans wouldn’t yield at the end to allow a vote on the low-income senior plan. Some GOP leaders said they were reluctant to continue the senior assistance in anticipation of future revenue declines.

Palin supported both the oil-field-deduction and senior-care bills. But she said Tuesday she did not plan to do a lot of arm-twisting or threaten to veto pet projects, saying she wanted to keep the public process transparent.

Governor gets gas bill

Palin cited the success of her gas pipeline bill as an example of the open process she favors. After extensive hearings, her bill passed both houses with only one vote against it. The bill sets into motion a competitive bidding process for a state license to build a North Slope natural gas pipeline.

The Alaska Gasline Inducement Act, or AGIA, got an added push when a corruption scandal erupted with less than two weeks left until the Legislature was set to adjourn.

Oil companies had panned the Palin gas line bill and had asked legislators to amend her version to include more tax predictability. In the end, lawmakers distanced themselves from the North Slope producer’s requests.

Ethics reform came up early in the session, in the midst of an ongoing federal corruption investigation. New rules will require fuller disclosure of outside income by legislators, slow the revolving door between state employment and private-sector lobbying, and restrict meals and gifts from lobbyists.

One much-anticipated issue that fizzled this year was a proposed constitutional amendment to allow voters the chance to deny court-ordered benefits for same-sex partners of public employees. Despite winning support from voters in an April advisory ballot, the measure failed to pass the House.

Reporter Tom Kizzia can be reached at tkizzia@adn.com , and Sabra Ayres can be reached at sayres@adn.com .

Houston Chronicle
May 17, 2007

http://www.chron.com/disp/story.mpl/business/4811558.html

Cutting costs didn't help
But BP leader won't say budget pressures directly caused Alaska leak
By DAVID IVANOVICH
Copyright 2007 Houston Chronicle Washington Bureau

WASHINGTON BP America President Robert Malone acknowledged Wednesday that budget pressures made life difficult for company workers trying to safely operate BP's pipelines in Alaska's giant Prudhoe Bay.

But Malone stopped short of conceding that cost cutting was directly to blame for the company's failure to detect the corrosion that caused two pipelines to leak, forcing the company to shut down a portion of the nation's largest oil field and sending crude prices soaring.

Appearing before a House panel Wednesday, Malone said, "We recognize that the budget pressures put our employees in a very difficult place."

And over time, the Houston-based oil executive said, that kind of mentality can create a culture where "people no longer challenge and think."

Carolyn Merritt, chief executive officer of the U.S. Chemical Safety Board, told lawmakers there were "striking similarities" between the conclusions of a report on Prudhoe Bay prepared for BP by Booz Allen Hamilton and the Chemical Safety Board's conclusions about the March 2005 explosion at BP's Texas City refinery. That blast killed 15 workers and injured scores more.

"Both reports point to the significant role of budget and production pressures in driving BP's decision-making and ultimately harming safety," Merritt said. "Cost cutting became the driving factor in management bonuses and recognition."

At Prudhoe Bay, BP officials failed to conduct the necessary tests to check for corrosion in the pipeline walls.

But Malone told members of the House Energy and Commerce Committee's Oversight and Investigations Subcommittee that the company's corrosion experts "had an unwarranted sense of confidence in their program."

Pointing to the Booz Allen report, Malone argued that "larger corrosion program budgets alone would not have prevented the leaks."

In that report, made public by the committee Wednesday, Booz Allen said BP's Alaska operation "had a deeply ingrained cost management ethic as a result of long periods of low prices, constrained budgets and multiple cost/headcount reduction initiatives.

"However, larger budgets alone would not have prevented these incidents without fundamental changes in corrosion and integrity management," the report said.

The Booz Allen report said BP had failed to run a device known as a "smart pig" through the oil transit lines in both 2004 and 2005 because of "budget pressure." Pipeline operators use smart pigs to analyze the thickness of the internal walls of pipelines to detect signs of corrosion damage.

But BP officials say Booz Allen has since learned that conclusion was incorrect and wanted to delete that reference from the report. A spokeswoman for Booz Allen declined to comment on the report.

Amending report?

Subcommittee Chairman Bart Stupak, D-Mich., said BP's law firm, Vinson & Elkins, sent the panel 159 pages worth of documents Tuesday trying to justify why the report should be amended.

"We hope BP is not pressuring Booz Allen to change the report when they get a little critical," Stupak said.

Rep. Gene Green, D-Houston, whose district includes numerous refineries and petrochemical plants along the Houston Ship Channel, said he found it "startling" that "many of the fundamental causes of the Texas City disaster are the exact same causes found in the Prudhoe Bay incident almost one year later. Talk about a lesson lost."

Green said that after the Texas City explosion he had trouble learning about the victims because "BP had not reported the deaths" to the Occupational Safety and Health Administration. "It turns out they didn't have to report them because the workers were contractors," Green said.

Green has introduced legislation to require employers to report contract workers' injuries the same way they report their own employees' injuries.

Rep. Al Green, D-Houston, meanwhile, plans to introduce a bill next week that would make companies criminally liable for willful safety violations that result in the deaths of contractors working at their sites.

Fifth Amendment

Committee investigators looking into the Prudhoe Bay pipeline leaks found internal company e-mails that suggest BP failed to inject a corrosion inhibitor into some pipelines.

"Due to budgetary constraints, the decision has been made to discontinue the inhibitor currently being injected," one e-mail from 1999 read.

Another internal message noted that that chemical had proved to be "very successful at cleaning up the system and arresting corrosion activity.

"We are now at a point where the original monies for this program are used up, so we will be shutting it down until year's end. In the meantime, the system may be subject to increased corrosion activity and fouling. "

Rep. Joe Barton, R-Ennis, the ranking Republican on the full Energy and Commerce Committee, questioned whether BP is really cooperating with congressional investigators, since the BP manager who was responsible for handling corrosion prevention in Alaska in a critical period before the leaks has invoked his Fifth Amendment right against self-incrimination and has refused to talk to investigators.

Malone, who has been on the job only since last summer, struggled to reassure lawmakers that BP is determined to change its ways.

"Please know we get it," Malone said. "We know what's wrong. We have a plan for fixing it. We just need time."

david.ivanovich@chron.com

Wall Street Journal
May 16, 2007

2nd UPDATE:
Reps Fear More BP Prudhoe Bay Fiascos May Occur

DOW JONES NEWSWIRES
May 16, 2007 3:33 p.m.
(Updates with additional comments from witnesses and U.S. Representatives.)
By Ian Talley
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--Several key U.S. representatives said Wednesday they fear more incidents similar to the massive Prudhoe Bay shutdown last year may occur at BP (BP) facilities as long as management refuses to accept that budget pressures led to the outage.

The head of BP Plc's U.S. operations, Robert Malone, Wednesday told a House oversight panel that budget cuts weren't the direct cause of a leak that last year temporarily shut down the largest producing field in the U.S.

Malone's statement to the House Energy and Commerce Subcommittee on Oversight and Investigations is contrary to an original report BP commissioned into the cause of the oil leak. That report found budget pressures may have been a primary factor that led the company to put off pipeline maintenance that may have prevented the fiasco.

With several major industrial accidents in the past two years that have killed workers and shut down major energy infrastructure during an ongoing tightness in the petroleum markets, Congress is increasingly concerned that a lack of investment and maintenance programs may lead to more price volatility and infrastructure crises.

"Until BP truly acknowledges the role of cost cutting and budget pressure played in creating this mess, I fear other "Prudhoe Bay" problems may be occurring at other BP facilities throughout the United States," said John Dingell, D-Michigan, chairman of the full Energy and Commerce Committee.

"If (BP) just try to take the heat off now and sweep this under the rug, then we'll have ore leaks in Alaska and more explosions and fines," said the ranking member of the full energy committee, Joe Barton, R-Texas.

Rep. Bart Stupak, D-Michigan, Chairman of the oversight committee, said he believed a culture that disincentivized preventative maintenance still existed within BP. "You don't change that automatically, it takes some time to do it," he said.

"I'm sure that workers in the field don't feel assured to step forward and say, "here's what we ought to do to protect our maintenance and safety," Stupak said.

"I hope under Mr. Malone's leadership that he's started addressing those concerns," Stupak said.

The incident is under a Justice Department investigation, an Alaska state probe and is "highly likely" to face fines from the Pipeline and Hazardous Materials Safety Administration in the next few months, an official from that agency said.

Dingell said a slew of documents uncovered by the oversight committee's investigations "clearly shed new light on the causes of the Prudhoe Bay failures and raise questions about the testimony of BP officials who appeared last year."

"They suggest cost cutting drove many key management decisions in the Prudhoe Bay field...and raise serious questions about BP management," Dingell said.

Although the language in the BP report prepared by Booz Allen Hamilton remains in the version presented to the panel, BP spokesman Ronnie Chappell said the law firm issued a new report that said the wording was a mistake. "They issued a correction," Chappell told Dow Jones Newswires prior to the subcommittee's hearing Wednesday into the fiasco.

In testimony presented to the panel, Malone said a report commissioned into the cause of the oil leak found "there was a false sense of confidence" in the company's oil pipeline maintenance program. Booz Allen Hamilton's report, "concluded that in the absence of better risk assessment processes, budget increases alone would not have prevented the leaks," Malone said in his testimony.

Although he continued to reject that budget cuts were the direct cause of the leak, Malone later conceded under tough questioning from committee members, "We recognize that those budget pressures put our employees in a very difficult place."

And if that goes on long enough, we know you create a culture...where people no longer begin to challenge and think," Malone said.

"What we need to do is to establish a culture where every employee will raise an issue and have a comprehensive risk assessment," the BP executive said. He added that the company was working hard "to change the way we identify, assess, understand and communicate risk," as well as, "change the way we integrate what we have learned into our operations and budget decision."

The subcommittee last week asked BP why it sought to edit a paragraph that said, "Budget pressure eventually led to de-scoping some projects and deferring others," including key maintenance that investigators later said could have prevented the pipeline leaks. In particular, the company failed to "pig" its oil transit lines, allowing bacteria known to cause severe metal corrosion to build up inside the pipes. A pipeline "pig" is a cylindrical droid that sweeps the pipe's interior.

Stupak said his investigations found, however, "the mountain of circumstantial evidence can only lead me to the conclusion that severe pressure for cost cutting did have an impact on maintenance of the pipelines."

Stupak pointed to an internal email from an official in BP's Corrosion Inspection and Chemicals group in 2001 that read, "As you may know we are under huge budget pressure for the last quarter of the year and therefore we have to take some rather disagreeable measures."

Budget cuts were also said to be a prime cause of BP's 2005 Texas City refinery explosion that killed 15 people and wounded more than 180 workers, according to a Chemical Safety and Hazard Investigation Board probe.

Carolyn Merritt, chairwoman and chief executive of the Chemical Safety Board, said that after reviewing the Booz Allen Hamilton report, "there are striking similarities in the reported causes" of the Prudhoe Bay and Texas City incidents.

Merritt said that besides "severe budget pressures... the budgeting process was largely driven by top-down targets rather than an analysis of risks." She added that senior management incentives were based on cost and production, and, "this finding is essentially identical to the `checkbook mentality' we uncovered at the Texas City refinery."

"That meant the budgets were not large enough to address identified risks, and that the only money on hand would be spent, rather than increasing the budget," Merritt said.

From 1999 to 2006 - the years that BP has owned Prudhoe Bay - the company has reaped $106.5 billion in profits after tax.

The committee last week also queried BP about an email that showed a request for maintenance at one of the pipelines where the major leak occurred was rejected.

The request stated: "Maintenance pigging is required to optimize existing corrosion control programs...(and) will also eliminate flow restrictions present from sediment and fouling within the pipelines. Intelligent pigging is required to provide a full evaluation of current pipeline condition to ensure pipeline integrity and meet regulatory requirements." Intelligent pigging conducts multi-function examination of pipelines.

Government pipeline regulators found buildup of sediment in the pipeline allowed the corrosion that lead to the leak.

Michael Burgess, R-Texas, said in his opening statement to the hearing the committee's investigation found there were "striking similarities" to the incidents in Texas City and Prudhoe Bay.

Stupak and other subcommittee members said there were still many unanswered questions and more hearings were likely. Stupak and Dingell said they were particularly concerned about BP's cooperation with the committee, given that many of the documents the committee has requested weren't provided in hearings last year into the incident. For example, Stupak said BP turned over 800 pages of documents relating to the fiasco late Tuesday night.

Several committee members said BP was not allowing investigators to interview a key BP employee.

"When something critical comes up in a report...it's whitewashed," Stupak said, pointing both to the Booz Allen Hamilton report, and an early BP-commissioned draft report prepared last year that also had critical elements edited by the company. "I get real suspicious," he said.

Rep. Barton also said that BP also appeared to be resisting a judge's recommendations to BP that would address a raft of employee safety concerns in Alaska. "It looks like BP is trying to so the right thing in public, but is fighting like a tiger in private," Barton said.

Richard Fairfax, Director of Enforcement at the government's Occupational Safety and Health Administration, told the committee his agency was currently investigating an incident last month where more than 100 workers at BP's Texas City refinery were taken to the hospital after reporting flu-like symptoms. He also said OSHA had fined BP over $300,000 in penalties after an inspection at the company's Whiting, Indiana refinery.

Rep. Charlie Melancon, D-Louisiana, told Dow Jones Newswires during a break in the hearing that he was going to see if Congress or regulators could increase the $21 million fine for the Texas City incident. "It's peanuts when you consider it a fine for the deaths that occurred."

By Ian Talley, Dow Jones Newswires; 202 862 9285;

ian.talley@dowjones.com

State of Alaska
Gov Press Release
May 16, 2007

http://www.gov.state.ak.us/news.php?id=403

Alaska Teams with Pipeline Safety Agency
07-126

State of Alaska Teams with US DOT Pipeline Safety Agency to Strengthen Oil and Gas Oversight

May 15, 2007, Juneau, Alaska - The State of Alaska and the Pipeline and Hazardous Materials Safety Administration (PHMSA) today announced an agreement to provide enhanced and coordinated oversight of oil and natural gas production and transportation facilities located within Alaska.

In a letter of intent signed yesterday, the State of Alaska and PHMSA agreed to join forces in developing a strategic plan to establish coordinated oversight of facilities and activities designed to transport and produce oil and natural gas, establish risk assessment procedures, coordinate inspections of oil and gas production and transportation facilities, share infrastructure integrity data, and coordinate public outreach programs.

Currently, PHMSA shares common objectives in protecting and maintaining the Trans-Alaska Pipeline System with Alaska’s Department of Natural Resources, State Pipeline Coordinator’s Office and Department of Environmental Conservation within the Joint Pipeline Office.

“The economic well-being of our state, the protection of our pristine environment, and the safety of oil and gas workers depend on the uninterrupted flow of oil and natural gas on state lands,” said Governor Sarah Palin. “I am pleased that Alaska, via the newly created Petroleum Systems Integrity Office (PSIO), will be coordinating efforts and exchanging important systems integrity data with our federal partners to assure safe, continued operations.”

DOT Acting Deputy Secretary and PHMSA Administrator Thomas Barrett concurred. “Protecting the reliable and secure transportation of energy from Alaska is essential to the continued economic growth of our nation and meeting the President’s goal of energy independence,” said Administrator Barrett.

Recent significant events in Alaska, including pipeline failures on the North Slope, have highlighted the need for the state’s oversight agencies and PHMSA to implement a more comprehensive and effective “system of systems” approach, Barrett said.

As part of the agreement, Alaska’s PSIO and PHMSA will delineate clear jurisdictional roles and develop a strategic plan for the oversight of oil and gas production and transportation, including risk assessment, standards and inspections. In addition, the state and PHMSA will optimize communication flow for continued efficiency, particularly during emergencies.

PSIO’s Acting Coordinator, Jonne Slemons, explained, “The Petroleum Systems Integrity Office is committed to maximizing the safe and stable flow of oil and gas resources to market by ensuring oversight and maintenance of oil and gas equipment, facilities and infrastructure. Working with our federal partners is one of the most effective ways to accomplish this job.” Slemons continued, “Our integrated approach will identify, assess, and address potential risks to the oil and gas transportation infrastructure, thereby allowing us to prevent system failures before they occur.”

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http://www.allamericanpatriots.com/48723305_alaska_alaska_teams_us_dot_pipeline_safety_agency_strengthen_oil_and_gas_oversight

Alaska Teams with US DOT Pipeline Safety Agency to Strengthen Oil and Gas Oversight
Wed, 05/16/2007 - 08:02 admin

May 15, 2007, Juneau, Alaska - The State of Alaska and the Pipeline and Hazardous Materials Safety Administration (PHMSA) today announced an agreement to provide enhanced and coordinated oversight of oil and natural gas production and transportation facilities located within Alaska.

In a letter of intent signed yesterday, the State of Alaska and PHMSA agreed to join forces in developing a strategic plan to establish coordinated oversight of facilities and activities designed to transport and produce oil and natural gas, establish risk assessment procedures, coordinate inspections of oil and gas production and transportation facilities, share infrastructure integrity data, and coordinate public outreach programs.

Currently, PHMSA shares common objectives in protecting and maintaining the Trans-Alaska Pipeline System with Alaska’s Department of Natural Resources, State Pipeline Coordinator’s Office and Department of Environmental Conservation within the Joint Pipeline Office.

“The economic well-being of our state, the protection of our pristine environment, and the safety of oil and gas workers depend on the uninterrupted flow of oil and natural gas on state lands,” said Governor Sarah Palin. “I am pleased that Alaska, via the newly created Petroleum Systems Integrity Office (PSIO), will be coordinating efforts and exchanging important systems integrity data with our federal partners to assure safe, continued operations.”

DOT Acting Deputy Secretary and PHMSA Administrator Thomas Barrett concurred. “Protecting the reliable and secure transportation of energy from Alaska is essential to the continued economic growth of our nation and meeting the President’s goal of energy independence,” said Administrator Barrett.

Recent significant events in Alaska, including pipeline failures on the North Slope, have highlighted the need for the state’s oversight agencies and PHMSA to implement a more comprehensive and effective “system of systems” approach, Barrett said.

As part of the agreement, Alaska’s PSIO and PHMSA will delineate clear jurisdictional roles and develop a strategic plan for the oversight of oil and gas production and transportation, including risk assessment, standards and inspections. In addition, the state and PHMSA will optimize communication flow for continued efficiency, particularly during emergencies.

PSIO’s Acting Coordinator, Jonne Slemons, explained, “The Petroleum Systems Integrity Office is committed to maximizing the safe and stable flow of oil and gas resources to market by ensuring oversight and maintenance of oil and gas equipment, facilities and infrastructure. Working with our federal partners is one of the most effective ways to accomplish this job.” Slemons continued, “Our integrated approach will identify, assess, and address potential risks to the oil and gas transportation infrastructure, thereby allowing us to prevent system failures before they occur.”

Source: Alaska Governor

Anchorage Daily News
May 16, 2007

http://www.adn.com/news/politics/fbi/story/8889399p-8789732c.html

Lobbyist accused in bribery conspiracy
BILL BOBRICK: He is set to plead guilty this morning in District Court.
By LISA DEMER
Anchorage Daily News
Published: May 16, 2007
Last Modified: May 16, 2007 at 02:18 AM

OTHER DOCUMENTS
PDF: Charging document
http://www.adn.com/static/includes/alaskapolitics/bobrickinformation.pdf

PDF: Plea agreement
http://www.adn.com/static/includes/alaskapolitics/bobrickpleaagreement.pdf

PDF: Addendum to plea agreement
http://www.adn.com/static/includes/alaskapolitics/bobrickfactuabasis.pdf

PDF: Motion to continue sentencing
http://www.adn.com/static/includes/alaskapolitics/motion.pdf

Graphic: Timeline of events
http://www.adn.com/includes/corruption/event_timeline.html

Graphic: Key figures
http://www.adn.com/includes/corruption/

More political corruption coverage (Info Shown Below)
http://www.adn.com/news/politics/fbi/

Bill Bobrick, for years the lobbyist with the longest list of private clients with city business, has been charged with a single count of conspiracy stemming from a scheme to bribe former state Rep. Tom Anderson.

Bobrick, 52, is scheduled to appear in U.S. District Court this morning to plead guilty to a felony charge of conspiracy to commit extortion, bribery and money laundering. His sentence may ride on his future cooperation in the case, court papers say.

The prosecution says in court papers that Bobrick and Anderson began conspiring in July 2004. Bobrick created a sham company to funnel payments to Anderson in exchange for his doing the bidding of a private corrections company in the state Legislature, the prosecution says.

Prosecutors quote Bobrick telling an informant that he and Anderson were "pitching a bunch of people" to get money for the legislator.

Anderson was indicted in December on seven felony counts including bribery, extortion and money laundering. He has pleaded not guilty. His trial is scheduled to begin June 25.

The case laid out against Bobrick almost mirrors the allegations against Anderson.

Even after Anderson was charged, Bobrick continued to lobby for clients on city issues. About a month or so ago, he began telling people, including his longtime friend Mayor Mark Begich, that he was going to plead. After a story about his intentions to plead appeared in the Daily News, he's been noticeably absent from Anchorage Assembly meetings.

Bobrick is cooperating with the government and has agreed to testify against Anderson, according to a motion filed by prosecutors. They want Bobrick's sentencing delayed until after Anderson's trial. He faces two years or longer, but that could be reduced.

"He's deeply remorseful about having committed a crime and he wants to start doing the right thing," said Doug Pope, Bobrick's defense attorney.

Bobrick becomes the seventh person to be charged in a corruption investigation that burst into public view last summer with the searches of state lawmakers' offices. Anderson, state Rep. Vic Kohring, former Reps. Pete Kott and Bruce Weyhrauch and Veco Corp. executives Bill Allen and Rick Smith have been hit with charges. Allen and Smith have pleaded guilty.

BOBRICK CLIENTS

Bobrick registered this year to represent five clients who have business with the city.

They are: P.O'B. Montgomery, the developer of a mall in Mountain View; Alaska Waste, the city's biggest garbage hauler; Marlow Development Corp., which is behind a number of big projects in Anchorage; Lantech, a surveying company; and Cook Inlet Housing Authority. The latter just won a 10-year property tax break from the Assembly for its Creekside Town Center housing project in Muldoon.

At least one client has already cut ties to Bobrick. David Irwin, president of P.O'B. Montgomery, said he alerted Bobrick at the start of May that the company would no longer employ him. He said Bobrick understood.

"It was just very clear where this thing was heading that we had to just stop the arrangement," Irwin said.

Bobrick's other clients didn't return phone calls on Tuesday to talk about whether he still represents them.

The charging document and other materials that lay out the case against Bobrick don't name the private prison company, but the description of it matches Cornell Companies Inc. of Houston, Texas, a publicly traded corporation. Cornell operates six halfway houses in Alaska.

Cornell, along with partners Veco and Allvest founder Bill Weimer, failed in recent years to win public support for private prison proposals in Anchorage, Delta Junction, Kenai and Whittier. It also failed to win state approval for a juvenile psychiatric treatment center in downtown Anchorage.

A lobbyist for the prison company -- who was working as a government informant and who has not been identified in court papers -- paid a total of $24,000 to Bobrick's Pacific Publishing, according to court documents. Bobrick turned over $10,828 to Anderson and kept the rest, the documents say. Anderson later complained he wasn't getting enough and was paid another $2,000 by the government informant, according to the indictment against him. The informant matches the description of Frank Prewitt, a former state corrections commissioner who went to work for Cornell.

'OUR BOY IN JUNEAU'

In a secretly recorded conversation on July 21, 2004, Bobrick told the informant that he and Anderson were "forming kind of like a partnership" and were "pitching a bunch of people" to try to get money for Anderson. Bobrick said it would be great if he could get the corrections company to hire Anderson through him, and then Anderson would be "our boy in Juneau."

Among other things, Anderson testified at a public hearing in Anchorage on Nov. 17, 2004, in support of Cornell's request for a state certificate to run a juvenile treatment center. He told state officials that he wasn't at the meeting on behalf of any group but could endorse Cornell because he had seen "how they function and work."

The state's tape recorder at the meeting malfunctioned, and parts of Anderson's testimony were garbled, according to a transcript provided by the state. Bobrick also was there.

Between August 2004 and March 2005, Bobrick was aware of "multiple official acts" that Anderson took to benefit the government informant, the charging document said.

Bobrick was executive director of the Alaska Democratic Party in the 1980s and later became a registered lobbyist in Anchorage.

Daily News reporter Lisa Demer can be reached at ldemer@adn.com and 257-4390. Reporter Kyle Hopkins contributed to this story.

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New rules to limit influence peddling
ETHICS: Assembly members look at who gets to bend their ears.
By KYLE HOPKINS
Anchorage Daily News
Published: May 16, 2007
Last Modified: May 16, 2007 at 02:18 AM

The case of local lobbyist Bill Bobrick triggered a proposal by Anchorage Assemblyman Paul Bauer to ban anyone convicted of a felony from lobbying before the city, Bauer said Tuesday.

When news that Bobrick planned to plead guilty to some kind of felony circulated in April, Bauer said he decided to pursue the new lobbying rules.

"He has the most (lobbying) contracts and he's, of course, involved in some kind of white-collar scheme. That didn't look good," Bauer said.

The latest version of the new rules sponsored by Bauer and Assemblyman Dan Sullivan would bar someone from lobbying the city if they've been convicted of a felony within the past 10 years.

The ordinance would require would-be lobbyists to pay for their own criminal background checks. City clerk Barbara Gruenstein said the Assembly plans to hear the public's take on the proposal at Tuesday's meeting.

When certain details in the indictment of former Rep. Tom Anderson pointed to Bobrick as a co-conspirator, Bobrick called several Assembly members to apologize for making some kind of mistake and said he wanted to make amends.

In April, Bauer said he contacted at least one of Bobrick's clients, Cook Inlet Housing Authority, saying he had concerns about the lobbyist.

Asked at the time if he told the authority he wouldn't vote for a project because Bobrick was the authority's lobbyist, Bauer said "absolutely not."

"I said I have a concern with anybody who has connections and what is your intentions with Mr. Bobrick in the future ... But no, I don't go around saying I'm not going to vote for something, just because you're associated," Bauer said in April.

Downtown Assemblyman Allan Tesche -- who sits on the Assembly ethics committee along with Bauer and Sullivan -- said Tuesday he's also proposing new ethics rules.

Tesche said his proposal is designed to thwart influence peddling by city officials and prevent city leaders from steering business to friends. It would ban any elected official, city employee or appointed commissioner from telling someone who does business with the city that they should hire a particular lobbyist, consultant or contractor, he said.

"It's to avoid the situation where a municipal employee says, 'You know, things could go a lot easier for you if you agreed to hire so-and-so," Tesche said.

Daily News reporter Kyle Hopkins can be reached at khopkins@adn.com or 257-4334.

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Alaska Political Corruption
Bobrick charged with
conspiracy in bribe probe
Bill Bobrick, long the most prominent lobbyist on municipal issues in Anchorage, has been charged with a single count of conspiracy related to a scheme to bribe former state Rep. Tom Anderson.

PDF: Charging document
PDF: Plea agreement
PDF: Addendum to plea agreement
PDF: Motion to continue sentencing
Graphic: Timeline of events
Graphic: Key figures
More political corruption coverage
Recall petition to target Kohring
WASILLA - A Wasilla city councilman said he plans to try to recall Rep. Vic Kohring, a Wasilla Republican who has been indicted in the legislative bribery scandal.
Bribery charges prompt action on ethics package
Blog: Alaska Politics
More political corruption coverage
Bill Allen out as Veco CEO
Bill Allen, who pleaded guilty earlier this week to federal conspiracy and bribery charges, has stepped down from Veco Corp., which he served as chief executive officer and chairman.

Veco's reach extended outside Alaska
Guilty pleas from two oil field services executives who admit bribing legislators have state officials examining whether they should give up campaign contributions connected to their company.
Graphic: Key figures in the case
Blog: Alaska politics
More coverage
Valley reacts to Kohring case
News of Republican Rep. Vic Kohring's indictment last week met with mixed reviews among local politicos. Employees in Kohring's Juneau office Monday said supporters are rallying behind him even as House leaders temporarily stripped him of a committee leadership position he has held since 2003.
Here is the text of Rep. Vic Kohring's federal indictment
Graphic: Key figures in the case
Blog: Alaska politics
More coverage
Veco case may spark charges from state
The state plans to investigate whether Veco Corp. and its officials have violated Alaska law in light of guilty pleas in federal court by two company officials.
Beth Bragg: Confluence of Alaska leaders' stupidity is Juneau's effluent
More coverage from Alaska Newsreader
Graphic: Key figures in the case
Blog: Alaska politics
More coverage
Veco executives plead guilty to bribing officials
Bill Allen, a welder who took the Veco Corp. from a small Kenai oil-field company to a billion-dollar international contractor and a major political force, pleaded guilty Monday to bribing at least four Alaska legislators, including former Senate President Ben Stevens.
Timeline
From Juneau to Congress, Veco has been an influential Alaska force
Kohring returns to session, reasserts his innocence
Ethics bill goes forward under criminal cloud
Veco's oil field customers plan to stick with company for now
Graphic: Key figures in the case
More coverage at Alaska Newsreader
Politics blog: Veco gave bonuses to execs to reimburse campaign donations
More coverage
Oil service execs plead guilty to bribing Alaska lawmakers

PDF: Allen charging document | PDF: Allen plea agreement | PDF: Allen plea facts | PDF:Smith charging document | PDF: Smith plea agreement | PDF: Smith plea facts | Blog:AlaskaPolitics | More coverage
Kohring loses chairman post
State Rep. Vic Kohring lost his job Monday as chairman of the House Oil & Gas Committee, three days after he and two former House members pleaded not guilty to federal bribery and extortion charges. 0000000

Kohring's state House committee post pulled
The chairman of a key state House committee was deposed and Alaska's most important oil tax law fell under new scrutiny Saturday as lawmakers reacted to the arrest of one current and two former legislators on federal corruption charges.

Blog: Alaska Politics
More coverage
Federal authorities charge three legislators
Three more state legislators were arrested on federal corruption charges Friday, accused of selling their votes and influence to the oil field services company Veco Corp. and its chief executive, Bill Allen, during last year's debate on oil taxes.
REACTION: Rumor mill runs wild as three legislators stand handcuffed in federal court.
PDF: Indictment (Kohring)
PDF: Indictment (Kott & Weyhrauch)
PDF: Indictment (Anderson)
VECO press release
Audio: Gavel to Gavel (Berkowitz confronts Weyhrauch on the House floor, May 8, 2006)
Audio: Governor Palin (Sad day for Alaska)
Audio: Governor Palin (Clean up government)
Audio: Governor Palin (Alaskans' resources)
Kohring also charged with bribery, extortion
State Rep. Vic Kohring and former state legislators Pete Kott and Bruce Weyhrauch were charged in federal court today with extortion and bribery in connection with the Legislature"s consideration of an oil tax bill and then-Gov. Frank Murkowski's natural gas pipeline proposal last year.
Timeline of federal investigation into Alaska politics
Timeline of events leading up to political indictments; beginning July 21, 2004 to present.
Anderson's trial is delayed
The trial of former state Rep. Tom Anderson for extortion, bribery and money-laundering charges won't begin until June 25, a delay of more than two months from the scheduled April 9 trial date, a federal judge said Wednesday.
More political indictment coverage
Blog: Alaska politics
Friends solicit money for ex-Rep. Anderson's defense fund
As former state Rep. Tom Anderson prepares for trial next month on federal bribery, extortion and money laundering charges, a group of friends is trying to raise money for his legal defense.
Anderson indicted on seven counts (12/09/2006)
Solicitation for the "Tom Anderson Defense Fund" [.pdf]
Veco fades into Juneau background
Lawmakers say there was a time in history when a cocktail party sponsored by Veco executives in a Baranof Hotel suite would have seen oil executives and lobbyists cozying up to lawmakers and staffers.
More coverage
FBI raids help set agenda in Juneau
An unfinished gas pipeline deal, rising health care and education costs, and a bipartisan call for revising the legislative ethics laws -- Alaska's lawmakers return to the capital this week to begin tackling these and other issues in a four-month session that starts Tuesday.
Delay sought in legislator's bribery trial
Indicted state legislator Tom Anderson wants to delay the start of his trial so his lawyer can better prepare.
More political indictment coverage
Blog: Alaska politics
Anderson taps Stockler to handle his defense
State Rep. Tom Anderson, facing seven federal felony charges including allegations of extortion, money laundering and bribery, is replacing one high-profile defense lawyer with another.
Blog: Alaska politics
Lobbyist tells city leaders he's 'sorry'
Bill Bobrick, the lobbyist who set up a company that federal prosecutors say was used to funnel bribes to indicted state Rep. Tom Anderson, called Mayor Mark Begich and several members of the Assembly over the weekend.
More political coverage
Blog: Alaska politics
Subpoena may signal a wider corruption
The director of a Juneau-based salmon fishing group said last week he has been ordered by a federal grand jury investigating Alaska corruption to turn over lobbying and consulting records involving state Senate President Ben Stevens and former congressional aide Trevor McCabe, an Anchorage lawyer.
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For now, no development in southern NPR-A
HURDLES: Challenges in opening land, opposition to plan shaped BLM decision.
The Associated Press
Published: May 16, 2007
Last Modified: May 16, 2007 at 03:44 AM

FAIRBANKS -- The Bureau of Land Management has halted planning efforts for oil and gas development in one section of the National Petroleum Reserve-Alaska.

Public opposition and the impracticality of development led to the decision in the Southern Planning Area, BLM officials said.

"You never know what will happen in the future," spokeswoman Sharon Wilson said. "We will not be doing anything with the south NPR-A for now."

The reserve on Alaska's North Slope bureau covers 23 million acres, and the Southern Planning Area is more than one-third at 9.2 million acres.

President Warren Harding created the National Petroleum Reserve-Alaska in 1923 as an emergency oil supply for the Navy. Current planning comes from a presidential directive guiding the Department of the Interior to foster oil and gas development in the reserve.

The southern area is believed to have oil and gas reservoirs, coal and hard-rock minerals. However, it is also the primary calving area for the Western Arctic Caribou Herd, which has subsistence value for more than 30 communities.

"Clearly, it is a victory that the BLM recognized that there is big controversy there," said Pam Miller, Arctic coordinator with the Northern Alaska Environmental Center.

The southern area is estimated to have just 2 percent of the reserve's oil resources but 27 percent of the natural-gas resources. However, it has almost no road infrastructure.

The Alaska Resource Advisory Council, a 15-member panel composed of energy industry personnel, conservationists, Native organizations and others with a stake in Alaska land issues, advises BLM on major issues but had not agreed on the southern area.

Discontinuing work there will allow the BLM to focus more attention and resources on the Northeast Planning Area, which could ignite a land use dispute temporarily settled last fall.

The Northern Alaska Environmental Center and a coalition of environmental groups successfully stalled the sale of several large oil and gas leases around Teshekpuk Lake last September by persuading a judge to require the BLM to conduct a more thorough environmental assessment.

Anchorage Daily News
May 15, 2007

http://www.adn.com/opinion/view/story/8886516p-8786802c.html

Here's a mystery
How does a wildly popular bill fail to pass in Juneau?
Published: May 15, 2007
Last Modified: May 15, 2007 at 02:55 AM

Here's a mystery of the Juneau universe:

How does a bill NOT pass the Alaska Legislature when it is introduced with a majority of each house already signed on as sponsors?

Answer: When it is opposed by a powerful industry that, despite the taint of corruption, still has friends in high places.

The bill in question would make it tougher for oil companies to claim tax breaks when they have to fix problems caused by their own bad maintenance. Such as when BP cut corners on maintenance for years and saw North Slope gathering lines spring costly leaks due to corrosion last year.

BP made clear it planned to deduct those corrosion repair expenses against what it owes on the state's new profits-based tax on oil production.

Legislators, like the Alaskans who elect them, were angry over BP's shoddy maintenance. Repairs required shutting in large volumes of North Slope oil production, costing the state millions of dollars. Subsidizing BP for fixing problems caused by its own penny-pinching maintenance is just too much for Alaskans to take.

The Senate responded with SB 80, which at last count had 18 sponsors. That's 90 percent of the Senate.

The House version, HB 128, had 21 sponsors. That's a majority of the House. (A bare majority, but a majority nonetheless.)

Passing either of the bills won't instantly avoid a big tax dispute over BP's repair ex penses. BP's tax lawyers will happily argue about what constitutes "improper maintenance" for as many years as the courts will let them. But Alaska was going to have those fights anyway. Existing law allows excluding expenses for "gross negligence." The new law lowers the standard for denying tax breaks and will improve the state's odds of success.

But here we are with less than two days to go in the session, and the bill appears dead. At last report, it was stalled in the House Finance Committee, caught in the annual end-of-session legislative logjam.

Ordinarily, the bill would be handled by Finance co-chair Kevin Meyer. But he's employed by Conoco Phillips, the state's largest oil producer. He turned the bill over to his co-chair, Kenai Rep. Mike Chenault.

That's the same Mike Chenault who has taken thousands of dollars in campaign contributions from Veco during his political career. In his most recent election cycle, Rep. Chenault collected $5,000 from five Veco executives, including the two who admitted to a bribery scheme, Bill Allen and Rick Smith.

Over the weekend, Rep. Chenault said his committee is simply out of time to deal with the bill to block BP's bad-maintenance tax deductions.

Coincidence?

Perhaps.

It's true time was short by the time the Senate bill hit House Finance. Other committees could have moved the bill sooner. Senate Resources had the bill almost three months. House Resources had a similar bill almost two months. (On its way to Resources, the House bill made an extra stop in the House Oil and Gas Committee, run by the only sitting legislator accused of taking Veco bribes, Vic Kohring. Surprisingly, the bill moved out of Kohring's committee after just three weeks.)

But here we have a bill that might help save Alaskans millions of dollars in undeserved oil tax breaks. It is not only supported but actively sponsored by 39 of 60 legislators. It passed the Senate unanimously. Yet the bill is dying at the hands of a committee chairman whose hands have been graced with Veco and other oil industry campaign contributions.

BOTTOM LINE: Alaska's fight against BP's oil tax deductions for pipeline repairs will be tougher without this bill.

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Tax-deduction bill is likely doomed
REPAIRS: Oil producers should pay to
maintain pipelines, sponsors say.
By TOM KIZZIA
Anchorage Daily News
Published: May 14, 2007
Last Modified: May 14, 2007 at 07:50 AM

JUNEAU -- A bill intended to prevent North Slope oil companies from deducting the costs of repairs caused by improper maintenance appears doomed for this year.

The measure was strongly opposed by Alaska's major oil producers. Its demise would give the oil companies a rare victory in a session where they lost badly on gas pipeline legislation.

The tax-deduction bill was introduced after corrosion forced BP to partially shut down the giant Prudhoe Bay field last summer. It is backed by Gov. Sarah Palin and appears to have widespread support in the Legislature. The measure passed the Senate last week 20-0, and has more than half the House of Representatives signed on as co-sponsors.

But despite this support, the bill dragged very slowly through the legislative process this year.

On Sunday, the House Finance Committee's powerful co-chairman said he doesn't plan to take up the bill in the closing days of the session. Rep. Mike Chenault, R-Nikiski, said the bill reached his commitee too late and other, more important bills have priority.

"Maybe it would fit in a special session (on oil taxes) better than it would right now at the end of the session," Chenault said.

Failure to pass the measure could cost the state more than $100 million in lost tax revenues, the bill's sponsor said Sunday. That's if BP deducts all the costs of repairing and replacing corroded pipe that led to a big Prudhoe Bay oil spill last year, said Sen. Tom Wagoner, R-Kenai.

BP has already announced plans to deduct some of the repairs, which the company said would save it an estimated $11 million on taxes owed under the state's new Petroleum Production Tax, or PPT net-profits tax.

Wagoner said the improper-maintenance deduction could be brought up again next year, either alone or as part of a larger re-examination by the Legislature of the PPT. But he said delay may make it too late for the rule to cover retroactively the 2006 corrosion problems uncovered by BP at Prudhoe Bay.

The BP spills are the subject of a deepening congressional probe into whether the company's cost-cutting efforts put their facilities at risk. The company is replacing 16 miles of pipe at an estimated cost of $250 million.

Wagoner's measure, Senate Bill 80, would prohibit companies from taking tax credits under the PPT if the state determines the repairs were necessary because of "improper maintenance."

"The question is, who should be responsible for bad maintenance: the major oil companies or the people of Alaska?" said Rep. Kurt Olson, R-Soldotna, who introduced a companion bill in the House.

Oil company representatives argued in hearings this year that the anti-deduction measure would discourage investment in Alaska. They said defining "improper" maintenance will be difficult. The PPT has other sections that address maintenance and repair costs, the said.

An alternative for the state would be to accuse the companies of "gross negligence" in court. But such a lawsuit can be hard to win, said Wagoner.

Wagoner's bill was launched with fanfare in early February but languished in the Senate Resources Committee until the end of April. Olson's companion bill stalled for two months in the House Resources Committee.

A week later, after federal corruption charges tied to oil industry lobbying were filed against one current and two former legislators, the improper-maintenance measure picked up speed. It passed the Senate unanimously on Thursday and moved to the House Finance Committee.

Chenault took responsibility for the bill under a power-sharing arrangement with co-chairman Rep. Kevin Meyer, R-Anchorage. Meyer works for Conoco Phillips and recuses himself from committee work on oil industry legislation.

Chenault said the committee is tied up with major budget bills, as well as legislation deciding school funding and municipal aid for the coming year. That means there won't be time to look at something as complex as the oil tax deduction bill, he said.

The Legislature is scheduled to adjourn Wednesday night.

Wagoner said he was not happy with his fellow Kenai Republican.

"If he doesn't move (the bill), somebody's got to be held accountable," Wagoner said. "But you can't place it at his feet totally, because the Senate took so much time to get it over there."

Wagoner attributed the bill's slow progress to opposition from the oil companies. "They've done everything they can to defeat this bill and hold it back," he said.

Reporter Tom Kizzia can be reached at tkizzia@adn.com or in Juneau at 1-907-561-3798.

Juneau Empire
May 13, 2007

http://www.juneauempire.com/stories/051307/loc_20070513098.shtml

Lawmakers disclose conflicts of interest,
but vote anyway
By PAT FORGEY
JUNEAU EMPIRE

A funny thing happened to Rep. Kevin Meyer, R-Anchorage, one day on the floor of the House of Representatives. The subject of taxing the oil industry came up during discussion of a program that taxes the oil industry for spill response and prevention.

"I was hoping to avoid the discussion of oil taxes," said Meyer, one of the most influential members of the House - and an employee of ConocoPhillips Co., one of the largest oil company taxpayers in Alaska.

"But since it has come up, I would like to put it on the record that I have a conflict of interest and be excused from voting."

What happened next was predictable. It happens regularly in the Alaska Legislature - and in no other legislature in the country.

Other representatives objected to Meyer's being excused, and House Speaker John Harris, R-Valdez, told Meyer he wouldn't be excused from the discussion and the vote.

"I think you are going to have to talk about it, and vote," Harris said.

That's standard operating procedure in the Alaska Legislature. Conflict of interest isn't just tolerated. In some cases it is required.

Alaska's "citizen legislators" have numerous conflicts of interest, and few checks on using their power as elected officials to benefit themselves or their employers.

Several legislative leaders say conflicts of interest are inherent in having a citizens' legislature, and that while legislators bring conflicts of interest with them to Juneau, they also bring valuable community connections as well.

Some set their own personal boundaries, and limit what they'll do to benefit themselves or their employers.

After disclosing his conflicts, Meyer set about convincing the House not to raise taxes on his employer. Using charts and graphs, Meyer explained why he believed a tax increase wasn't in the state's interest, and the tax increase proposal was pulled. He knew the issue well, as he had sponsored the bill.

Meyer said that even when he advocates doing something that is in ConocoPhillip's interest, he's doing it because it is in the state's interest.

Meyer said in his case he takes a leave of absence from his job as a procurement analyst with ConocoPhillips when he's serving in Juneau.

"I totally divorce myself from the company when I'm down here," he said.

Meyer has been particularly prominent this year, because of his position as co-chairman of the House Finance Committee at a time when the signature piece of legislation this year is Gov. Sarah Palin's Alaska Gasline Inducement Act.

Palin said there is nothing improper about Meyer's role in the process.

"He is following the rules that are in place today," she said.

Friday, at a press conference after AGIA passed the House and Senate, Meyer appeared with Palin at a celebratory press conference, but declined an opportunity to speak.

An ongoing ethical issue

The 25th Alaska Legislature began in January with a mandatory day-long ethics review in which all 60 members gathered in the neighboring Terry Miller Building to talk over ethical issues with consultant Michael Josephson, an ethics expert with the Josephson Institute of Ethics.

The institute advises elected officials and others on how to deal with ethical dilemmas, and was brought in from California by the Legislature after FBI agents raided the offices of six legislators last year and a seventh was indicted.Josephson was surprised to learn that Alaska legislators with conflicts of interest not only voted, but were required to do so."

"You are unique in this, I don't know of another state that has this, there may be one or two others," he said.

He said public officials considering whether to recuse themselves should consider the public appearance.

"I think the test is, would a reasonable, fair-minded person think that (conflict) might affect your judgment," he said.

For example, Josephson said, if you were a employee of a pharmaceutical company and a bill setting drug prices was being considered, that could affect company profits. A reasonable person might think you'd be under pressure to vote a specific way, he said.

"When in doubt, recuse. It's simply a better way to protect public trust," he said.

Fighting conflict with disclosure

Several legislators said that their other check on conflict of interest is disclosure, and they make it clear when they have a personal financial stake in issues.

Meyer said he rarely heard from constituents who objected to ConocoPhillips or other conflict matters, but some do tell him that he shouldn't be voting on some issues.

"Especially the ones who disagree with me," he said.

Meyer said he makes it clear to his constituents during his campaigns that he works for the company.

"They know I come from an oil industry background," he said.

In the days before Palin's AGIA bill reached the floor of the House, Rep. Les Gara, D-Anchorage, called upon Republicans to refrain from objecting if Rep. Vic Kohring, R-Wasilla, asked to be excused from voting. Kohring was recently indicted on charges of accepting bribes from an oil company.

Lawmakers objecting to recusal do so verbally, and their objections are not recorded by name in the House and Senate journals, giving their actions anonymity.

Kohring avoided the issue on Friday's AGIA vote as he left the floor during the vote, despite not having an excused absence.

"There were some things he had to take care of," said Jim Pound, a member of Kohring's staff.

The House leadership had not requested Kohring to step aside, said Will Vandergriff, spokesman for the House Republicans.

An issue of personal integrity

Rep. Jay Ramras, R-Fairbanks, said voters need to trust their lawmakers. He expressed displeasure with fellow legislators who allegedly "for an insignificant amount of money gave away the state's sovereignty."

He said he's as likely to vote against his financial interest as he is for it, and he is wealthy enough to be able to do so.

"There's nothing of value out there that could compromise me," he said.

In January, Josephson recommended that the legislators consider changing their internal rules so that they are not placed in conflicts.

Rep. Beth Kerttula, D-Juneau, said some members of the Democratic caucus urged tougher conflict of interest rules be adopted after Josephson's talk. Her caucus never actually proposed such rules, acknowledged the House Democratic leader.

"Maybe what we need to do is to determine a degree of conflict, and what would be an improper level," she said.

Palin praised the Legislature's ethics reform package this year, but said it was only a "good first step."

Early on she proposed toughening ethics rules for both the executive branch and the legislative branch, but said she found legislators resistant to her having a role in how the Legislature operates.

"They said, `You clean up your house, we're going to concentrate on the legislative branch,'" Palin said.

There's still more to do to, but Palin expressed confidence it will be done.

"I've taken them at their word that they want to clean up loopholes and conflict of interest," she said.

• Pat Forgey can be reached at patrick.forgey@juneauempire.com.

Petroleum News
May 12, 2007

http://www.petroleumnews.com/pntruncate/870609284.shtml

Public corruption scandal erupts in Alaska
Former, current state legislators arrested and Veco’s Allen confesses in federal probe; PPT and oil field contractor under cloud
Rose Ragsdale
For Petroleum News

In the latest chapter of a political scandal that began unfolding last summer, three Alaska politicians and two oil industry executives are facing federal criminal charges that could earn them stiff fines and lengthy prison sentences. Ever-widening fallout from the disclosures also cast a cloud over Alaska’s new petroleum production tax and the credibility of a leading oil field services company and many of Alaska’s Republican lawmakers.

The U.S. Department of Justice announced indictments and arrests May 4 in Juneau of state Rep. Victor H. Kohring, R-Wasilla, and former state Reps. Pete Kott, R-Eagle River, and Bruce Weyhrauch, R-Juneau, on multiple charges arising from a federal investigation into public corruption in Alaska begun in early 2006.

Kohring was first elected to the Alaska State House of Representatives in 1994; Weyhrauch, an attorney, was a member of the Alaska House from 2002 to January 2007; and Kott, was a member of the House from 1992 to 2007, including two years as speaker, according to Assistant Attorney General Alice S. Fisher of the Justice Department’s criminal division.

Bill J. Allen, chairman of Veco Corp. pleaded guilty May 7 in federal court in Anchorage to bribing at least four Alaska legislators, including former state Senate President Ben Stevens, who represented Anchorage in the Legislature.

In a plea bargain with the Justice Department’s Public Integrity Section, Allen and Rick Smith, Veco’s vice president for community and government affairs, pleaded guilty to three identical felony charges bribery and two counts of conspiracy.

Both men accepted responsibility for more than $400,000 in illegal payments and benefits to public officials or their families. More than half the money went to Stevens in the form of phony “consulting” fees, the government charged.

Allen is a former welder who led Veco in 20 years from a small Kenai oil-field services company to a billion-dollar international contractor and a major political force.

Stevens, son of U.S. Sen. Ted Stevens, has not been charged. He was named in the plea documents as “State Senator B.”

In return for special consideration at sentencing, Allen, 70, and Smith, 62, agreed to cooperate in the ongoing federal investigation. The government also promised to not seek charges against Allen’s son Mark, a Veco official, his daughter Tammy Kerrigan, or any other relative.

The federal plea bargain doesn’t bar state prosecutors from seeking additional charges against Allen and Smith. Both men acknowledged violating state campaign finance laws.

The plea deals were formalized in secret and opened in U.S. District Court May 7.

Allen and Smith were released on $10,000 unsecured bond and ordered to report weekly to federal probation officers. No date has been set for sentencing. They face up to 10 years in prison and $750,000 each in fines, but cooperation could substantially reduce the penalties.

Extortion, bribery, conspiracy charges

A four-count indictment May 3 charges Kohring with extortion, bribery, attempted extortion and conspiracy. The indictment alleges that Kohring solicited and received financial benefits from an entity identified in the indictment as “Company A,” and that in exchange for those benefits, Kohring, in a series of meetings, corruptly solicited, demanded and accepted from the company’s CEO and a vice president cash payments including $2,100 to $2,600, and a $3,000 job for a relative, and also solicited, but did not receive, a $17,000 loan to pay credit card debt.
In return Kohring allegedly voted in favor of a legislative proposal called the “petroleum production tax,” or PPT, which would change taxation of Alaska oil production, supported by Company A; lobbied other elected officials to support versions of the PPT bill; and provided official support for the natural gas pipeline legislation and the PPT bill.

Kohring denied the charges May 7, saying he firmly believes a jury will exonerate him.

Alaska House leaders, meanwhile, stripped Kohring of his chairmanship of the House Oil and Gas Committee. However, he will continue to represent his district, unless he is proven guilty.

The grand jury also returned a seven-count indictment against Kott and Weyhrauch, charging them with conspiracy, extortion, bribery, and mail and wire fraud; and Weyhrauch with attempted extortion. The indictment alleges that Kott and Weyhrauch each corruptly solicited and/or received multiple financial benefits from Company A in exchange for each legislator’s agreement to perform official acts as a member of the Alaska Legislature to further the company’s business interests.

Further, Kott allegedly corruptly solicited, and the company agreed to provide, employment for Kott after he left the state Legislature, as well as other things of value. At a meeting in April 2006 with the company’s vice president and, via teleconference, the CEO, Kott said he had been successful in getting other state legislators to support the oil tax legislation favored by Company A, and that he believed the bill would pass. Kott allegedly said in a meeting with the company’s CEO and vice president on May 7, 2006, that he worked to kill an amendment to the PPT bill because Company A’s CEO told him to do so.

The indictment alleged that Kott said, “I had to get ‘er done. So I had to come back and face this man right here (pointing to the CEO). I had to cheat, steal, beg, borrow and lie.” In June 2006, Kott allegedly worked with Weyhrauch to seek an adjournment of a special session of the House before lawmakers could vote on an amendment to the PPT bill that the company did not support.

Alleged payoffs were modest

In return for these and other actions, Kott demanded and Company A through the CEO and vice president provided $8,993 in payments, $2,750 in expenses paid to a polling company that worked for Kott’s re-election campaign and a future contract for Kott as a lobbyist for the company. Weyhrauch allegedly solicited employment from Company A after he left the state House. Weyhrauch allegedly told the company’s executives that he would support their position on the PPT bill. After mistakenly voting the “wrong way” on an amendment that the company and representatives of three other oil companies did not support, Weyhrauch changed his vote on instructions from Kott and Company A’s CEO.

The indictment alleges that Weyhrauch, like Kott, voted in favor of versions of the PPT bill supported by Company A and the three other companies; lobbied other lawmakers for their support; and offered assistance to Company A and its executives by providing official support for the natural gas pipeline and the PPT bill.

“These two indictments allege that the defendants sold their offices in Alaska’s State House to an influential energy company in exchange for cash payments, loans, jobs for relatives and the promise of future employment,” Fisher said. “There is no room for bribery and extortion at any level of government federal, state or local.”

If convicted, Kohring, Kott and Weyhrauch each face up to 35 years in prison and $750,000 fines on the extortion, bribery and conspiracy charges. Kott and Weyhrauch also each face up to another 20 years in prison and another $250,000 fine on the mail and wire fraud counts.

Influence-peddling in Juneau

In the indictments and arrests May 4, Veco, Allen and Smith showed up in documents as “Company A,” “Company CEO” and “Company VP.”

It appeared from those charges that the FBI used electronic surveillance of Veco’s suite in Juneau’s Baranof Hotel to capture incriminating dialogue and images. The indictments spoke of payments by Allen and Smith of several thousand dollars and promises of jobs to the legislators. In return, the legislators agreed last year to vote for the oil production tax favored by the oil industry, the government alleged.

Those indictments referred to an unnamed state senator who allegedly played a role in one part of the conspiracy a plan by Veco to farm out legal work to Weyhrauch, an attorney, in return for his vote on oil legislation. The description of that unnamed senator was ambiguous the younger Stevens, was one of three senators it could have been.

One of two unnamed state senators in the charges against Allen and Smith is apparently Stevens. The Veco “consulting” payments of $243,250 between 2002 and 2006 documented in the charges precisely match the amount Stevens reported on his financial disclosures as consulting income to his firm, Ben Stevens and Associates.

Over the years, Stevens has refused to disclose what work he did for that money or for any of the other consulting jobs he has listed, mostly for fishing industry clients.

Former state representative Ray Metcalfe, in complaints to the Alaska Public Offices Commission and to federal authorities, challenged Stevens, saying the payments were thinly disguised bribes.

Nothing came of Metcalfe’s APOC complaints the state agency said that Stevens adequately described his work.

But in their admissions to federal prosecutors, Allen and Smith appeared to vindicate Metcalfe, who heads the Alaska Republican Moderate Party.

“Although Allen and Veco characterized these payments … as being for consulting services, Allen acknowledges that in actuality the payments … were in exchange for giving advice, lobbying colleagues, and taking official acts in matters before the Legislature,” prosecutors said.

Only once in five years, according to the prosecutors, did Stevens consult for Veco on a matter not involving his legislative job a task involving a sunken boat at an unidentified location where Veco wanted to build a dock. Stevens worked less than 20 hours on that project, they said.

Allen also promised an executive job to Stevens when he left office. On June 25, 2006, Stevens said he’d take that job, the charges said.

Stevens denies wrongdoing

Stevens’s attorney, John Wolfe of Seattle, declined to respond to specifics in the charges, but said his client did nothing wrong.
“Ben Stevens denies engaging in any criminal conduct and maintains that he is innocent,” Wolfe said. “Mr. Stevens is surprised to learn that Bill Allen has pled guilty to various federal crimes and hopes that Mr. Allen is not falsely accusing former and current members of the Alaska Legislature in order to mitigate his admitted criminality.”

One other unnamed state senator, a “state elected official,” and two unnamed Veco executives also show up in the charging documents against Allen and Smith.

The senator in question was not accused of taking illegal payments but was listed as a member of the conspiracy to bribe and extort. That senator attempted to enlist the support for Veco-backed legislation of the “state elected official” through an illegal campaign contribution scheme.

Four state senators match the description of that person, two of whom had their offices searched by the FBI in August: John Cowdery, R-Anchorage, and Donald Olson, D-Nome.

The unnamed senator is likely Cowdery, said Kevin Fitzgerald, his defense attorney. As to what that means for Cowdery, Fitzgerald said he’s investigating the allegations laid out in the case against Allen.

Cowdery is in poor health. He’s been hospitalized in Juneau with pneumonia and a lung infection, Senate majority spokesman Jeff Turner said May 7.

The “state elected official” was impossible to identify from the information in the charges, and could be helping the government in the investigation.

Veco very active in Juneau

The two unnamed Veco executives were accused of participating in a scheme to use corporate money to reimburse political campaign contributions by Veco officials crimes under federal and state law. Allen and Smith admitted violating federal tax laws by taking deductions for illegal activity.
Veco executives routinely donate to political campaigns, giving tens of thousands of dollars to candidates in last year’s primary races alone.

Allen, in his plea, admitted reimbursing Rep. Kott for a $1,000 donation Kott made in the governor’s race. The contribution wasn’t further described in the charges, but APOC records show that Kott donated $1,000 to former Gov. Frank Murkowski’s re-election bid. Other allegations by Allen and Smith include a May 7, 2006, incident when Kott was on the floor of the Alaska House and his cell phone rang. Allen and Smith were calling to give Kott “instructions on how to vote on the particular piece of legislation,” prosecutors said.

Some time later, Kott called them back with a report on the status of the vote “and the projected outcome,” the charges said.

Democratic legislators complained

Other lawmakers complained about the irregularities they personally observed involving Allen during the debate over the PPT.

On the last night of the special session last summer when the Legislature passed the production tax, Rep. Harry Crawford, D-Anchorage, said he saw lawmakers conferring with Allen “and then I saw Bill Allen passing a note across the rail to a lawmaker. … That’s not supposed to happen. Notes are supposed to come through the double doors and be passed through our pages,” Crawford told Petroleum News in October. “It’s been pretty rugged this last couple of sessions.”

A federal grand jury also indicted state Rep. Thomas T. Anderson, R-Anchorage, in December on unrelated charges of extortion, conspiracy, bribery and money-laundering for allegedly soliciting, receiving and scheming to disguise $26,000 in illegal payments from an FBI confidential source supposedly representing an Outside corrections company.

Business almost as usual at Veco

Veco, meanwhile, is continuing to conduct its business, the company said in a statement May 7.

Allen is listed as an owner of 5 percent of Veco’s stock in the company’s 2006 biennial report. But the company’s attorney in the criminal case, Amy Menard, said he no longer has an ownership interest.

Allen is also publisher of the Voice of Times, a half-page opinion section in the Anchorage Daily News. It is what remains of the Anchorage Times, which Allen owned for two years before he sold the newspaper to the Daily News in 1992.

The Voice of the Times will cease publication after 15 years when its contract expires this month, Daily News Publisher Mike Sexton announced May 9.

As to the status of Allen and Smith at Veco, they still held their titles on May 7, Menard said. But that could change.

“I can tell you that in light of today’s events, we expect the board of directors to be meeting this week and making decisions about appropriate actions,” Menard said.

Subsequently, Menard said Veco has hired an independent consultant to conduct an internal review of the company’s political and lobbying activities.

Leaders ‘sad’ and ‘surprised’

U.S. Sens. Lisa Murkowski and Ted Stevens and Gov. Sarah Palin initially expressed dismay at the indictments and arrests.
U.S. Rep. Don Young, R-Alaska, who counts Veco and its employees among his most generous campaign donors, has declined to comment, saying it is inappropriate.

Murkowski described the situation as “truly a troubled time in our state’s history,” and said May 7 that she hoped the Legislature can overcome the challenge and move the state forward in “considering one of the most critical issues for our future,” presumably the natural gas pipeline.

Stevens, a personal friend of Allen’s, said in a statement May 7 that he “was surprised and saddened” to learn of indictments and arrests.

“Like many Alaskans, I am finding out about these events from the media. The legal process will now continue. Consistent with my longstanding practice regarding matters of this sort, I will make no further comment,” he said.

Stevens also revealed May 8 that he has dropped his support for a controversial salmon marketing program, with ties to the younger Stevens that came under scrutiny last year in a federal investigation.

Palin said the scandal has strengthened her resolve to correct the apparently wayward path Alaska’s government has taken in recent years.

“We are committed to doing it right and building the faith of this state,” she said May 4.

“… That is why we are so firm on a fair and open process on Alaska Gas Inducement Act,” she said.

AGIA is legislation aimed at getting a pipeline built that Palin hopes will eventually ship trillions of cubic feet of North Slope gas to market.

She said state lawmakers should move forward as time is running short on a session scheduled to end May 16.

“This shouldn’t be used as an excuse to paralyze the discussion under way now on the merits of AGIA,” she said. “That’s unacceptable.”

Palin wants review of PPT

As more details of the federal investigation emerged May 7, Palin called for more answers and accountability.
“I want to know if there was undue influence on lawmakers, decision makers and administrators to the detriment of not only the process but the product that the Legislature ultimately adopted,” she said. “What we need to do is retrace steps and revisit all of this and allow for a fair debate without that undue influence.”

Palin has asked Attorney General Talis J. Colberg and Revenue Commissioner Pat Galvin to conduct an informal review of the process leading to adoption of the PPT, a spokeswoman said May 8.

“That economic analysis is expected to take at least a couple of months,” said Meghan Stapleton, Palin’s press secretary. “She is open to the idea of a special session to discuss the PPT.”

Dems push ethics reform

A group of Democratic legislators, including Rep. Les Gara, D-Anchorage, called May 8 for a special session of the Legislature to review the PPT. State lawmakers need to “to fix the oil tax that passed last year,” and to close loopholes in the law that allow $5 billion in oil company tax giveaways, Gara said May 9.
Democratic lawmakers say they have been trying for years to clean up lax provisions of Alaska’s ethics and campaign finance laws. Bills that would make it a crime, for example, to promise legislators campaign contributions if they change their votes have been blocked from passage by the Republican-led Legislature for the past three years, they said.

However, an ethics reform package was expected to pass the Alaska Senate by May 11, and will then return to the House for concurrence, Democratic lawmakers said May 8.

Meanwhile, major oil industry customers of Veco said May 7 that they plan to continue employing the company in Alaska’s oil fields in the short term and are encouraged by the company’s promise to conduct an internal review of its government-related practices.

Fairbanks News Miner
May 12, 2007

http://newsminer.com/2007/05/12/6972

Congress questions BP memo
By Eric Lidji
Staff Writer
Published May 12, 2007

Congressional leaders want to know why BP is redacting part of an internal report indicating “budget pressure” lead the oil company to discontinue corrosion prevention programs at Prudhoe Bay.

The March report examined the causes of two leaks at Prudhoe Bay last year, including how management decisions contributed to the incidents, and concluded at one point that the oil company decide not to run smart pigs through North Slope pipelines in order to save money.

Smart pigging is used to monitor corrosion in the walls of a pipeline.

Bob Malone, Chairman and President of BP America Inc., is set to testify on Wednesday before a House subcommittee amid growing congressional concern that cost-cutting on the North Slope led to a large oil spill last March and a partial shutdown of the trans-Alaska oil pipeline last August.

The hearing had originally been scheduled for earlier in the month, but committee leaders gave BP more time to prepare testimony after documents and e-mails surfaced suggesting cost-cutting at BP kept the company from adequately protecting several pipelines at Prudhoe Bay from corrosion.

BP officials had previously denied any role cost-cutting might have played in the leak or the partial shutdown.

“Your own report clearly contradicts this assertion,” U.S. Rep. John Dingell, D-Mich., who chairs the House Energy and Commerce Committee, and Rep. Bart Stupak, D-Mich., chairman of the subcommittee on oversight and investigations, wrote in a letter to Malone on Friday.

In meetings with congressional staff, BP officials said they planned to remove lines from the report reading, “Budget pressure eventually led to de-scoping some projects and deferring others. For example, the plan to run a smart pig in the [Oil Transit Lines] was dropped in 2004 and 2005.”

BP commissioned the report from the consulting firm Booz Allen Hamilton. The report has not been released to the public.

The Dingell/Stupak letter included several pages of e-mails from January and February 2003 between BP employees requesting maintenance on some of the North Slope facilities that later failed.

The e-mails suggest ConocoPhillips and Exxon Mobil Corp., who share the Prudhoe Bay lease with BP, rejected funding for a $2.5 million pig facility at Prudhoe Bay.

“This document suggests that BP planned to pig the very lines that ultimately failed,” the letter said.

BP spokesman Ronnie Chappell said the company would not talk about the letter prior to the hearing, but had been cooperative in providing information to the subcommittee.

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

Xxxxxxxxxxxxxxxxxxxxxxx

http://newsminer.com/2007/05/12/6971

Irwin on hand to watch Senate vote on gas line bill
By Stefan Milkowski
Staff Writer
Published May 12, 2007

JUNEAU When the state Senate took up Gov. Sarah Palin’s natural gas pipeline legislation Friday, Sen. Gary Wilken of Fairbanks penned a note to Natural Resources Commissioner Tom Irwin, who came to watch the floor vote.

The essence of the note, Wilken said later, was the gulf between Friday and last year. A year ago Thursday, then-Gov. Frank Murkowski rolled out a draft fiscal contract hundreds of pages long for a natural gas pipeline project with the three major North Slope producers.

Six months before, Irwin had resigned as Murkowski’s natural resources commissioner after questioning the governor’s approach, and six months later, Murkowski’s deal was shelved when Palin was elected.

“I just sat there and marveled how far we’ve come in a year,” Wilken said.

Local lawmakers on Friday described the passage of Palin’s Alaska Gasline Inducement Act as a major step forward for the state, but not one without risks.

Senate Minority Leader Gene Therriault, a North Pole Republican and key player in last year’s gas line debate, said the five-member Republican minority, which also includes Wilken, was pretty much on board with the legislation since it was introduced in March. Some lawmakers had reservations, he said, but didn’t really have a better idea to offer.

Therriault himself said he was “fairly confident” the bill would work.

“I believe we’ll get proposals,” he said.

Rep. David Guttenberg, a Fairbanks Democrat, shared Therriault’s optimism.

“It gets us closer to getting a pipeline,” he said. “The state’s taking back control of its resources.”

Guttenberg said he expected proposals from two independent companies and a consortium of companies.

Criticism of Palin’s bill was always subdued, but it nearly vanished Friday, when even critics offered kind words and all but one lawmaker voted for the House and Senate versions of the bill.

Local lawmakers attributed the near lack of dissent to Palin’s firm stance.

“She and her team played the game well,” said Guttenberg. “They stood their ground, they got what they wanted.”

Therriault and Wilken both pointed to Palin’s threat this week to veto her own bill if lawmakers removed the “must-have” requirements imposed on pipeline builders, or made them optional. Therriault said he thought the real support for the bill was more than half of each body but less than the near-unanimous vote counts indicated.

Rep. John Coghill, a North Pole Republican, offered another view. He described the broad support as a “vote of confidence” in the governor big enough to overshadow lawmakers’ concerns about the bill.

“Most of us hope that it works but think that it should have been more flexible,” he said. “I guess the question is, ‘Did we get it right?’”

Contact staff writer Stefan Milkowski at 388-6141 or smilkowski@newsminer.com.

Wall Street Journal
May 12, 2007

House Committee Probes Possibility
Of BP Cost Cuts Behind Oil Spill
By JIM CARLTON
May 11, 2007 8:36 p.m.

House investigators looking into two spills that ended up shutting down Alaska's Prudhoe Bay oil field last year have sent a letter to the field's operator, BP PLC, asking for more explanation of a finding in a consultant's report that the incidents were preceded by budget cuts to maintenance and inspection of pipelines.

The letter was sent Friday by officials of the House Committee on Energy and Commerce, who are set to begin another hearing next Wednesday into why the spills happened. Although officials have found corrosion led to a spill of about 200,000 gallons of crude from a pipe in March 2006, and a smaller spill from another line in August, the House investigators are looking into whether cost cuts made the lines more prone to rupture.

The Prudhoe Bay field was temporarily shut down by BP after tests by the company following the second spill showed widespread corrosion problems in other pipelines in the vicinity. Production resumed after the lines were replaced.

One of the consultants hired by BP to help it investigate the incidents was Booz Allen Hamilton, a McLean, Va.-based firm whose March 2007 report on file with the House committee suggests: "Budget pressure eventually led to de-scoping some projects and deferring others. For example, the plan to run a "smart pig" in the OTL (oil transit lines, which were the ones that ruptured) was dropped in 2004 and 2005. A smart pig is a device that runs through a pipeline, taking measurements to see if the line suffers from corrosion or other defects.

In their letter to Robert Malone, chairman and president of BP's BP America Inc. unit, John Dingell, chairman of the House energy committee, and Bart Stupak, chairman of its subcommittee on oversight and investigations, said the finding contradicts BP's previously-stated assertion that failure to pig these lines was not a function of any budget pressure.

The congressmen also noted that BP has asked that the reference to cost cutting be removed from the Booz Allen report, calling it "in error." "If the sentence is removed, we would appreciate a full explanation as to why BP and the report's authors believe the sentence to be inaccurate," said the two Michigan Democrats in their letter.

The congressmen also disclosed in the letter that they had recently uncovered a Feb. 5, 2003, email from BP which they say suggests the company planned to pig the very lines that failed. However, they said, those plans appear to have been nixed by superiors. The email contains an "Authorization for Expenditure" that the congressmen said appears to be a proposal to "install permanent pig launching and receiving facilities" in several places, including transit lines where the spills later took place. But the expense request appears to have been turned down, they added, since it included a notation: "rejected...for approval."

BP officials declined comment, saying those were "matters of interest" at Wednesday's hearing. Booz Allen officials weren't immediately available.

Cost cutting has also been brought up as a possible link to a March 2005 explosion at a BP refinery in Texas City, Texas. BP officials have said they believe budgetary decisions didn't play a critical role in the accident, which killed 15 people and injured 180.

Write to Jim Carlton at jim.carlton@wsj.com

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US Lawmakers Probe BP On Prudhoe Bay Report Ahead Of Hearing
DOW JONES NEWSWIRES
May 11, 2007 6:33 p.m.
By Ian Talley
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--Congressional lawmakers on Friday asked BP PLC (BP) to explain why it wants to remove language from a report on last year's Alaskan Prudhoe Bay shutdown which may reveal that budget pressures led the company to put off pipeline maintenance that may have prevented the fiasco.

Earlier this week, BP officials told House Energy and Commerce Committee aides in a meeting the company planned to edit a BP-commissioned Booz Allen Hamilton report on the shutdown, which temporarily halted operations at one of the country's largest producing oil fields.

The meeting was to prepare for a hearing scheduled on Wednesday, when members of the Energy and Commerce Subcommittee on Oversight and Investigations are expected to grill the head of BP USA, Robert Malone, on the cause of the shutdown. Last year, BP faced a barrage of criticism and questioning from Senate and House panels investigating the incident, but lawmakers said they were dissatisfied with BP's answers and wanted more information.

House Energy and Commerce Chairman John Dingell, D-Michigan, asked BP in a letter to explain why it's seeking to edit a section that said: "Budget pressure eventually led to de-scoping some projects and deferring others," including key maintenance that investigators later said could have prevented the pipeline leaks. In particular, the company failed to "pig" its oil transit lines, allowing bacteria known to cause severe metal corrosion to build up inside the pipes. A pipeline "pig" is a cylindrical droid that sweeps the pipe's interior.

BP commissioned the Booz Allen Hamilton report to examine last year's two oil leak incidents on the Prudhoe Bay Oil Transit Lines - one of which led to the shutdown - and to identify organizational, process, management, and governance issues that may have contributed to the leaks.

"The Committee is very interested in finding out why the (oil transit) lines were not pigged with greater frequency, given that BP has maintained that the failure to pig these lines was not a function of budget pressure or resources. Your own report clearly contradicts this assertion," Dingellwrote in a letter to BP.

Budget cuts were also said to be a prime cause of BP's 2005 Texas City refinery explosion that killed 15 people, according to a Chemical Safety and Hazard Investigation Board probe.

Dingell'sletter also queried BP about an email that showed a request for maintenance at one of the pipelines was rejected, causing a major leak.

The request stated: "Maintenance pigging is required to optimize existing corrosion control programs...(and) will also eliminate flow restrictions present from sediment and fouling within the pipelines. Intelligent pigging is required to provide a full evaluation of current pipeline condition to ensure pipeline integrity and meet regulatory requirements."

BP spokesman Ronnie Chappell declined comment for now. "We're not going to be commenting on matters of interest to the subcommittee until after the hearing," Chappell said. He added that BP would continue to cooperate with committee staff and requests for information.

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

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Alaska Legislature OKs Bill Clearing Way For Gas Pipeline
DOW JONES NEWSWIRES
May 11, 2007 4:49 p.m.

JUNEAU, Alaska (AP)--Both houses of the Alaska Legislature Friday approved bills outlining how companies can bid to build a multibillion-dollar natural gas project.

The bill, called the Alaska Gasline Inducement Act or AGIA, will now go to a committee to work out differences in the House and Senate versions.

Under AGIA, producers and independent pipeline companies can vie for rights to build the pipeline that lawmakers hope will ship trillions of cubic feet of North Slope natural gas to market.

The bill is designed to stimulate competition through inducements, but also stipulates requirements that BP PLC (BP), Exxon Mobil Corp. (XOM) and ConocoPhillips (COP) opposed.

The three major oil companies had warned they would not submit a bid unless stringent requirements were removed.

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Regulator Recommended Fine On BP West Texas Pipeline - Filing
DOW JONES NEWSWIRES
May 11, 2007 12:47 p.m.

LONDON (Dow Jones)--A U.S. regulator recommended in February that BP PLC (BP) be fined $168,000 for apparent violations of anti-corrosion measures at a Texas pipeline system, which the U.K. oil firm is in the process of divesting, according to a filing on the watchdog's Web site.

The proposed penalty is a tiny amount compared to BP's $22 billion net profit for 2006. But, taken in conjunction with the fatal refinery explosion at a company facility also in Texas in 2005, and separate corrosion issues at an Alaska pipeline, it is another indication of the extent of operational issues new Chief Executive Tony Hayward will have to address.

Two weeks ago, BP agreed to divest the pipeline on which the fine has been recommended, the West Texas Pipeline System, to Occidental Petroleum Corp. (OXY).

In a notice of probable violation dated Feb. 13, the Pipeline and Hazardous Materials Safety Administration said inspections in 2004 and 2005 revealed a series of "probable" violations, including lack of protection against vandalism and insufficient monitoring of corrosion risks.

The regulator mentioned "coating that was failing or had failed and was leaving the pipe or tank top susceptible to external corrosion," adding that the components' "integrity could be compromised" as a result.

The notice also included a compliance order asking BP to correct the issues and to submit to the regulator details of the spending made to resolve the problem.

Asked if the regulatory issues had been a factor in the decision to sell the pipeline, a BP spokeswoman said it was not "a fire sale" and the sale was part of a strategy to divest non-core assets.

A BP spokesman said he didn't know the status of the proposed penalty but added that it had been "disclosed to the buyer." Asked if Occidental may have to pay the fine, a spokesman for the U.S. oil company said: "The issues you raised are not the responsibility of (Occidental) and should be addressed to BP."

The Pipeline and Hazardous Materials Safety Administration didn't return a call from Dow Jones Newswires Friday.

The 2,300-mile-long West Texas Pipeline System extends from the Permian oil production basin in West Texas and New Mexico to a market center in Cushing, Oklahoma, and has the capacity to transport 191,000 barrels per day of crude oil.

The proposed penalty also concerns the East System pipeline in Oklahoma and a Seaway Products System in Oklahoma and Texas, but the BP spokesman couldn't say if these were among the facilities divested to Occidental.

Hayward stepped in at the helm of BP last week after his predecessor, John Browne, resigned after losing a court injunction to stop publication of a story about his private life. The new chief executive held his first board meeting in Washington Thursday, another BP spokesman said.

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

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

Financial Times
May 12, 2007

http://www.ft.com/cms/s/660067a0-0018-11dc-8c98-000b5df10621.html

Congress takes BP to task over Alaska report
By Sheila McNulty in Houston
Published: May 12 2007 01:24 |
Last updated: May 12 2007 01:24

US congressional investigators questioned on Friday why BP sought to cut from an internal report a charge that budget pressures forced a rollback on anti-corrosion efforts in Alaska.

Bart Stupak, chairman of a House energy investigative subcommittee, asked BP to provide a full explanation for plans to remove the charge and provide supporting documents.

BP was forced in 2006 to shut half its Alaskan oilfield after a big spill and the discovery of “severe corrosion’’ in its oil transit lines.

The committee is investigating the corrosion following a string of safety lapses in BP’s US operations.

A recent Booz Allen Hamilton report commissioned by BP said: “Budget pressure eventually led to de-scoping some projects and deferring others.’’ It noted, for example, that plans to run a “smart pig’’ a machine that runs through a pipeline to detect corrosion was cancelled in 2004 and 2005.

Mr Stupak, in a letter to Bob Malone, BP America president, noted that on May 9, BP staff told the committee investigators there would be a substantive correction to the March 2007 Booz Allen report.

The committee is to hold a hearing on BP’s Alaska operations on Wednesday.

Ahead of that meeting, the committee noted, BP had provided it with a 2003 BP e-mail, which noted that an authorisation for anti-corrosion expenditures was “rejected by partners for approval”.

“This document suggests that BP planned to pig the very lines that ultimately failed,’” Mr Stupak said.

He said his committee had worked with BP to understand what happened in BP’s Alaska operations ahead of the field closure but “is not satisfied with BP’s explanation.’’

Mr Stupak called on BP to explain before the hearing why it believed the sentence on budgetary pressures in the Booz Allen report was in error and provide all supporting materials.

BP declined to comment on Mr Stupak’s letter.
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Anchorage Daily News
May 9, 2007

http://www.adn.com/news/politics/fbi/story/8868045p-8768681c.html

Here is the text of Rep. Vic Kohring's federal indictment
Published: May 9, 2007
Last Modified: May 9, 2007 at 04:51 AM

INDICTMENT

The GRAND JURY charges that:

COUNT ONE
CONSPIRACY TO COMMIT
EXTORTION AND ATTEMPTED
EXTORTION UNDER COLOR OF OFFICIAL RIGHT AND BRIBERY
(18 U.S.C. 371)
INTRODUCTION
At all times material to this Indictment:

1. VICTOR H. KOHRING ("KOHRING") was an elected member of the Alaska House of Representatives, having been first elected in 1994. KOHRING represented District 14, located in Wasilla and the Matanuska-Susitna Valley, northeast of Anchorage. He was reelected to the House in November 2006. Since in or about 2003, KOHRING has been Chair of the House Special Committee on Oil and Gas.

2. A company known to the grand jury but unnamed (hereinafter referred to as "COMPANY A") was a privately held company that was incorporated in a State other than the State of Alaska. COMPANY A was a multinational corporation that provided services to the energy, resource, and process industries and to the public sector. COMPANY A was comprised of multiple subsidiary companies and, collectively, COMPANY A was engaged in interstate commerce in connection with the foregoing projects.

3. At various times, the Alaska State Legislature had issues and matters under consideration that had a business impact on COMPANY A. Therefore, COMPANY A and its principals took an active interest in the Alaska State Legislature's consideration of those issues and matters.

4. "COMPANY CEO" was the Chief Executive Officer and principal owner of COMPANY A.

5. "COMPANY VP" was the Vice President of Community and Government Affairs of COMPANY A.

ALASKA'S INTRA-STATE NATURAL
GAS PIPELINE PROPOSAL

6. Beginning in or around 2005, the State of Alaska was involved in negotiations with representatives of three oil companies (collectively, the "oil producers") concerning the construction of a natural gas pipeline from Alaska's North Slope. The agreement to build the proposed gas pipeline must ultimately be approved by the Alaska State Legislature.

7. The construction of the gas pipeline was important to COMPANY A. COMPANY A was primarily an oil field services company, and a significant source of COMPANY A's income was derived from contracts with the oil producers in Alaska.

8. On or about February 21, 2006, the Governor of the State of Alaska (hereinafter "Governor") announced that the state had reached an agreement with the primary oil producers regarding the construction of a gas pipeline. The terms of the agreement concerning construction of the pipeline were not announced or released at that time. Instead, the Governor announced that the agreement with the oil producers included a provision that addressed a significant change to the manner in which the State of Alaska taxes oil production. If the Alaska State Legislature did not approve the proposed change in the manner in which oil production was taxed by the state, then the agreement concerning construction of the gas pipeline would not take effect.

9. Shortly after that announcement, the Governor's administration proposed legislation relating to the negotiated change in the taxation of oil production. The newly proposed tax system -- referred to as a "petroleum production tax" or "PPT" -- would be based upon a percentage of the producer's net profits, or revenues minus capital and operating expenditures. Under the proposed system agreed to by the state, the producers would pay a 20 percent tax rate and receive a 20 percent tradable tax credit. The negotiated tax formula -- referred to generally as the "20/20" PPT tax rate -- was the subject of much debate throughout the 2006 regular and special sessions of the Alaska State Legislature.

THE CONSPIRACY AND ITS
OBJECTS

10. From in or about January 2006 and continuing until in or about August 2006, in the District of Alaska and elsewhere, the defendant, VICTOR H. KOHRING, an elected public official of the Alaska State Legislature, together with COMPANY CEO, COMPANY VP, and others both known and unknown to the grand jury, did knowingly and willfully combine, conspire, confederate, and agree together and with each other:

(A) to obstruct, delay, and affect in any way and degree commerce and the movement of any article and commodity in commerce by extortion, that is, to unlawfully obtain or attempt to obtain under color of official right money or other property from COMPANY A, COMPANY CEO, and COMPANY VP with their consent for KOHRING not due KOHRING or his office in agreement for the performance of official acts, in violation of Title 18, United States Code, Section 1951(a); and

(B) to corruptly solicit and demand for the benefit of any person, and accept and agree to accept, anything of value from any person for KOHRING while an agent for the State of Alaska, an entity that received more than $10,000 in federal funding during the calendar year 2006, with the intent that KOHRING would be influenced and rewarded in connection with any business, transaction or series of transactions of $5,000 or more of the State of Alaska, in violation of Title 18, United States Code, Section 666(a)(1)(B).

11. It was an object of the conspiracy for KOHRING to receive and attempt to receive money and other things of value in exchange for agreeing to perform, and ultimately performing and attempting to perform, official acts as a member of the Alaska State Legislature for the purpose of enriching himself and his family members.

12. It was a further object of the conspiracy for KOHRING to enrich COMPANY CEO, COMPANY VP, and COMPANY A and advance the business interests of COMPANY A within the State of Alaska by agreeing to perform, and ultimately performing and attempting to perform, official acts as a member of the Alaska State Legislature that would benefit COMPANY A and its clients.

13. It was a further object of the conspiracy to conceal from the State of Alaska and its citizens the true nature and source of the monetary payments and other financial benefits that KOHRING received and attempted to receive from COMPANY CEO, COMPANY VP, and COMPANY A, in exchange for KOHRING's agreement to perform, and eventual performance and attempted performance of, official acts as a member of the Alaska State Legislature that would benefit COMPANY A and its clients.

MANNER AND MEANS OF THE CONSPIRACY

14. KOHRING and his co-conspirators executed the conspiracy by agreeing to provide KOHRING with money and other things of value, including, without limitation, a job with COMPANY A for one of KOHRING's relatives, in return for KOHRING taking official acts as directed by executives of COMPANY A. KOHRING received and attempted to receive these cash payments and other things of value through meetings with COMPANY CEO and COMPANY VP in, among other places, Suite 604 of the Westmark Baranof Juneau Hotel ("Suite 604"), and through numerous telephone calls with COMPANY VP.

15 In return for the money and other things of value that KOHRING received and attempted to receive for himself and his family, KOHRING agreed to perform, attempted to perform, and actually performed official acts as a member of the Alaska State Legislature that benefitted COMPANY CEO, COMPANY VP, and COMPANY A and its clients. Among other things and without limitation, KOHRING performed the following acts to execute the conspiratorial agreement: (1) voting in favor of versions of the PPT bill supported by COMPANY CEO, COMPANY VP, COMPANY A, and the oil producers; (2) lobbying other elected public officials to support versions of PPT bill that COMPANY CEO, COMPANY VP, COMPANY A, and the oil producers favored; and (3) repeatedly offering to assist and help COMPANY CEO, COMPANY VP, and COMPANY A by providing official support for the natural gas pipeline legislation and the PPT bill.

OVERT ACTS

16. In furtherance of the conspiracy, and to effect its objects, the co-conspirators committed the following overt acts, among others, in the District of Alaska and elsewhere:

17. Between in or about January 2006 and in or about August 2006, KOHRING received approximately $500 in cash from COMPANY CEO while walking with COMPANY CEO from a Juneau restaurant to Suite 604.

18. On or about January 28, 2006, KOHRING told COMPANY VP during a telephone conversation that he was standing by "willing to help if there's any issues that come along. ..." KOHRING then asked COMPANY VP if there were any legislative issues that were of a concern to COMPANY VP and of which KOHRING should be aware.

19. On or about January 28, 2006, during the same telephone conversation and after KOHRING asked about COMPANY VP's legislative concerns, COMPANY VP told KOHRING that COMPANY A was closely monitoring the PPT bill and the gas pipeline legislation, that a "big part of (COMPANY A's) future (was) sitting on these issues," and that COMPANY A did not want to "kill the goose." KOHRING agreed with COMPANY VP that the PPT bill and the gas pipeline legislation, if passed, would end up being the centerpiece of Alaska's economy.

20. On or about January 28, 2006, during the same telephone conversation, KOHRING told COMPANY VP that he should contact KOHRING for any need or issue upon which KOHRING could provide assistance.

21. On or about February 21, 2006, during a telephone conversation with COMPANY VP and after COMPANY VP warned KOHRING not to use the PPT tax bill as an opportunity "to go crazy" or "wacko" by asserting an extreme anti-tax position, KOHRING told COMPANY VP that he would "reluctantly go along" with the 20/20 PPT tax rate, but only if that rate was "amenable" to COMPANY A and the oil producers. KOHRING further stated that he did not want to "screw you guys over nothing" and "hurt you guys."

22. On or about February 21, 2006, during the same telephone conversation with COMPANY VP and after COMPANY VP told KOHRING that the gas pipeline was "critical to (COMPANY A's) equation," KOHRING told COMPANY VP that he was willing to help COMPANY A "in terms of uh, any questions that need to be asked, any information that needs to be sought out, any points to make in caucus, or in committee meetings, on radio columns. ..."

23. On or about February 23, 2006, during a dinner meeting attended by COMPANY CEO, COMPANY VP, and KOHRING, KOHRING received approximately $1,000 in cash from COMPANY CEO.

24. On or about March 1, 2006, in a telephone conversation a week after having accepted $1,000 in cash from COMPANY CEO, KOHRING asked COMPANY VP to contact KOHRING if he could provide assistance on any legislative matter or implement any strategy on behalf of COMPANY A.

25. On or about March 4, 2006, while discussing in Suite 604 the importance of the proposed gas pipeline legislation, COMPANY CEO told COMPANY VP that he had just given "a thousand" to KOHRING and that, as a result of the payment, KOHRING "would kiss our ass."

26. On or about March 19, 2006, KOHRING called COMPANY VP to follow up on COMPANY VP's suggestion that KOHRING's "(relative) consider, uh, possibly doing an internship program through (COMPANY A). ..."

27. On or about March 21, 2006, KOHRING -- after telling COMPANY VP in a voicemail that he had "personally delivered" an envelope to COMPANY VP's hotel suite that contained, among other things, the resume of KOHRING's relative -- told COMPANY VP to call any time KOHRING could be "of assistance in any issue," and that "my door is open here so feel free to call any time."

28. On or about March 22, 2006, KOHRING told COMPANY VP that he was calling to offer his services to COMPANY VP and COMPANY CEO, that he can "be an information source" for COMPANY VP and COMPANY CEO, that he would "lobby on (their) behalf," and that he would "consider modifications to legislation or whatever" if COMPANY VP or COMPANY CEO wanted them.

29. On or about March 24, 2006, KOHRING told COMPANY VP during a telephone conversation that he "stand(s) by" to "do anything to help," that he would continue to advocate "good things for you guys," including the gas pipeline, and asked COMPANY VP to tell COMPANY CEO that KOHRING is "doing what (he) can to help out."

30. On or about March 29, 2006, KOHRING told COMPANY VP during a telephone conversation that he wanted to meet with COMPANY VP and COMPANY CEO to discuss "a relatively serious matter" that was of "fairly significant importance to (KOHRING)."

31. On or about March 30, 2006, during a conversation in Suite 604, KOHRING told COMPANY CEO and COMPANY VP that he had a "personal financial matter" that "potentially could hurt me politically."

32. On or about March 30, 2006, during the same conversation in Suite 604, KOHRING told COMPANY CEO and COMPANY VP that he owed $17,000 on a credit card that was in collection, that he was being pressed to pay the debt, and that he did not have the financial means to pay the debt.

33. On or about March 30, 2006, during the same conversation in Suite 604, KOHRING asked COMPANY CEO and COMPANY VP about the possibility of receiving a job or some sort of work with COMPANY A or securing a $17,000 loan with COMPANY CEO.

34. On or about March 30, 2006, in the same conversation in Suite 604 and after KOHRING, COMPANY CEO, and COMPANY VP initially mentioned that the $17,000 loan would have to be "above board," they then discussed at length how the transaction would have to be quietly structured to avoid any "red flags" with the Alaska Public Offices Commission ("APOC") or public and personal embarrassment for KOHRING; that KOHRING would have to be discreet about the loan; and that KOHRING should not even mention the loan hypothetically to APOC to avoid drawing unwanted attention to KOHRING, COMPANY CEO, and COMPANY A.

35. On or about March 30, 2006 -- during the same conversation in Suite 604 and shortly after KOHRING had asked COMPANY CEO and COMPANY VP for the $17,000 loan -- KOHRING began to discuss his family and his financial condition. COMPANY CEO then asked COMPANY VP if he had any "hundreds." COMPANY VP retrieved his wallet from a pants pocket, pulled out multiple bills of currency, and then handed at least $100 in cash to COMPANY CEO who, in turn, passed the money to KOHRING.

36. On or about March 30, 2006, during the same conversation in Suite 604, KOHRING took the cash that COMPANY CEO handed him, thanked CEO, and shook CEO's hand.

37. On or about March 30, 2006, during the same conversation in Suite 604 and after receiving the prior cash payment described above, KOHRING again mentioned his family and his financial condition. Immediately thereafter, KOHRING accepted a second handful of cash, totaling approximately $500 to $1,000, from COMPANY CEO, who had handed the cash to KOHRING.

38. On or about March 30, 2006, during the same conversation in Suite 604, KOHRING took the second handful of cash from COMPANY CEO, thanked COMPANY CEO again, and shook his hand.

39. On or about March 30, 2006, during the same conversation in Suite 604, KOHRING, immediately after receiving the cash payments from COMPANY CEO and COMPANY VP, made the following statements to COMPANY CEO:

KOHRING: What can I do at this point to help you guys? Anything?

COMPANY CEO: Whatever you, you know, uh, uh -

KOHRING: Just keep lobbying my colleagues for the Governor's plan, right?

40. On or about March 30, 2006, during the same conversation in Suite 604, after receiving the two cash payments described above, KOHRING discussed with COMPANY CEO and COMPANY VP his relationship with a number of legislators and told COMPANY CEO that "my first effort will be to figure out where they are at and then, secondly, I'll politely and gently as carefully as I can influence them in a positive way to see that the Governor's bill is the vehicle they consider."

41. On or about March 31, 2006, on the day after the cash payments in Suite 604, KOHRING left a telephone message for COMPANY VP in which he told COMPANY VP that there were a couple of important issues before the legislature regarding the natural gas pipeline legislation, provided a status update to COMPANY VP regarding the PPT bill, and stated that he was in the process of meeting with members of the House Finance Committee to lobby them regarding the version of the PPT bill favored by COMPANY CEO, COMPANY VP, COMPANY A, and the oil producers.

42. On or about March 31, 2006, KOHRING met with a state legislator and attempted to persuade that state legislator to support the PPT bill.

43. On or about March 3l, 2006, KOHRING told COMPANY VP during a telephone conversation that he was lobbying strenuously for passage of the PPT bill, knew that passage of the PPT bill was very important to COMPANY A, was scheduling appointments to meet with members of the House Finance Committee, had lobbied the state legislator referenced above, and would continue to lobby his legislative colleagues to the best of his ability and provide periodic status reports to COMPANY VP.

44. On or about April 20, 2006, in a telephone conversation after KOHRING had learned from COMPANY VP that COMPANY A had hired KOHRING's relative, KOHRING thanked COMPANY VP and told COMPANY VP to contact KOHRING if he needed legislative assistance.

45. On or about April 20, 2006, KOHRING asked COMPANY VP during a telephone conversation if he could meet COMPANY VP in Suite 604 to personally thank COMPANY VP and COMPANY CEO for the job for his relative and for being "so good to me over the years."

46. On or about August 23, 2006, KOHRING told COMPANY VP during a telephone conversation that his relative was able to "pocket or bank about $3,000 or so" as a result of his COMPANY A job. All in violation of Title 18, United States Code, Section 371.

COUNT TWO
INTERFERENCE WITH
COMMERCE BY EXTORTION
INDUCED UNDER COLOR
OF OFFICIAL RIGHT (18 U.S.C. Â§ 1951(a) and Â§ 2)

47. Paragraphs I through 9 and 16 through 46 of Count One are realleged and incorporated by reference as though fully set forth herein.

48. Between in or about January 2006 and in or about August 2006, in the District of Alaska and elsewhere, the defendant, VICTOR H. KOHRING, an elected member of the Alaska State Legislature, did knowingly obstruct, delay, and affect commerce and the movement of any article and commodity in commerce by extortion, as those terms are defined in Title 18, United States Code, Section 1951; that is, KOHRING unlawfully obtained from COMPANY CEO and COMPANY VP, with their consent under color of official right, a series of cash payments totaling approximately $2,100 to $2,600 and a $3,000 job for a relative of KOHRING, all of which were not due KOHRING or his office, in agreement that KOHRING would perform official acts in exchange for these money payments and property from COMPANY CEO and COMPANY VP. All in violation of Title 18, United States Code, Sections 1951(a) and 2.

COUNT THREE
ATTEMPTED INTERFERENCE WITH COMMERCE BY EXTORTION INDUCED UNDER COLOR OF OFFICIAL RIGHT
(18 U.S.C. Â§ 1951(a) and Â§ 2)

49. Paragraphs I through 9 and 16 through 46 of Count One are realleged and incorporated by reference as though fully set forth herein.

50. Between in or about March 2006 and in or about August 2006, in the District of Alaska and elsewhere, the defendant, VICTOR H. KOHRING, an elected member of the Alaska State Legislature, did knowingly attempt to obstruct, delay, and affect commerce and the movement of any article and commodity in commerce by extortion, as those terms are defined in Title 18, United States Code, Section 1951; that is, KOHRING attempted to unlawfully obtain from COMPANY CEO and COMPANY VP, with their consent under color of official right, a $17,000 loan not due KOHRING or his office in agreement that KOHRING would perform official acts in exchange for the monetary payments from COMPANY CEO and COMPANY VP.

All in violation of Title 18, United States Code, Sections 1951(a) and 2.

COUNT FOUR
BRIBERY CONCERNING PROGRAMS RECEIVING FEDERAL FUNDS (18 U.S.C. Â§ 666(a)(1)(B) and Â§ 2)

51. Paragraphs 1 through 9 and 16 through 46 of Count One are realleged and incorporated by reference as though fully set forth herein.

52. In calendar year 2006, the State of Alaska received in excess of $10,000 from the United States government under Federal programs involving grants, subsidies, loans, guarantees, insurance, and/or other forms of Federal assistance.

53. Between in or about January 2006 and in or about August 2006, in the District of Alaska and elsewhere, the defendant, VICTOR H. KOHRING,

an elected member of the Alaska State Legislature and an agent of the government of the

State of Alaska, did knowingly and corruptly solicit and demand for the benefit of any person, and accept and agree to accept, a thing of value from any person, that is, a series of cash payments totaling approximately $2,100 to $2,600, a $17,000 loan, and a $3,000 job for a relative of KOHRING, from COMPANY CEO and COMPANY VP, intending to be influenced and rewarded in connection with a business, transaction, or series of transactions of $5,000 or more of the State of Alaska. All in violation of Title 18, United States Code, Sections 666(a)(1)(B) and 2.

A TRUE BILL.

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

http://www.adn.com/news/politics/fbi/story/8867967p-8768641c.html

Veco case may spark charges from state
CRIMINAL AND CIVIL: Attorney general has ordered investigations.
By LISA DEMER
Anchorage Daily News
Published: May 9, 2007
Last Modified: May 9, 2007 at 02:26 AM

The state plans to investigate whether Veco Corp. and its officials have violated Alaska law in light of guilty pleas in federal court by two company officials.

Attorney General Talis Colberg on Tuesday directed state lawyers to begin criminal and civil investigations into Veco and related parties. Company chief executive officer Bill Allen and a vice president pleaded guilty Monday to the federal charges of bribery and conspiracy.

Colberg told state lawyers to look into issues not addressed by the federal case. The Alaska Public Offices Commission also is looking into possible violations.

In another development, Gov. Sarah Palin urged indicted state Rep. Vic Kohring, R-Wasilla, to consider stepping down. The governor said it wasn't in her power to demand that he resign but said he should think about it.

"There is certainly a cloud over the seat he represents right now and, with so much on his plate in terms of the need to defend himself, I think he has got to consider that. That's my personal opinion," Palin said.

Palin also removed Allen from a council created to foster cooperation with Alberta, Canada, in areas such as transportation, Native issues, and trade and investment. She said it was inappropriate for him to serve the state.

As for Kohring, he said he's staying in the Legislature.

"I do not feel I would serve the best interest of my constituents by walking away at this time," Kohring said in a written statement. "The House leadership has made a decision regarding my committee chair position, but also made it very clear they expect to see me working in my capacity as a legislator."

After being indicted, Kohring was stripped of his chairmanship of the House Special Committee on Oil & Gas.

Kohring and former Reps. Pete Kott, R-Eagle River, and Bruce Weyhrauch, R-Juneau, were arrested Friday on multiple charges springing from an FBI investigation into corruption in the Alaska Legislature. All were released and vowed to fight the charges.

The three legislators are accused of doing Veco's bidding in exchange for money or other benefits.

Kohring said his situation was not like that of Jim Hayes, who first refused demands by Palin that he resign from the state Board of Regents after being indicted on multiple federal counts.

While university regents are appointed by the governor, legislators are elected by the people, Kohring said in his statement. Hayes, facing possible impeachment, eventually resigned.

If his defense "prevents him from effectively doing his job," Kohring will reconsider, his statement said.

In court Monday, Allen and Veco vice president Rick Smith admitted being part of a conspiracy in which they bought lawmakers' votes for an oil production tax favored by the oil industry. Over five years, they made more than $400,000 in illegal payments to four legislators or their families.

Allen also approved a scheme in which Smith directed Veco executives to make campaign contributions to primarily Republican candidates. The executives knew they would receive a "special bonus" to cover the amount. It was Smith's job to figure out how big a phony bonus each would need, prosecutors said in court filings.

In the last two-year election cycle alone, at least six Veco executives each donated $24,000 or more to various Alaska candidates and the Republican Party, according to a database run by the National Institute on Money in State Politics or followthemoney.org.

Allen alone donated more than $30,000 over the two years, according to the institute. So did Veco president Pete Leathard and chief financial officer Roger Chan. Smith donated nearly $25,000. And that's just one election cycle.

Brooke Miles, APOC executive director, said her staff saw the enormous contributions from Veco officials but couldn't document illegal behavior. They didn't know about the special bonuses.

"Some of that would be beyond the auditing skills of an agency such as this," Miles said.

Veco has run afoul of campaign finance laws before. In 1985, the company was fined more than $72,000 -- later reduced to $28,000 -- for a scheme that funneled secret donations to a slate of candidates through an employee payroll deduction plan.

Miles said the public offices commission will consider at its June meeting how to proceed with the new information revealed in the federal charges.

Changes to the campaign finance laws in 2003 limit the possibilities, she said. For instance, a complaint must be filed within a year.

Daily News reporter Lisa Demer can be reached at ldemer@adn.com and 257-4390. Sabra Ayers contributed to this story.

KTUU Television
May 8, 2007

http://www.ktuu.com/Global/story.asp?S=6482935

The story of VECO and the rise of Bill Allen

ANCHORAGE, Alaska -- Bill Allen is the stuff that legends are made of in Alaska. He dropped out of high school to work in the oil fields and became the head of VECO, one of Alaska's largest companies.

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The story of VECO and the rise of Bill Allen
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VECO brass pleads guilty
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The economic fallout from the news that he and his vice president have been charged with bribing lawmakers has sent shockwaves throughout the economy.

VECO Attorney Amy Menard said Allen is still the CEO of the corporation.

"Mr. Allen founded VECO in 1968. At this time his title is still the CEO of VECO Corporation," Menard said.

How long will Allen keep his title? VECO's attorney would not say. Her advice -- stay tuned.

"It's a difficult situation and there will be a lot of decision making that takes place as a result. And appropriate steps will be taken as soon as feasible," Menard said.

One step has taken place already.

"Mr. Allen does not currently have an ownership interest of VECO Corporation. I cannot tell you when that change occurred," Menard said.

The majority of the shares are owned by a partnership, made up of Allen family members.

Anchorage Economic Development Corporation President Bill Popp said VECO has operations all over the world.

"From Canada to Russia to the Middle East, you'll find VECO involved in quite a few differ projects globally," Popp said. "A lot of the paychecks that VECO employees collect come right back here to Anchorage, to the state as a whole," Popp said.

In 2005, VECO posted revenues of 665 million. The corporation has four offices in the United Sates, two in Canada, one in the United Arab Emirates and another in India.

It has more than 4,000 employees worldwide. Half of them are in Alaska.

Popp said Allen built the company from the ground up.

"Mr. Allen is one of those strong players back in the ‘70s who built a company from basically nothing as a one-person operation. Operating out of a warehouse in Kenai, servicing one client," Popp said.

From one client to many, an empire grew from servicing the oil industry.

Allen's big break came in 1989 when VECO won a big contract to clean-up the Exxon Valdez oil spill. From modules to oilfield maintenance VECO did the heavy lifting.

As a voice for the industry, Allen used his muscle. While the investigation will reveal where he crossed the line from advocacy to crime, Alaska's economic experts fear many will suffer from the fallout.

Popp said people shouldn't jump to conclusions about the entire corporation.

"There are a lot of neighbors and friends here in town whose jobs rely on this company and it's important to remember that, that in this process, don't paint with a broad brush all the employees of VECO," Popp said.

Anchorage Chamber of Commerce Board Chair Bill Evans said the events are unfortunate, but the state will move on.

"Very, very sad state of affairs admittedly. But the business of the state is so much bigger than that and so much more important than that," Evans said.

"Crude Dreams" author Jack Roderick said it's time for the oil industry to do some soul searching.

"VECO has been big and Bill Allen been very active. Then the question should be asked, what are the major oil companies here in Alaska, who basically have financed VECO, are gonna do about it?"

On VECO's Web site you'll see the company's values listed. The first on the list is safety. The second is honesty, a call to show integrity by matching action with words.

Historians like Roderick said it's been rumored for years that VECO has tried to buy influence. He said that is something the oil industry probably knew or could have found out.

Other members of the oil industry have been rather quiet about VECO fallout. There was no comment from Conoco Phillips. BP said it's very interested about recommendations coming from an Outside consultant VECO has hired. In a statement today, BP said its relationship with VECO in the future is dependent on how VECO meets the challenges.

BP made the following response to the charges against VECO Executives:

"We were disappointed to learn that VECO executives have admitted to serious crimes. This is not what we expect from companies with whom we do business. However, we are encouraged at VECO's pledge to commission an independent review of its corporate operations and practices. Our relationship going forward is dependent on how VECO meets those challenges. We will continue to work with the company to ensure that contracts and projects on the North Slope are conducted safely and reliably."

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http://www.ktuu.com/Global/story.asp?S=6480399

VECO brass strike plea deal on charges of bribing lawmakers
by John Tracy
Monday, May 7, 2007

ANCHORAGE -- A corruption investigation by the FBI snags one of Alaska's biggest and most influential businessmen.

This morning, Bill Allen, chief executive officer and part-owner of VECO Corp. pleaded guilty to extortion, bribery and fraud.

Shortly after Allen entered his plea, Richard Smith, a VECO vice president and its chief lobbyist, also pleaded guilty to the same charges.

They are the latest to be caught up in an ever-widening corruption scandal.

Specifically, Allen and Smith plead guilty to providing more than $400,000 in payments to five lawmakers, in exchange for the lawmakers supporting and lobbying their colleagues on bills that VECO wanted passed.

As in last week's federal indictments, many of the principals are not named, but by their descriptions, it is easy to determine who the lawmakers are. And the name that pops out today, specifically, is that of former Senate President Ben Stevens.

The 70-year-old Allen entered his plea today in an Anchorage federal courtroom, followed shortly thereafter by Smith, the company's chief lobbyist in Juneau at the end of last session.

The charges mirror the indictments released last week.

Allen and Smith admit that they offered cash and/or future employment to former House members Pete Kott of Eagle River and Juneau's Bruce Weyrhauch, as well as to current lawmaker Vic Kohring of Wasilla.

All three lawmakers pleaded not guilty Friday in Juneau.

But in today's plea deal, Allen also says a state senator, identified as "Senator A", which sources say is Anchorage Republican Sen. John Cowdery, could get a colleague to vote VECO's way if the company could come up with some money.

But perhaps the biggest bombshell involves former Senate President Ben Stevens.

Allen says he had been paying Stevens' consulting firm since 1995 and had even discussed making Stevens a VECO executive; and that the payments continued in the five years Stevens served in the Senate.

During that period, VECO paid Stevens in excess of $243,000.

Allen says although he and VECO characterized the payments as consulting fees, in his plea agreement he "acknowledges that in actuality the payments provided to Stevens were in exchange for giving advice, lobbying colleagues, and taking official acts in matters before the Legislature."

Today, VECO's attorney said the company has been cooperating with federal authorities since it first became aware of the federal probe.

"The company and its subsidiaries have been functioning very well throughout the course of the last eight months, since we became aware of the investigation. We think that performance will remain strong," said Amy Menard, who is representing VECO.

Allen also pleaded guilty to a third count of what's called "conspiracy to impair and impede the Internal Revenue Service."

In essence, Allen admits to a scheme of reimbursing VECO executives for making personal campaign contributions by paying them special bonuses, which were reported to the IRS as legitimate corporate expenses.

That's not only a violation of federal law, but state law as well.

It is hard to discern Allen's motivation for entering a guilty plea. His attorney isn't talking; however, buried in his plea agreement is a statement that the government will not charge Allen's son, Mark, or other family members with any crimes stemming from the investigation.

Allen's son is also a VECO executive, and has a history of writing big campaign checks.

In 1989, VECO paid a $28,000 fine to the Alaska Public Offices Commission for setting up an employee payroll withholdings program that funneled money to candidates of VECO's choice.

The plea agreement indicates that VECO instead simply started reimbursing it's executives for those campaign contributions with inflated bonuses.

APOC records indicate Mark Allen has written personal checks in excess of $84,000 to state candidates since 1998.

The charges Allen and Smith face include lengthy prison sentences, with a total of 20 years maximum, but the plea agreement calls for a range of between nine and 11 years.

Prosecutors can ask for less, though, and a judge also can reduce the sentence.

The plea deal also calls for three years probation and a fine of between $15,000 and $150,000.

There is no word yet on when Allen and Smith will be sentenced.

John Tracy is news director for Channel 2 News. Contact Tracy at jtracy@ktuu.com

Anchorage Daily News
May 8, 2007

http://www.adn.com/news/politics/fbi/story/8863305p-8765669c.html

Veco executives plead guilty to bribing officials
By RICHARD MAUER and LISA DEMER
Anchorage Daily News
Published: May 7, 2007
Last Modified: May 8, 2007 at 04:12 AM

Bill Allen, a welder who took the Veco Corp. from a small Kenai oil-field company to a billion-dollar international contractor and a major political force, pleaded guilty Monday to bribing at least four Alaska legislators, including former Senate President Ben Stevens.

In a plea bargain with the U.S.Justice Department’s Public Integrity Section, Allen and Rick Smith, Veco’s vice president for community and government affairs, each pleaded guilty to three identical felony charges - bribery and two counts of conspiracy.

Both men accepted responsibility for making more than $400,000 in illegal payments and benefits to public officials or their families. More than half the money went to Stevens in the form of phony “consulting” fees, the government charged.

Stevens, son of U.S. Sen. Ted Stevens, has not been charged. He was named in the plea documents as “State Senator B,” but his identity was unmistakable.

In return for special consideration at sentencing, Allen, 70, and Smith, 62, agreed to cooperate in the ongoing federal investigation. The government also promised to not seek charges against Allen’s son Mark, a Veco official, his daughter Tammy Kerrigan, or any other relative.

The federal plea bargain doesn’t bar state prosecutors from seeking additional charges against Allen and Smith. Both men acknowledged violating state campaign finance laws in their plea.

The plea deals were formalized in secret last week and opened in U.S. District Court Monday morning in unannounced back-to-back hearings before Judge John Sedwick, each lasting about 40 minutes.

Allen, in a gray suit, white shirt, red tie and black cowboy boots, sat hunched over the defense table beside his lawyer, former U.S. Attorney Bob Bundy. Allen is hard of hearing and asked Sedwick to repeat several of his questions, but not the questions about how he would plea.

“Guilty,” he repeated three times in a gravely voice to each of the charges.

Taking prosecutors’ recommendations, Sedwick released the men on $10,000 unsecured bond and ordered them to report weekly to federal probation officers. They were allowed to keep their passports and may travel freely pending sentencing, which was held off indefinitely. They could face about 10 years in prison and up to $750,000 in fines, but cooperation could substantially reduce the penalties.

On Friday, federal authorities acting on bribery and conspiracy indictments arrested Rep. Vic Kohring, R-Wasilla, and former Reps. Pete Kott, R-Eagle River, and Bruce Weyhrauch, R-Juneau.

Veco, Allen and Smith showed up in those indictments as “Company A,” “Company CEO” and “Company VP.”

It appeared from those charges that the FBI used electronic surveillance of Veco’s suite in Juneau’s Baranof Hotel to capture incriminating dialogue and images. The indictments spoke of payments by Allen and Smith of several thousand dollars and promises of jobs to the legislators. In return, the legislators agreed last year to vote for the oil production tax favored by the oil industry, the government alleged.

Those indictments referred to an unnamed state senator who allegedly played a role in one part of the conspiracy - a plan by Veco to farm out legal work to Weyhrauch, an attorney, in return for his vote on oil legislation. The description of that unnamed senator was ambiguous - Stevens was one of three senators it could have been.

But one of two unnamed state senators in Monday’s charges against Allen and Smith is clearly Stevens. The Veco “consulting” payments of $243,250 between 2002 and 2006 documented in the charges precisely match the amount Stevens reported on his financial disclosures as consulting income to his firm, Ben Stevens and Associates.

Over the years, Stevens has refused to disclose what work he did for that money or for any of the other consulting jobs he has listed, mostly for fishing industry clients. Former state representative Ray Metcalfe, in complaints to the Alaska Public Offices Commission and to federal authorities, challenged Stevens, saying the payments were thinly disguised bribes.

Nothing came of Metcalfe’s APOC complaints - the state agency said that Stevens adequately described his work. It refused Metcalfe’s demands to look deeper and investigate whether Stevens actually worked for his money.

But in their admissions to federal prosecutors, Allen and Smith appeared to vindicate Metcalfe.

“Although Allen and Veco characterized these payments … as being for consulting services, Allen acknowledges that in actuality the payments … were in exchange for giving advice, lobbying colleagues, and taking official acts in matters before the legislature,” prosecutors said.

Only once in five years did Stevens consult for Veco on a matter not involving his legislative job - a task involving a sunken boat at an unidentified location where Veco wanted to build a dock. Stevens worked less than 20 hours on that project, the prosecutors said.

Allen also promised an executive job to Stevens when he left office. On June 25, 2006, Stevens said he’d take that job, the charges said.

Stevens’s attorney, John Wolfe of Seattle, declined to respond to specifics in the charges, but said his client did nothing wrong.

“Ben Stevens denies engaging in any criminal conduct and maintains that he is innocent,” Wolfe said. “Mr. Stevens is surprised to learn that Bill Allen has pled guilty to various federal crimes and hopes that Mr. Allen is not falsely accusing former and current members of the Alaska Legislature in order to mitigate his admitted criminality.”

One other unnamed state senator, a “state elected official,” and two unnamed Veco executives also show up in the charging documents against Allen and Smith.

The senator in question was not accused of taking illegal payments but was listed as a member of the conspi