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BP completes transit pipeline replacement

$500 million, 16-mile pipeline began service just before Christmas

Posted: Sunday, February 01, 2009

With no ceremony, no public announcement, and little further comment, BP PLC has quietly closed the books on one of the company's most costly moments as operator to the nation's largest oil field, Alaska's Prudhoe Bay.

The company completed a new $500 million, 16-mile transit pipeline and put it into service just before Christmas. It replaced a corroded line that, thanks to a long-standing pattern of cost-cutting and mismanagement, was the cause of a 200,000-gallon spill nearly three years ago.

BP later had to partially shut down Prudhoe Bay in August 2006, a time when the market was highly sensitive to production losses. By the time full production resumed, about 13 million barrels of oil had been kept off the market.

Investors wanted answers. So too did congressional representatives, who grilled BP executives in special committee hearings over the next year. The elected officials called the mistakes unacceptable, questioning why inexpensive measures to prevent spills were not implemented, given the oil industry's record profits.

To some, the transit pipeline's completion represents a commitment to future North Slope oil production by BP, its operating partners and new players on the North Slope looking to ship oil in the 800-mile trans-Alaska line.

To others, the new pipeline is a daily symbol of prior neglect, which cost the company $20 million in a federal settlement over environmental pollution and led to the partial production shutdown.

BP typically has been open about the steps it took over a 30-month period, but this time it's limiting comments.

The company is not trying to hide anything; it simply wants to move forward, BP spokesman Steve Rinehart said.

Industry analysts and supporters said BP has atoned for its mistakes and should be allowed to move forward with its new line and efforts to rebuild goodwill that is reflected in decades of operating facilities on the North Slope.

But critics say BP got off lightly and has shown no reason why it or any other North Slope operator should be trusted in the future.

A few minor North Slope spills recently show the state still is not doing enough oversight, said Dan Lawn, a former engineer and investigator with the state environmental conservation department.

In addition to the Prudhoe Bay leak, BP looked to recover from a Texas City, Texas refinery explosion that killed 15 people in 2005 and a 2004 scheme by BP America to inflate propane prices. It cost the company $373 million just in federal fines and restitution for the incidents.

Industry analyst Fadel Gheit has been tracking the company's perils since they began and said BP appears to be "out of the penalty box," thanks largely to new management tired of bad publicity that followed the separate, turbulent events.

Two years ago, Tony Heyward took over as the British company's chief executive. Lamar McKay just succeeded former chairman and president of the company's U.S. operations Bob Malone, a man who faced the wrath of Congress while working to repair the British company's image in the United States.

"The reputation of neglect and being accused of illegal manipulation is nothing to be taken lightly," said Gheit, of Oppenheimer & Co. "In addition to costing a lot of money, it distracted them and consumed management's time in ways they don't like.

"I think they have put this thing to rest. I really think they have turned the page, but unfortunately as they got their act together, crude oil prices crashed. They get a breather and they got the rug pulled out from under them, and this wasn't their fault."



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