FBI probes pressure on oil regulators

Agency asks if political appointees acted improperly before Prudhoe spill

Posted: Thursday, March 22, 2007

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

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

Now, the actions of the Alaska Department of Environmental Conservation, which is responsible for overseeing oil operations in the state, have come under scrutiny from federal investigators, though it's unclear whether current or former state officials would face criminal charges.

Critics of the department say senior political appointees are partly to blame. They say the appointees repeatedly shielded oil companies from enforcement actions that would have required better maintenance and oversight of facilities and pipelines.

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

One incident that has caught investigators' attention occurred in December 2001, when the department shifted responsibility for oil spill prevention and response on the North Slope.

Michele Brown, who was then the department's commissioner, took away that job from Susan Harvey, a civil servant, and gave it to a person appointed by Brown. Environmentalists have long claimed that Harvey's oversight of the North Slope was stripped because Alaska oil producers complained that her interpretation of the state's environmental rules was too harsh.

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

Harvey resigned from the department in March 2002, convinced, she said, that its leadership wouldn't allow her to enforce environmental laws against the oil industry.

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

Harvey often didn't see eye-to-eye with oil company officials. In October 2000, for example, Harvey's office prohibited BP's offshore Northstar field from producing oil when the Arctic ice was partially thawed, because the company had failed several drills testing its ability clean up a spill in those conditions.

Harvey says her staff also resisted efforts by Phillips, now part of ConocoPhillips, to extend the winter drilling season, due to concerns that companies wouldn't be able to clean a spill in warmer weather when the tundra was thawing.

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

Taylor has since retired from BP, though he still consults for them, he says.

Any convictions from this FBI investigation could influence what is seen as a favorable regulatory environment that the oil industry has enjoyed since the discovery of Prudhoe Bay itself in the 1960s.

Alaska officials have sought to protect the state's oil and mining industries from tough environmental regulation by the federal government. And the state's dependence on oil taxes means that policymakers are wary of imposing rules that they believe would hamper output.

A person familiar with the investigation said the U.S. attorney's office in Anchorage has issued a grand jury subpoena for documents related to the removal of Harvey and her staff.

Brady, in an interview, said the telephone call described by Taylor never happened. She said her group didn't attempt to remove Harvey from her job.

"No one would ever ask someone to be removed in a regulatory sense," Brady said.

Brown, who now heads the United Way chapter in Anchorage, didn't return several calls seeking comment.

A spokeswoman for the Alaska Department of Environmental Conservation acknowledged that current and former department officials have been interviewed by the FBI, but said the interviews were related to BP's oil spills on the North Slope and not about pressure put on staff by political appointees. Lynda Giguere, the spokeswoman, said state law forbids the department from discussing Susan Harvey or other personnel matters.

BP spokesman Daren Beaudo said the company wasn't aware of the federal investigation and declined to comment further. An ExxonMobil spokeswoman said the company didn't seek to have Harvey removed, nor has it been contacted by the FBI. A ConocoPhillips spokesman didn't a return a call seeking comment.

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

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

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

BP was upset over a report prepared by Coffman Engineers, a consulting firm hired by the state, on the oil giant's program to monitor and prevent pipeline corrosion. A final draft of Coffman's report, submitted to the Alaska environmental department in November 2001, said that BP's corrosion-monitoring program "makes it difficult to develop a qualitative understanding of the basis for their corrosion strategy."

Harvey said that BP officials approached her saying that the corrosion report was too negative and should be toned down. Harvey refused to change the report because it was produced by an outside consultant, not the department.

After she was stripped of her duties overseeing the North Slope, the department released a revised report from Coffman in which many of the negative comments were deleted. Coffman officials have said that they changed the report after discussing complaints with BP.

The Coffman reports have been subpoenaed as part of the federal investigation into the corrosion that caused the spills.

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