State sets up new office to monitor oil infrastructure

10-member staff to oversee permitting, routine maintenance

Posted: Thursday, April 19, 2007

Alaska on Wednesday established a new office to provide oversight of its oil field infrastructure, just months after corrosion was blamed for the partial shutdown of Prudhoe Bay.

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Gov. Sarah Palin signed the administrative order creating the Petroleum Systems Integrity Office, whose 10 staff members will oversee the entire pipeline process, from permitting to routine maintenance. Department of Natural Resources Commissioner Tom Irwin will lead the new effort.

Three new inspectors and a manager will be hired to monitor the oil industry's maintenance practices through site visits and review of maintenance records. Six staffers already in place manage the permitting process.

"We are not going to tolerate corrosion," Palin said, calling pipelines the state's "economic lifelines."

"For the first time money and personnel will be set aside to specifically to make sure the integrity of our lines is monitored. The state's commitment begins today," she said.

Corrosion was blamed for a March 2006 leak in BP PLC lines at Prudhoe Bay, where more than 200,000 gallons of oil leaked.

But pipeline maintenance didn't become a national issue until last August, when BP partially shut down Prudhoe Bay, the nation's largest oil field, after discovering a small leak and fears of corrosion. BP operates the field on behalf of itself and other producers, including ConocoPhillips Co. and Exxon Mobil Corp.

BP is now spending about $250 million to replace 16 miles of pipeline in Prudhoe Bay.

Before the shut down, the state relied on the producers to monitor maintenance without state oversight. The Prudhoe Bay incidents changed that, Irwin said.

"History has showed us that didn't work," Irwin said. "It's the way it should work but it didn't."

BP spokesman Steve Rinehart said the company still is reviewing Palin's administrative order.

"BP's practice is to work closely with government regulators and agencies," he said. "We will do so with the new Petroleum Systems Integrity Office."

The state must still hire inspectors, draft appropriate regulations, and determine new penalties for violations. No timetable was announced.

Also on Wednesday, Palin urged lawmakers to pick up the pace on two slow-moving bills that would prevent oil companies from deducting facility maintenance or repair costs that may be the product of neglect.

State Sen. Tom Wagoner, R-Kenai, and Rep. Kurt Olson, R-Soldotna, filed the bills more than two months ago. Within days of their introduction, BP told lawmakers it plans to take tax deductions and credits for repair work to corroded pipes on the North Slope.

Lawmakers estimate potential deductions could cost the state up to $116 million in tax revenue.

Even as lawmakers have prioritized Palin's bill to build a natural gas pipeline, she said lawmakers have had plenty of time to address these two measures.

"The people of Alaska should not be held responsible for $116 million worth of credit toward a $250 million capital project that was caused by bad maintenance," Wagoner said. "That is the situation."

Olson's bill has been referred to a subcommittee while the House Resources Committee has spent the last two weeks to the natural gas pipeline bill. Wagoner's bill had a hearing scheduled late Wednesday in the Senate Resources Committee.

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