BP cites progress one year after oil pipeline shutdown

Lawmakers still question company's response to concerns

Posted: Sunday, July 29, 2007

PRUDHOE BAY - It sits, still unused, on supports about 7 feet high and it lies 4 miles long.

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And depending on who's talking, this new section of transit pipeline on Prudhoe Bay - the nation's largest producing oil field - is either a daily reminder of past maintenance neglect or it represents a decades-long commitment to the future of North Slope oil production.

It's been a year since the pipeline shutdown and few have forgotten the event that sent oil prices inching toward $80 per barrel, stirred fears of escalating gas prices, and sent companies searching for other supply sources.

Some nerves remain frayed with state and federal lawmakers still question how BP PLC failed to adequately address concerns raised by its own employees, arguing that BP placed profits ahead of safety and proper care.

The company says it understands the criticisms remain fresh, but argues progress is strong with new accountability practices in place and a $250 million pipeline upgrade on schedule for completion next year.

"We are the operator and we take accountability for what happened," said Tony Brock, BP Exploration Alaska Inc.'s technical director.

"We'd like to be seen as a company in North America that is trusted and respected," he said. "I would say we've got a long way to go before we can make that request, so we will establish that over time."

BP has a 26 percent stake in the field it shares largely with ConocoPhillips and Exxon Mobil Corp., which hold 36 percent interest each.

Federal and state lawmakers, watchdog groups and Wall Street say they are pleased with progress, but still seek answers to what truly led to the leaks and a 10-week long partial shut down that began Aug. 6, 2006.

On that day, BP began reducing Prudhoe Bay operations after discovering its second leak in six months, ultimately cutting the field's daily production by about half. At the time, it was producing more than 400,000 barrels of oil per day, or about 8 percent of the nation's production.

By mid October the company had returned to the level before the shutdown. By then about 13 million barrels of oil had been kept from the market. It also contributed to nearly a 12.5 percent drop in average daily production for the entire North Slope that includes Prudhoe Bay.

Daily production average in the state's fiscal year, ending June 30, fell from a projected 845,000 to 740,000 barrels per day. Fields, however, are already in natural decline and production was also affected by poor weather at the Valdez Marine Terminal where tanks are loaded.

Since last year's shutdown, Brock says changes to BP's management structure have removed bureaucratic layers and helped the integrity of the company's operations. This means getting to problems quicker before they become serious and enhanced communication with front line employees.

David Totemoff, a 30-year employee who was in Prudhoe Bay when the first barrel of oil was being shipped in the summer of 1977, said the work environment has changed from last year when public criticism wore thin with some of the proud workforce.

"What we see now is a way better positive deal for all of the people working here," he said "We've had lots of ups and downs, but it's easier to ask questions and raise issues.

Additionally, BP chose to replace 16 miles of the transit line rather than continually doing patchwork.

So far, 8 miles have been built but none of it will be used until the entire line is complete. For now, bypass lines serve as temporary conduits to the field's gathering centers where oil, natural gas and water are separated before being shipped on an 800-mile trans-Alaskan pipeline to the Valdez Marine Terminal.

"I think by putting in new facilities, this is a good statement what we are doing is we are going to be here producing oil for another 50 years," said James Fausett, a 25-year employee who serves as BP's area manager for Prudhoe Bay.

Upgrades and management changes are half the battle for BP.

Federal and state lawmakers still are dogging the company and that scrutiny could spill over to the company's partners, Exxon Mobil Corp. and Conoco Phillips.

In recent committee hearings, legislators in Alaska and Washington, D.C., have questioned whether cost-cutting measures were a higher priority than maintenance and safety.

"I'm very, very unhappy; in fact, I'm downright mad," said state Rep. Carl Gatto, a Republican who co-chairs the House Resources Committee. "Is this neglect? Absolutely. Does it go all the way to criminal? I have trouble with that, but I don't have trouble saying it's egregious."

Gatto said he has requested more information from BP, Exxon and ConocoPhillips about the decisions made behind the lax maintenance practices that led to the leaks.

He and other lawmakers also are struggling to decide whether BP should be allowed to deduct a portion of the $250 million new pipeline costs under the state's new petroleum tax laws. A bill to prohibit deductions on repairs to poorly maintained facilities is currently stuck in an Alaska state House committee.

Failure thus far to pass the measure has bill backers, including Republican Gov. Sarah Palin, and critics questioning the appearance of a longtime cozy relationship with oil companies.

For now, the state is assembling a team of inspectors and engineers dedicated strictly to oversight; it also has set aside $5 million to inspect all of the state's oil and gas facilities over the next several years.

"I won't kid you; we've got a lot of work to do, in my opinion, to determine the focus and what some of the oversight gaps and risks of those gaps are," said Marty Rutherford, the state's deputy commissioner for the department of natural resources. "It's an important message for the nation to be comfortable with what we are doing."



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