BP fined $20 million for Alaska oil spills

Posted: Friday, October 26, 2007

ANCHORAGE - BP America will pay $20 million and plead guilty to a misdemeanor violation of the federal Clean Water Act for a crude spill on Alaska's oil-rich North Slope, Justice Department officials said Thursday.

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The company's long-standing pattern of cost-cutting and mismanagement at Prudhoe Bay, the nation's largest oil field, was a major cause of the 200,000-gallon spill in March 2006, U.S. Attorney Nelson Cohen said in a news conference.

"The company failed to invest enough money, in time and people, to maintain the integrity of the pipeline," Cohen said. The spill was the largest ever in the North Slope fields, which border the Arctic Ocean.

The agreement was one of several struck between the London-based oil and gas giant and federal investigators in the resolution of probes across the U.S.

"These agreements are an admission that, in these instances, our operations failed to meet our own standards and the requirements of the law. For that, we apologize," BP America Chairman and President Bob Malone said in statement.

In Alaska, federal attorneys said the company has admitted its failure to adequately monitor and clean its transit pipelines despite the challenging operating conditions in the Arctic oil fields it co-owns with Exxon Mobil Corp. and ConocoPhillips. BP operates the fields on behalf of all the owners.

"BP cut corners with disastrous consequences and is being held to account," Acting U.S. Attorney General Ronald J. Tempas for the Environment and Natural Resources Division said in a statement.

Calls to Exxon and ConocoPhillips were not immediately returned.

BP agreed to a $12 million federal fine and three years probation. Another $8 million will be split evenly between the state of Alaska and the National Fish and Wildlife Foundation for Arctic environmental research. The fine is the largest ever levied for an environmental misdemeanor in Alaska, Cohen said.

It takes into account the money BP should have spent to properly maintain the pipeline, as well as a prior felony against the company when a contractor illegally dumped waste oil and other toxic substances at the North Slope's Endicott field in 1999, Cohen said.

Using interviews with scores of North Slope employees and thousands of documents provided by the company, investigators traced the crude oil spill in March 2006 to poor maintenance of a transit pipeline, Cohen said.

The pipe was corroded, with a hole the size of an almond caused by bacteria living beneath a build-up of sludge, according to Cohen. The microbes produce an acid that eats away at the pipe. The sludge, which BP should have removed, protects them from being swept away by the flow of oil, Cohen said.

The line was one of several that carry newly drawn crude to a production center that separates it from water and gas. From there it goes into the trans-Alaska oil pipeline, an 800-mile trunk that runs from the North Slope to the tanker port of Valdez in south-central Alaska.

The incident was followed in August 2006 with a 1,000-gallon oil spill, forcing BP Exploration Alaska, Inc. to temporarily halve its Prudhoe Bay production to less than 200,000 gallons a day.

Justice officials said BP will not be charged for the August incident because it has cooperated fully with the investigation.

The state is still pursuing a civil case against the company, said Attorney General Talis Colberg. He would not give further details.

In Juneau, small groups of lawmakers gathered in the hallways of the Capitol, discussing the news of the fines.

State lawmakers are considering a bill that would prevent BP from taking tax deductions on a portion of the pipeline replacement costs, which could hit up to $260 million.

"Bad maintenance or lack of maintenance should not be passed on to the citizens of Alaska," said Rep. Kurt Olson, House Oil and Gas Chairman, R-Soldotna. "If they take a deduction, we are paying for it, and that's what we are trying to fix."

Gov. Sarah Palin is pushing for a bill that would raise oil net profits tax. The bill features a component that would prohibit tax deductions related to poor maintenance or product of an unplanned field shutdown.

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