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Financial Times: BP shuts down Alaska field to prevent spill

By Sheila McNulty in Houston and Tom Griggs in London
Published: August 7 2006 03:14 | Last updated: August 7 2006 07:38

BP on Sunday night said it was shutting down its Alaska oil field after tests mandated by regulators found ”severe corrosion” in a pipeline, a move which would take 400,000 barrels a day from the market.

The news sent the price of a barrel of Nymex crude up 1.6 per cent to $75.95.

The shutdown is embarrassing for the UK oil major, which has been attempting to portray a March spill – the largest ever at Prudhoe Bay – as a one-off and not indicative of the state of the Alaska field.

The spill followed an explosion at BP’s Texas refinery last year, which killed 15 and injured an estimated 500, prompting government officials to urge BP to review the safety culture across its US operations.

BP would not give any indication when it would reopen Prudhoe Bay, the largest field in the US, only that it would do so when it was “satisfied it could do so in a proper manner”.

While BP has, until now, defended its operations as safe, whistleblowers from within have complained through Chuck Hamel, their advocate, that BP’s US operations – particularly those in Alaska — are poorly maintained.

“We’ve been whistling in the dark and not paid attention to,” Mr Hamel said. “Now maybe we will be paid attention to.”

Both the Texas and Alaska accidents are under grand jury investigation for possible criminal action against BP and its executives.

The March spill also brought heightened scrutiny by regulators, who required BP to use high-tech tests to check its pipelines for corrosion.

BP said on Sunday that test results it received on August 4 “revealed 16 anomalies in 12 locations in an oil transit line,” leading to its decision to shut the field.

During follow-up inspections, BP discovered another leak and a spill of about five barrels of oil, which has been contained and is being cleaned up. It began a phased shutdown of the field on Sunday morning, a process that will take days to complete.

“We regret that it is necessary to take this action, and we apologise to the nation and the state of Alaska for the adverse impacts it will cause,” said Bob Malone, BP America’s chairman and president, who was recently appointed to improve the company’s US safety record.

“However, the discovery of this leak and the unexpected results of this most recent [test] have called into question the condition of the oil transit lines at Prudhoe Bay,” Mr Malone said. “We will not resume operation of the field until we and government regulators are satisfied that they can be operated safely and pose no threat to the environment.”

BP is identifying and mobilising additional resources from across Alaska and North America in order to speed inspection of remaining Prudhoe Bay oil transit lines.

Copyright The Financial Times Limited 2006

Related Article

Financial Times: US in veiled warning to BP over Alaska

By Sheila McNulty in New York

Published: July 27 2006 21:31 | Last updated: July 27 2006 21:31

The US government on Thursday expressed “significant concern’’ over BP’s limited progress in meeting corrective orders imposed on the UK oil group following the biggest-ever spill from a corroded pipeline at its Alaska field.

The Department of Transportation noted it has authority to impose a maximum fine of $1m per violation, which could be $10m if BP is seen to have failed to meet all 10 actions under the order.

In addition, the DoT “has discretion to refer violations to the attorney-general for civil enforcement”.

BP has said it will meet the order, though it has missed many of its deadlines, which could be considered violations by the DoT.

The veiled warning to BP came in a letter by Thomas Barrett, head of the DoT’s Pipeline and Hazardous Materials Safety Administration, in which he noted: “All enforcement options remain open.’’

The letter, a copy of which was obtained by the FT, was addressed to John Dingell, senior Democrat on the House committee on energy and commerce, who is monitoring BP.

BP’s spill followed a major explosion at a BP Texas refinery last year, which killed 15 people and injured an estimated 500, leading BP to appoint Bob Malone to turn round its US safety record.

The warning to BP co-incided with a House sub-committee hearing on Thursday on whether the DoT, which oversees high-stress pipelines, should also impose minimum operating standards on low-stress lines, such as the one that leaked.

“The situation with BP’s pipelines on the North Slope remains serious,’’ Mr Dingell told the FT.

“Global oil supplies are too tight to tolerate these kinds of problems.’’

Mr Barrett has just visited the Alaska field. “We came away with perspective on the engineering challenges BP faces, but also with significant concern about BP’s progress in measuring, planning for and addressing the sediment that had accumulated in its pipelines.’’

The sediment, which has been building for up to 16 years in some parts, leads to corrosion, which could cause other leaks.

The DoT has ordered the sludge be removed and lines checked with high-tech equipment for corrosion.

Mr Barrett said BP has mostly blamed Alyeska Pipeline for failing to clear all the lines, citing Alyeska’s concerns over BP pushing the sludge off its own field and into Alyeska’s pipeline, which runs out of Alaska.

Alyeska does not want the sludge to put its pipeline at risk.

BP insists the sludge is less than it had initially estimated, going from up to 12 inches of build-up in some parts to at most three. “The degree of inconsistency with BP’s earlier estimates is reason alone for a cautious approach,’’ Mr Barrett said.

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