Suit Seeks Hundreds of Millions From BP

Published on
by
the Anchorage Daily News (Alaska)

Suit Seeks Hundreds of Millions From BP

LAWSUIT: Alaska says cost cutting led to spills, lost revenue.

by
Wesley Loy

This BP-issued photo shows pipes at the oil giant's production facility in Prudhoe Bay, Alaska. The United States has filed a civil law suit against BP's Alaskan subsidiary BPXA, following pipeline leaks which caused crude oil to spill into Alaska's seas in 2006. (AFP/HO/BP/File)

The state is aiming to collect "several hundred million dollars" from BP as compensation for pipeline leaks in 2006 that hobbled North Slope oil production and cut into state revenue, a state lawyer said.

The claim is the heart of a meticulous and highly technical lawsuit the state filed Tuesday against BP.

The federal government this week filed its own suit against the London-based company alleging violations of federal pollution laws.

While the state suit also is seeking millions of dollars in penalties for environmental infractions, the bulk of the 49-page suit attempts to establish the state's claim to "lost" oil revenue by showing BP's negligence in maintaining oil pipelines in Prudhoe Bay and neighboring oil fields.

The suit offers new glimpses at efforts among workers inside BP to cope with company cost cutting, attempting to stave off disaster with pipelines the company knew to be in chronically poor condition.

The 2006 pipeline leaks -- one of which dumped a North Slope record 212,252 gallons of crude oil onto 2 acres of tundra and a frozen lake -- drew intense scrutiny for BP from Congress and federal and state regulators.

In late 2007 the company's Alaska subsidiary pleaded guilty to a federal pollution crime.

The state lawsuit argues that, because BP's skimpy inspection and maintenance habits forced emergency pipeline shutdowns, the state suffered significant tax and royalty revenue losses from 2006 through 2008.

UNSPECIFIED AMOUNT

The suit doesn't specify a dollar amount the state is seeking in terms of this "lost revenue," but it estimates that Slope production was cut by "at least 35 million barrels" because of the spills and emergency pipeline repairs and replacements. Total Slope production in 2005, the year before the spills, was 332 million barrels.

As a result, the state likely was shortchanged by several hundred million dollars, said Steve Mulder, a state assistant attorney general.

But if the state learns, as the lawsuit proceeds, that the production loss was greater than 35 million barrels, the damages claim could top $1 billion, Mulder said.

BP spokesman Steve Rinehart said his company had no comment on the state's effort to collect the oil revenue.

The company has "taken significant steps to ensure that our operations are safe and reliable, and protect the environment," Rinehart said. They include construction of a $500 million system of new pipes in Prudhoe Bay, he said.

BP runs Prudhoe, the nation's largest oil field, on behalf of itself and other owners Exxon Mobil, Conoco Phillips and Chevron.

INTERNAL COMMUNICATIONS

The state's lawsuit assembles BP internal communications and other documents to argue the company knew some of its key pipelines needed attention, yet the company at times conducted only cursory inspections while pursing "aggressive cost cutting."

From the 1990s until the 2006 spills, the suit says, the company's goal was to maintain "flat lifting costs," meaning it wanted to keep the cost of producing each barrel of oil the same as it had been in previous years, when production levels were higher and costs could be spread over a greater number of barrels.

The cost cutting resulted in a budget reduction for BP's corrosion control unit, the suit says.

That was unwise considering that many North Slope pipes date to the 1970s, the suit says.

It cites a May 2002 statement from a "top official" in the corrosion unit as saying that sticking to flat lifting costs was unrealistic.

The suit also cites an "internal audit" done nearly a year before the major spill of March 2006 as saying BP's cost control strategy "is driving behaviors counterproductive to ensuring integrity and the delivery of effective corrosion management systems."

A key industry tool for maintaining pipelines is called a pig -- a device that slides through a pipeline to either clean it or test for corroded spots where holes can develop.

The last time BP pigged the major western Prudhoe pipeline that leaked in March 2006 was eight years earlier, in 1998, the state lawsuit notes.

Inspections later found the line was badly corroded, and a 6-inch layer of sludge had built up in the bottom of the pipe, the suit says.

OTHER MAINTENANCE QUESTIONS

The suit also argued BP poorly maintained pipes in two other oil fields:

• Shortly after the March 2006 spill in Prudhoe, BP was forced to shut down a major pipeline in the Lisburne field and ultimately replace a 5-mile stretch of it.

The actions "substantially increased the loss of production and resulting injury to the state" because they were done on an emergency basis, the lawsuit contends.

The Lisburne emergency could have been avoided, the suit says, as BP "knew of significant corrosion problems with this line" since 2002.

In January 2006, the suit says, a BP employee described the condition of the Lisburne line as "desperate."

• BP made another emergency pipeline shutdown in the Milne Point field following the March 2006 spill, the lawsuit says.

A pig run a few months later found extensive corrosion, including three spots where the steel pipe wall was nearly eaten through, the suit says.

BP knew of the line's problems at least as early as 2001, and by the following year it was "reported to be badly corroded," the lawsuit contends.

In March 2002, BP's corrosion control unit recommended extensive inspection and monitoring to make Milne "the first North Slope field to avoid the expensive denial and panic stages of the corrosion process."

A month later, the suit says, the company rejected measures such as pig runs because it had not budgeted money to replace the line even if a serious problem was found.

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