BP to pay $25M for '06 spills in Alaska

ANCHORAGE, Alaska -- BP's subsidiary in Alaska will pay a $25 million civil penalty under a settlement announced Tuesday that comes five years after more than 200,000 gallons of crude oil spilled from company pipelines on the North Slope.

The penalty is the largest per-barrel civil penalty assessed, exceeding the statutory maximum because the settlement, resolves claims other than the spill, according to the EPA. The settlement also calls for BP Exploration Alaska Inc. to install a system-wide pipeline integrity management program.

"This penalty should serve as a wake-up call to all pipeline operators that they will be held accountable for the safety of their operations and their compliance with the Clean Water Act, the Clean Air Act and the pipeline safety laws," Assistant U.S. Attorney Ignacia S. Moreno said in a conference call with reporters.

U.S. Attorney for Alaska Karen Loeffler said the penalty underlines the seriousness of BP's conduct. She said BP Alaska admitted that it cut corners and failed to do what was required to adequately maintain its pipelines.

BP Alaska spokesman Steve Rinehart in emails acknowledged the settlement terms, including an independent contractor to monitor operations at the vast Prudhoe Bay field. He said the penalty was not a per-barrel assessment.

"A penalty was agreed upon," he said. "We believe the terms of the agreement are fair."

A March 2006 leak in a transit line, also called a feeder line, between a gathering center and a pump station for the trans-Alaska oil pipeline in March accounted for most of the oil spilled, about 212,000 gallons. Oil from the spill reached a lake.

BP four months later had begun inspecting pipelines with "smart pigs," devices inserted to detect abnormalities, when a second leak occurred. The tiny second leak allowed about 1,000 gallons more to spill from another transit line.

With data in hand indicating 16 "anomalies," or other possible corrosive spots, BP shut down part of the massive Prudhoe Bay field.

The partial shutdown brought an economic chill throughout the state and led then-Gov. Frank Murkowski to temporarily freeze hiring until the effects of the interruption on the state budget would be known.

Cynthia Giles, assistant administrator for EPA's Office of Enforcement and Compliance Assurance, said BP in 2007 pleaded guilty to criminal charges related to the spills and was ordered to pay $20 million, including $12 million in criminal fines.

Cynthia Quarterman, administrator for the Department of Transportation's Pipeline and Hazardous Materials Safety Administration, said her agency found serious safety problems relating to internal corrosion on the pipelines and ordered BP to correct those problems. BP had a year to address the problems but its willful failure to do so led to filing civil litigation against the company, she said.

The settlement requires BP Alaska to develop a system-wide program to manage pipeline integrity for the company's 1,600 miles of pipeline on the North Slope based on PHMSA's integrity management program. That cost is estimated at $60 million.

BP will be required to compile information on pipelines and what they carry, ranking them by highest risk. It will be required to provide an electric Web portal and post reports. The information will be public, Quarterman said.

The independent monitor will confirm that BP is complying with requirements of the settlement, Giles said.

"We are not going to just take BP at its word," Giles said.

BP's Rinehart said that since 2006, the company has made significant improvements in pipeline management.

"This includes more staff, more spending, newer technology, more frequent inspections, and fewer leaks," he said.

The company completely replaced Prudhoe Bay oil transit lines and added modern leak detection and anti-corrosion systems at a cost of about $500 million by the end of 2008, he said.

"We are renovating other pipelines to make them "piggable," he said.

Most of the compliance requirements that are enforceable under the consent decree are met under current BP practices, Rinehart said.

BP operates the Prudhoe Bay field but it's co-owned with ConocoPhillips, Exxon Mobil and Chevron.

The agreement was negotiated with the concurrence of the other working interest owners, Rinehart said, but he declined to discuss any financial arrangements with the other owners.