BP admits budget a factor in Alaska spill

WASHINGTON Wed May 16, 2007 10:24pm BST

President of BP Exploration (Alaska) Steve Marshall holds up a photograph of an oil spill during a Senate Energy Committee hearing on Capitol Hill in Washington September 12, 2006. Congressional investigators have turned up a ''mountain'' of evidence showing that severe cost cutting at BP's Prudhoe Bay oil field in Alaska led to the worst oil spill on the North Slope last March, the chairman of the subcommittee investigating the spill said on Wednesday. REUTERS/Jim Young

President of BP Exploration (Alaska) Steve Marshall holds up a photograph of an oil spill during a Senate Energy Committee hearing on Capitol Hill in Washington September 12, 2006. Congressional investigators have turned up a ''mountain'' of evidence showing that severe cost cutting at BP's Prudhoe Bay oil field in Alaska led to the worst oil spill on the North Slope last March, the chairman of the subcommittee investigating the spill said on Wednesday.

Credit: Reuters/Jim Young

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WASHINGTON (Reuters) - "Extreme budget pressures" from BP (BP.L) headquarters hindered pipeline maintenance at the Prudhoe Bay oil field in Alaska, leading to the worst onshore oil spill in the state's history last year, a senior company official told U.S. lawmakers on Wednesday.

The admission came after members of the House Energy Committee said they had a "mountain" of evidence to back up their claim that cost cuts were to blame for the 200,000 gallon spill in March 2006, which temporarily slashed production from the biggest U.S. oilfield.

"There were extreme budget pressures at Prudhoe Bay," said BP America CEO Bob Malone. "We recognize that those budget pressures put our employees in a very difficult place."

BP officials had previously told congressional panels that cost cutting was not a factor behind the spill, but consultant reports commissioned by BP contradicted some of those claims.

The U.S. government's pipeline regulator said it was "highly likely" to fine the London-based oil major for its poor maintenance practices. The Department of Justice is also investigating the spill for potential criminal liability.

The incident has further shaken BP's image after a deadly explosion at a Texas oil refinery in March 2005. The company's critics have blamed cost cuts imposed after BP bought two of its rivals and poor management oversight for the problems.

"People no longer challenge and think," Malone said, describing the effects of BP's old cost cutting culture. "Not only could (this culture affect maintenance), we believe it did."

DISAGREEABLE MEASURES

Government investigators looking into the Alaska spill criticized BP for failing to use devices called "pigs" to clean and inspect the inside of its oil transit pipelines at the Prudhoe Bay field in Alaska, allowing corrosive bacteria to eat away at their insides.

Committee members said BP e-mails and documents turned over to staff showed that heavy cost cutting by managers trying to comply with corporate directives to cut costs as output declined at the aging field.

Corrosion-monitoring efforts like smart-pigging were reduced or put on hold even as BP reaped more than $106 billion (54 billion pounds) in after-tax profits between 1999 and 2006, Rep. Bart Stupak, the Michigan Democrat who chairs the subcommittee said.

In an October 2001 e-mail, Richard Woollam, former top corrosion manager at BP Alaska, wrote: "We are under huge budgetary pressure for the last quarter of the year and therefore we have to take some rather disagreeable measures."

SHADES OF TEXAS CITY

Committee members sought to portray the cost cutting in Alaska as similar to the management culture at BP's Texas City, Texas refinery, where 15 workers were killed in a 2005 explosion.

Carolyn Merritt, chairman of the U.S. Chemical Safety Board, testified "there are striking similarities" between the two incidents.

"Most if not all of the seven root causes that BP consultants identified for the Prudhoe Bay incidents have strong echoes in Texas City," Merritt said.

Despite Malone backing down from BP's previous insistence that cost cutting was not a problem in Alaska, committee members noted BP continued to delay handing over crucial documents.

Stupak noted that 800 pages of e-mails and other BP documents were only turned over to committee staff by BP's attorney Vincent and Elkins Tuesday night.

"I think we are headed for another hearing," Stupak said.

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