BP set to plead in Prudhoe Bay pipeline case

ANCHORAGE, Alaska Thu Nov 29, 2007 12:33pm GMT

Undated file photo of the BP logo. REUTERS/Toby Melville

Undated file photo of the BP logo.

Credit: Reuters/Toby Melville

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ANCHORAGE, Alaska (Reuters) - BP (BP.L) unit BP Exploration (Alaska) Inc is scheduled to plead guilty Thursday to violating federal environmental law and will seek court approval of a $20 million (9.6 million pound) fine for a March 2006 oil spill from a corroded Prudhoe Bay pipeline that prosecutors said was sorely neglected for years.

The plea deal for the 200,000-gallon oil spill at Prudhoe Bay, the largest on record for the North Slope, is part of a wider settlement agreement announced last month by the U.S. Justice Department and the London-based oil giant.

That settlement encompasses federal charges related to a fatal 2005 refinery fire in Texas and propane-market manipulations by BP futures traders as well as the Alaska matters.

Thursday's plea and sentencing hearing in U.S. District Court in Alaska is intended to close the criminal case against BP for last year's Prudhoe Bay disaster, which eventually led to a partial shutdown of the nation's biggest oil field and a resulting shock to West Coast oil supplies.

Relentless cost-cutting by BP caused the company to avoid running maintenance devices in its Prudhoe Bay transit lines since 1998 -- even though BP was well aware that an increasing amount of sediment-heavy viscous oil was flowing through those lines, and even though standard industry practice is to run such cleaning "pigs" in pipeline as often as monthly, said a memorandum filed Monday by the Justice Department.

Accompanying the government's memorandum were newly released photographs of a cross-section of the corroded pipe showing the half a foot of sediment that settled there over the years that BP failed to do any cleaning.

"By any measure, waiting a period of eight years to run these devices was negligent in light of the conditions known to BPXA," the government's sentencing memorandum said.

"Cost-cutting was the emphasis for operation of the Greater Prudhoe Bay Unit by BPXA for many years without regard for the ever-increasing costs of running an aging oil field."

The $20 million fine for a single misdemeanour violation of the Clean Water Act is high, but justified in part because of BP's past felony record, the government said.

In 1999, the company pleaded guilty to illegally dumping hazardous waste on the North Slope, and in 2000 it paid $7 million in criminal and civil penalties and was put on five years' probation.

BP was given a pass on the spill that occurred five months later on the eastern side of the Prudhoe Bay unit, a much-smaller leak also caused by pipeline corrosion. Because of BP's "quick response and containment" of that 1,000-gallon August 2006 oil leak, as well as the company's cooperation with the government investigation, no criminal charge was lodged against BP for the second spill, the Justice Department's memorandum said.

The second spill caused much less environmental harm than the earlier event, but it was the event that prompted a partial shutdown of Prudhoe Bay, the Justice Department said.

BP also argued in support of the plea deal. The company, in its own sentencing memorandum filed last week, admitted to negligence and agreed that its past criminal history justified a stiff fine.

But BP said it also deserved credit for a quick and comprehensive response to the corrosion-caused leaks.

BP turned over almost 20 million pages of documents to the government, handed in a segment of the corroded pipe and encouraged employees to cooperate with the investigation, the company's memorandum said.

There was no injury or damage to people, wildlife or fish, BP's memorandum said. And BP said it has launched "significant efforts" to improve its corrosion control and the oil-transit lines.

While the settlement seeks to resolve both federal and state criminal penalties, an assessment of civil penalties by the state is still pending.

Major partners in the BP-operated Prudhoe Bay field are ConocoPhillips (COP.N) and Exxon Mobil (XOM.N).

(Editing by Christian Wiessner)

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