State, feds seek hefty fines for BP Alaska's 2006 spill

Wesley LoyPetroleum News

The state and federal governments each are suing BP Alaska seeking potentially huge fines and other collections against the company in connection with disastrous oil spills in the Prudhoe Bay oil field in 2006.

The civil actions announced Tuesday follow up on BP Exploration (Alaska) Inc.'s guilty plea in late 2007 to a federal pollution misdemeanor. A federal judge put the company on probation for three years and ordered more than $20 million in penalties for the crime.

A 49-page state civil lawsuit seeks back taxes to compensate the state for the interruption in oil flow the spills caused.

The federal suit, which the U.S. Department of Justice filed on behalf of the Environmental Protection Agency and pipeline regulators, focuses on violations of pollution laws.

BP Alaska spokesman Steve Rinehart said the company would have "no comment on the legal issues."

"We have taken significant steps to ensure that our operations are safe and reliable, and protect the environment," Rinehart said. "Those include building a new $500 million system of oil transit lines at Prudhoe Bay."

The Justice Department's 23-page civil suit, filed in U.S. District Court in Anchorage, alleges BP violated the Clean Water Act when its corroded Prudhoe Bay pipelines let loose two oil spills, one of which was the largest ever seen on the North Slope at more than 212,000 gallons.

Justice Department lawyers also contend BP violated the Clean Air Act by improperly stripping asbestos-laden material off insulated pipelines during repair and testing operations after the spills.

Among penalties the government is seeking is up to $1,100 per barrel of oil discharged, or more than $5 million for the major spill in March 2006. The penalties could be four times that amount if the spill "was the result of gross negligence or willful misconduct," the lawsuit says.

The state lawsuit, filed in Superior Court in Anchorage, seeks not only penalties for environmental violations, but also "just compensation for state revenues lost" as a result of BP's "negligent corrosion prevention practices," a state press release said.

Because the spills and subsequent pipeline replacement work reduced output from Prudhoe and the neighboring Milne Point oil field, the state lost oil taxes and other revenue it otherwise would have collected in 2006 through last year, the release said.

The suit asserts the production shortfall was at least 35 million barrels of crude oil and natural gas liquids.

In 1995, the year before the spills, Prudhoe Bay produced 140 million barrels of oil and gas liquids for the year, state records show.

BP is liable to the state for a "base civil penalty" of $8 per gallon of spilled oil, or nearly $1.7 million for the March 2006 spill, officially estimated at 212,252 gallons.

But state lawyers are seeking four times the base penalty, or almost $6.8 million, because the spill was "caused by gross negligence" or because BP didn't follow its oil spill prevention and cleanup plan.

The suit contends that BP knew major oil pipes were susceptible to serious corrosion, which can eat holes in steel pipe and allow oil to spill, yet engaged in "destructive cost cutting" while booking billions of dollars in profits on Prudhoe oil.

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

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PDF: The federal complaint
BP fined