Federal regulators, BP work on settlement for '06 spills

Wesley LoyPetroleum News

Lawyers for BP and federal regulators appear to be working hard to settle a civil lawsuit the government brought against the oil company in connection with the 2006 pipeline spills in the Prudhoe Bay oil field.

In papers BP and government lawyers filed jointly recently in U.S. District Court in Anchorage, the two sides said they had "conducted extensive settlement discussions including holding four full-day in-person meetings and exchanging several drafts of various settlement constructs."

The lawyers asked a judge to extend certain deadlines related to expert witness disclosure and discovery until around the end of the year.

This would allow the parties to continue to "focus ... attentions on settlement discussions and to conserve litigant resources," the joint motion said.

District Judge John Sedwick granted the motion this month.

Nature of federal lawsuit

The U.S. Department of Justice on March 31, 2009, sued BP on behalf of the U.S. Environmental Protection Agency and federal pipeline regulators.

The suit seeks millions of dollars in fines for alleged water and air pollution violations, as well as failure to meet deadlines in a corrective action order from the Pipeline and Hazardous Materials Safety Administration.

BP's lawyers have denied many of the federal claims, and say some of the deadlines in the corrective action order were impossible to meet.

The suit was fallout from a 212,252-gallon oil spill -- the largest ever on the North Slope -- in March 2006, and a much smaller spill the following August.

The second spill forced a partial shutdown of the BP-run Prudhoe Bay, briefly rattling world oil markets and stoking congressional and regulatory criticism of BP's upkeep of corroded transit lines that funnel sales-grade crude into the trans-Alaska Pipeline.

BP's Alaska subsidiary in late 2007 was sentenced to three years probation and ordered to pay $20 million in penalties after the company pleaded guilty to a federal environmental misdemeanor.

The plea deal wrapped up criminal prosecution of BP, for both the federal and state governments, in connection with the 2006 spills.

The State of Alaska's case

Now BP is defending the civil suit, as well as a civil case filed by the state.

The state suit, pending in Superior Court in Anchorage, is aimed at collecting fines as well as lost oil revenue resulting from production slowdowns caused by the leaks and subsequent pipeline repairs.

The state is seeking $1 billion or more in back taxes and other collections.

The state cites a production shortfall of at least 35 million barrels of oil and natural gas liquids from the Prudhoe Bay and Milne Point fields as a result of the spills and ensuing shut-ins. It's seeking to collect compensatory and punitive damages including "lost" taxes and royalties.

The state's lawyers accuse BP of knowingly neglecting corroded pipelines in the interest of cutting costs, with the suit citing "outrageous" or "reckless" conduct.

BP's lawyer argued the state is improperly pursuing tort claims beyond merely claims under the relevant contracts, chiefly the oil field leases. BP has asked Superior Court Judge Peter Michalski to dismiss much of the state's case.

BP also questions the idea of "lost" revenue, noting that the oil remained in the reservoirs for production later. The state shouldn't be allowed to collect taxes and royalties twice -- once as damages in the lawsuit and again when the oil is produced, the company's lawyers have argued.

Petroleum News