Ruling narrows state's case against BP for Slope oil spills

Elizabeth Bluemink

A state judge has made a key ruling that could spare BP paying hundreds of millions to the state due to suspended oil production in the aftermath of the company's major 2006 spills on the North Slope.

The state filed a civil lawsuit against BP asserting damages exceeding $1 billion for alleged lost state taxes and royalties and for negligence in maintaining pipelines at aging oil fields the company runs.

BP has already paid a smaller penalty for the spills in federal court -- $ 20 million -- for violating federal pollution laws. The company remains under federal probation in that case.

The March 2006 spill of roughly 212,000 gallons of crude was the largest-ever on the North Slope. The oil leaked slowly over five days from an almond-sized hole in a transit line before a BP worker noticed it. The leak resulted from severe corrosion in the line, which hadn't been maintained properly due to company negligence, state and federal attorneys said.

BP temporarily shut down part of the oil production at the big Prudhoe Bay field in August 2006 after a second spill from a different corroded pipeline. In its civil lawsuit filed last year, the state alleged BP owed it millions of dollars in taxes and royalties for the 35 million barrels that were not produced during the emergency shutdown.

The state court case is headed to trial in March 2012. So far, BP is saying that it owes the state only $1.7 million of the $1 billion the state sued for. BP agrees that it owes the $1.7 million due to penalties laid out in the state oil-spill laws.

Last Friday's ruling by state Superior Court Judge Peter Michalski struck down the state's demand for tax revenue from oil not produced during the partial Prudhoe Bay shutdown.

That narrows the scope of the case considerably. The state had earlier estimated in a court filing that the tax portion of the case could be 70 percent -- or $700 million -- of the total $1 billion the state says is owed.

Alaska Department of Law spokesman Bill McAllister said the state's attorneys are "reviewing the decision and considering our options." He declined to comment further.

BP Alaska spokesman Steve Rinehart would only say that the company is pleased with the ruling.

Michalski explained his ruling in a three-page order signed on Friday. He basically said that BP could not owe taxes for oil the company hadn't produced yet.

BP had earlier complained in court filings that the state's tax claim would result in the company being taxed twice for the same oil -- in court damages and for later production of the oil.

Michalski has not ruled on whether BP owes royalties -- believed to be the second-largest piece of the case, in terms of dollars -- for the oil that wasn't produced during the Prudhoe shutdown. Royalties are the state's share of production from the oil fields on state land.

Find Elizabeth Bluemink online at or call 257-4317.