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BP agrees to penalty in North Slope spill lawsuit settlement

Lisa Demer

BP Exploration (Alaska) Inc. has agreed to pay a $25 million civil fine to settle a federal lawsuit over the largest-ever oil spill on Alaska's North Slope, according to a proposal filed in U.S. District Court in Anchorage on Tuesday.

The U.S. Department of Justice sued BP in 2009 on behalf of regulators over what it contended were water and air pollution violations from a March 2006 spill topping 200,000 gallons and a smaller spill that August. Both were at Prudhoe Bay.

The government says the penalty is sizable even considering BP's $7.2 billion in net profits for the first quarter of 2011.

The amount works out to the highest per-barrel penalty to date for an oil spill, the Justice Department said. It also tops the maximum provided for under the federal Clean Water Act, according to the Justice Department. That's because some of the claims fell under the Clean Air Act and pipeline safety laws. In all, 5,078 barrels spilled in the two incidents.

The public gets 30 days to weigh in on the proposed settlement, called a consent decree. It also must be approved by a federal judge.

The spills occurred because BP failed to inspect and maintain large transit lines carrying crude oil from processing centers to the trans-Alaska oil pipeline, investigators determined. The lines became corroded and leaked. The March spill remains the biggest ever on the North Slope.

"BP did cut corners in the maintenance of its pipeline," said U.S. Attorney Karen Loeffler of Anchorage. "This sends the message that if you are going to transport oil, you have to maintain the system in a way that does not result in environmental harm."

The settlement imposed "a tough penalty," said Cynthia Giles, of the U.S. Environmental Protection Agency.

After the spills, the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration ordered BP to make repairs and replace old pipe. When BP did not fully comply, the Justice Department sued, the EPA says.

"Companies like BP Alaska must understand that they can no longer afford to ignore, neglect or postpone the proper monitoring and maintenance of their pipelines," said Ignacia S. Moreno, an assistant U.S. Attorney General.

BP's troubles related to the spills aren't over. BP -- the biggest North Slope operator -- remains on probation in a federal criminal case that arose from the spills. A separate state civil suit is pending, which could lead to millions more in penalties.

Part of the proposed settlement requires BP to develop a system to address corrosion and other threats to its 1,600 miles of Prudhoe Bay pipelines. That will cost an estimated $60 million over three years, according to the Justice Department.

BP already has spent more than $500 million to replace the corroded transit lines, spokesman Steve Rinehart said.

"Since 2006, we've been rebuilding and strengthening this program," Rinehart said.

BP also must hire an independent contractor to monitor its Prudhoe Bay pipeline operations and report on whether it's complying with the consent decree.

In the settlement, BP does not admit any liability.

Government and BP lawyers were working to settle the federal suit even as they prepared for a trial. Both sides filed witness lists last week.

In 2007, the corporation pleaded guilty to a single misdemeanor count of violating the federal Clean Water Act. It was ordered to pay $20 million in penalties and sentenced to three years of probation. BP now is facing revocation of that probation. Prosecutors contend the company violated probation terms when a different pipeline carrying a mix of oil, water and natural gas from wells to the Lisburne Production Center ruptured in 2009. A hearing is set for September.

Scott West, who led the criminal investigation for EPA, said the settlement appears to be a good one, but doesn't make up for what he sees as an unjust resolution to the criminal case. Individuals should have been charged, not just the corporation, he said.

"It's a shame that individuals who cut those corners were not held accountable," West said.

Meanwhile, lawyers for the state say a state civil lawsuit is set for trial next year. It seeks penalties for violation of environmental law as well as recovery of revenue lost from production slowdowns caused by the 2006 leaks and subsequent repairs.

"Our matter is still plugging ahead," said Steven Mulder, an assistant attorney general.

Reach Lisa Demer at ldemer@adn.com or 257-4390.


By LISA DEMER
ldemer@adn.com