BP and Alaska: Best frenemies?

Jill Burke

From casual coffeehouse conversations to contentious congressional hearings and vengeful presidential addresses, the reputation of London-based oil giant BP is taking a royal beating. Since the oil started hitting the water in the Gulf of Mexico, BP has morphed into public enemy number one.

It's no surprise that distrust of the company responsible for what President Barack Obama has called "the worst environmental disaster America has ever faced" is on an exponential growth spurt. Nor is it shocking that policymakers at all levels are calling for financial blood to atone for the oil smear that's fouled coastlines, livelihoods and tempers alike. Yet taken too far, that national outcry is likely to hurt Alaska and further strain its unusual love-hate relationship with its well-to-do foreign bedfellow.

Like it or not, Alaskans need the nation's archenemy.

BP's success is our success. Its failures cause us pain. The state lost revenue when the trans-Alaska oil pipeline shut down in 2006 following a large spill for which BP was responsible. Still, BP is a valuable resource in its own right, one that Alaskans have come to rely on for a steady flow of money to fund roads, schools, cops and more. Oil and gas account for nearly 90 percent of the state's revenue. In 2008, state and federal governments extracted nearly $4 billion from BP's Alaska operations in taxes and royalty payments, $2.3 billion of which went to Alaska by way of the state's production tax known as ACES (Alaska's Clear and Equitable Share), according to BP spokesperson Steve Rinehart.

Perhaps that's why Alaska's policymakers and industry regulators are loath to answer directly whether BP is trustworthy. The seated politicans we spoke with answered without a simple "yes" or "no." Instead, they tended to point to regulatory frameworks and other checks and balances that are designed to catch problems and keep all operators -- not just BP -- on track.

"We expect every operator to act responsibly and in accordance with the law," Gov. Sean Parnell said Thursday afer a bill signing event in Palmer. "If they are not following the law then they should be punished in accordance with the law."

Because of lessons learned during the Exxon Valdez oil spill, Alaska's spill response and prevention effort is "unsurpassed in this country," according to Parnell. Still, he said the state is re-evaluating whether the current regulatory framework, in light of the Gulf spill, is sufficient to safeguard Alaska's people, environment and jobs.

BP sauntered into the state decades ago as a stately foreigner -- a curiously distinct presence with a calculating eye on our rich petroleum resources and a knack for wooing the citizenry. To BP, Alaska's North Slope was the Iran of the Americas, full of promise and wealth. Having left Iran after that country moved to nationalize its oil fields, for BP, entering Alaska was about survival, and the company's appearance here was a breath of fresh air to a newly minted state that felt the federal government wasn't doing enough to invest in the Last Frontier.

Decades later, BP contributes to the injection of cash Alaskans rely on to run the state, and although it leaves industry regulators and some citizens nervous about a corporate culture that has generated a laundry list of environmental lapses, it is a company with which Alaska intends to keep doing business. BP and the state appear locked in a relationship born of necessity, and one in which troublesome traits can and will be overlooked.

"BP is generally trusted still in Alaska, though that trust is very, very grudging," observed Stephen Haycox, a history professor at the University of Alaska Anchorage who has studied the industry for years.

BP's reputation in Alaska started to tarnish long before the spill in the Gulf of Mexico, Haycox said. The 2006 spill on the North Slope "really damaged" the company's credibility. Yet Alaskans, he pointed out, are between a rock and a hard place -- "dependent on oil drilling and pumping and all the mess that inevitably entails, and wanting the Alaska environment and Alaska workers respected and protected."

For Alaska's policymakers, it's a sticky situation. They must appear forceful in defending Alaska's interests, but must also be careful to avoid alienating a source of state wealth.

"My target is not to worry about their image, but to ensure the work they are doing is the safest possible," said U.S. Sen. Mark Begich, D-Alaska, in a broad sentiment he expressed Wednesday about all oil and gas operators in Alaska.

"Disappointed" over BP's 2006 North Slope oil spill, U.S. Sen. Lisa Murkowski has since increased her scrutiny of the company's operations, said Robert Dillon, communications director for the Senate Energy and Natural Resources Committee, on which Murkowski sits. "BP has taken steps to clean up its act in Alaska and Sen. Murkowski will remain vigilant in ensuring they keep that promise to protect Alaska," he said.

BP is an oil industry Goliath in Alaska. It operates upwards of 70 wells, operates the pipelines and infrastructure at Prudhoe Bay, is the majority owner of the trans-Alaska pipeline, and is a major partner in a project to build a new natural gas pipeline. It's also working to bring a new billion-dollar drilling operation into production in the Beaufort Sea, with hopes of tapping an offshore oil field large enough to offset declining production among the North Slope's mature fields and prolong the life of the trans-Alaska pipeline. BP employs 2,000 people in the state, most of them Alaskans. Several thousand others are employed by companies that provide support services for its operations, and BP also has a hefty philanthropic presence in the state. In 2008, it contributed $10 million to nonprofit and educational organizations.

But there are concerns that BP-generated money and job opportunities may dwindle as the company works to recover from the Gulf oil spill's finincial sinkhole.

With Alaska losing 1,500 support industry jobs in 2009 -- albeit largely attributable to a downturn in the economy -- a general anxiety about BP's future is spreading, heightened by fears over impacts to Alaska from the Gulf spill, said Paul Laird, general manager for the Alaska Support Industry Alliance. "People are seriously concerned," he said.

People are worried regulatory consequences and federal clampdowns, on top of Alaska's tax rates, will dissuade investment in developing new fields, Laird said. But he and others believe fears BP will choose to cut corners on maintenance and safety to save money in the wake of the Gulf spill are overblown.

"I don't see why we should start second-guessing their ability to operate when their track record had been pretty darn good until this accident," said Kara Moriarty, deputy director for the Alaska Oil and Gas Association. "I take issue with people who want to throw the whole company under the bus when there are 2,000 people in Alaska who are doing everything they can to have a safe, reliable operation in Alaska."

If operations were stopped today, it would destroy Alaska's economy "overnight," she said.  "I don't see any reason why we shouldn't trust (BP) as an operator here in Alaska," Moriarty said, pointing to BP's long history in the state, its intentions to stay here long-term, and the current state and federal oversight of its operation and maintenance plans.

"The industry has always said it knows how to operate without polluting," Haycox said. "But anyone with an ounce of sense realizes it's a hollow promise."

Consumer demand for cheap oil and gasoline act in opposition to demands for stringent oversight, he said. "The more regulation and constraint the industry must work under, the more oil and gas are going to cost. So there's a kind of 'wink-wink, nudge-nudge' going on," he said.

"Trust but verify" is the mantra we heard over and over again from people in positions to hold BP and any other companies accountable for the risks they take and the way they do business. Politicians and political hopefuls are pledging to throw everything they can at the process to ensure companies aren't operating unchecked. But there's no escaping that BP's ability to continue making money benefits  Alaska and the nation.

"The question about BP has always been whether the Alaska operations can attract sufficient investment capital to get development going in light of BP's other worldwide operations," said Matt Berman, an economics professor at the Institute for Social and Economic Research. If BP becomes cash-strapped from dealing with the Gulf spill, it will only "intensify that competition," he said.

It's in the best interest of Alaska and the federal government to keep BP solvent and producing oil, Berman said. If we don't, the company may not have the money it needs to cover claims and other legal fallout from the Gulf spill, let alone pump cash into existing and future operations that Alaska has come to rely on. Meanwhile, BP is doing what it can to alleviate fears its Alaska operations are either unsafe or otherwise in jeopardy.

"Alaska is a major resource base for BP," company spokesman Steve Rinehart said via e-mail Wednesday. "We have been here many years and we are looking ahead to many more," he said, adding that safety and integrity gets priority funding.

For now, Alaskans are stuck lying in the dirty truth of the bed they made.

"We want to have our cake and eat it too, in Alaska just as much as anywhere else," noted Haycox. "Because of that 90 percent of general fund revenue generated by taxation on Prudhoe Bay production, however, we don't just want our cake; we need it! And we've pretty much made up our minds that we're just going to have to live with the consequences."

Contact Jill Burke at jill(at)alaskadispatch.com.