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BP to pay $255 million to Alaska over 2006 oil spill

Craig MedredAlaska Dispatch
State of Alaska photo

BP Exploration (Alaska) Inc. will pay $255 million to Alaska to settle a dispute over lost oil production for the state after the company's 2006 spills at Prudhoe Bay.

The state's legal department announced the arbitrated award against BP on Thursday, bringing to an end a six-year dispute over the largest oil spill in the history of the North Slope and how it impacted Alaska financially.

In 2006, BP experienced two spills at Prudhoe Bay caused by small holes in transit pipelines that went undetected for quite some time. All told, the spills amounted to more than 200,000 gallons -- more than 5,000 barrels -- that leaked onto the tundra and into a nearby lake.

Pipeline corrosion and leak-detection issues were factors in the spills, according to federal regulators, and BP has already paid millions of dollars in EPA fines.

The $255 million settlement with Alaska is to make up for the financial damage to the state caused by the spills. Prudhoe Bay sits on state land, and BP and other oil companies hold leases to develop the field's oil and gas. Under those lease terms, the state is entitled to receive either 12.5 percent of the volume of the oil and gas produced or 12.5 percent of the value of that production. Because the spill shut down production temporarily, the state argued that BP should be held liable for the value of the production shortage.

In a statement Thursday, the Alaska Department of Law said:

Following a four week hearing in May and June, the three arbitrator panel issued a unanimous decision in favor of the State on October 31. The award is final, binding, and non-appealable. After adjustment for previously agreed upon credits, the final award with prejudgment interest is $245 million; in addition, BP will pay $10 million to settle civil assessments for the spills. In total, BP will pay the State $255 million for the 2006 spills and pipeline shutdowns.

Read more of the arbitrated settlement between BP and Alaska.