BP Alaska would pay a $25 million fine and allow an independent inspector to monitor how it is managing corrosion and tracking pipeline leaks at its Prudhoe Bay oil field under a proposed settlement with the federal government stemming from major spills in 2006 that also landed the company on criminal probation.
The settlement, which still needs court approval after a 30-day public comment period, was touted by federal regulators at a press conference Tuesday as a "stern reminder" that the government will hold pipeline operators accountable for the safety of their operations.
Cynthia Quarterman, administrator of the Pipeline and Hazardous Materials Safety Administration, said the fine is the highest per-barrel penalty ever levied for an oil spill. It amounts to about $4,923 per barrel.
BP spokesman Steve Rinehart said Tuesday that the company's corrosion management program, in place for several years, already accomplishes much of what is required by the settlement.
"We know as well as anyone this needs to be managed actively, professionally and consistently, and we're doing that," he said.
TIMELINE: BP has a history of problems at Prudhoe Bay
The 129-page agreement outlines a litany of detailed requirements that BP must undertake to better monitor pipeline operations, including what sort of information must be collected, inspection results, history of repairs and a record of any leaks or spills. The settlement specifies how inspections should be done and even what equipment should be used. It puts in place pilot programs and mandates research into new leak-detection technology that may be becoming available.
The company would be required to hire an independent monitoring contractor, selected after approval by the federal government of qualified companies. The monitoring program would last three years. The settlement also makes it clear that federal regulators would have free access to the facility to conduct its own monitoring and documentation of spill prevention efforts.
"We're going to be keeping a close watch on BP," Cynthia Giles, assistant administrator for EPA's Office of Enforcement and Compliance Assurance, told reporters. She said the federal regulatory agencies that oversee the oil fields would be stepping up their oversight in addition to requiring BP to ramp up its own monitoring program.
Beefing up leak-detection systems
The settlement applies only to BP's Prudhoe Bay operation -- not the company's other facilities or fields on the North Slope -- but Giles and other federal officials said they see the "tough penalty" and other requirements as a message to all pipeline operators.
ConocoPhillips, a major oil producer on the North Slope, also has an extensive and comprehensive corrosion management program in place, said Natalie Lowman, a spokeswoman for the company. In an email, she referenced the company's website, where its monitoring and inspection program is outlined.
The BP settlement follows a state Department of Environmental Conservation analysis of North Slope spills, released last fall, that called for beefing up leak-detection systems particularly in flow lines, the smaller diameter pipes that carry a mix of oil, gas and water between wells and processing facilities on the North Slope. DEC oil spill officials couldn't be reached for comment Tuesday about the BP settlement, but the agency has set up a conference with industry later this year to examine better leak-detection technology.
The BP agreement stems from two spills in 2006 at Prudhoe Bay caused by relatively small holes in transit lines 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.
Both the federal and state governments filed civil actions against BP in March 2009 over the spills, and the federal government also brought criminal charges that resulted in BP being put on probation. Last year, the federal probation officer asked a judge to revoke the probation because another BP spill on the North Slope, in November 2009, demonstrated BP was not in compliance with terms of the probation. A hearing in that case is set for September.
Meanwhile, a separate state case is continuing in which the state wants BP to be held accountable for damages -- mainly oil production taxes -- the state was unable to collect when the trans-Alaska pipeline had to be shut down after the second 2006 spill while repairs were under way.
Combating corrosion
BP has spent more than $500 million since the 2006 spills to improve its pipeline-integrity management effort on the North Slope, Rinehart said.
Although federal officials said the company would spend an estimated $60 million more on the compliance issues required by the settlement, Rinehart said the company hadn't done an estimate on the cost of what it still needed to do to comply with the consent decree.
For instance, he said, BP already has replaced the oil transit line system and built a comprehensive GIS mapping database, both of which are set out in the agreement.
Spending on corrosion monitoring and prevention has tripled since 2004, to about $120 million now, and the company is doing about 160,000 inspections a year, twice as many as 2005, Rinehart said.
Assistant U.S. Attorney Ignacio Moreno, with the Environment and Natural Resources Division of the Justice Department, said more than $20 million of the fine would go into the Oil Spill Liability Trust Fund which pays for oil spill cleanup operations. The remainder would be deposited in the federal treasury, she said.
BP has already paid more than $20 million in criminal penalties since the 2006 spill, federal officials said.
Quarterman, the administrator of the Pipeline and Hazardous Materials Safety Administration, said the new fine reflects what the government believes is BP's unwillingness to comply with stronger spill prevention measures after the 2006 spill. The lawsuit was filed because the company had not complied with federal requirements for a year following the spill, she said.
She and Karen Loeffler, U.S. Attorney for Alaska, told reporters the company had acknowledged it had "cut corners" and failed to do what was necessary to adequately maintain the pipelines. But the consent decree specifies that BP is not admitting liability.
Conservationists applauded the settlement and the federal government's closer involvement in the oversight of the North Slope pipeline complex.
A history of spills
Lois Epstein, an engineer who has been involved in pipeline issues for environmental groups, said the state has taken the lead on regulating flow lines, but that it does virtually no enforcement. DEC's spill analysis was another example of the state identifying a problem but doing little beyond that, she said.
The federal government doesn't have the same inherent conflict as the state -- which relies on North Slope production for nearly 90 percent of its revenue -- and EPA has a good track record of strict enforcement, she said.
"This is putting another layer of oversight in place," said Epstein, who is now the Arctic program manager for The Wilderness Society.
She noted that the settlement covers only BP but that the other operators have problems with their transit lines, too.
A spill database compiled by DEC as part of its analysis shows there are about five spills every year of more than 1,000 gallons on the North Slope.
Epstein said that's "one not insignificant spill" every couple of months. A high percentage of those involve flow lines, she said.
Each company has its own spill prevention and monitoring plan, and Epstein said it remains to be seen whether other operators will learn from the BP experience.
"I think BP is under a microscope," she said, adding that the scrutiny is warranted because BP has had a history of problems on the North Slope. "Once you have a federal requirement, that kicks in a new level of attentiveness."
Contact Patti Epler at patti(at)alaskadispatch.com.