Justice Department Targets BP Over Massive 2006 Oil Spill

prudhoebayThe Justice Department recently filed a civil suit against BP’s Alaska unit over two massive oil spills in Prudhoe Bay three years ago. One of the spills forced BP to shut down it’s oil processing centers in the region for five days which led to price spikes during a period of tight crude oil supplies.

The complaint, filed by the Justice Department on behalf of the Environmental Protection Agency and Department of Transportation-Pipeline and Hazardous Materials Safety Administration (PHMSA), seeks maximum penalties from BP alleging the company violated federal clean air and water laws and failed to implement spill prevention technology.

The state of Alaska also sued BP for violating environmental laws. The state claims it lost as much as $1 billion in revenue claiming due to the oil spills, which resulted in 35 million barrels of oil that BP was unable to produce. The complaint says the spills along with BP’s work to repair a severely corroded pipeline “significantly reduced oil production for more than two years.”

BP officials would not comment on the lawsuits.

The Justice Department’s civil lawsuit further alleges that BP Exploration Alaska further violated the Clean Air Act by improperly removing asbestos-containing materials from its pipelines and failed to comply in a timely manner with a corrective order PHMSA issued to BP.  PHMSA’s order required BP Alaska to conduct certain testing, inspection, maintenance and repair activities.

But according to a November 2008 report in the Wall Street Journal, Scott West, who formerly headed the EPA’s criminal investigation into the spills, said the Justice Department, under George W. Bush, “hastened to shut down the investigation, settling for lower penalties than it could have obtained.” In early 2007, the EPA considered seeking penalties of up to $672 million and possible felony charges against BP, according to the Journal report.

“Nelson Cohen, the U.S. attorney for Alaska, said that opting for the $20 million fine was ‘a judgment call’ his office made,” the Journal reported. “It’s not my job to take every nickel from a defendant when they have done something wrong. Our job is to come up with what we feel is fair and just.”

West said the criminal investigation was halted after Ronald Tenpas, a career prosecutor for the Justice Department, was appointed assistant attorney general for the environment and natural resources in May 2007, according to the Journal.

In November 2007, BP plead guilty to a misdemeanor and paid a $20 million fine for violating the Clean Water Act related to the March 2006 oil spill at the company’s operations in Alaska’s North Slope. The other spill for which the Justice Department sued BP occurred in August 2006. On Oct. 15, 2007, a few weeks before the company plead guilty to the charges, BP reported yet another spill to officials at the Alaska Department of Environmental Conservation.

The federal judge who placed BP on probation for three years said the 201,000 gallon oil spill that occurred in March 2006 was a “serious crime” that could have been prevented if BP had spent more time and funds investing in pipeline upgrades and a “little less emphasis on profit.”

The March 2006 oil spill-the worst in the history of oil development in Alaska’s North Slope- resulted from a severely corroded transit pipeline. Alaskan state officials said that as much as 260,000 gallons of crude oil leaked out of a pipeline in an oil field operated by BP and jointly owned by Exxon Mobil, and ConocoPhillips and blanketed two acres of frozen tundra near Prudhoe Bay – just 60 miles from the pristine Arctic National Wildlife Refuge, a region that proponents of drilling was to open up to exploration.

The spill went undetected for about five days before a BP oilfield worker detected the scent of hydrocarbons during a drive through the area that led him to believe there was a spill from one of the companies’ facilities.

Profits from drilling in Alaska’s North Slope have declined between 1999 and 2007. The volume of oil extracted from the North Slope fell from 800,000 barrels in 1980 to half that amount several years ago, which is part of the reason the Bush administration, BP and other companies had been so eager to drill in ANWR. Oil production in the region is now roughly 750,000 barrels per day and often fluctuates.

The Prudhoe Bay oil field–the largest in North America–accounts for 8 percent of the country’s domestic crude supply. Production at Prudhoe Bay began in 1977, and during its peak in the 1980s the field produced more than 1 million barrels of oil per day. BP operates Prudhoe Bay and shares the costs with owners Conoco Phillips, Exxon Mobil and Chevron. BP’s decades long presence in the North Slope would put the company in the lead position to drill in ANWR if the refuge were opened to exploration, Alaskan lawmakers have said.

As the volume of oil in Prudhoe Bay decreased, BP began to institute cost-cutting measures, laying off hundreds of employees and cutting back on safety and maintenance of pipelines and other infrastructure at Prudhoe Bay.

In a March 16, 2006 interview with the New York Times, longtime BP employee Marc Kovac said he and his co-workers warned the company numerous times that cost-cutting measures affecting routine maintenance and inspection would increase the likelihood of accidents, pipeline ruptures and spills.

“For years we’ve been warning the company about cutting back on maintenance,” Kovac told the New York Times. “We know that this could have been prevented.”

In federal court last November, Cohen, the federal prosecutor in Alaska, agreed that BP’s Alaska operations were shoddily run, stating that for more than eight years BP failed to run a cleaning device through its pipelines and allowed corrosion to build up.

The shortfall boosted world oil prices to what seemed like a bargain at the time: $60.81 at the close of business on October 26, 2007. The company also pleaded guilty that month to a felony and paid $50 million in fines related to an explosion at a Texas refinery that killed 15 employees and injured nearly 200 people. Furthermore, BP paid a $303 million fine to settle charges that the company manipulated prices in the propane market. On top of that, BP has a prior felony conviction for improperly disposing of hazardous waste.

Hundreds of pages of documents detailing BP’s decade-long neglect of its Prudhoe Bay pipelines, its internal safety regulations, and the company’s alleged cover-up of past oil spills that resulted from severely corroded pipelines support those assertions.

The BP documents, which include emails, photographs, videos, and letters sent to BP executives and Democratic and Republican lawmakers, and even President Bush, as well as internal reports, all of which were early warnings about problems plaguing BP’s Prudhoe Bay operations, were written by more than 100 company whistleblowers and date back as far as 1999.

The documents provide a detailed picture of how BP seemingly ignored dozens of early warnings from employees that its drilling operations on Alaska’s North Slope would be doomed if the company did not take immediate steps to upgrade its pipelines and other infrastructure.

Moreover, these records show how that over the course of five years federal and state lawmakers and other officials routinely failed to follow up on the warnings and take direct action to ensure that BP did not jeopardize a critical part of the country’s oil production and that it maintained the safety of its workforce.

Chuck Hamel, an activist and former oil broker based in Alexandria, Virginia, launched the now defunct web site that housed the documents ANWRnews.com. Hamel was contacted seven years ago by a group of BP employees who were concerned that the company’s cost-cutting measures at its Prudhoe Bay operations would have an adverse impact on safety and operations.

“We were concerned about BP’s cost cutting-efforts undermining our ability to respond to emergencies, and reducing the reliability of critical safety systems,” states a letter sent to Hamel signed by dozens of BP’s Prudhoe Bay employees on April 13, 2001. “We were concerned about the lack of preventative maintenance on our equipment. We had suffered a major fire, which burned a well pad module to the ground, and nearly cost one of our operators his life.”

Hamel is credited with exposing weak pollution laws at the Valdez tanker port in the 1980s and electrical and maintenance problems with the trans-Alaska oil pipeline, immediately took up the BP whistleblowers’ cause and in mid-2001 wrote a letter to BP President Lord John Browne raising the issue of safety and maintenance problems at the Prudhoe Bay facilities.

“Courageous ‘Concerned Individuals’ contacted me for assistance in reaching you,” Hamel’s April 11, 2001, letter to Browne said. “They have not succeeded in being heard in the past two years in London, Juneau or Washington. I am again a reluctant conduit. They hope that you will take whatever action appropriate to effect corrective action which would protect the environment, the facilities, and their safety.”

Hamel sent a copy of the letter to President Bush. While Browne promised to look into the issues plaguing Prudhoe Bay, the situation there worsened as oil spills became routine, and pipelines continued to rupture.

Additional whistleblowers came forward to expose the flaws at BP’s North Slope operations, in some cases warning company executives and lawmakers that an Exxon Valdez-type disaster was bound to happen if BP did not invest additional funds in upgrading its corroded pipelines and non-operational safety valves.

“The situation will continue to deteriorate for the workers’ safety and the environment until one of two things happen: Either there will be a major environmental catastrophe at Prudhoe Bay, similar to the Exxon Valdez, or there will be a change in environmental and employee safety oversight in Alaska before that disaster occurs,” according to a March 4, 2002, copy of BP employee William Burkett’s testimony before a Senate Committee chaired by Sen. Joseph Lieberman, D-Conn. and Sen. Bob Graham, D-Fla.

BP refused to budge, and on several occasions, Hamel alleged, company executives lied to Congress and Alaska state regulators about the condition of its Prudhoe Bay facilities and the amount of money the company was spending on maintenance and pipeline upgrades.

Glen Plumlee, a senior financial analyst with Alyeska Pipeline Service Co., operator of the trans-Alaska pipeline system of which BP is a majority owner, filed a complaint with federal labor officials in 2006 alleging that company executives retaliated against him because he cooperated with the Environmental Protection Agency’s criminal investigation into the company.

Plumlee, 51, of Anchorage, told federal investigators he was pressured to boost estimates of how much Alyeska was spending to fight corrosion on the trans-Alaska oil pipeline. Severe corrosion in one of BP’s transit pipelines at Prudhoe Bay, which connects directly to the trans-Alaska pipeline, is the reason the company shut down its North Slope operations this week.

Plumlee claimed that company executives pressured him in December 2005 to alter the amount of money BP-controlled Alyeska spent on pipeline corrosion – from $28 million to $46 million – for the previous year, which he refused to do.

Plumlee added that it wasn’t the first time he had been asked to cook the books. “On September 19, 2005, an Alyeska executive asked him to pull together the numbers on corrosion spending for Steve Marshall, BP Exploration (Alaska) Inc.’s president,” according to an April 5, 2008 report in the Fairbanks News-Miner.

Another high-level executive of BP-controlled Alyeska also tried to warn company executives about numerous safety and maintenance problems associated with the 800-mile trans-Alaska pipeline system that, if unanswered, would have had a direct impact on BP’s Prudhoe Bay operations.

In August 2005, Dan Hisey, the former chief operating officer of Alyeska, created a comprehensive list for Alyeska’s top executives of the 101 current and potential problems plaguing the pipeline system, one of which was severe corrosion. A week after the list was circulated Hisey’s position was abolished.

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