Daily Telegraph: How BP’s Alaskan ‘jewel’ lost its sparkle

EXTRACT: BP has faced a steady assault on its environmental and safety record. BP “whistleblowers” have pointed the finger at the company over what they perceive as shortcomings in its policies and performance. Alarm bells were ringing again five months ago when a BP worker discovered at least 267,000 gallons of oil had been spilled, the biggest on the North Slope so far.

THE ARTICLE

By Roland Gribben

(Filed: 08/08/2006)

Lord Browne and BP are wrestling with a full blown crisis that is threatening their reputation and credibility. The shutdown of the huge Prudhoe Bay field in Alaska means the US has lost 8pc of its oil supply and leaves business and consumers facing another rise in the cost of motoring and production.

It is the most serious in a sequence of safety and environmental setbacks that have plagued Lord Browne and BP and damaged the UK’s most highly regarded senior executive and its biggest business.

The North Slope of Alaska was once BP’s “jewel in the crown”. Now the fallout from oil spills and corrosion is raising question marks over the quality of BP leadership and its expertise in the wake of the almost sentimental debate over whether Lord Browne should extend his reign as chief executive.

Until yesterday he could look back on BP’s North Slope achievements with pride.

Arctic oil broke new ground for an oil industry pushing the exploration frontiers and provided the basis for BP to buy Sohio, Amoco and Atlantic Richfield and become the world’s third biggest oil group and the most important in the US domestic market in the process.

The road has proved bumpy, expensive and full of environmental potholes. The oil and gas potential of the North Slope of Alaska had long tempted the explorers but the Arctic remoteness and the economics of production were formidable obstacles.

But almost at a stroke the arrival of a stronger and more arrogant oil cartel changed the outlook. Opec’s decision to exercise its muscle in the 1970s pushed up the price of oil, stimulated non-Opec producers into a frenzy of activity and, hey presto, Alaska and the North Sea became important and economic oil provinces.

Alaskan development stretched BP and its fellow explorers. The construction of the trans-Alaskan pipeline – an 800-mile long steel carriage that snakes its way from Prudhoe Bay through the Alaskan tundra and permafrost down to the Valdez tanker terminal in the glaciers south of Anchorage – was a colossal construction and environmental task.

The terminal found its place in environmental folklore after the Exxon Valdez tanker disaster, which led to the biggest oil spill in US history.

Caribou deer as well as the permafrost and the contribution to the Alaskan economy all figured in the equation. Environmentalists were concerned that the annual migration of huge herds of deer would be disrupted by the pipeline. They also feared that the fragile permafrost would be damaged by heat from the pipeline.

Steel on stilts helped ease anxiety. Raising the pipeline above ground level meant the deer and their antlers had enough headroom to continue unimpeded, while the permafrost remained frozen to a depth of 2ft below the surface, and small lakes and summer mosquitoes continue to flourish.

The first oil started to flow after the herculean field development and transportation achievements in 1977.

Since then more than 14bn barrels of oil have flowed down the pipeline network. Production peaked in 1988 when daily output from Prudhoe Bay and the collection of other North Slope oil fields topped 2m barrels a day.

Current estimates suggest there is less than 3bn recoverable barrels left to be ferried from fields to consumer. Prudhoe Bay is still the biggest in the US, more than double the size of the East Texas oil field, the “spiritual” home of the US oil industry.

There are still enormous reserves waiting to be tapped on the North Slope. A US Geological Survey eight years ago concluded that the coastal plain could contain recoverable reserves of anything between 5.7bn to 16bn barrels of oil but development has long been a source of controversy and BP has opted out of the debate.

There is no certainty of major discoveries. At one stage BP had high hopes of finding an even bigger North Slope field at Mukluk, but drilling produced only water and disappointed geologists and seismic analysts concluded that the oil had “migrated” tens of thousands of years ago.

Gas provides the next big challenge and opportunity. BP has a 26pc interest in the 35,000bn cubic feet of gas waiting to be developed under the North Slope and shipped to hungry markets further south but progress in reaching agreement with its partners, the US and Canadian governments, has been slow.

BP has invested heavily in making itself an ideal corporate citizen in America but is now paying a heavy price in terms of reputation and credibility in the wake of the sequence of oil spills, refinery deaths and Gulf of Mexico setbacks. A new management team has been engaged in a series of firefighting operations since taking office.

Lord, then John, Browne cut his engineering teeth on the North Slope. Last week he was in Alaska apologising for oil spills and the catalogue of blunders that have severely damaged a company that is the “number one” investor in a state accounting for 7.5pc of its global production.

The Prudhoe Bay shutdown and discovery of pipeline corrosion has hit BP where it hurts, in the pocket, and its reputation as a competent and sophisticated engineering business has also suffered. All told BP operates 13 North Slope oil fields, four pipelines and has a significant interest in six other producing fields with daily production of around 700,000 barrels a day.

BP prides itself on its achievements. The Alaskan element on its website declares that, after 30 years of development and production, “wildlife, fish and bird population remain healthy and diverse”.

The Alaskan Department of Fish and Game has reservations. Its studies indicate that “female caribou in contact with North Slope activities experience a decline in productivity”.

Caribou herds, it says, “consistently demonstrate a three to four kilometre avoidance of pipelines, roads and other facilities”.

BP has faced a steady assault on its environmental and safety record. BP “whistleblowers” have pointed the finger at the company over what they perceive as shortcomings in its policies and performance. Alarm bells were ringing again five months ago when a BP worker discovered at least 267,000 gallons of oil had been spilled, the biggest on the North Slope so far.

The shutdown of Prudhoe Bay gives BP, the Alaskan authorities and the Bush administration a bigger cause for concern. Lord Browne may well have to eat more humble pie.

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