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Reuters: EXCLUSIVE-BP reports on Alaska spill blame cost cuts, execs

09 May 2007 14:08:51 GMT
By Robert Campbell

NEW YORK, May 9 (Reuters) – Two reports on the cause of Alaska’s worst onshore oil spill, commissioned by BP Plc , blame the giant oil company’s cost cutting and management culture for the accident, people familiar with the reports said.

The reports come after a U.S. congressional committee said documents turned over by BP suggest “draconian” cost cutting at the British company’s Alaska operations led to the March 2006 rupture of a corroded oil pipeline at Prudhoe Bay, spilling at least 200,000 gallons of crude oil onto the Arctic tundra.

“The reports speak to the fact that top-down cost cutting was going on without any risk analysis,” said a congressional aide familiar with the documents.

Sources said the two reports echo a government report and a separate internal BP probe into a 2005 fatal explosion at BP’s refinery in Texas City, Texas, and support those who reject BP’s claim that Texas City and Alaska were isolated incidents and not symptoms of bigger problems within the company.

Both reports cited BP’s cost-cutting culture and focus on profits as key factors behind the Texas blast, which killed 15 workers and injured 170 others.

“It looks really similar to Texas City,” said a source who has seen copies of the Alaska reports and the Texas City studies.

“There are a lot of the same types of spreadsheets with the same stuff, the same kind of e-mails.”

SEDIMENT BUILDUP

One study, prepared by CC Technologies, an engineering firm specializing in pipeline corrosion control, said BP’s maintenance practices, particularly its failure to regularly flush out sediment inside the transit pipeline at the Prudhoe Bay oil field, allowed corrosive bacteria to thrive and eat away at the line, a BP Alaska spokesman confirmed.

“The sediment was certainly a contributing factor, as well as the slow flow of oil through the pipe,” BP spokesman Daren Beaudo said.

The sediment in the pipeline shielded the bacteria from corrosion-preventing chemicals injected by BP into the pipeline and also allowed water spilled into the pipeline during plant upsets to accumulate, the report said.

BP had not used a device called a pig to clean the inside of the transit pipeline since 1998, a practice that federal regulators have criticized as differing from standard industry practice.

Alaska state records show BP officials had known for years that sediment was building up in the pipelines. BP executives have said the company relied on external tools for corrosion inspections because there was thought to be little risk of internal pipe corrosion.

The second report, an examination of BP’s U.S. management by consulting firm Booz Allen Hamilton, said deep cost cuts imposed after BP bought U.S. rivals Amoco and ARCO decimated operational oversight, leading to a poor understanding of the risks created by the cuts and directly contributing to a complacent attitude toward corrosion in Alaska, several people who had seen the report said.

A BP spokesman said by e-mail Tuesday evening the company would not be releasing the Booz Allen report prior to a planned congressional hearing next week.

“It is pretty comprehensive. It recommends a lot of changes to the way BP manages its business here and the way it thinks about risks,” one source said.

BP already has begun overhauling its U.S. management structure to improve operational controls. The new BP America CEO, Bob Malone, has more authority over operations and he has appointed managers who are to ensure operating units comply with BP’s corporate policies.

The company has also recruited a Royal Dutch Shell refinery manager to run Texas City as well as replacing several top officials at BP Alaska, including the unit’s chief executive and the head of the Prudhoe Bay field.

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