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Archive for Friday, August 11, 2006

BP signs deal for new pipeline to repair Prudhoe Bay oil field

August 11, 2006

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— BP said Thursday it had signed two major deals to supply new pipe for approximately 10 of the 16 miles of an Alaskan oil pipeline it was forced to begin shutting down early this week.

The discovery of leaks and severe corrosion in the pipeline prompted the company to say it planned a gradual shutdown of the entire Prudhoe Bay oil field, the nation's largest.

But late Thursday, the company said it may keep the western side of the pipeline open, although a final decision was not expected until early next week.

About 140,000 barrels of oil per day were still flowing out of Prudhoe Bay as of late Thursday, said Craig Wiggs, a performance unit leader for BP.

If the western side kept flowing, that would mean the company would be able to maintain the 140,000-barrel capacity - and possibly ramp up to 185,000 barrels - while work continues on the eastern side.

BP PLC spokesman Scott Dean said that the company had signed contracts with United States Steel Corp. and Nippon Steel Corp. to supply the 10 miles of pipeline, and is working to win contracts for the remaining materials.

Dean said it was too early to say exactly how much the total project will cost, but insisted BP is not looking to pinch pennies.

"We are committed to sparing no expense to make this pipeline safe and reliable," he said.

Separately, ConocoPhillips spokesman Bill Tanner said Thursday that his company had invoked a "force majeure" clause in the contracts it has with customers who receive oil from Prudhoe Bay. Such an action alerts those customers that it may not be able to supply all the crude oil it has promised because of an unforeseen emergency, and allows them to seek out alternative sources.

BP said it had no similar plans because the oil it gets from Prudhoe Bay is processed by the company itself. Exxon Mobil said it was monitoring the situation.

BP, which operates the oil field, has not yet said exactly how it might divide costs with ConocoPhillips Co. and Exxon Mobil Corp., which also share ownership of the Prudhoe Bay site.

"We're still working it out with the partners," Dean said. "We're the operator but everyone's got a share in the field."

For oil refineries that normally get supplies from Prudhoe Bay, analysts say the shutdown is unlikely to cause short-term problems because most have a stockpile that stretches 30 to 45 days. But if the shutdown stretches for several months, analyst John Thieroff with Standard & Poor's said it could create further difficulties as those refineries struggle to get crude oil from other parts of the world.

Refiners Tesoro Corp. and Valero Energy Corp. have both said they don't anticipate any immediate problems. ConocoPhillips said it was working to arrange for alternative supplies for its Ferndale, Wash., refinery if there are any potential shortfalls.

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