- The Washington Times - Thursday, August 10, 2006

Alaska Gov. Frank H. Murkowski yesterday ordered a state-government hiring freeze and worried over whether the state has enough heating oil or funding for social services as Alaskans braced for an economic crisis brought on by the sudden shutdown of oil production in Prudhoe Bay.

Oil company BP ceased most operations Sunday after a heavily corroded pipeline was discovered dripping oil. The closure is costing the state $6.4 million a day in tax revenues and royalties, and some officials estimate it could be six months before 16 miles of pipes are repaired and the pipeline is running at full capacity.

Nearly 90 percent of the state’s revenue comes from the oil fields, and Alaska’s revenue commissioner says the state can operate for about two months before running out of money.

Long-term projects will be completed in phases and Cabinet commissioners will create a plan to keep social services operational and to meet in-state oil needs, Mr. Murkowski told a joint session of the state Legislature yesterday.

With the reduction in oil flowing through the 800-mile pipeline from 56,000 barrels to 28,000 barrels a day, the state will get a smaller share of oil it receives through a royalty payment.

“Heating oil is critical to all Alaskans, jet fuel is critical to travel in Alaska, international travel, and to the economy of the state,” Mr. Murkowski said.

The Republican governor did not mince words during the brief address, and criticized BP for shutting down the entire operation before consulting with state officials. He said the oil company will be held responsible.

“Because of a leak of, frankly, a few barrels, BP abruptly decided to shut down the entire field. One has to ask, what did BP learn last Saturday or Sunday, that it did not know previously, that would cause BP to take such a precipitous action?” Mr. Murkowski said.

“The attorney general will review the state’s legal rights and will determine an appropriate course of action to protect the state’s interests, including the state’s right to hold BP fully accountable for losses to the state,” he said.

A special commission of the governor’s Cabinet, lead by Mike Menge, Department of Natural Resources commissioner, will “carefully scrutinize all proposed corrective action plans and production resumption plans.”

Environmental regulations designed to protect the Alaska tundra could postpone some repairs on the pipeline, which stretches across rugged terrain, until the ground is frozen.

“It’s not exactly like the Ohio Turnpike,” said Tim Kincaid, president of Tern Technologies, an Anchorage company that works on pipeline facilities.

The reduction is not expected to affect the dividend checks that Alaska residents receive from oil-generated revenue drilled on state property, says one state official.

“Our constant concern is getting diesel and heating fuel into the rural areas,” the official said.

While the state won’t be hiring new workers anytime soon, the shutdown will create new jobs for pipeline workers and oil drillers, the official said.

Mr. Murkowski, who faces a primary against two Republican opponents in less than two weeks, used the opportunity to lobby the Legislature to pass a tax on the second-largest oil field, Kuparuk, which produces more than 172,000 barrels a day with zero production taxes.

Under Mr. Murkowski’s plan, the tax would bring the state $1.6 million a day based on current oil prices.

The shutdown has already ignited discussion on Capitol Hill to push through legislation to allow oil drilling in the Arctic National Wildlife Refuge (ANWR).

“If ANWR were open, and we had an extra million barrels of oil, this kind of thing would not have happened,” one senior Republican House aide said.

The loss of Prudhoe Bay, the nation’s biggest oil field, is also producing political ripples elsewhere on the West Coast, as California Gov. Arnold Schwarzenegger, whose state gets 20 percent of its domestically produced oil from Prudhoe Bay, yesterday said the federal government should tap into the country’s Strategic Petroleum Reserve.

• Marie Tyler contributed to this report.

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