- The Washington Times - Tuesday, August 8, 2006

LONDON — The discovery of corrosion in an Alaska pipeline is the latest in a series of woes for BP’s U.S. operations that are threatening the British oil company’s reputation — and its profits.

U.S. shares of BP PLC fell 31 cents to close at $70.14 yesterday on the New York Stock Exchange as analysts speculated it could be months before production restarts at the troubled Prudhoe Bay oil field.

BP yesterday continued efforts to shut down the largest producing oil field in the United States, which accounts for 8 percent of domestic output, after finding severe corrosion along a transit pipeline.

The discovery is not the first major problem at Prudhoe Bay — BP is already facing a criminal investigation over a large spill in March at the field, which it also blamed on a corroded pipeline.

The troubles in Alaska add to several other mishaps for BP in the United States, where the company is the largest oil producer, including an explosion at its Texas City, Texas, refinery that killed 15 workers in March 2005 and a recent trading scandal.

“The decision to shut operations … does indicate the company is now looking to end the speculation and constant criticism once and for all by implementing needed repair work,” said Simon Wardell, an analyst at Global Insight.

BP officials said they will replace 16 of the 22 miles of transit pipeline. They will continue to keep the oil field closed and bring parts back into service once it is safe to do so. Company officials said they did not know how much it would cost to replace the lines, which could be closed for months.

Societe Generale, citing an assessment by one of the bank’s engineers with an oil-field services background, said it could take six months or perhaps a year for production to return to normal.

UBS warned that if the shutdown continues to the end of the year, BP could miss its production target of 4.1 million to 4.2 million barrels a day.

BP has a 26 percent stake in the Prudhoe Bay field, meaning its own production would be cut by 100,000 barrels a day, or around 2.5 percent of worldwide production, said BP spokesman David Nicholas. He declined to provide any forecast of how the shutdown would affect earnings.

But Mr. Wardell said the shutdown would undoubtedly have an impact on BP’s third-quarter earnings as well as the company’s reputation.

The shutdown comes on the heels of the incident in March, when another corroded BP transit line spilled 267,000 gallons of oil onto the frozen ground about 250 miles above the Arctic Circle. BP installed a bypass on that line in April with plans to replace the pipe.

BP confirmed in June that it had received a subpoena from a U.S. grand jury investigating the spill and the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration said last week it had asked the company to produce detailed engineering information on a section of the pipeline.

Also last week, BP said it would shut 12 oil wells on Alaska’s North Slope as a precaution after whistleblowers claimed that more than 50 of them were leaking. Most of the shuttered wells were in Prudhoe Bay.

BP puts millions of gallons of corrosion inhibitor into the Prudhoe Bay lines each year. It also examines pipes by taking X-rays and ultrasound images. Spokesman Robert Wine said that checks on the lines had been stepped up following the March spill.

“After March we committed to accelerating the program of checks,” Mr. Wine said. “This particular leak was found as a result of that inspection program.”

BP said that the shutdown decision followed Friday’s receipt of data from a technical check run of the pipeline in late July.

The company is still facing fallout from its other problems in the United States.

In announcing a 30 percent rise in second-quarter net profit last month, BP also said it spent $500 million in the quarter to settle claims arising from the Texas City explosion. BP had already set aside a $700 million provision for compensation related to the incident.

The company said it would add $1 billion to the $6 billion already earmarked over the next four years to upgrade all aspects of safety at its U.S. refineries and to repair and replace pipelines in Alaska.

BP also said it called in external auditors to review compliance systems at its U.S. trading business. Last month, the U.S. Commodity Futures Trading Commission filed a civil complaint, accusing BP traders of illegally manipulating the U.S. propane market in early 2004.

“With two possible criminal investigations pending and a further scrutiny of the company’s operations guaranteed, BP still has five months to go in a year it would rather forget,” said Mr. Wardell, the Global Insight analyst.

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