- The Washington Times - Wednesday, August 9, 2006

If BP were nearly as interested in performing routine maintenance in Alaska as it has been in cultivating an environmentally correct image around the world and hoarding tens of billions of dollars for “employee share schemes” — its words — then there never would have been a 270,000-gallon oil spill in Alaska in March, the largest ever in the 30-year history of the North Slope. And BP this week would not have had to shut down the Prudhoe Bay oil field, which had been producing 400,000 barrels per day (about 8 percent of total U.S. oil production).

In a period of record-high profits, BP’s negligence of its routine maintenance has been remarkable. Although Prudhoe Bay pipelines were originally designed to last 25 years, they are now operating in their 29th year. According to Transportation Department regulations, higher-pressure pipelines should be inspected every five years using a “smart pig,” a computerized device that moves through the pipes detecting weak spots. Prudhoe Bay transit pipelines weren’t covered by this regulation, a situation BP exploited to the maximum. The pipeline that sprung the 270,000-gallon leak in March had not been inspected with a smart pig in seven years. After that spill, the Transportation Department required BP to examine other pipelines with a smart pig, which detected 16 “anomalies” over a nine-mile stretch of a 22-mile pipeline. Those “anomalies” forced Sunday’s decision by BP to shut down the Prudhoe Bay oil field. The next day world oil prices soared by 3 percent, which will further enhance BP’s profits. The last time this second distressed pipeline had been inspected with a smart pig was 1992, nearly a decade beyond the five-year period established by federal regulations.

BP says it spent $60 million last year fighting corrosion in its Prudhoe Bay pipelines and examining them. Well, that is a pittance compared to what it has been spending on its “employee share schemes.” Over the past 16 months, when its net profits have exceeded $30 billion, BP has spent more than $20 billion repurchasing 17.5 million of its outstanding stock shares. That’s $5 billion more than BP has spent on capital expenditures over the same period. Repurchasing shares boosts the company’s stock price (and makes stock gifts to employees far more valuable) because its stockholders’ equity and its earnings are distributed over fewer outstanding shares. These repurchased shares “have been placed in [BP’s] Treasury for use in BP’s employee share schemes,” the company reports.

It is a serious error that BP did not use a very tiny fraction from its $20 billion stock-repurchase program to perform adequate maintenance.

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