BP to keep oil flowing from Prudhoe Bay

Sunday, August 13th 2006

BP PLC announced it would keep one side of the Prudhoe Bay oil field open as it replaces corroded pipes, enabling it to funnel up to half its previous output and avert a larger crimp in the nation’s oil supply.

BP had previously said it would have to completely shut down the nation’s largest oil field after discovering a leak nearly a week ago.

The company said Friday it decided to continue supplying oil out of the western side of the field after reviewing 1,400 ultrasound inspections on five miles of the 22-mile pipeline and discussing the matter with federal and state regulators.

BP said it will monitor the pipeline around the clock and use infrared cameras from the sky and the ground to detect small leaks. It will run a high-tech “smart pig” device through the line by November to search for weaknesses in pipe walls.

“With greatly enhanced surveillance and response capability, I am confident we can continue to safely operate the line,” BP America Chairman and President Bob Malone said in a statement.

The company said it is currently producing about 150,000 barrels of oil and natural gas per day from the western side of the field, but hoped to reach about 200,000 barrels a day.

The natural gas accounts for between 11,000 and 12,000 barrels of the total. Before the discovery of the leak, BP was pumping as much as 400,000 barrels a day out of the entire field, 8 percent of the nation’s domestic output.

BP also said it was looking at ways to restore some production from the eastern side of the field, subject to approval by federal regulators.

The cost to repair and replace leaking pipelines at Prudhoe Bay could be about $170 million, BP spokesman Neil Chapman said. That was an early, rough estimate for the current repairs and for cleaning up a major oil spill in March.

The British company has not yet said exactly how it might divide costs with ConocoPhillips Co. and Exxon Mobil Corp., which share ownership of the site on the edge of the Arctic Ocean.

BP said it had secured orders for all 16 miles of pipe it plans to replace at the oil field. It expects to have the supplies in place by the end of the year.

Contracts with steel mills operating in the U.S., including United States Steel Corp., will allow the pipeline to get to Alaska faster.

The company had previously said part of the pipeline would come from Japan’s Nippon Steel Corp., but Chapman said that order would now be used for other BP projects.

Federal regulators gave BP permission late Thursday to keep the field’s western line operating, but ordered it to conduct more rigorous pipeline inspections.

BP also must pass a series of tests before restarting pipes it shut down.

“Right now, I haven’t seen any data that suggests we would need to order a shutdown,” of the western line, said Tom Barrett, administrator of the pipeline and hazardous materials safety administration for U.S. Department of Transportation.

Analysts say pressure to keep oil flowing ”” albeit safely ”” probably came from several sides, including the state of Alaska, which is highly dependent on the energy industry, and production partners Exxon Mobil and ConocoPhillips, both of whom have bigger stakes in Prudhoe Bay than BP.

“Everybody is watching them,” said Dave Pursell, a former production engineer who worked in the state’s North Slope, now an analyst for Pickering Energy Partners.

“If you keep Prudhoe Bay offline for six months, there is a bigger market impact and gasoline prices will certainly go up,” he said.

The leaks and corrosion that prompted the shutdown were discovered on the eastern side of the oil field, although a much larger spill of 267,000 barrels last March was on the western side.