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February 04, 2011 --- Vol. 17, No. 11February 2011

BP ruled liable for $1.7 million penalty for 2006 Prudhoe spill

A state judge has ruled that BP Exploration (Alaska) Inc. is liable for a civil penalty of nearly $1.7 million in connection with a large oil spill in the Prudhoe Bay field.

The ruling marks a modest victory for the state in its lawsuit seeking huge damages for pipeline leaks in 2006, one of which resulted in the 212,252-gallon crude spill, the largest ever seen in Alaska’s North Slope oil fields.

In an eight-page decision signed Feb. 2, state Superior Court Judge Peter Michalski ruled that BP is liable for a $1,698,016 penalty for the spill, which is based on a state statute that specifies a fine of $8 per gallon of spilled oil.

Michalski also ruled that BP is not entitled to a credit of $168,336 for cleaning up 21,042 gallons of oil within 36 hours after discovery of the spill from a corroded pipeline. The judge held the 36-hour period starts running when an oil discharge begins. In the Prudhoe spill, the leak was ongoing for about five days before a field worker found it on March 2, 2006, so no credit is due.

Michalski further ruled the state is free to pursue an “enhanced penalty” against BP. The state has indicated it will seek to quadruple the fine to $6,792,064 on grounds that BP was grossly negligent and violated its oil spill prevention and contingency plan.

Even the enhanced penalty, however, is a minor sum in the overall context of the lawsuit, in which the state is seeking hundreds of millions of dollars in lost revenue due to production slowdowns resulting from replacement of bad pipelines.

In December, BP scored a major victory when Michalski threw out the state’s claim for back taxes.

All these interim rulings come as the case builds toward a trial, which could begin in March 2012.

See complete story in Feb. 13 issue, available online to subscribers by 11 a.m., Feb. 11, at www.PetroleumNews.com

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