Lawyers for BP, feds talking settlement

Two sides work to resolve civil suit stemming from 2006 pipeline leaks at Prudhoe Bay; second suit in state court awaits key ruling

Wesley Loy

For Petroleum News

Lawyers for BP and federal regulators appear to be working hard to settle a civil lawsuit the government brought against the oil company in connection with the 2006 pipeline spills in Alaska’s Prudhoe Bay oil field.

In papers BP and government lawyers filed jointly April 30 in U.S. District Court in Anchorage, the two sides said they had “conducted extensive settlement discussions including holding four full-day in-person meetings and exchanging several drafts of various settlement constructs.”

The lawyers asked a judge to extend certain deadlines related to expert witness disclosure and discovery until around the end of the year.

This would allow the parties to continue to “focus … attentions on settlement discussions and to conserve litigant resources,” the joint motion said.

District Judge John Sedwick granted the motion on May 3.

Nature of federal lawsuit

The suit seeks millions of dollars in fines for alleged water and air pollution violations, as well as failure to meet deadlines in a corrective action order from the Pipeline and Hazardous Materials Safety Administration.

BP’s lawyers have denied many of the federal claims, and say some of the deadlines in the corrective action order were impossible to meet.

The suit was fallout from a 212,252-gallon oil spill – the largest ever on Alaska’s North Slope – in March 2006, and a much smaller spill the following August.

The second spill forced a partial shutdown of the BP-operated Prudhoe Bay field, rattling world oil markets and stoking congressional and regulatory criticism of BP’s upkeep of corroded transit lines that funnel sales-grade crude into the trans-Alaska oil pipeline.

BP’s Alaska subsidiary in late 2007 was sentenced to three years probation and ordered to pay $20 million in penalties after the company pleaded guilty to a federal environmental misdemeanor.

The plea deal wrapped up criminal prosecution of BP, for both the federal and state governments, in connection with the 2006 spills.

The State of Alaska’s case

The state suit, now pending in Superior Court in Anchorage, is aimed at collecting fines as well as lost oil revenue resulting from production slowdowns caused by the leaks and subsequent pipeline repairs.

Of the two lawsuits, the Superior Court case could be the most costly for BP, as the state is seeking $1 billion or more in back taxes and other collections.

Publicly, at least, the case has been quiet since Dec. 21, 2009, when opposing lawyers appeared before Superior Court Judge Peter Michalski to argue BP’s motion to dismiss much of the state’s case.

The state cites a production shortfall of at least 35 million barrels of oil and natural gas liquids from the Prudhoe Bay and Milne Point fields as a result of the 2006 spills and ensuing shut-ins. It’s seeking to collect compensatory and punitive damages including “lost” taxes and royalties.

The state’s lawyers accuse BP of knowingly neglecting corroded pipelines in the interest of cutting costs, with the suit citing “outrageous” or “reckless” conduct.

BP’s lawyer argued the state is improperly pursuing tort claims beyond merely claims under the relevant contracts, chiefly the oil field leases.

BP also questions the idea of “lost” revenue, noting that the oil remained in the reservoirs and production was merely deferred. The state shouldn’t be allowed to collect taxes and royalties twice – once as damages in the lawsuit and again when the oil is produced, the company’s lawyers have argued.

As of press time, Michalski still hadn’t ruled on BP’s motion.