BP: Pipeline repair costs up

The Associated Press

BP said Oct. 24 that costs to replace approximately 16 miles of pipeline at Prudhoe Bay have increased slightly to as much as $260 million.

That figure would be a $10 million increase — or about 4 percent — over original estimates provided 15 months ago.

“The one uncertainty is that there is inflationary costs associated with labor costs,” said Mike Utsler, BP’s senior vice president for greater Prudhoe Bay operations, who said the costs could range from $255 million to $260 million.

Utsler’s comments came as he updated the state Senate Resources Committee, which is reviewing Gov. Sarah Palin’s bill to raise oil taxes during a special legislative session.

BP began rebuilding the 16-mile transit pipeline system last year after the company discovered corrosion that forced a partial shutdown at Prudhoe Bay, the nation’s largest field responsible for about 8 percent of the nation’s production.

Since then, lawmakers have been debating whether the company should receive a partial deduction for these capital costs, allowed under the current tax law, which has caused some outrage among lawmakers.

Sen. Tom Wagoner, R-Kenai, has said no company should receive tax breaks if they can’t maintain the facilities.

His regular session bill, however, dragged through various Senate committees before stalling in the House Finance Committee the last week of the session, which ended last spring.

A similar provision is part of Palin’s special session bill, which is called Alaska’s Clear and Equitable Share, or ACES. The main intent of her bill is to increase the tax on oil companies from 22.5 percent to 25 percent.

No one among the seven-member Senate committee seemed to find BP’s 2 percent to 4 percent cost boost on the Prudhoe Bay rebuilding project to be onerous, especially when other companies report 50 percent increases in costs related to construction since 2005.

“They’ve been working on it for going on two years, so it’s understandable that there would be some inflationary costs. I just don’t want the state to pay for any of it,” Wagoner said of BP’s increase.

North Slope producers have spent the last three days imploring lawmakers to rethink any rate increase, the second in as many years, because it could jeopardize future investment. Rising costs have been a part of the oil industry’s argument against raising the tax rate to 25 percent.