BPXA resists fine from pipeline spills

Company says state can’t collect $1.7 million plus $6.8 million for negligence; wants credit for cleanup done in first 36 hours

Wesley Loy

For Petroleum News

Lawyers for BP Exploration (Alaska) Inc. already have notched considerable success in fending off some of the state’s claims for damages stemming from the 2006 pipeline spills in the Prudhoe Bay oil field.

Now the lawyers are aiming to whittle down the state’s case even further.

On Dec. 3, BPXA filed court papers opposing the state’s request for a “base oil spill penalty” of $1,698,016.

The fine is among an array of damages the state is seeking in its civil suit against the company. The amount is derived by multiplying the statutory penalty of $8 per gallon against the 212,252 gallons of crude oil that leaked from a corroded Prudhoe Bay pipeline in the spring of 2006.

Lawyers for the state on Nov. 8 asked the court to declare it the winner with respect to the $1,698,016 penalty. The state noted that BPXA itself had acknowledged it was liable for the amount, had admitted negligence in maintaining its pipelines, and had agreed that the size of the spill was 212,252 gallons.

But BPXA, in its Dec. 3 filing, essentially told the court: Whoa, not so fast!

One or the other

The larger sum is based on the state’s argument that BPXA was grossly negligent and violated its oil spill prevention and contingency plan. In such cases, a state statute says a penalty of four times the base penalty may be collected for an oil spill.

In its Nov. 8 motion, the state said it was seeking only the base penalty for the time being, and not the larger penalty.

BPXA, however, is unwilling to simply concede victory to the state on the base penalty.

Company lawyers argue that the state may recover either the base penalty of $8 per gallon of oil or the more severe penalty of four times that amount, but not both.

If the judge grants the state’s request for the $1,698,016 base penalty, it must dismiss any claim for the larger amount, BPXA argues.

Credit for cleanup

State statutes say credit must be given for oil cleaned up in the first 36 hours following a spill, the company said.

“BPXA commenced a comprehensive cleanup as soon as it discovered the leak,” the company’s Dec. 3 court filing said. “The cleanup was conducted under the direction of a group called the Unified Command, which included members from the North Slope Borough, Alaska Department of Environmental Conservation, United States Environmental Protection Agency, and BPXA.”

The Unified Command agreed that BPXA recovered 501 barrels of oil — or 21,042 gallons — in the first 36 hours of the cleanup, company lawyers said.

“BPXA is entitled to a credit for that amount,” they argued, noting the state didn’t explain in its motion why the credit wasn’t applied.

It could be due to differing interpretations of when the 36-hour clock starts. The Prudhoe leak occurred slowly over days, with a field worker driving along the pipeline discovering oil on the tundra on March 2, 2006.

If the clock starts at the onset of a leak, then the state might believe no credit is due as no cleanup occurred within 36 hours.

But BPXA notes the statute requires the recovery to occur within 36 hours “after” the discharge.

Bigger dollars at stake

The state also wants taxes and royalties it contends were “lost” from 2006 through 2008 due to production shortfalls resulting from emergency shut-ins and replacements of corroded pipelines. The state also is seeking to recoup its costs related to spill response and restoration.

Altogether, the state has said its damages could tally more than $1 billion.

But on Dec. 10, state Superior Court Judge Peter Michalski slashed the state’s claims by perhaps several hundred million dollars when he ruled BPXA doesn’t owe taxes on the production shortfalls.

State lawyers aren’t writing off the tax claims. They’ve indicated they’ll file a motion by Jan. 20 asking the judge to reconsider his ruling.