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Vol. 15, No. 30 Week of July 25, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Oil Patch Insider: TAPS a Gulf spill in making? Cade, Donkel hire former Exxon exec

BP owns the largest share of the trans-Alaska oil pipeline. BP officials have often held top positions at Alyeska Pipeline Service Co., which operates the 800-mile pipeline. BP is facing increasing scrutiny for the way it manages its infrastructure and facilities. Therefore …

That “therefore” came up during a recent hearing before a U.S. House of Representatives subcommittee, one of three on the topic of “The Safety of Hazardous Liquid Pipelines.”

The July 15 hearing before the Subcommittee on Railroads, Pipelines and Hazardous Materials, under the Committee on Transportation and Infrastructure, came one week after Alyeska President Kevin Hostler said he planned to retire at the end of September. His announcement came one day after an article on the website truth-out.org linked cost cutting measures on integrity management programs run by BP and Alyeska, although Alyeska claims Hostler previously announced his intention to retire this year.

Before taking over at Alyeska, Hostler spent 27 years with BP. The article quoted an unnamed BP Alaska official who questioned whether, in light of the oil spill in the Gulf of Mexico, a former BP executive should run the pipeline “where BP can exert cultural and economic influence through the president of (Alyeska) as well as its ownership share, in directions that are not good for the safety and the integrity of (the pipeline).” The unnamed official linked safety problems at BP and Alyeska, citing “pervasiveness of a BP leadership culture that is focused on cost cutting that reduces operational integrity.”

Do the problems of BP Alaska reflect on Alyeska, and vice versa?

At the hearing, Chairwoman Corrine Brown, D-Fla., used that report to question whether Alyeska was “following in BP’s footsteps by making dangerous cuts in safety.”

The charges weave between BP Alaska and Alyeska incidents in recent years. In a background statement on the hearing, the House subcommittee pointed first to the leaks at BP-operated Prudhoe Bay pipelines in March and August 2006. During investigations about those leaks, the U.S. Pipeline and Hazardous Materials Safety Administration became concerned about another pipeline at Prudhoe Bay, leading the agency to issue a “corrective action order” against the companies, which in response replaced the line.

The report also notes an incident from May 25, 2010, when a power outage triggered a valve that diverted oil into relief tanks. Those tanks overflowed, spilling oil onto the ground, according to the report, which includes a citation symbol after making the claim but no corresponding footnote. The report said the control center in Anchorage didn’t know about the spill because it lost sight of the Pump Station during the outage.

The report points to other incidents mentioned in an Alyeska report released in June.

Okay, so the oil overflowed, but did it hit the ground or not?

But Alyeska noted that it went 5 million hours last year without a lost time injury and received six API Pipeline Environmental Performance Award in the 2000s, according to the testimony of Greg Jones, senior vice president of technical support for Alyeska.

After giving an eight-page description of Alyeska’s integrity management program, Jones said that the May incident proved that Alyeska’s system works. He said the relief tanks overflowed into a secondary containment unit and that no oil hit the ground.

“While the response went as required, we clearly find the incident unacceptable. We have done a full investigation into the event, and are now working to implement both system and process recommendations to ensure that it will not happen again,” Jones wrote in his testimony.

State Rep. David Guttenberg, an Interior lawmaker and former Alyeska employee, also testified at the hearing, saying that Alyeska’s recent decision to move positions from Fairbanks, where a section of the pipeline is located, to Anchorage, where it is not, presented a safety issue, because it left fewer people on the ground to respond to events.

In his testimony, Guttenberg wrote that Alyeska’s boasts of safety awards and record-setting injury-free stretches have “little or no bearing on the likelihood of TAPS to have a significant spill event.” For example, he noted, “a pipeline operator could have an excellent worker safety record because there is little or no maintenance work being performed on the pipeline while at the same time it is about to fall apart in 20 locations.”

Young: BP is BP and Alyeska is Alyeska and never the twain shall meet

Rep. Don Young also spoke up at the hearing, saying that Alyeska isn’t BP and that the producers don’t manage the pipeline. He noted that the largest spill on Alyeska-operated facilities came in 2001 when a drunken man north of Fairbanks shot at the pipeline.

Later in the day, Young released a statement saying, “This subcommittee is trying to use Alyeska as a scapegoat for what has happened in the Gulf of Mexico and it’s wrong.”

He added that the hearing pulled Alyeska officials away from Alaska as the company prepared for maintenance work planned for the end of the month. “I appreciate the committee’s interest in pipeline safety, but they should consider the timing of large maintenance projects and the short season we have to do such work in Alaska,” he said.

—Eric Lidji

Donkel, Cade hire former Exxon exec to market North Slope prospects

On July 19 a blog posting appeared online at seekingalpha.com/instablog reporting that “Dr. R. G. Bailey, retired president of Exxon Arabian Gulf, has been retained to help promote the development of over 96,000 acres on the North Slope of Alaska currently owned by Dr. Samuel H. Cade and Daniel K. Donkel, longtime Alaskan investors.”

It wasn’t clear who had made the post.

In the blog post Donkel was quoted as saying, “In light of the recent coverage of North Slope drilling tax incentives and recent acquisition activity by independents, hiring Dr. Bailey will help us find the right company to acquire our North Slope acreage. This will support Governor Parnell and the Alaska Legislature’s commitment to helping responsibly develop its resources to the benefit of Alaskans, the State of Alaska, and the United States.”

Bailey, the blog posting said, will “assist in indentifying the best companies” to develop Donkel and Cade’s acreage, particularly seven leases (16,016 acres) near the ExxonMobil-operated Point Thomson project on the eastern North Slope.

According to the post, he will also be promoting Cade and Donkel’s other North Slope properties, “including the East Prudhoe Bay Prospect, Hemi Springs Prospect, Mikkelsen Prospect, and the Red Dog Prospect, a group of select prospects that total another 80,000 acres that include known bypassed oil reserves.”

To learn more about Bailey’s background and what Donkel and Cade are selling visit www.Donkeloilalaska.com.

—Kay Cashman



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