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Vol. 15, No. 46 Week of November 14, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

$1.7 million BP fine?

Alaska asks court to award civil penalty for 212,252-gallon Prudhoe spill in ’06

Wesley Loy

For Petroleum News

Lawyers for the State of Alaska are asking a judge to approve a civil fine of nearly $1.7 million against BP for the record North Slope crude oil spill in 2006.

In a motion filed Nov. 8 in Superior Court in Anchorage, the lawyers are requesting a “base oil spill penalty” under a state statute that sets out a formula for calculating such a penalty for large crude oil discharges.

For spills in excess of 18,000 gallons, the statute specifies a penalty of $8 per gallon.

The BP spill was 212,252 gallons, so that figure times $8 per gallon equals an overall penalty of $1,698,016.

This is the amount the state lawyers are asking the court to approve. And they say no argument exists for why BP shouldn’t pay the penalty, as the company already has acknowledged liability for it.

The lawyers say “there are no genuine issues of material fact” and thus the state “is entitled to summary judgment.”

Small part of billion-dollar case

The requested civil fine is only a small part of the overall bundle of claims the state is pursuing against BP’s local subsidiary, BP Exploration (Alaska) Inc., in connection with the crude spill discovered on March 2, 2006.

The oil had leaked slowly over the course of perhaps five days from an almond-sized hole in an oil transit pipeline near Gathering Center 2 in the western operating area of the vast, BP-operated Prudhoe Bay oil field. The oil leaked onto the snow-covered tundra and a frozen lake.

Another, smaller leak occurred later in 2006 on the eastern side of Prudhoe Bay, forcing a partial shutdown of the field due to corrosion concerns with the transit lines, which fed sales-grade crude into the trans-Alaska pipeline.

BP would draw regulatory and congressional criticism for its poor maintenance of the lines, and ultimately the Alaska subsidiary pled guilty to a federal pollution misdemeanor. A judge sentenced the company to three years on probation and imposed $20 million in penalties.

That wrapped up criminal prosecution of BP Alaska for both the federal government and the state.

But each government on March 31, 2009, filed a civil suit against the company.

The state case is believed to pose the biggest threat to BP, as the state is seeking not only the statutory penalty for the spilled oil but also compensatory and punitive damages plus back taxes and royalties. State lawyers contend that BP’s negligence led to emergency field shut-ins and pipeline replacements, costing the state revenue on an estimated production shortfall of 35 million barrels of crude oil and natural gas liquids.

The state’s damages could exceed $1 billion, a state lawyer has said.

BP acknowledged liability

While BP Alaska is vigorously fighting most of the claims in the state’s civil suit, its lawyers in the past have conceded the company can be fined for the spilled oil.

In court papers BP filed on May 26, 2009, company lawyers wrote: “BPXA acknowledges it is liable to the State under Alaska’s strict liability statute for a civil penalty of approximately $1.7 million in connection with the March 2006 discharge.”

Whether the company still feels this way might now be in question, given the tenor of the state’s nine-page Nov. 8 motion seeking to compel BP to pay the penalty. The motion pertains only to the spill penalty, not the state’s claims for compensatory and punitive damages or lost revenue.

BP has admitted negligence on its pipeline maintenance, has admitted that the size of the spill was 212,252 gallons, and has acknowledged liability for the penalty under the statute, the state argues.

“BPXA should be held to its concession” and pay the base civil penalty of $1,698,016, the state’s motion says.

The company had not yet filed an answer to the state’s motion as Petroleum News went to press.

BP ultimately could be forced to pay a much larger fine for the spilled oil. In addition to the base penalty, the state is suing for an “enhanced penalty” of four times the base penalty as provided for under statute AS 46.03.759. That’s because BP violated its oil spill prevention and contingency plan and committed “gross negligence,” the state says.

The enhanced penalty would tally almost $6.8 million. But the state isn’t attempting to collect the enhanced penalty with its Nov. 8 motion, only the base penalty.

The motion notes: “AS 46.03.759 was enacted in 1989 immediately after the catastrophic crude oil spill in Prince William Sound from the oil tanker Exxon Valdez. The Alaska Legislature sought to increase penalties for the discharge of crude oil in amounts exceeding 18,000 gallons in order to create a greater economic incentive for safe operations by crude oil operators.”

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