|
State, BP heading into arbitration At issue is potentially hundreds of millions of dollars in compensation for production shortfalls after 2006 spills at Prudhoe Bay Wesley Loy For Petroleum News
The state and BP are about to begin arbitration proceedings over the 2006 pipeline leaks in the Prudhoe Bay oil field.
The stakes are high, with potentially hundreds of millions of dollars on the line.
The arbitration stems from a civil suit the state filed against BP Exploration (Alaska) Inc. in March 2009 in state Superior Court in Anchorage.
The suit came after a pair of oil spills at Prudhoe, which BP operates for an ownership group that also includes ConocoPhillips, ExxonMobil and Chevron.
One spill, at 212,252 gallons, was the largest oil spill ever on Alaska’s North Slope.
The spills were from corroded oil transit lines that feed sales-grade crude into the trans-Alaska pipeline.
BP Alaska was convicted of a federal environmental misdemeanor, which resolved the criminal aspect of the matter.
Back taxes, royalties sought The state’s subsequent civil suit alleged negligence and sought a range of damages from BP.
Most significantly, the suit sought back taxes and royalties to compensate the state for what it contended were production shortfalls of at least 35 million barrels of oil and natural gas liquids from Prudhoe and the neighboring Milne Point field.
These shortfalls, from 2006 through 2008, resulted from “massive production shut-ins” due to the spills and subsequent replacement of corroded pipelines, the suit said.
A judge in December 2010 threw out the state’s tax claim, hugely reducing BP’s potential liability in the lawsuit.
The case is now on hold while the state and BP take the remaining royalty claim to binding arbitration.
Private proceedings On May 3, lawyers for the state filed a brief status report saying: “An arbitration panel has been selected, and the arbitration in this matter is scheduled to begin on May 22.”
Steve Mulder, the state’s lead attorney on the case, did not respond by press time to a Petroleum News request for more information. However, he previously has provided details about the arbitration.
The panel of three arbitrators was agreed to by each side. The arbitration will be conducted privately, but the result will be made public.
“Much of the information likely to be presented at the arbitration is subject to protective orders entered by the Superior Court because it is considered confidential business information,” Mulder said in a March 1 email. “For this reason, the arbitration proceeding itself will not be open to the public.”
How much money? The state will ask the arbitration panel to award an amount to compensate the state for the royalties it did not receive due to production shut-ins stemming from the pipeline leaks.
“The arbitration will focus on whether BP ‘made-up’ the lost production shortly after putting into service replacement pipelines or whether the production opportunity lost in 2006-08 will not be realized until the end of field life, if ever, due to known gas and water handling constraints,” Mulder said in a Jan. 10 email.
It’s not known exactly how much money the state is seeking.
But conceivably, if at arbitration the state is able to show that it is due a 12.5 percent royalty on the full 35-million-barrel production shortfall alleged in the suit, that would be about $328 million at $75 per barrel.
| 