A Citizen’s Guide

ANCHORAGE—The sullying of two acres of delicate tundra and a frozen lake in the vast oil fields of northern Alaska will cost BP America more than the $20 million required in a federal settlement over environmental pollution.

It could also cost them political leverage as Alaska lawmakers open a debate over raising the state tax on net oil profits.

The oil tax bill is heavily backed by Gov. Sarah Palin and features a component that would prohibit oil companies from making tax deductions on costs related to poor maintenance or an unplanned field shutdown.

“Bad maintenance or lack of maintenance should not be passed on to the citizens of Alaska,” said Rep. Kurt Olson, House Oil and Gas Chairman, R-Soldotna. “If they take a deduction, we are paying for it, and that’s what we are trying to fix.”

BP has said it would take tax deductions on a portion of the pipeline replacement costs, which could hit up to $260 million.

Along with the fine, BP America will plead guilty to a misdemeanor violation of the federal Clean Water Act for the crude spill on Alaska’s North Slope in March 2006, Justice Department officials said Thursday.

The company’s long-standing pattern of cost-cutting and mismanagement at Prudhoe Bay, the nation’s largest oil field, was a major cause of the 200,000-gallon spill, U.S. Attorney Nelson Cohen said in a news conference.

“The company failed to invest enough money, in time and people, to maintain the integrity of the pipeline,” Cohen said. The spill was the largest ever in the North Slope fields, which border the Arctic Ocean.

The agreement was one of several struck between the London-based oil and gas giant and federal investigators in the resolution of probes across the U.S.

The London-based company agreed to pay a total of $373 million in fines and restitution over the manipulation of energy markets in the Midwest and violation of the Clean Air Act in a refinery explosion that killed 15 people in Texas.

Four former BP employees were indicted by a federal grand jury in Chicago on 20 counts of mail and wire fraud charges connected to a propane price-fixing scheme that government officials said affected about 7 million consumers.

“These agreements are an admission that, in these instances, our operations failed to meet our own standards and the requirements of the law. For that, we apologize,” BP America Chairman and President Bob Malone said in statement.

In Alaska, federal attorneys said the company has admitted its failure to adequately monitor and clean its transit pipelines despite the challenging operating conditions in the Arctic oil fields it co-owns with ConocoPhillips and Exxon Mobil Corp. BP operates the fields on behalf of all the owners.

“BP cut corners with disastrous consequences and is being held to account,” Acting U.S. Attorney General Ronald J. Tempas for the Environment and Natural Resources Division said in a statement.

Calls to Exxon and ConocoPhillips were not immediately returned.

BP agreed to a $12 million federal fine and three years probation. Another $8 million will be split evenly between the state of Alaska and the National Fish and Wildlife Foundation for Arctic environmental research. The fine is the largest ever levied for an environmental misdemeanor in Alaska, Cohen said.

It takes into account the money BP should have spent to properly maintain the pipeline, as well as a prior felony against the company when a contractor illegally dumped waste oil and other toxic substances at the North Slope’s Endicott field in 1999, Cohen said.

Still, some lawmakers were not satisfied, saying the fine is not a large enough deterrent when dealing with multi-billion dollar global conglomerates.

“The proof is there they didn’t do a proper job of maintaining,” said state Sen. Tom Wagoner, R-Kenai, a member of Senate Resources Committee. “I think a $20 million fine is not nearly enough.”

Wagoner introduced a bill to prohibit tax deductions on costs related to maintenance neglect in February during the previous Legislative session.

Using interviews with scores of North Slope employees and millions of documents provided by the company, investigators traced the crude oil spill in March 2006 to poor maintenance of a transit pipeline, Cohen said.

The pipe was corroded, with a hole the size of an almond caused by bacteria living beneath a build-up of sludge, according to Cohen. The microbes produce an acid that eats away at the pipe. The sludge, which BP should have removed, protects them from being swept away by the flow of oil, Cohen said.

The line was one of several that carry oil from a production center into the trans-Alaska oil pipeline, an 800-mile trunk that runs from the North Slope to the tanker port of Valdez in south-central Alaska. The leak occurred at a caribou crossing, where a mound is built over the pipeline allowing the animals to cross, according the plea agreement.

The incident was followed in August 2006 with a 1,000-gallon oil spill, forcing BP Exploration Alaska, Inc. to temporarily halve its Prudhoe Bay production to less than 200,000 gallons a day.

Justice officials said BP will not be charged for the August incident because it has cooperated fully with the investigation.

The state is still pursuing a civil case against the company, said Attorney General Talis Colberg. He would not give further details.

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Associated Press Writers Jeannette Lee reported from Anchorage and Steve Quinn reported from Juneau.