House Investigation of BP Oil Spills Finds Cost-Cutting at Fault

Severe company budget cuts at a time when BP PLC was making huge profits put pressure on managers to ignore corrosion protection at the oil company's North Slope pipelines that sprung leaks last year, according to internal company documents.

A House committee investigating the Alaska spills, which forced a partial shutdown of Prudhoe Bay oil production last summer, released a half dozen e-mails and other documents that showed that anticorrosion programs repeatedly were targeted for cost cutting, including on the lines that eventually failed.

"BP field managers were being asked to choose between saving money and critical maintenance," said Rep. Bart Stupak, D-Mich., chairman of the Energy and Commerce investigations subcommittee. He said the cost-cutting from 1999 through 2005 came at a time London-based BP PLC made a total of more than $106 billion in profits.

Robert Malone, chairman of BP America Inc., the oil giant's U.S. subsidiary, acknowledged at the hearing that there were "extreme budget pressures at Prudhoe Bay" because of a sharp decline in production from the North Slope.

Could this have discouraged preventive maintenance, asked Stupak.

"It not only could have, we believe it did," replied Malone.

The corrosion, much of it hidden by development of high amounts of sludge, caused a leak and spill on a feeder line in March, 2006, followed by another leak in August at a second line. After the second incident, the company shut down the affected lines, resulting in Prudhoe Bay production being cut in half. The company now is spending $250 million to replace 16 miles of questionable pipes.

But Malone disputed that the budget cuts were to blame for the pipeline breaks.

Citing a consultants' report on the incidents, Malone said "budget increases alone would not have prevented the leaks."

The report by Booz Allen Hamilton concluded the pipeline breaks "resulted not from budget pressures" but because of "the lack of a formal, holistic risk assessment process," he said.

"Even with more money (managers) wouldn't have pigged the line," said Malone, referring to a process of driving a device through a pipe to inspect it for internal corrosion, or the clean it out. "They were that confident on what they were doing on that pipeline."

That didn't satisfy the lawmakers.

"Cost cutting ... drove many key management decisions" on pipeline maintenance and corrosion protection, Rep. John Dingell, D-Mich., chairman of the full committee, said, citing BP e-mails obtained by the panel.

An exchange of e-mails in the summer of 1999 called for cutting anti-corrosion chemicals by 10 percent, though it was acknowledged that "this is a risky call."

An October 2001 e-mail called for stopping the use of a pipe corrosion inhibitor because there wasn't money for a full year's supply of the chemical. "We are under huge budget pressure for the last quarter of the year and therefore we have to take some rather disagreeable measures," said the e-mail, calling for ending use of the inhibitor "as soon as possible."

That same year, Prudhoe Bay managers were told to shift $800,000 from an anticorrosion program and "do this quietly."

Stupak said the BP documents also suggest corrosion monitoring — including "smart pigging," removing insulation for spot corrosion checks, and digging at road crossings where corrosion is more likely — "were reduced or put on hold because of budget pressures."

BP's corrosion inspection and chemical group "was under extreme pressure to constantly find new ways to cut costs," said Stupak.

A government report released in March also blamed BP for cost-cutting at the company's Texas City refinery, where a 2005 explosion killed 15 people and injured 170, the worst U.S. industrial accident since 1990.

Carolyn Merritt, chair of the Chemical Safety Board, which investigated the refinery explosion, told the House subcommittee Wednesday there were "striking similarities" between the refinery accident and the Prudhoe Bay spills.

Both incidents revealed "a checkbook mentality" that prevented actions that might have avoided the problems, she said.