BP Estimates Prudhoe Pipeline Repair Cost to Be $170M

BP said Friday that the cost to repair and replace leaking pipelines at Prudhoe Bay, the nation's largest oil field, could be about $170 million.

Spokesman Neil Chapman said that was an early, rough estimate for the current repairs and for a major oil spill in March. He added that costs could change as the effort continued.

The British company has not yet said exactly how it might divide costs with ConocoPhillips Co. and Exxon Mobil Corp., which also share ownership of the Prudhoe Bay site.

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BP, which operates the Alaskan oil field, pledged to replace the pipeline after discovering leaks and severe corrosion in the decades-old pipes nearly a week ago.

The company also said it hoped to announce as early as Friday whether it can keep part of the Prudhoe Bay oil field pumping, offering a glimmer of hope that oil will keep flowing from the field.

BP PLC also said it had secured orders for all 16 miles of pipeline it hopes to replace at the oil field, and expects to have the supplies in place by the end of the year.

If the company is able to get the new pipeline in place between September and December as planned, it would likely be able to complete the replacement work in early 2007.

Chapman said the pipeline will all come from U.S. steel mills, under contract with companies including United States Steel Corp. The proximity of the steel mills will allow the pipeline to get to Alaska faster.

The company had previously said part of the pipeline would come from Japan's Nippon Steel Corp., but Chapman said that pipeline would now go for other existing BP projects.

The discovery of leaks and corrosion prompted BP to begin a gradual shut down of the entire oil field, which normally supplies about 400,000 barrels of oil a day. But BP said it will decide Friday whether to keep the western part of the Alaskan oil field open after all. It had previously said that decision would be pushed off until early next week.

"They've got enough data to make a go-no go decision," BP spokesman Scott Dean said.

The company was to meet with state and federal regulators before making a final decision Friday.

Federal regulators late Thursday gave BP permission to keep the field's western line operating, but ordered it to conduct more rigorous pipeline inspections.

BP also must pass a series of tests before restarting pipes it shut down.

"Right now, I haven't seen any data that suggests we would need to order a shutdown," of the western line, said Tom Barrett, administrator of the pipeline and hazardous materials safety administration for U.S. Department of Transportation.

Analysts say pressure to keep oil flowing — albeit safely — probably came at BP from several sides, including the state of Alaska, which is highly dependent on the energy industry, and production partners Exxon Mobil and ConocoPhillips, both of whom have bigger stakes in Prudhoe Bay than BP.

"Everybody is watching them," said Dave Pursell, a former production engineer who worked in the state's North Slope, now an analyst for Pickering Energy Partners.

"If you keep Prudhoe Bay offline for six months, there is a bigger market impact and gasoline prices will certainly go up," he said.

On Friday, Exxon Mobil spokeswoman Prem Nair said the company notified customers of its intent to invoke "force majeure." Such an action alerts customers that it may not be able to supply all the crude oil it has promised because of an unforeseen emergency, and allows them to seek out alternative sources.

"Exxon Mobil has to reduce delivery to our customers and will do so according to provisions in our sales contract," Nair said.

ConocoPhillips invoked force majeure Thursday. BP has said it has no similar plans because the oil it gets from Prudhoe Bay is processed by the company itself.

The oil field is currently churning out about 140,000 barrels of crude oil a day, and companies officials say they might be able to supply as much as 185,000 barrels a day if they are able to keep the western side open.

The leaks and corrosion that prompted the shutdown were discovered on the eastern side of the oil field, although a much larger spill last March was on the western side.

Even as lawmakers scolded BP for lax maintenance of the Prudhoe Bay pipelines, Alaska Legislature late Thursday nevertheless passed the state's biggest oil and gas tax law rewrite in decades as a way to spur development of Alaska's natural gas reserves.

Gov. Frank Murkowski is negotiating a financial deal with the state's largest oil companies — BP, ConocoPhillips and Exxon Mobil — that is meant to make constructing a $25 billion gas pipeline to Canada attractive.

The three companies negotiating the contract are the state's largest oil producers, and lease the rights to the North Slope's gas reserves. The companies would own the pipeline jointly with the state.

The tax bill, which is retroactive to last April once the governor signs it, would set a base tax rate of 22.5 percent of companies' profits from their Alaska operations. That tax rate would rise by 0.25 percent for every $1 rise in the price of oil above $55 per barrel.

Oil prices have been hovering around $75 a barrel recently.

The companies would be able to claim credits and deductions in the tax bill and use them to partially pay for developing natural gas facilities and infrastructure on the North Slope, which holds about 35 trillion cubic feet of natural gas reserves.