August 7, 2006 9:57 a.m. EDT
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DOW JONES REPRINTS
  This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit:www.djreprints.com. • See a sample reprint in PDF format. • Order a reprint of this article now. BP to Shut an Alaska Oil Field Move Will Pull Off Market
400,000 Barrels a Day Of Crude-Oil Production By JIM CARLTON
August 7, 2006 9:57 a.m. BP PLC said it will shut down its Prudhoe Bay oil field in Alaska, taking crude oil off the market in a time of tight supplies and rising demand, following the discovery of a corroded pipeline and small leak there. The shutdown by the London energy titan comes as it seeks to patch up its image in North America, which has been marred by safety and environmental concerns in Alaska and elsewhere. The shutdown, disclosed last night and expected to occur over several days, will result in curtailment of an estimated 400,000 barrels a day of oil, almost half the total daily production from fields on Alaska's North Slope. While the amount is relatively small compared with the 20.7 million barrels of oil a day consumed in the U.S. last year, the shutdown could affect oil markets because the thin margin between supply and demand has led to volatility. The Organization of Petroleum Exporting Countries issued a statement Monday, saying the group has enough capacity to cover the loss. "OPEC is naturally concerned about the outage of such a large volume of crude from the market and would work to ensure that the disruption does not cause any supply shortage on the market," the group said in a statement. "OPEC spare capacity is more than adequate to take care of the shortfall resulting from the closure of the Prudhoe Bay oil fields," it added. Meanwhile, the Energy Department is prepared to provide oil from the government's emergency supplies if a refinery requests it, a department spokesman said Monday. BP officials said they wouldn't resume production at Prudhoe Bay until they and government regulators can be assured operations will present no further threat to the environment. "We regret that it is necessary to take this action, and we apologize to the nation and the state of Alaska for the adverse impacts it will cause," Bob Malone, chairman and president of BP America, the company's North American unit, said in a statement. BP officials said the shutdown was begun after inspection tests Friday revealed "unexpectedly severe corrosion" and a small spill from a line on the eastern side of Prudhoe Bay used to carry processed crude to the Trans-Alaska Pipeline. The leak was estimated at about 200 gallons, and a cleanup effort is under way. Tests found a total of 16 anomalies in 12 locations because of corrosion on the line, BP said. In March, corrosion on a similar line resulted in a spill of about 200,000 gallons of crude -- about 4,800 barrels -- at the same field, in the largest such spill in the history of North Slope oil production. Following the March spill, the Department of Transportation ordered BP to inspect the remaining transit lines to see if there were more signs of serious corrosion. Tests in June on one of those lines also revealed corrosion, prompting BP to close a two-mile stretch pending replacement of that line as well. As a result, BP had already curtailed daily production by about 23,000 barrels a day. BP officials say they have ramped up their spending on anticorrosion programs over the past few years and say it is now among their top priorities world-wide. Several state and federal investigations have been launched into the corrosion problems, including a criminal probe by the Environmental Protection Agency. BP has said it is cooperating. BP also faces regulatory probes and a criminal investigation over a March 2005 explosion at a BP refinery in Texas City, Texas, that killed 15 workers. In June, the Commodity Futures Trading Commission and the Justice Department alleged in civil and criminal complaints that BP traders manipulated the propane market in early 2004. BP has said it will fight the price-manipulation allegations. Mr. Malone has said one of his top priorities is to convince officials that BP is acting aggressively to correct problems. Write to Jim Carlton at jim.carlton@wsj.com1
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