Alaska's governor imposed a state hiring freeze because of the millions of dollars in revenue Alaska is losing as a result of a major oil field shutdown, and says he has directed the state attorney general to investigate whether oil company BP could be held fully accountable for the losses.
Earlier this week, London-based BP PLC said it would shut down Prudhoe Bay -- the biggest oil field in the US -- because of a small leak and severe pipeline corrosion. Energy officials have said the pipeline repairs are likely to take months, curtailing Alaskan production into next year.
The expected loss of 400,000 barrels per day (bpd) at today's oil prices means the state is losing about US$6.4 million a day in royalties and taxes, Revenue Commissioner Bill Corbus said.
PHOTO: AP
The state receives 89 percent of its income from oil revenue; Alaska has no state sales tax and no personal income tax. The Prudhoe Bay shutdown will cut in half Alaska's total oil production and the resulting revenue.
Critical
Without money coming in from Prudhoe Bay, Alaska's government can operate for only about two months before going into the red, Corbus said.
"BP must get the entire Prudhoe Bay back up and running as soon as it is safely possible," Governor Frank Murkowski told a joint session of the state legislature on Wednesday.
BP, the world's second-largest oil company, said it would replace 26km of pipeline that carries oil from Prudhoe Bay to the nearly 1,300km Trans-Alaska Pipeline. The Prudhoe Bay field accounts for 8 percent of US domestic output.
"We obviously apologize for the impact this is having on people, and we regret having to take these actions, but our focus is on safe operations and environmental protection, and that's the reason why we've undertaken the action we have," BP spokesman Neil Chapman said.
BP and the US authorities have until today to decide whether the company can maintain some production at the Alaskan oilfield. BP said it was working on two plans, one involving total shutdown of the 400,000bpd field which provides 8 percent of US production, and a second allowing it to keep oil flowing from the western side of the 101,000-hectare site.
"While we have one plan moving forward for the orderly shutdown, we also have a second independent, but parallel plan to look at the possibilities of safely keeping portions of the field operating," Bob Malone, chairman and president of BP America, said.
Decision awaited
BP is carrying out further inspections of 300m of pipe in the western section to assess whether it can continue production, which would run at just under 200,000bpd. The authorities and the company have to reach a conclusion by the weekend, when its shutdown plan is due to be triggered.
"We will be making a decision with the federal and state governments by Friday [today] as to whether we need to continue to take down that line for safety purposes or whether we can maintain production," Malone told US energy analysts in a conference call.
BP has not said how long it expects the replacement programme to take but the US Energy Information Administration said on Tuesday if the field was shut down in its entirety, full production might not be restored until January.
"This production outage forecast is based on BP's initial estimate that the shutdown would last `several' months. Our forecast could change as new information becomes available," the EIA said.
Steve Marshall, president of BP Exploration Alaska, told a conference call that the onset of the Alaskan winter would help rather than hinder the company's replacement program.
"We are far more restricted in the summer months when the tundra is unprotected by a layer of snow and ice. The winter is our friend when it comes to the construction and installation of new equipment and pipe. Productivity does slow down when the temperatures approach minus 60 degrees, but that is several months away," Marshall said.
BP said it was unable to calculate how much the shutdown would cost. Head of investor relations Fergus MacLeod noted that BP's share of the field's production ran at about 100,000bpd and its second-quarter net profit margin was US$25 a barrel.
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