BP, the oil giant, has been forced to shut down the biggest oil field in the United States — at Prudhoe Bay in Alaska — after discovering "unexpectedly severe" rust and a leak in a pipeline.
In the latest setback to hit its American division, already reeling from hurricane and fire damage and allegations over propane trading, BP said the shutdown would cut output by about 400,000 barrels of oil a day.
This is equivalent to about 8 per cent of US daily output and could knock in a big dent in Alaska's economy.
The move sent the price of west Texas crude up $1.25 from Friday's close to $76.01 and the price of BP shares down 1.7 per cent to 625.5p.
Having begun the shutdown yesterday, BP acknowledged it would take "days to complete". The oil group said at this stage it was unable to say for how long Prudhoe Bay would be shut.
Bob Malone, the newly appointed chairman and president of BP America, said: "We regret that it is necessary to take this action and we apologise to the nation and the State of Alaska for the adverse impacts it will cause.
"We will not resume operation of the oil field until we and government regulators are satisfied that they can be operated safely and pose no threat to the environment."
BP said it decided to shut down Prudhoe Bay, which is expected over its lifetime to produce 14 billion barrels of oil, after data it received on Friday revealed 16 anomalies in 12 locations at a transit line on the eastern side of the field.
Follow-up inspections discovered a leak and a "small spill" estimated at between four and five barrels, BP said.
BP said the spill had been contained and a clean-up effort was under way. It added that it had notified all the relevant authorities.
The world's second largest oil group, which operates 22 miles of oil pipelines at Prudhoe Bay, said it was mobilising additional resources to speed up inspections at those sites it had yet to investigate.
But the spill is the second to hit BP's Prudhoe Bay field this year. In March it discovered a large spill and has already commited to replace a three-mile section of pipeline as a result.
Last month BP raised the amount it is to spend on overhauling safety procedures at the American subsidiary by $1 billion to $7 billion. Its US credibility has suffered a buffeting over the past 18 months.
Last year, a fatal fire forced BP to shut down its Texas refinery, the knock-on effect of which is ongoing with full production there yet to resume.
Hurricanes off the West Coast of America last summer also caused extensive damage. The combined effect of hurricanes Rita, Wilma and Katrina has presented BP with a repair bill seen at $900 million at the last count.
Most recently BP has had to contend with claims that some of its traders were involved in alleged price fixing in the market for propane trading. BP has strenuously denied any wrongdoing and called in a team of external auditors to examine compliance procedures.
Lord Browne of Madingley, BP's highly respected group chief executive, is to retire at the end of 2008, despite calls from several shareholders for him to stay.
Simon Wardell, oil analyst at Global Insight, said: "The decision to shut in operations completely does indicate that the company is now looking to end the speculation and constant criticism once and for all by implementing needed repair work.
"With two possible criminal investigations pending and further scrutiny of the company's operations guaranteed, BP still has five months to go in a year it would rather forget."
source: http://business.timesonline.co.uk/article/0,,9072-2302360,00.html 7aug2006
Rusting and leaky pipes have forced BP to shut down its Prudhoe Bay oil field in Alaska. But it is more than lost profits which will worry the board says Miles Costello.
BP's inability to provide a timetable for restarting production at Prudhoe Bay makes it perilously difficult to estimate the impact of its Alaskan closure in terms of lost revenues and profits for the group.
But BP owns 26 per cent of the field, with its partners at ExxonMobil and Conoco Phillips each owning 36 per cent and unnamed other parties holding the remaining 2 per cent.
Based on its ownership level, BP reckons that Prudhoe Bay accounts for about 100,000 barrels of oil production a day, against total daily production at its American sites last year of 612,000 barrels.
The oil giant, which also operates oil fields in the Gulf of Mexico, and at several onshore locations, generated sales and other operating revenues from its US businesses of $16.89 billion last year, with pre-tax profits from exploration and production nearing $9.5 billion.
Leading analysts of the oil and gas industry remained relatively sanguine today about the damage to BP's revenues, also arguing that the oil market remains well-supplied despite the Alaskan setback.
Jonathan Wright at Citigroup said in a note that even if Prudhoe Bay stays shut for the rest of the year, BP would suffer a fall in revenues of just 2 per cent.
Based on 2005 figures, this would mean lost revenues of $337.8 million (£177 million) which, although on the face of it a big number, is pretty modest when set against the size of BP's business.
It is predicted to make pre-tax profits for this year of about £19.65 billion, and is currently valued by the stock market at more than £126 billion.
Mr Wright said he assumed that Prudhoe Bay would be out of action "for some months".
More of an issue for the world's second-largest oil group is the potential reputational damage, particularly as it is the latest in a string of problems at the American division, which BP is planning to tackle with $7 billion.
Mr Wright noted: "...This is another slur on BP's US credentials, following the earlier Alaska pipeline leak in March, the Texas City explosion last year and recent further delays to start-up at its Thunder Horse and Atlantis deep water fields."
source: http://business.timesonline.co.uk/article/0,,9072-2302423,00.html 7aug2006
LONDON — Oil surged above $77 a barrel in Europe as BP (BP.L: Quote) began shutting an Alaskan field that pumps 8 percent of U.S. crude and anxiety over the Middle East, supplier of almost a third of the world's oil, ran high.
London Brent crude <CLOc1> climbed as much as two percent to $77.73 a barrel, within reach of its all-time high of $78.18, on expectations that the United States would scour European markets for replacement oil. At 1044 GMT it was up $1.25 at $77.42.
U.S. crude <CLc1> was up $1.54 at $76.30, off a $76.55 high.
BP Plc (BP.L: Quote) said on Sunday it was shutting the Prudhoe Bay oilfield in Alaska for repairs, cutting production by 400,000 barrels per day (bpd) after discovering severe corrosion and a tiny spill from a Prudhoe Bay oil transit line.
A BP spokesman said on Monday it would take several days to shut the field adding "beyond that speculation is pointless."
"The BP field is a sizeable stream. The world is already concerned about supplies and this is just adding to concerns," said Tony Nunan, a risk manager at Mitsubishi Corp in Tokyo.
Oil has rallied 25 percent this year with a quarter of Nigeria's output shut by militants, saboteurs playing havoc with Iraq's exports and consumers afraid Iran could halt oil flows to punish opponents of its nuclear program.
War in Lebanon has added to unease.
Citigroup said the loss of the BP field further cut the volume of spare oil available to the 85 million bpd world market. It assumed Prudhoe Bay's closure could last months.
"We estimate that 'effective' spare capacity, after taking account of 500 million bpd of Nigerian outages, was 2 million bpd, it now falls to closer to 1.6 million bpd."
"With concerns over security of supply from a number of key exporters (Iran, Nigeria and Venezuela) undiminished we see the situation in Alaskan as supportive," Citigroup said in a report.
Analyst Jim Ritterbusch of Ritterbusch and Associates in Galena Illinois said the United States could cover the lost output with imported oil. The United States is the world's biggest oil consumer by far, using 25 percent of its crude.
"This latest setback to global oil production comes in the context of a relatively tight oil market," BNP Paribas said.
"In this environment we maintain our forecast for Brent crude of $77 a barrel this quarter, and so implicitly expect prices to move above $80 a barrel at some point this quarter."
MIDDLE EAST BOILS
Tensions in the Middle East rose after Iran again invoked its oil exports for political leverage and Lebanon rejected a draft U.N. resolution meant to end the war between Israel and Hizbollah, delaying its vote.
A further spike in oil prices resulting from a broader Middle East conflict would drag an already slowing U.S. economy into recession more easily now than a year ago, Standard & Poor's said on Monday.
The credit ratings agency forecast three scenarios — with a $250 oil barrel sparking global recession in the worst of them, should Iran close the Strait of Hormuz, a bottleneck in the Gulf region between Iran and Oman by which tankers from Kuwait, Saudi Arabia and the United Arab Emirates transit.
But the most likely scenario, based on a limited conflict, has prices falling from current $75 levels to below $70 by year-end and to $60 by end-2008, which would allow the world economy to keep expanding, with U.S. growth slowing to 2.5 percent in 2007, S&P said.
Iran, the fourth-largest oil exporter, vowed on Sunday to expand its atomic fuel work and warned of a harsh response if the United Nations imposed sanctions aimed at halting enrichment.
"If they do (impose sanctions), we will react in a way that would be painful for them," said Tehran's chief nuclear negotiator Ali Larijani.
"We do not want to use the oil weapon, it is they who would impose it upon us," he told a news conference, adding Iran would expand the number of atomic centrifuges it was running.
Additional reporting by Maryelle Demongeot in Singapore and Robert Campbell in New York
source: http://ca.today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2006-08-07T105330Z_01_SP991_RTRIDST_0_BUSINESS-MARKETS-OIL-COL.XML 7aug2006
ANCHORAGE, Alaska — Oil company BP scrambled Monday to assess the pipeline corrosion that will shut shipments from the nation's biggest oil field, removing about 8 percent of daily U.S. crude production and driving oil and gasoline prices sharply higher.
BP, which is already facing a criminal investigation over a large spill in March at the same Prudhoe Bay oil field, said it did not know how long the field would be offline. ''I don't even know how long it's going to take to shut it down,'' said Tom Williams, BP's senior tax and royalty counsel.
The news sent the price of light, sweet crude oil up $1.59 to $76.35 a barrel in electronic trading Monday on the New York Mercantile Exchange. Gasoline prices rose more than 4 cents to $2.2725 on the Nymex.
Because of the disruption of supplies, the Energy Department is prepared to provide oil from the government's emergency supplies if a refinery requests it. Spokesman Craig Stevens said the department will be in contact with BP and West Coast refiners later Monday to assess the situation.
''If there is a request for oil we'll certainly take a serious look at that,'' he said.
Steve Marshall, president of BP Exploration Alaska Inc., said Sunday night that the eastern side of the Prudhoe Bay oil field would be shut down first, an operation anticipated to take 24 to 36 hours. The company will then move to shut down the west side, a move that could close more than 1,000 Prudhoe Bay wells.
Once the field is shut down, BP said oil production will be reduced by 400,000 barrels a day. That's close to 8 percent of U.S. oil production or about 2.6 percent of U.S. supply including imports, according to data from the U.S. Energy Information Administration.
BP said Sunday workers found a small spill of about 4 to 5 barrels, which has been contained and is being cleaned up.
The shutdown comes at an already worrisome time for the oil industry, with supply concerns stemming both from the hurricane season and instability in the Middle East.
A 400,000-barrel per day reduction in output would have a major impact on oil prices, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. A barrel contains 42 gallons of crude oil.
''Oil prices could increase by as much as $10 per barrel given the current environment,'' Emori said. ''But we can't really say for sure how big an effect this is going to have until we have more exact figures about how much production is going to be reduced.''
But Victor Shum, an energy analyst with Purvin & Gertz in Singapore, said he expected the impact to be minimal since crude inventories are high.
''So while this won't have any immediate impact on U.S. supplies, the market is in very high anxiety. So any significant disruption, traders will take that into account, even though there is no threat of a supply shortage.''
Marshall said tests Friday indicated that there were 16 anomalies in 12 areas in an oil transit line on the eastern side of Prudhoe Bay. Tests found losses in wall thickness of between 70 and 81 percent. Repair or replacement is required if there is more than an 80 percent loss.
''The results were absolutely unexpected,'' Marshall said.
BP America Chairman and President Bob Malone said Prudhoe Bay will not resume operating until the company and government regulators are satisfied it can run safely without threatening 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,'' Malone said in a statement.
The troubles at the Alaskan oil field add to other problems for BP in the United States, where the company is the largest oil producer, following an explosion at its Texas City refinery that killed 15 workers in March 2005 and a trading scandal.
The shutdown comes six months after the North Slope's biggest ever oil spill was discovered on a Prudhoe Bay transit line. Some 267,000 gallons of oil spilled. BP installed a bypass on that line in April with plans to replace the pipe. Only one of BP's three transit lines is now operating.
BP puts millions of gallons of corrosion inhibitor into the Prudhoe Bay lines each year. It also examines pipes by taking X-rays and ultrasound images.
BP has a 26 percent stake in the Prudhoe Bay field, meaning its own production would be cut by 100,000 barrels a day, or around 2.5 percent of the company's worldwide production, said spokesman David Nicholas. He declined to provide any forecast on the impact of the shutdown on earnings.
U.S. shares of BP PLC fell $1.26, or 1.7 percent, to $71.28 in morning trading on the New York Stock Exchange. Shares of BP Prudhoe Bay Royalty Trust, which derives revenue from royalties of BP's Prudhoe Bay oil, fell $8.49, or 9.7 percent, to $79.40 on the NYSE.
Even a short shutdown of Prudhoe Bay could be crippling to Alaska's economy.
Alaska House Speaker John Harris said it was admirable that BP took immediate action, although it's sure to hurt state coffers. ''This state cannot afford to have another Exxon Valdez,'' said Harris, R-Valdez.
The Exxon Valdez tanker emptied 11 million gallons of crude oil into Prince William Sound in 1989, killing hundreds of thousands of birds and marine animals and soiling more than 1,200 miles of rocky beach in nation's largest oil spill.
AP Writers Matt Volz in Juneau, Alaska, and Jane Wardell in London contributed to this report.
source: http://www.nytimes.com/aponline/business/AP-Oil-Field-Shutdown.html?ei=5094&en=4ca2929e3a060a67&hp=&ex=1155009600&partner=homepage&pagewanted=print 7aug2006
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