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BP to pay Alaska $255M for lost oil production in 2006

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Posted: Thursday, November 8, 2012 3:12 pm | Updated: 11:54 am, Mon Jan 21, 2013.

ANCHORAGE, Alaska - A subsidiary of London-based BP PLC has been ordered to pay the state of Alaska $255 million for royalties the state lost because of production shutdowns after two North Slope oil spills in 2006 and a subsequent pipeline replacement project.

A three-member arbitration panel unanimously ordered BP (Exploration) Alaska Inc. to pay the state $245 million, plus another $10 million in fines, by Dec. 3. The panel heard the case over four weeks last May and June in Anchorage, and reached its decision Oct. 31, the state said in a release Thursday announcing the award.

The amount of the settlement cannot be appealed.

"We're absolutely pleased with the result," Alaska Attorney General Michael Geraghty said.

He described it as "a win for all Alaskans, and we look forward to moving forward."

BP operates Prudhoe Bay on behalf of other oil companies, which will pay part of the bill, BP spokeswoman Dawn Patience. BP estimated its final out-of-pocket costs for the settlement at $66 million.

"With this behind us we can now move forward, operating North America's largest oil field in a safe, reliable and compliant manner to the benefit of Alaska and the rest of the United States," the company said in a statement.

North Slope pipeline corrosion came under intense public scrutiny with two large oil spills in 2006. Both spills were traced to BP's failure to regularly clean and inspect two of its pipelines over the course of several years.

BP ultimately agreed with federal prosecutors to pay $20 million in fines and restitution for the first spill, the largest ever at Prudhoe Bay. The spills also led BP to replace 16 miles of transit lines.

The state of Alaska, which relies on oil taxes for about 90 percent of its revenue, sought what it would have earned in royalties from the lost production during the spills and shutdowns to replace pipe. BP argued the production wasn't lost, only dela yed, and said it shouldn't have to pay anything.

Both sides agreed to arbitration to avoid expensive legal costs.

© 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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