North Slope Cleanup Not Guaranteed

REPORT: Will oil firms provide funds to pick up after rigs run dry?

by Liz Ruskin, Anchorage Daily News, July 9, 2002)

Washington -- Once the North Slope oil is gone, it will cost the oil companies billions of dollars to dismantle all the buildings, roads and gravel. But the state of Alaska has required that the companies post bonds of only $500,000 to cover all their oil and gas leasing on state land, the General Accounting Office noted in a report it is releasing this week.

"These amounts represent a small fraction of the funds that may be needed for dismantlement, removal and restoration of state lands on the North Slope should a company refuse to or be unable to pay," the report's authors said.

It comes as no surprise that the area will take billions to dismantle, remove and restore -- DR&R for short -- said Bob King, Gov. Tony Knowles' spokesman.

"These are huge, world-class companies, and I don't think there's any reason to believe they won't have the wherewithal when it comes time to shut down the North Slope," he said.

But Peter Van Tuyn, an attorney at the Anchorage-based law firm Trustees for Alaska, said the report validates what he and other environmentalists have been arguing for years, usually regarding tearing down the trans-Alaska oil pipeline: The state has no guarantee that the cleanup money will be available when it's needed.

Among other things, the report faults the state for not establishing clear DR&R standards. Essentially, the report says, the companies are obligated to clean up to the state's satisfaction and the state hasn't said what that means exactly. That makes it impossible, the GAO said, to accurately estimate how much the work will cost. Nonetheless, the report's authors came up with the figure: $2.7 billion to $6 billion.

The lack of clear standards from the outset could make the DR&R requirements the state eventually imposes tough to enforce in court, Van Tuyn said.

And smaller operators often take over when a field declines, he said.

"We keep changing the players, but we don't guarantee the cleanup costs at any stage," he said. "There's kind of a 'trust me' issue that's very disturbing from an environmental and a public policy perspective."

Saying a company is big and established isn't good enough, he said.

"Look at Enron," he said. "It was huge. Now it's vaporized."

Rep. Ed Markey, D-Mass., who led the charge in the House last year against opening the Arctic National Wildlife Refuge to oil drilling, requested the GAO -- the investigating arm of Congress -- to look into the matter. He said the report is a "powerful indictment" against the existing permitting process and the companies. He also compares the issue to the recent corporate disgraces. "Hiding $6 billion in cleanup liabilities is a world-class accounting scandal in the same league as WorldCom and Enron," Markey wrote Monday.

There's no basis for that accusation, according to Ronnie Chappell, spokesman for BP Alaska.

"That statement is disappointing and irresponsible," he said. "Our balance sheets make full accounting of the DR&R costs."

The companies disclose the worldwide total of those liabilities.

The money may be set aside on paper, said Van Tuyn, "but where is the money?"

It's not set aside in any escrow account, Chappell acknowledged, but he said BP has already begun making good on its commitment.

The company, for example, is reclaiming old pits where chemical-laced drilling lubricants and cuttings were dumped. The material is ground up and injected down drilling holes.

The companies have committed to performing the dismantling and they are legally obligated to do it, the governor's spokesman said. Cleanup technologies improve over time, so why should the state have set standards in the 1970s for a cleanup that might happen 30 years from now, King said.

If Alaska's big three oil producers -- BP, Phillips and Exxon Mobil --were to post gigantic bonds, they would go to a bonding company that would likely have less financial might than the oil companies, King said.

"What sense would that make?" he asked.

Richard Fineberg, an oil industry critic who lives in Ester, said it makes plenty sense.

"It's like insurance. You have safeguards to ensure that the far distant, unlikely occurrence is covered," he said. "You come up with a financial arrangement to make sure it is covered."

He and Van Tuyn said they provided information to the GAO investigators.

Reporter Liz Ruskin can be reached at 1 202 383.0007 or lruskin@adn.com

Source: http://www.adn.com/front/story/1386125p-1504813c.html "