Firms fail to disclose Alaska cleanup costs - GAO
By Chris Baltimore

Planet Ark
10 July, 2002

WASHINGTON - Oil firms have not earmarked enough money to foot a future cleanup bill of as much as $6 billion for oil drilling operations on Alaska's North Slope once the now-prolific reservoir runs dry, according to a congressional report released yesterday.

The report by the General Accounting Office, Congress' investigative arm, adds another wrinkle to a debate over a Republican-backed plan to allow drilling in the nearby Arctic National Wildlife Refuge (ANWR) which Democrats have vowed to defeat on environmental grounds.

The GAO prepared the report at the request of House Minority Leader Richard Gephardt and Massachusetts Rep. Edward Markey, two Democrats taking part in House-Senate negotiations to reach a compromise on wide-reaching energy legislation.

Markey accused oil companies drilling on the North Slope of committing a "world-class accounting scandal" akin to WorldCom Inc and Enron Corp for allegedly concealing their potential legal liability in accounting statements to investors.

"Oil companies are refusing to disclose the soaring cost of their existing liability on the North Slope," Markey said.

He asked the Securities and Exchange Commission to demand a true accounting of the size and scope of the dismantlement, removal and restoration liability of each company producing oil from the North Slope.

Over the last 30 years, British Petroleum, Phillips Petroleum Co. and others have collectively spent $53 billion to build gravel roads, pipelines and airstrips for oil production from the Utah-sized region known as the North Slope.

Since the opening of the Trans-Alaska Pipeline in 1977, more than 13 billion barrels of oil have flowed from the region, accounting for about 20 percent of U.S. annual domestic production.

However, once the wells end production, oil companies will face a big cleanup bill, totaling between $2.7 billion and $6 billion, the GAO said. The report did not estimate how soon the North Slope will play out.

As of January, only BP and Phillips operated fields there, while Exxon Mobil Corp, Anadarko Petroleum Corp and ChevronTexaco Corp hold interests in some wells there, the GAO said.

The land was leased by the oil companies from the Interior Department and the state of Alaska. Under the law, public lands must be restored after drilling ceases.

The American Petroleum Institute, a trade group representing the biggest oil companies, had no immediate comment on the new report.

The Interior Department and oil companies "have a very lax definition of what will be required and how much they will have to pay," Markey said, referring to cleanup costs.

The GAO said the cleanup will be an "enormous undertaking," especially in the area's hostile Arctic climate - the sun never breaches the horizon for two months during the winter.

The North Slope is bounded by two environmentally sensitive areas. To the west lies the National Petroleum Reserve of Alaska, where limited drilling has occurred. On the eastern side is the politically controversial Arctic National Wildlife Refuge.

The state of Alaska has advanced no specific dismantlement plans for North Slope wells. Until then, GAO said it is not possible to give an accurate estimate of how much it will cost to dismantle the drilling sites.

Funds provided by the oil industry in shape of bond requirements will yield only a "small portion" of potential funds needed and are "insufficient" to ensure proper restoration, the GAO said. Oil firms must put up $200,000 for each Alaska drilling operation and $500,000 for all of its oil and gas leases in the state, it said.

The Interior Department should issue more specific requirements for the cleanup, the report said.

Five oil companies firms refused to disclose their cleanup liability to GAO officials for the report. BP and Phillips each called for more specific definitions to dispel uncertainty about their obligations.

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