Oil Industry Lags on Funds For Cleaning Alaska Region
By Jim Carlton

Wall Street Journal
9 July, 2002

The oil industry faces liability of as much as $6 billion for the eventual cleanup of its production facilities on Alaska's North Slope, and restoration of the land, but has ponied up only a legally mandated fraction of that amount, a new congressional study finds.

Under Alaska state law, oil companies have been required to post bonds or other financial assurances totaling about $200,000 for each one's drilling operations and $500,000 to cover all of a company's oil and gas leases in Alaska. A North Slope consortium that produces oil in the North Slope includes Exxon Mobil Corp., BP PLC, Phillips Petroleum Co. and ChevronTexaco Corp.

Yet the cost to dismantle the roads, pipelines, processing plants and other infrastructure that has been built in Alaska's remote Arctic over the past 30 years could range between $2.7 billion and $6 billion, according to the report by the General Accounting Office. The report said it couldn't be more specific on estimates because neither state nor federal officials overseeing the industry have issued specific guidelines on how they want the lands restored. The report called on federal land managers to catalog all the dismantling and restoration steps they deem will be needed and review the adequacy of existing financial arrangements made by the companies. It didn't have the same authority to make the same demand of the state of Alaska.

The report was commissioned by several Democratic lawmakers, including Congressman Ed Markey, an outspoken industry critic from Massachusetts, who called its findings a warning of possible huge potential liability for taxpayers. "The report is a powerful indictment of the existing federal and state permitting process, which allows private oil and gas development on public lands using permits that are so vague and financial assurances so inadequate that the public interest in restoring these lands may never be redeemed," said Mr. Markey, a senior member of the House Resources Committee.

Industry officials said they hadn't yet reviewed a copy of the report, and so couldn't comment on it. "However, the oil and gas industry in Alaska has a long history of environmentally responsible and sensitive operations," said Marilyn Crockett, deputy director of the Alaska Oil and Gas Association, a trade group in Anchorage. "There is no evidence to suggest that this practice will not continue into the future, up to and including restoration when that time arrives." A BP spokesman added the company has already begun some restoration work, such as removing old drilling waste from storage pits. U.S. Interior Department officials have agreed they need to provide specific cleanup requirements and evaluate whether the industry needs to set aside more money to comply. Alaska state officials, though, were highly critical of the report, saying it is premature to be planning for a cleanup that may not take place for a half century.

"The real financial assurance of these obligations comes from the balance sheets of the companies doing business on the North Slope," Pat Pourchot, Alaska's commissioner of natural resources, wrote the GAO for the state's response to the report. State officials add they believe the report was politically motivated on behalf of environmentalists and other industry critics, a charge the GAO officials deny.

The issue over how much it will cost to remove equipment from the oil fields of Alaska comes amid a push by the industry to expand drilling and exploration so as to extend the life of the Trans-Alaska Pipeline, which has been carrying oil from the North Slope to tankers on the ice-free south of the state since the 1970s.

Original Story

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