Anchorage Daily News, June 3, 2005, p. A-1.

(accessed June 4, 2005 at http://www.adn.com)

 

Watchdog cites oil companies' big profits

ALASKA CRUDE: Study confirms companies can afford more safeguards, advisory council claims.

 

By WESLEY LOY
Anchorage Daily News

 

Oil company profits on North Slope crude tallied nearly $5.5 billion in 2004 and figure to be prodigious again this year, according to a report Thursday from a Valdez-based oil industry watchdog group.

 

The state also made big money through oil taxes and royalties but not as much as the oil companies, the report said, putting the state's take at $2.8 billion.

John Devens, executive director of the Prince William Sound Regional Citizens' Advisory Council, said the report shows the oil industry has ample money to spend on maintaining or enhancing environmental safeguards such as tugboat escorts of tankers laden with crude oil.

 

Devens said the owners of the trans-Alaska oil pipeline have been talking of environmental cutbacks, so the council commissioned a study of their profits.

"This report indicates the industry can easily afford to do things right in the Sound, as we've always maintained," Devens said in written remarks issued with the report. "Alaskans don't need to worry that asking the industry to protect our environment will drive it out of the state."

 

The council is a congressionally mandated nonprofit set up in the wake of the 1989 Exxon Valdez oil spill. Nearly all of its nearly $3 million annual budget comes from Alyeska Pipeline Service Co., the Anchorage-based industry consortium that runs the 800-mile pipeline and Valdez tanker port.

 

Alyeska executives objected to the council spending $25,000 of the industry's money to hire Fairbanks analyst Richard Fineberg to prepare the profits study.

 

In response, the council late last month sued Alyeska to defend the spending decision.

With oil prices running at record levels in recent months, industry spokesmen said Thursday that the report doesn't prove or settle anything.

 

"Oil companies are making a profit. This is news?" said Daren Beaudo, spokesman for BP Exploration (Alaska) Inc., the company that operates the state's biggest oil field at Prudhoe Bay.

 

BP isn't counting on the high prices -- and the high profits -- to continue forever, and it can't spend lavishly on any aspect of its business, he said.

BP is the largest owner of the pipeline with a 47 percent share, and Alyeska is getting enough money to fully protect the Sound, Beaudo said.

 

Alyeska spokesman Mike Heatwole said that if his company overspent on environmental protections, it would raise costs for oil companies that don't own a share of the pipeline to transport their oil to market. That could discourage North Slope exploration, he said.

 

"There's an implication here that we are somehow sacrificing safety or environmental protection or regulatory compliance," Heatwole said of the report. "We strongly object to that notion."

 

Fineberg, a longtime industry analyst and critic, relied on publicly filed company financial statements, state Department of Revenue data and many other sources to estimate oil profits from 1996 through 2004.

 

Among the findings in his 98-page report:

• Total industry profit was just under $5.5 billion last year, while the state made $2.8 billion and the federal government about $1.9 billion. Prices for North Slope oil delivered to West Coast refineries averaged $38.84 per barrel.

• Even when oil prices are much lower, the industry still makes a profit. In 1998, oil prices averaged $12.55 a barrel and the industry made $825 million in profit, with state revenue totaling $1.4 billion and federal revenue $209 million.

Fineberg said his estimates do not include industry profits from tanker operations, refining and gas station sales.

 

Heatwole and Beaudo said they couldn't speak to the accuracy of Fineberg's numbers. Dawn Patience, spokeswoman for Conoco Phillips Alaska Inc., the state's top oil producer, didn't respond to a request for comment.

 

The council is pushing Alyeska to install equipment to control vapors given off by oily ballast water from tankers, which council staffers say is the single largest remaining source of air pollution at the Valdez port. Controlling emissions would cost $1.5 million, or "just over two hours worth of industry profits" at last year's rate of return, according to the council.

 

And eliminating one escort tug would save about $2.5 million a year, or four hours of industry profits, the council says.

 

With the oil flow down the pipeline declining, Alyeska has moved to tighten pipeline costs and automate the system. But Heatwole and Beaudo said no decisions have been made on eliminating escort tugs. And they noted the industry has spent big money to guard against another spill in the Sound.

 

BP, for example, is spending about $1 billion for four new double-hulled tankers, Beaudo said.

 

Congress required double-hulled tankers after the Exxon spill.

 

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Daily News reporter Wesley Loy can be reached at wloy@adn.com or 257-4590.

 

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