News: Fairbanks Daily News Miner, June 12, 2002, p. A1

Alyeska urged to trim costs:  Pipeline owners call for more 'efficiency' on maintenance


By SAM BISHOP

News-Miner Washington Bureau

WASHINGTON--Owners of the trans-Alaska oil pipeline last month asked their operating company to try to complete maintenance work this year while spending only 90 percent of the money budgeted, according to an internal letter obtained by the News-Miner.

The letter illustrates the major oil companies' interest in keeping pipeline costs down, a goal that benefits not only the owners but also the state of Alaska, according to a spokesman for Alyeska Pipeline Service Co. Alyeska operates the line for the oil companies.

A long-time pipeline critic, though, said the request shows that the oil companies, rather than accepting the need to spend more money on the aging line, are pushing too hard in the other direction.

The letter was faxed to the News-Miner Washington bureau Monday evening. It arrived as both environmental groups and Alyeska are meeting with policy-makers in the capital to discuss renewal of the right-of-way permit for the pipeline. An environmental impact statement on the renewal, which may outline changes that government agencies think ought to be made in the pipeline's operation, is due out in November.

The May 6, 2002, letter was written by Al Bolea, chairman of the TAPS Owners Committee, to David Wight, president of Alyeska. The owners group includes BP Alaska (Exploration) Inc., where Bolea works as president of the pipeline division, as well as Exxon Mobil, Phillips Alaska Petroleum Co., and Williams, the operator of the North Pole refinery.

Bolea said Alyeska needs to become more efficient.

"We encourage Alyeska to set a stretch objective of completing the proposed programs at 90 percent of funding," Bolea wrote. "We would like to emphasize that we are looking for the efficiency of overall spend, rather than changes in the scope of work."

Mike Heatwole, spokesman for Alyeska in Anchorage, said the letter reflects nothing more than the desire of the owners, like the owners of any company, to keep costs down.

That effort, though, benefits not just the companies but also Alaska state government's treasury, he noted. The cost of transporting oil to market via the pipeline and tankers is deducted from the value of the oil before state taxes and royalties are figured on it.

"Every dollar that we can save as an operation is worth 25 cents to the state of Alaska," Heatwole said. "The pipeline is one aspect of Alaska's energy delivery system and anything we can do to be cost-conscious and get efficiency is beneficial to us, to the state and to the owner companies."

The request from the owner companies to keep costs to 90 percent of what has been budgeted is a general goal, not a hard order, which is why it was called a "stretch objective," Heatwole said.

Long-time Alyeska critic Richard Fineberg of Ester said the letter's contents appear to confirm what some environmental organizations have alleged--that owner pressures are pushing Alyeska to cut too many corners on pipeline maintenance.

Fineberg will be in Washington, D.C., this morning to present a report on that topic. He wrote the report for the Alaska Forum for Environmental Responsibility. Walt Parker, a forum board member, will join him at a news conference in a Senate office building.

The letter, Fineberg said, "is completely consistent with what we were frequently told during the research for the report."

"I have several examples in the report of incidents that at least some observers believe were the result of the cost-cutting pressures, incidents that threatened safe operations," he said.

Heatwole, though, said that Alyeska will spend roughly $200 million on maintenance this year, one of the highest yearly totals since the pipeline was finished in 1977.

"Both our managers and our owners are very aligned in a solid commitment to maintenance," Heatwole said.

The letter from Bolea to Wight discusses several projects that represent about $35 million of the $200 million total.

The letter declares more than half of Alyeska's requests involving the $35 million to be "not approved." The rejected requests involved clearing and dirt work on the right of way, work on river-crossing training structures, maintenance of a natural gas line from Prudhoe Bay to Pump Station No. 4, replacement of some vertical supports that hold the pipeline off the ground, and repair of mainline pipe insulation.

Alyeska will still spend money in those areas, though, Heatwole said.
 
"It's primarily a classification issue rather than anything else," he said of the owners' response. "This isn't a flat-out rejection."

The owners gave Alyeska's requests a "not approved" stamp because they didn't think the work deserved to be upgraded to the "program" level, Heatwole said. In Alyeska jargon, a "program" refers to a multi-year initiative, he said.

For some work, such as that on the vertical supports, insulation and the right-of-way maintenance, the owners wanted more information before upgrading to the program level, he said.

Other requests were rejected because the work was already being done at a project level and owners didn't think it warranted an upgrade to the "program" level, Heatwole said.

For example, on both the natural gas line and the river training structures, the owners had this to say: "We do not support categorizing this activity as a program in 2002. This proposed program has previously been approved as a separate project."

The owners did approve $18 million worth of maintenance work with the letter. That includes $8 million for corrosion detection on the main pipeline, $3.5 million for tank inspections and $6.5 million for right-of-way maintenance.

Washington, D.C., reporter Sam Bishop can be reached at sbishop@newsminer.com .