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Outside Magazine February 2004

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Crude Reality (cont.)

DOES IT PAY TO BE CLEAN?
When old hands grumble about environmental standards, it's a good sign things are moving in the right direction. But anecdotal evidence is hardly proof. So I turned to my own contacts, including the CFO of one of the four largest oil companies in the world, who agreed to speak to me on condition of anonymity.

"We're the deep pockets," my friend told me. "Oil spills mean lost product plus cleanup costs. And ever since the Exxon Valdez, the bar has continually been raised. We're paying clean-up costs on operations from 20 years ago that were in full compliance of laws at the time. I tell my managers this all the time: Don't tell me you disposed of waste materials in some landfill and it's all according to EPA regulations, because I'm going to assume at some point we'll be required to go back and clean up—at greater costs. We want zero discharges."

In other words, economics ensures clean drilling. Another contact, the general manager of health, safety, and environment for the overseas branch of a major oil company, spelled it out for me: "The real reason for clean operations," he said, scribbling something on a piece of paper, "is this." He shoved the paper across the table. On it, he'd drawn a giant dollar sign.

Yet even he acknowledged that zero discharges doesn't mean zero risk of spills. In the early days of an oil field, profits are high and risk is low. An effervescent mixture of crude oil and water and natural gas comes boiling out of the ground, bubbling like Coke from a well-shaken can. But as the field ages, the flow of oil declines, while feeder pipelines and shutoff valves grow old. As maintenance costs rise, so do the costs of clean production.

In March 2003, the National Academy of Sciences, the D.C.-based nonprofit that the government turns to for unbiased analysis, warned about the relationship between costs and cleanup. In The Cumulative Environmental Effects of Oil and Gas Activities on the North Slope, the NAS found that while, so far, "most spills have been small and ... damaged areas recovered," a weak regulatory climate spelled concern for the future. "Because the obligation to restore sites is unclear," the report stated, "and the costs of dismantlement, removal, and restoration are likely to be very high, the committee judges it unlikely that most disturbed habitats ... will be restored."

According to some, BP's management of the 26-year-old Prudhoe Bay field is a case in point. In 2001, a group of 70 employees went public with allegations that BP was in violation of its 1999 probation regarding spill prevention and response. Among them was Bill Burkett, a production operator who, until his retirement in 2002, had put in 20 years on the North Slope. In the 1990s, he maintains, BP brought new wells online to boost sagging production, while managers cut personnel and maintenance. Employees who complained were marginalized. "In the end," he said, "they did nothing to address our concerns."

On August 16, 2002, an explosion at BP's well A-22 in Prudhoe Bay illustrated his fears. The well had been shut down by BP's own inspectors for dangerously high pressures at the wellhead, but was restarted without proper testing. Six hours later the well exploded, hurling a worker 50 feet in the air and leaving him with broken bones and severe burns. This was not an isolated event. In April of 2001, a corroded pipeline in ConocoPhillips's Kuparuk field spewed 92,400 gallons of "produced water," a highly toxic cocktail of crude oil and salt water, over the ice and snow; the spill was controlled in 12 minutes, but not before it damaged two acres of tundra. Burkett still supports drilling in ANWR—but this pattern of weak oversight and bottom-line economics has led him to the conclusion that oil companies can't be trusted to police themselves.

Strange as it sounds, that's basically what they do. The Department of Justice, the Environmental Protection Agency, and, on the state level, the Alaska Department of Environmental Conservation (ADEC) regulate oil production under a policy of voluntary disclosure. Companies are obligated to report environmental incidents, and face periodic inspections by the EPA, ADEC, the Alaska Oil and Gas Conservation Commission, and several other agencies, many of these visits scheduled in advance. And as oil revenues have declined, so has Alaska's state budget—15 percent since the early 1990s, with ADEC taking a 49 percent hit.

The result, states a 2003 Wilderness Society report, is "a clear record of broken promises." They point to more than 400 spills per year since 1996, totaling 1.7 million gallons, and cite extensive development around the supposedly pristine Alpine field.

In the end, analyzing industry behavior is no easy business. The mistakes of the Valdez and Endicott Island have led to positive changes, but perfection, the oil companies argue, is impossible. The main issue is that overall, the industry now has the capability to tap more field with less impact and, if required, can do so. Its record of operations on the North Slope is, by world and historical standards, impressive. Zero rig blowouts and zero major spills (classified by ADEC as 100,000 gallons or more) since the Valdez is no small accomplishment, and while no one wants to see many minor spills totaling 1.7 million gallons, this still does not have the impact of a single spill of the same amount. It all comes down to how you define acceptable risk.

So long as reduced-impact drilling is cost-effective, I'd contend that oil companies can be trusted to operate cleanly. But economics and the environment aren't always in line. As the field ages, you enter the gray zone of risk management. And in that gray world, no one should be trusted—not Big Oil, not the government. When no two people can agree on how much risk is acceptable, some reliable system of checks and balances is critical, or the result is a quagmire of trade-offs in a land where one man's wasteland is another man's wilderness.

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