BP Shuts Down Prudhoe Bay, U.S.'s Largest Oil Field (Update10)...

BP Shuts Down Prudhoe Bay, U.S.'s Largest Oil Field (Update10)
Aug. 7 (Bloomberg) -- BP Plc is shutting Alaska's Prudhoe Bay oil field, the largest in the U.S., because of pipeline corrosion and a leak, amid increasing criticism of the company's safety record in its biggest market.

Oil rose as much as 2.6 percent and shares of London-based BP, the world's second-largest publicly traded oil company, lost 2 percent. Owners of the field, which accounts for 8 percent of U.S. output, include Exxon Mobil Corp., ConocoPhillips and Chevron Corp. The shutdown may take days to complete, said Toby Odone, a BP spokesman in London.

Chief Executive Officer John Browne already faces a grand jury probe for an earlier Alaska spill, charges of market manipulation in the U.S. propane industry and fines from a Texas refinery blast that killed 15 workers. BP, which gets 40 percent of its sales from the U.S., said last month it will boost spending there to improve safety and maintenance.

The Alaskan shutdown ``will prompt further questions about BP's safety procedures,'' said Ivor Pether, who helps manage about $15 billion at Royal London Asset Management, including BP shares. ``It will have a big impact on earnings if it's shut down for a long period of time but they absolutely have to do it.''

Prudhoe Bay accounts for about 1 percent of BP's annual earnings, Pether said today in an interview. Higher prices may offset the effect of lost output, he said.

`Woeful Run'

Some 400,000 barrels a day of production is being shut, BP spokesman Ronnie Chappell said. The company doesn't know when the pipeline will be repaired, Chappell said.

A pipeline that leaked four to five barrels of oil was shut down at 6:30 a.m. Alaskan time Sunday, BP said in a statement. BP owns 26.36 percent of the Prudhoe Bay field. Alaska provides about 10 percent of BP's worldwide oil production.

``This adds to a woeful run of reputationally damaging incidents,'' Jon Rigby, a UBS AG analyst in London, wrote today in a research note.

It may take ``some months'' for BP to replace at least 3 miles of pipelines in Alaska, Citigroup Inc. analysts including James Neale in London, said in a note. Odone declined to comment on the Citigroup estimate.

Crude oil for September delivery rose as much as $1.91 to $76.67 a barrel in trading on the New York Mercantile Exchange, and traded at $76.40 at 3:29 p.m. London time. Oil reached a record $78.40 a barrel on July 14.

`Big Effect'

BP shares fell as much as 16.5 pence to 619.5 pence in London.

Oil has gained 25 percent this year after militant attacks cut shipments from Nigeria and Iran's nuclear standoff with the U.S. increased concern that Middle East supplies will be disrupted. The shutdowns, coupled with depletion at some of the world's largest fields, including Mexico's Cantarell, are keeping prices near records.

``Prudhoe Bay is a sizable flow and is key to the U.S. market,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``It should have a fairly big effect.''

Exxon Mobil, the world's largest publicly traded oil company, owns about 36 percent of Prudhoe Bay, according to its Web site. Company spokeswoman Susan Reeves declined to comment on the field's closure or the effect on the Irving, Texas-based company.

Houston, Texas-based ConocoPhillips, the No. 3 U.S. oil company, owns 36.1 percent of Prudhoe Bay. San Ramon, California- based Chevron, the No. 2 U.S. oil company, owns about 1.2 percent and Denver, Colorado-based Forest Oil Corp. has 0.02 percent.

ConocoPhillips

A call by Bloomberg News to ConocoPhillips spokeswoman Dawn Patience's office in Anchorage, Alaska, on Sunday evening was not immediately returned. Chevron spokesman Don Campbell didn't immediately return calls by Bloomberg News to his office and cell phones on Sunday evening. Forest Oil spokesman Patrick Redmond didn't immediately return a call Sunday evening at his office.

BP's decision to close down the Prudhoe Bay field follows the analysis of data from inspections along the pipeline system in late July, which revealed 16 anomalies in 12 locations in an oil line on the eastern side of the field, BP said. BP operates 22 miles of oil transit lines at Prudhoe Bay and has inspected about 40 percent of the system.

The pipeline leak and the discovery of corrosion ``have called into question the condition of the oil transit lines at Prudhoe Bay,'' Bob Malone, BP America President, said in the statement. ``We will not resume operation of the field until we and government regulators are satisfied that they can be operated safely and pose no threat to the environment.''

Extra Resources

BP is getting extra resources from across Alaska and North America to speed the inspection of the remaining oil transit lines at the field, it said.

The shutdown of the line, which supplies the Trans Alaska Pipeline System, only affects Prudhoe Bay and not other fields in the remote region, Chappell said. The field's output peaked in 1989 at 1.5 million barrels a day and has been declining since, he said.

The 800-mile trans-Alaska pipeline transports North Slope crude to Valdez, the northernmost ice-free port in North America. Alaskan oil is transported to refineries in Puget Sound, Washington, Los Angeles and Hawaii, according to the Arctic National Wildlife Refuge.

The U.S. government in July issued a warning to BP over its Alaskan business, saying it has ``significant concern'' about the company's efforts to meet regulations imposed on the Alaskan unit following the March oil leak, the Financial Times said July 27.

Pipeline Corrosion

BP's March oil leak in Alaska of 270,000 gallons was caused by internal pipeline corrosion, spilling oil over 1.9 acres of tundra and frozen lake surface. The worst oil spill in U.S. history was the 1989 grounding of the Exxon Valdez tanker in Alaska's Prince William Sound, when 11 million gallons of crude were dumped.

BP agreed to inspect oil feeder lines at Prudhoe Bay after the March spill, Chappell said. This is the first time the field has been shut down because of corrosion in a feeder line, he said.

``We need to understand why the corrosion is as severe as it is,'' Chappell said. ``We do not have a firm re-start date at this time.''

Petroleos Mexicanos, Mexico's state-owned oil monopoly, on Aug. 2 said production at its Cantarell oil field, the world's second-largest by volume, will decline 8 percent in 2006, dropping faster than its December estimate of a 6 percent.