Shares in BP PLC dropped and the price of crude oil surged Monday as analysts speculated that it could be months before production restarts at the troubled Prudhoe Bay oil field in Alaska, deepening the company's woes in the United States.
BP announced late Sunday it had begun the shutdown of Prudhoe Bay, the largest producing oil field in the United States, accounting for 8 percent of domestic output, after finding severe corrosion along a transit pipeline.
The company said Monday it would replace 73 percent of the Prudhoe Bay pipelines, and that the field could be closed for weeks or months.
Company officials told a news conference in Anchorage, Alaska, that they did not immediately know how much it would cost to replace the lines. They will continue to keep the oil field closed and bring parts back into service once it is safe to do so.
The discovery is not the first major problem at Prudhoe Bay _ BP is already facing a criminal investigation over a large spill in March at the field, which it also blamed on a corroded pipeline.
The troubles in Alaska add to several other mishaps for London-based BP in the United States, where the company is the largest oil producer, following an explosion at its Texas City refinery that killed 15 workers in March 2005 and a recent trading scandal.
"The decision to shut operations ... does indicate the company is now looking to end the speculation and constant criticism once and for all by implementing needed repair work," said Simon Wardell, an analyst at Global Insight. "With two possible criminal investigations pending and a further scrutiny of the company's operations guaranteed, BP still has five months to go in a year it would rather forget."
BP stock dropped 2.1 percent to 622.5 pence (euro9.23; US$11.88) on the London Stock Exchange. Oil prices shot up by more than US$2 a barrel as markets were already worried about possible supply disruptions from the hurricane season and instability in the Middle East.
Light, sweet crude for September delivery soared $2.50 to $77.30 on the New York Mercantile Exchange, while September Brent prices broke $78.
BP said the full shutdown of Prudhoe Bay _ the faulty line was closed immediately Sunday, the complete shutdown of the field is expected to take a number of days _ will result in reduced oil production of 400,000 barrels a day, or around 2.6 percent of U.S. supply including imports, according to data from the U.S. Energy Information Administration.
In an attempt to calm concerns, the U.S. Energy Department said Monday that it is prepared to provide oil from the government's emergency supplies if a refinery requests it because of the disruption of supplies from Alaska.
BP said it did not know how long the field would be offline, but analysts speculated it could be several months.
Societe Generale, citing an assessment by one of the bank's engineers with an oil-field services background, said that it could take six months or perhaps a year for production to return to normal.
UBS warned that if the shutdown continues to the end of the year the impact would be equivalent to 40,000 barrels of oil equivalent per day and BP could miss its production target of 4.1 million to 4.2 million barrels.
BP has a 26 percent stake in the field, meaning its own production would be cut by 100,000 barrels a day, or around 2.5 percent of worldwide production, said BP spokesman David Nicholas. He declined to provide any forecast of how the shutdown would affect earnings.
Wardell said the shutdown would undoubtedly have an impact on BP's third-quarter earnings as well as the company's reputation.
Only one of BP's three transit lines at Prudhoe Bay is operating. The third was shut down in March after up to 267,000 gallons of oil spilled onto the frozen ground about 250 miles above the Arctic Circle. BP installed a bypass on that line in April with plans to replace the pipe.
BP confirmed in June that it had received a subpoena from a U.S. grand jury investigating the spill and the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration said last week that it had asked the company to produce detailed engineering information on a section of the pipeline.
Also last week, BP said it would shut 12 oil wells on Alaska's North Slope as a precaution after whistleblowers alleged more than 50 were leaking. Most of the shuttered wells were in Prudhoe Bay.
BP puts millions of gallons of corrosion inhibitor into the Prudhoe Bay lines each year. It also examines pipes by taking X-rays and ultrasound images. Spokesman Robert Wine said that checks on the lines had been stepped up following the March spill.
"After March we committed to accelerating the program of checks," Wine said. "This particular leak was found as a result of that inspection program."
BP said that the shutdown decision followed the receipt of data on Aug. 4, from a technical check run of the pipeline in late July.
The company is still facing the fallout of its other problems in the United States.
In announcing a 30 percent rise in second-quarter net profit last month, BP also said it spent US$500 million (euro395 million) in the quarter to settle claims arising from the Texas City explosion. BP had already set aside a US$700 million (euro553 million) provision for compensation related to the incident.
The company said it would add US$1 billion (euro790 million) to the US$6 billion (euro4.7 billion) already earmarked over the next four years to upgrade all aspects of safety at its U.S. refineries and to repair and replace pipelines in Alaska.
BP also said it called in external auditors to review compliance systems at its U.S. trading business. Last month, the U.S. Commodity Futures Trading Commission filed a civil complaint, alleging BP traders illegally manipulated part of the U.S. propane market in early 2004.
BP announced late Sunday it had begun the shutdown of Prudhoe Bay, the largest producing oil field in the United States, accounting for 8 percent of domestic output, after finding severe corrosion along a transit pipeline.
The company said Monday it would replace 73 percent of the Prudhoe Bay pipelines, and that the field could be closed for weeks or months.
Company officials told a news conference in Anchorage, Alaska, that they did not immediately know how much it would cost to replace the lines. They will continue to keep the oil field closed and bring parts back into service once it is safe to do so.
The discovery is not the first major problem at Prudhoe Bay _ BP is already facing a criminal investigation over a large spill in March at the field, which it also blamed on a corroded pipeline.
The troubles in Alaska add to several other mishaps for London-based BP in the United States, where the company is the largest oil producer, following an explosion at its Texas City refinery that killed 15 workers in March 2005 and a recent trading scandal.
"The decision to shut operations ... does indicate the company is now looking to end the speculation and constant criticism once and for all by implementing needed repair work," said Simon Wardell, an analyst at Global Insight. "With two possible criminal investigations pending and a further scrutiny of the company's operations guaranteed, BP still has five months to go in a year it would rather forget."
BP stock dropped 2.1 percent to 622.5 pence (euro9.23; US$11.88) on the London Stock Exchange. Oil prices shot up by more than US$2 a barrel as markets were already worried about possible supply disruptions from the hurricane season and instability in the Middle East.
Light, sweet crude for September delivery soared $2.50 to $77.30 on the New York Mercantile Exchange, while September Brent prices broke $78.
BP said the full shutdown of Prudhoe Bay _ the faulty line was closed immediately Sunday, the complete shutdown of the field is expected to take a number of days _ will result in reduced oil production of 400,000 barrels a day, or around 2.6 percent of U.S. supply including imports, according to data from the U.S. Energy Information Administration.
In an attempt to calm concerns, the U.S. Energy Department said Monday that it is prepared to provide oil from the government's emergency supplies if a refinery requests it because of the disruption of supplies from Alaska.
BP said it did not know how long the field would be offline, but analysts speculated it could be several months.
Societe Generale, citing an assessment by one of the bank's engineers with an oil-field services background, said that it could take six months or perhaps a year for production to return to normal.
UBS warned that if the shutdown continues to the end of the year the impact would be equivalent to 40,000 barrels of oil equivalent per day and BP could miss its production target of 4.1 million to 4.2 million barrels.
BP has a 26 percent stake in the field, meaning its own production would be cut by 100,000 barrels a day, or around 2.5 percent of worldwide production, said BP spokesman David Nicholas. He declined to provide any forecast of how the shutdown would affect earnings.
Wardell said the shutdown would undoubtedly have an impact on BP's third-quarter earnings as well as the company's reputation.
Only one of BP's three transit lines at Prudhoe Bay is operating. The third was shut down in March after up to 267,000 gallons of oil spilled onto the frozen ground about 250 miles above the Arctic Circle. BP installed a bypass on that line in April with plans to replace the pipe.
BP confirmed in June that it had received a subpoena from a U.S. grand jury investigating the spill and the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration said last week that it had asked the company to produce detailed engineering information on a section of the pipeline.
Also last week, BP said it would shut 12 oil wells on Alaska's North Slope as a precaution after whistleblowers alleged more than 50 were leaking. Most of the shuttered wells were in Prudhoe Bay.
BP puts millions of gallons of corrosion inhibitor into the Prudhoe Bay lines each year. It also examines pipes by taking X-rays and ultrasound images. Spokesman Robert Wine said that checks on the lines had been stepped up following the March spill.
"After March we committed to accelerating the program of checks," Wine said. "This particular leak was found as a result of that inspection program."
BP said that the shutdown decision followed the receipt of data on Aug. 4, from a technical check run of the pipeline in late July.
The company is still facing the fallout of its other problems in the United States.
In announcing a 30 percent rise in second-quarter net profit last month, BP also said it spent US$500 million (euro395 million) in the quarter to settle claims arising from the Texas City explosion. BP had already set aside a US$700 million (euro553 million) provision for compensation related to the incident.
The company said it would add US$1 billion (euro790 million) to the US$6 billion (euro4.7 billion) already earmarked over the next four years to upgrade all aspects of safety at its U.S. refineries and to repair and replace pipelines in Alaska.
BP also said it called in external auditors to review compliance systems at its U.S. trading business. Last month, the U.S. Commodity Futures Trading Commission filed a civil complaint, alleging BP traders illegally manipulated part of the U.S. propane market in early 2004.
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