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We Build Alaska

BP to retain decommissioning liability for TAPS

A spokesperson from BP confirmed that they will retain the decommissioning liability for the Trans Alaska Pipeline System (TAPS) after the sale of its Alaska assets to Hilcorp is complete. Hilcorp will assume obligations on the North Slope. BP Spokesperson Megan Baldino said, “Environmental obligations associated with Prudhoe Bay and upstream operations will transfer to Hilcorp. BP is retaining its decommissioning liability on TAPS.”

According to Alyeska Pipeline, the ownership percentages in TAPS are:

  • BP Pipelines (Alaska), Inc. 48.441%
  • ConocoPhillips Transportation Alaska, Inc. 29.2086%
  • ExxonMobil Pipeline Company 20.9943%
  • Unocal Pipeline Company 1.3561%

How about that 1.3561% Unocal ownership!

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Leases requires removal of all facilities at the end of the economic life of the pipeline and assets on the North Slope, as well as remediation of the land. TAPS has long been subject to litigation over tariffs and property taxes. This may be a contributing factor to BP retaining the decommissioning liability. There could also be a regulatory hurdle for approval of the sale if Hilcorp would assume the liability. BP, ConocoPhillips, and Exxon show this as a liability on their balance sheets. They have basically said they can cut a check to cover the costs at the time the pipeline needs to be dismantled (Hopefully not for a long time). They are also all publicly traded companies. Hilcorp is a private company and does not have anywhere near the cash reserves of BP, Conoco, or Exxon.

I was not able to find any recent estimates of decommissioning TAPS but I did come across this 2004 report by Richard Fineberg titled, “Trans-Alaska Pipeline System Dismantling, Removal and Restoration (DR&R): Background Report and Recommendations.” According to the report:

The estimated cost of DR&R on TAPS is easily 100 times greater than that of the estimated dismantling costs for two other pipelines for which the RCA has considered DR&R issues – the Cook Inlet and Kenai crude oil pipelines. Because TAPS passes through numerous and diverse regions generally recognized to be of great environmental value, and since DR&R for TAPS includes the Valdez Marine Terminal and associated facilities, the public interest requires assurance that these extraordinary sums of money will in fact be available for their intended environmental purposes. In view of the dollars at issue and the attendant environmental and public policy impacts, it is difficult to imagine establishing policies governing pipeline DR&R without giving serious
consideration to the implications of that policy for TAPS. 

The report goes on to say:

The estimated DR&R cost of $872.1 million in 1977 dollars falls between the estimates of the Corps of Engineers ($601 million) and the TAPS owners ($1,012 million).

According to an inflation calculator, $872 million 1977 dollars is equal to approximately $3.6 billion 2019 dollars. However, keep in mind that technology has been drastically improved since 1977, which would likely lower the cost of removal.

This is an extremely complex issue that has been litigated for years. I recommend reading the entire report to get a better understanding of the issue taking into consideration a lot has changed in the last 15 years.

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2 years ago

Gee, I wonder how the question of DR&R suddenly came to the surface, lol.
Maybe it’s time to ask BP to escrow those funds?

Nice job, Jeff.

2 years ago
Reply to  Marc

I am gobsmacked that the remediation costs were not escrowed from day one. The money would be in safe keeping for the clean up, assuming politicians didn’t get hold of it. I was wondering if the bigboys could walk away from the remediation liability by selling off to others. The problem is the cleanup costs often exceed the net worth of the mom and pop entities that will buy in. Perhaps it is time to levy a cleanup tax that is based on production. This will help a little when the billions will be spent on remediation. The big oil… Read more »

2 years ago
Reply to  Marc

Marc……not only do they not escrow any liability monies, the operating companies have been writing off future liability expenses. This is treated as a holographic expense, thus reducing taxes. Very creative accounting as long as the taxman lets you get away with it.

David Guttenberg
2 years ago

Its “Fineberg,” Richard did a tremendous amount of this work and years of follow up on his own, very often criticized for it. He once told the story about going to Indonesia for an oil and gas conference and heard a CEO give a completely contradictory story about doing business in Alaska then his own company gave in legislative testimony. Why should we be surprised.

Peter Van Tuyn
2 years ago

Alaskans owe Richard Fineberg a debt of gratitude for his dogged determination and exhaustive research and advocacy on this and many other issues. Nice to see his name in this context. Good reporting Jeff.