BP 'fell short' on pipeline, execs admit
Malone calls failures 'unacceptable,' Former BP corrosion monitor pleads Fifth, as execs grilled over Prudhoe Bay.
By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- BP's top U.S. executives told lawmakers Thursday that the company stumbled by failing to prevent a major Alaskan pipeline from becoming crippled by corrosion.

At the hearing, a former BP official responsible for monitoring pipeline corrosion invoked the Fifth Amendment in response to the panel's questions about the problems that led to the partial shutdown of the nation's largest oilfield.

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Bob Malone, U.S. operations chief for BP

"BP's operating failures are unacceptable," BP America Chairman Bob Malone told members of a House panel. "They have fallen short of what the American people expect of BP and they have fallen short of what we expect of ourselves."

Malone appeared with BP (down $1.17 to $65.76, Charts) executives before a House of subcommittee to respond to problems that federal investigators have found with the company's Prudhoe Bay facility in Alaska.

"I deeply regret this situation occurring on my watch," said Steve Marshall, president of BP exploration in Alaska. (Watch the hearings live).

Marshall said that pipeline spills earlier this year had been cleaned up without lasting environmental damage. He also said BP would increase "pigging" with a pipeline analysis device to try to prevent further problems and was investigating the source of corrosion that precipitated the spill.

Pigging is the process of running a mechanical device through a pipeline to clean it or to test for corrosion. Lawmakers said that BP relied too heavily on ultrasound analysis, which does not work on some of the more deeply buried pipelines.

Company executives expressed regret for the maintenance failures and promised to make things right through increased maintenance, the replacement of 16 miles of pipeline, the hiring of outside advisers and continued appearances before congressional committees.

Fifth Amendment

Richard Woollam, who used to head corrosion monitoring for BP at Prudhoe Bay, invoked his Fifth Amendment right against self-incrimination to avoid answering questions from lawmakers.

Marshall of BP said Woollam was pulled from a supervisory position and transferred out of Alaska after outside investigators determined there was an "atmosphere of intimidation" in the corrosion monitoring department that was "suppressing safety concerns."

Marshall said Woollam is still employed by BP but that he is on paid leave, and corporate lawyers have spoken to him about the situation.

The hearing began with a browbeating from Rep. Joe Barton of Texas, chairman of the House Energy and Commerce Committee.

"Years of neglecting to inspect the most important oil-gathering pipeline in this country is not acceptable," the Republican told the hearing held by the committee's investigations and oversight panel.

If BP, "one of the world's most successful oil companies," is incapable of conducting basic maintenance on the walls of the some of the country's most important oil pipelines, then regulators should "let somebody else do it," Barton said.

Rep. Jan Schakowsky, D-Ill., said it was "truly beyond comprehension" that a profitable company such as BP would fail to maintain the infrastructure that was the basis for its earnings, adopting a "see-no-evil approach to Prudhoe Bay operations."

The company was also criticized for presenting itself, through advertising, as environmentally friendly while failing to prevent damaging oil spills.

"If the company spent as much on maintenance as it does on advertising and lobbying for tax cuts, none of us would have to be here today," said Schakowsky.

Focusing on BP's slogan of "Beyond Petroleum," Rep. Ed Markey, D-Mass., said, "BP stands for a company with bloated profits that failed to fix bad pipelines."

Production halved

Prudhoe Bay, located on Alaska's northern coast above the Arctic Circle, is of major importance to the United States, generating 400,000 barrels of oil a day, or about 8 percent of the country's domestic oil production, when it is fully operating.

BP cut production at the field in half in August after government-mandated inspections revealed severe corrosion.

Members of the subcommittee lambasted the company for failing to pig its pipelines to look for internal corrosion more recently than 1992. Subcommittee members contrasted BP's lack of maintenance with the Trans-Alaska pipeline, where such inspections are conducted every three years.

The scolding was not restricted to BP. Rep. Diana DeGette, D-Colo., criticized the government for not doing more to prevent the problem. "Only after a crisis happens do we jump to fix a problem," DeGette said.

London-based BP is also being investigated for a pipeline spill of 200,000 gallons in March and for allegedly manipulating energy prices in 2004. In addition, 15 workers were killed by an explosion at a BP refinery in March 2005.

Alaska authorities also testified and were not spared criticism from committee members, who expressed surprise that the state had not aggressively monitored BP.

"The state's asleep at the wheel, or what?" asked Rep. Bart Stupak, addressing Kurt Fredriksson, commissioner of Alaska's department of conservation.

The testimony comes after oil prices touched a five-month low in early trading and hovered near $67 a barrel.

Thursday's hearings were monitored via webcast in New York. Hearings are to continue Friday, when BP executives are to testify before the Senate Energy and Natural Resources Committee.

BP's hard road ahead

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.