Oil cleanup cost underestimated, GAO says

Companies drilling in Alaska could face total cost of $6 billion

July 10, 2002|By BLOOMBERG NEWS

WASHINGTON - Exxon Mobil Corp. and other oil companies might have to spend as much as $6 billion to clean up their drilling operations on Alaska's North Slope, dwarfing the several million dollars they are required to put aside, the General Accounting Office said in a new report.

Restoring the region to wilderness when the oil runs out in 20 to 30 years might cost $2.6 billion to $6 billion, said the report from Congress' investigative arm. Alaska requires the companies, which include Phillips Petroleum Co., Anadarko Petroleum Corp., ChevronTexaco Corp. and BP PLC, to post bonds or make other financial pledges of less than $1 million each for the cleanup.

"Existing financial assurances, such as bonding requirements, ensure the availability of only a small portion of the funds that are likely to be needed," the report said.

Democrats oppose President Bush's plan to expand Alaskan oil drilling to the Arctic National Wildlife Refuge, saying the industry plays down the possible destructive impact on the land. The impasse with Republicans has slowed passage of a comprehensive energy bill this year.

The GAO said the companies wouldn't provide their estimates of the cleanup's costs. By withholding the information, the companies might be fooling investors, said Rep. Edward J. Markey, a Massachusetts Democrat, who asked for the report.

Markey called the companies' actions "a world-class accounting scandal" similar to the billions of dollars of debt and expenses WorldCom Inc. and Enron Corp. hid from shareholders. "The report makes clear that oil companies are refusing to disclose the soaring cost of their existing liability on the North Slope, a potentially massive accounting issue," he said.

Phillips spokeswoman Dawn Patience declined to comment, saying she hadn't seen the report. ChevronTexaco said in a statement that it holds a minority stake in North Slope production and isn't an operator.

Last year, BP said it anticipated $5.3 billion in costs during the next 30 years to clean up and restore oil sites worldwide, not breaking down the expense by region.

"These future liabilities are accurately accounted for on the balance sheet," said Ronnie Chappell, a BP spokesman. "We have committed to complete the removal of facilities and the renewal of the land."

Chappell called Markey's statements about an accounting scandal "disappointing and irresponsible."

Representatives of Anadarko couldn't be reached immediately for comment.

The oil companies have known from the beginning that they would have to foot the bill for the cleanup, said Bob King, a spokesman for Alaska Gov. Tony Knowles. "We have faith the companies will fulfill their responsibility on what they promised to do," he said.

Alaska officials haven't created goals for the cleanup, making it difficult to estimate the cost, the GAO said. The agency's estimate is 5 percent to 11 percent of the $53.6 billion used to build the drilling operation in the 1970s.

"It's impossible to fully assess in advance the costs," King said.

Removing the oil plants, 224 miles of pipeline and 10,000 acres of gravel roads and airstrips "will be an enormous undertaking, given the North Slope's remote location and harsh climate," the report said.

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