BP officials at America's largest oil field -- Prudhoe Bay on Alaska's North Slope -- cut oil production by a quarter last week after they found a hole about the diameter of a pencil in a water pipe. On Sunday, after several days of round-the-clock repair work and tests to the damaged area, they restored full production. BP is in the process of replacing 16-miles of pipe after corrosion caused the North Slope's largest oil spill in August of 2006.
A detailed report in the Chicago Tribune traces problems at BP to cutbacks during the days of cheap oil in the late 1990s. Tribune chief business correspondent David Greising says that the scrimping of a decade ago has left the oil industry ill-prepared to deal with even small problems, such as pencil sized holes in pipes in the wilds of Alaska. He writes that the company's inability to handle technological challenges has forced it to delay pumping from one of its best prospects for the future -- the Thunder Horse platform on the Gulf of Mexico.
"To compete in the new era of high prices, climate-change activism and cutthroat competition for oil resources, BP and others in the industry are quickly finding there is no room for error," he says. Disappointingly, the article points to few specifics of corporate culture reform other than a rally the troops visit by Malone to Prudhoe Bay in March. Meanwhile, the company faces a shortage of skilled oil workers and concerns by union officials about too much overtime on the North Slope. In its haste to repair its 16-miles of pipeline put out of service last summer, BP found that federal officials were rejecting about 8% of its welds on new pipes. Truth is, BP shouldn't be singled out. Other oil industry companies are grappling with their own safety and technical problems. A little more than a week ago, Valero Energy Corp. (NYSE: VLO), in San Antonio, Texas, was forced to shutter a unit of its McKee refinery because of mechanical difficulties.