THE WALL STREET JOURNAL/DOW JONES NEWSWIRES: BP Mulls Ways To Circumvent Damaged Pipelines In US Gulf: “The problem with Na Kika, a BP-operated platform, is that both BP- and Shell-owned pipelines leading to it were damaged by the hurricane.”: “…we can't even begin until Shell does their part first." (ShellNews.net)

By KATYA KAZAKINA

Of DOW JONES NEWSWIRES

Posted 12 Oct 04

NEW YORK -- More than three weeks after Hurricane Ivan devastated Gulf of Mexico oil and gas infrastructure, British Petroleum Plc. (BP) is brainstorming ways to get around a frustrating predicament: it's got the goods, it's got the buyers. What it's missing is a way to get the goods to the buyers.

"All of our facilities are ready to go back into production," said Hugh Depland, spokesman for BP, a major oil and gas producer in the Gulf of Mexico. "But some platforms, like Na Kika, can't resume production because of the pipeline damage."

As a result, the platform, which could be producing as much as 110,000 barrels a day of precious low-sulfur crude oil, remains shut in.

BP hopes that it won't be out of commission much longer.

"We are hopeful that we can get all of our production online by the end of October," Depland said. "Our objective is to get back into production as quickly as possible."

To this end, the company has been looking into various ways to circumvent the problem of damaged pipelines, which are essential to transport oil from the platform to onshore refineries.

One alternative is to transport oil with the help of oil tankers; another is to create temporary tie-in lines into other operational pipelines.

"First we need to look into every possible solution," Depland said. "Then we can decide whether it's a feasible one or not."

The problem of damaged pipelines is complex.

"It's not like running down and putting some duct tape around it," Depland said.

About 30% of the Gulf's 33,000 miles of pipelines were in the direct path of Hurricane Ivan, the federal Minerals Management Service said in a statement late Friday. Segments of four large oil pipelines and five large gas pipelines remain shut in.

One major pipeline operated by BP, the MPOG line, is damaged near the Main Pass 69 block. But the oil from BP's platforms often flows through the pipelines that belong to other oil companies.

The problem with Na Kika, a BP-operated platform, is that both BP- and Shell-owned pipelines leading to it were damaged by the hurricane.

Another complication is that the MPOG pipeline lies underneath Shell 's Na Kika line. This means that Shell would have to lift and repair Na Kika before BP can lift and repair MPOG, Depland explained.

"It's a complex and deliberate process," Depland said. "But we can't even begin until Shell does their part first."

The process requires the companies to proceed with extreme caution, because the federal government's "no-tolerance" aspect of the Clean Water Act makes companies accountable for even the smallest oil leak.

"As a company, we want to keep all of our hydrocarbons contained," Depland said. "Leak clean-up is expensive and counterproductive, and can give you a bad reputation if you are not doing it right."

BP is not alone it its predicament. Damage to pipelines is keeping a substantial amount of oil and natural gas production that is otherwise ready to be restored to service off line in the Gulf of Mexico, said the MMS, a division of the Department of Interior.

While nearly a third of the oil production still shut down may be back on line by the end of October, the rest could take as long as six months to bring back, the MMS said.

The outages are tightening an already stressed market, sending oil prices to record highs above $50 a barrel. In particular, the storm shut in production of hard-to-replace low sulfur crudes, forcing refiners to turn to the government's Strategic Petroleum Reserve for supplies.

"A substantial amount of the deferred production is directly attributable to the damage that has occurred along pipeline routes rather than actual structural damage to the producing pipelines," the MMS said.

"Pipelines in the mud slide areas off the mouth of the Mississippi River experienced failures and will take a significant effort to locate and repair because the pipelines are buried by as much as 20 to 30 feet of mud."

-By Katya Kazakina, Dow Jones Newswires;

201-938-4427; katya.kazakina@dowjones.com