Over the past several months, Alyeska Pipeline and the company's Chief Executive Officer, Kevin Hostler, have been under intense scrutiny by a Congressional oversight committee and an independent investigator, who has been probing explosive allegations leveled by managers that severe cost-cutting efforts could put the integrity of the 800-mile Trans Alaska Pipeline System (TAPS) at risk.
Allegations that major oil companies routinely cut corners in areas such as safety and maintenance have taken on new urgency following the catastrophic explosion aboard the BP-operated Deepwater Horizon drilling rig, which killed 11 employees and ruptured a newly drilled well 5,000 feet below the surface, spewing hundreds of millions of gallons of oil into the Gulf. Evidence has surfaced since then that showed BP scrimped on safety and maintenance spending, despite repeated warnings that such moves could prove disastrous.
It's no coincidence that Alyeska has been accused of taking similar risks with TAPS and lashing out at employees who speak up. BP is the largest shareholder of Alyeska and Hostler is a BP executive “on loan” to the company. BP exerts significant control and influence over the way Alyeska is operated, senior BP and Alyeska officials said.
Prior to being named chief executive of Alyeska, Hostler spent 27 years with BP, most recently as senior vice president of BP's global human resources organization. Before that, Hostler was head of BP's subsidiary in Colombia.
A top BP Alaska official asked, in light of the Gulf disaster, whether it is a good idea to have Hostler, “a BP executive,” running TAPS, “where BP can exert cultural and economic influence through the president of [Alyeska] as well as its ownership share, in directions that are not good for the safety and the integrity of [the pipeline].”
The BP Alaska official said the fact that both companies are plagued by the same safety and management concerns is evidence of a “pervasiveness of a BP leadership culture that is focused on cost cutting that reduces operational integrity.”
“The pervasiveness is due to [Alyeska] being led by a BP executive [Kevin Hostler], and BP can wield enormous pressure on the other owners [of the pipeline] who to a large extent share a desire to operate the pipeline with as little cost as possible,” the BP executive said.
Hostler has come under fire for his management style. According to a copy of a confidential employee work survey obtained by Truthout, Hostler was described as “a narcissistic despot who will be remembered for his management style of intimidation and fear.”
“At the senior management level, [Hostler] has made a mockery of the [Open Work Environment] system by neutering our VPs and Directors who are openly afraid to disagree with his initiatives, even when it is detrimental to TAPS,” says a copy of the survey.
Other surveys provided to Truthout contained similar descriptions of Hostler.
Last week, Hostler was called into Washington for the second time in a month to meet with staffers from Rep. Bart Stupak's office. Stupak (D-Michigan) is the chairman of the House Energy Committee's subcommittee on oversight and investigations.
The meeting focused on the circumstances behind several mishaps, including a recent oil spill that took place at one of Alyeska's pump stations on the North Slope, which forced the company to shut down TAPS for more than three days in May, and the loss of communication connections used to control pumps and valves at the northern end of pipeline system that also forced its temporary closure.
Staffers also queried Hostler about the findings of an investigation, that recently concluded, conducted by Charles Thebaud, an attorney with the law firm Morgan Lewis. The probe was sparked in February after some Alyeska managers anonymously filed complaints with BP's Office of the Ombudsman about a number of issues, including failures to address matters concerning safety and maintenance and a controversial decision Hostler made last year to relocate about 30 safety and integrity management engineers from Fairbanks to Anchorage, Alaska – hundreds of miles away from the pipeline.
TAPS transports crude oil from production fields in Prudhoe Bay to Valdez for deepwater tanker loading. It moves anywhere from 600,000 to 700,000 barrels of oil per day, which represents approximately15 percent of US crude oil production.
Hundreds of pages of internal Alyeska documents and emails obtained by Truthout and interviews with more than a dozen senior employees show Hostler and senior Alyeska executives ignored dozens of warnings from employees over the past year that deferring critical maintenance projects and implementing budget cuts could expose the aging pipeline to further vulnerability.
According to one of several emails sent to BP's Office of the Ombudsman since last December, “the budget cuts over the last couple of years is creating a large 'bow wave' of deferred projects and program work … The oversight of the integrity of the system is at risk.”
“Reductions in the budgets for the Aboveground [pipeline] program; fuel gas line; and mainline pipe can place the integrity of the system at risk,” the email says. “There is a risk ranking exercise that is used and the concern that the risk ranking is being used primarily for budget reductions and although work is shown as lower risk it still should be done to protect the environment.”
The employee who wrote the email alleged that Alyeska's 2010 budget was cut from $680 million to $600 million on orders from BP.
But the move that led several Alyeska managers to reach out to BP's Office of the Ombudsman was a controversial plan Hostler initiated last November, now close to being fully implemented, to relocate 30 integrity management, safety and environmental employees to Anchorage from Fairbanks, despite the findings of a 39-page internal analysis prepared by Alyeska managers that said, “the best location for the Integrity Management teams from a business efficiency, regulatory compliance, and Integrity/Safety risk standpoint is the Fairbanks location.”
Essentially, what Hostler has done is reverse a decision made in 1997 by then-Alyeska President Bob Malone to move employees from Anchorage to Fairbanks to be closer to the pipeline so they could easily access it in the event of a spill or to perform monitoring and maintenance functions.
“You put your employees on the pipeline and in Valdez, it will improve safety because you're right there,” Malone said at the time. “It's clear communication; it's clear lines of authority; it's clear accountability, which is most important to me.”
The relocation affects about 30 engineers, scientists and technicians who are directly responsible for the monitoring and maintenance of the integrity, safety and environmental compliance of TAPS. About 10 contractors are also included in the plan.
“The job functions of these Alyeska personnel and their support contractors requires frequent interface with TAPS facilities and personnel operating these facilities,” states a confidential email sent February 18 to BP's ombudsman's office and Rep. David Guttenberg (D-Fairbanks), who has been the lone voice in state political circles trying to get federal and state officials and owner representatives of the pipeline from ConocoPhillips and ExxonMobil to take action.
“Their current Fairbanks offices are centrally located to the TAPS right-of-way which is a recognized logistical advantage in performing their work activities,” the email said. “[This in fact is why these personnel are still located in Fairbanks]. If these personnel are required to operate from an Anchorage office, there will be a significant increase in annual travel costs and time to reach TAPS facilities and an associated decrease in work efficiency. This increase travel time will also have a direct impact on worker safety due to increased air and road travel exposure.”
If integrity management employees need to immediately respond to an incident on the pipeline, they will now have to travel by airplane to Fairbanks then drive to the area of the pipeline that requires attention. The pipeline does not run through Anchorage.
An email sent to senior Alyeska executives last November by Greg Jones, the company's senior VP of technical support, said, “the goal is to complete the centralization of functions and have as much back office staff as possible based out of [headquarters] to achieve the efficiencies that this model presents.”
“All support groups should be looking at Valdez in addition to Fairbanks and asking what the business purpose is for staff to be based in either of these locations,” Jones wrote. “The bias needs to be in favor of them working in Anchorage unless there is a compelling business case to the contrary.”
Employees familiar with the chain of events that unraveled over the last nine months have indicated to Truthout that Tom Webb, Alyeska's manager of integrity management urged Brian Tuminello, the director of engineering, and senior Vice Presidents Mike Joynor and Jones to support the relocation review. These senior managers and executives agreed with the analysis, but were afraid to openly defend it against Hostler for fear of losing their jobs, employees knowledgeable about their discussions said.
An internal Alyeska email sent to employees in February said the company expects to save about $4 million by reducing its “real-estate footprint” in Fairbanks.
Michelle Egan, a spokeswoman for Alyeska, said, “staff were transferred to Anchorage because of the efficiency and synergy that is gained when they are co-located with the rest of their departments.”
“This was true for engineering as it was for other departments, like environment. Integrity engineers are now co-located in Anchorage with other engineering disciplines and with project personnel, with whom they work closely,” Egan said. Additionally, Hostler “felt it was worth it to make the move not just because the company would save $4 million, but because what we would gain as an organization to be together in the same location. Staff who need to physically inspect the 800 mile pipeline can access the pipeline from many locations, including Anchorage which is a transportation hub.”
Guttenberg said Egan's statement doesn't make sense.
“Sure, Anchorage is a transportation hub – but it is nowhere near the pipeline,” said Guttenberg, who spent 25 years working on the pipeline before entering politics. “Fairbanks is also a transportation hub and it is centrally located ON the TAPS right-of-way. In just about every case it would be quicker for staff to reach a section of pipeline from Fairbanks than from Anchorage.”
Moreover, Guttenberg said, “For Alyeska to argue it's more important for these personnel to be physically located with other staff than it is for them to be physically located next to the line is absurd. They have it completely backwards on this, and I think any reasonable person will see it that way.”
Egan said TAPS has been “substantially reconfigured” since Malone implemented the move from Anchorage to Fairbanks, 13 years ago, via new automated pump stations and the company no longer needs to have integrity management employees located in the direct vicinity of the pipeline.
One Alyeska employee noted, in response to Egan's statements, “automation at the pump stations has nothing to do with monitoring the integrity of the pipeline system.”
“If anything, an aging 35 year old pipeline needs more people nearby monitoring it that it did 10 or 20 years ago,” this employee said.
The BP Alaska official agreed.
“There is a cogent argument for closer TAPS attention because of its age and lower flow rate that create new and unique integrity concerns,” the BP executive said. “It was the age, the lower flow rates that created the new and unique corrosion opportunities that resulted in the 2006 oil spills on the North Slope. There needs to be more public attention on this because the environment is so bad for BP right now it is an opportunity to press the case as yet another example of how BP runs things.”
Guttenberg sent a letter to Alaska's Joint Pipeline Office June 14, saying he is “concerned that Alyeska is making changes that leaves Alaskans vulnerable to possible economic and environmental strife…. These cost-cutting measures lead me to believe that Alyeska is on a perilous path considering all the things that can go wrong on a rapidly aging 800 mile pipeline.”
“The Deepwater Horizon disaster and the recent spill at pump station 9 on TAPS ought to serve as a wakeup call for everyone involved in overseeing and maintaining the integrity of Alaska's oil and gas infrastructure,” Guttenberg said in a letter he sent June 14 to Mike Thompson, the state pipeline coordinator at the Joint Pipeline Office. Guttenberg said he was most concerned that the Joint Pipeline Office has failed to conduct adequate oversight of the way Alyeska operates TAPS and he asked the agency to provide him with a detailed explanation describing the oversight it has conducted in light of the relocation of personnel and the spill at pump station 9. Guttenberg said the Joint Pipeline Office has not yet responded to his query. A spokesperson for the agency did not return calls for comment.
The spill at pump station 9 resulted when oil started to flow back into the tanks, about 100 miles south of Fairbanks and the site of several previous maintenance failures, due to a backup battery system failure. Because the power was out and the facility was unmanned, no one was able to determine the amount of oil that flowed into the tanks, which eventually overflowed and spilled into a containment area at the pump station.
Patricia Klinger, a spokeswoman for the Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) said in an interview that the circumstances behind the spill are under investigation by federal regulators.
Additionally, Klinger said a corrective action order was issued to Alyeska May 27 requiring the company to keep personnel on site 24-hours a day, seven days a week and perform inspections every 30 minutes for “leaks and any abnormal operations or activities.”
In an email sent to employees by Joynor, Alyeska's senior vice president of operations, following the meeting with Congressional staffers, said the company determined that the incident was caused by a “combination of causes,” including “several technical and design issues” and “a standard process to review procedures either weren't done or were inadequate.”
Klinger noted that PHMSA inspectors are scheduled to be in Alaska later this summer to inspect the pipeline and will also “look at [Alyeska's] documents and records” to ensure the company is in compliance.
Stanley Sporkin is a retired judge and former general counsel of the CIA, who was tapped by Malone in late 2006 as BP's ombudsman following revelations in the aftermath of the largest oil spill on the North Slope that year that the company – along with Alyeska – retaliated against employees who brought up safety concerns and failed to perform routine maintenance at its production facilities and corrosion inspections on its pipelines.
Since his tenure, his office has registered 202 employee concerns, more than half of which were generated from BP Alaska, a majority of which involves safety issues and retaliation, according to a previously unreleased letter Sporkin prepared in February for the House Energy and Commerce Committee.
Because Sporkin's work as an ombudsman strictly involves BP-related matters, it seemed odd that Alyeska employees would contact his office to file their complaints.
Asked why BP's ombudsman had become involved in the matter if, as BP has publicly stated, the company does not interfere with the way Alyeska is operated, Steve Rinehart, a spokesman for BP Alaska, said, “the Ombudsman's office runs independently of BP. BP does not control who contacts the Ombudsman's office.”
“BP was informed by the Ombudsman's office that the Ombudsman's office had received a concern from an individual stating he/she was an employee of Alyeska, “Rinehart said. “BP informed Alyeska of the employee concern. While this is a matter for Alyeska, we have encouraged the Ombudsman's office to provide Alyeska with any information that the Ombudsman's office may have which might be relevant to the concern.”
It turns out that Sporkin's deputy, Billie Garde, a partner in the law firm Clifford & Garde, had previously worked for Alyeska; and, years ago, Garde represented numerous whistleblowers that Alyeska had retaliated against and fired and the ombudsman's office was contacted by an Alyeska manager as a result of her past work on behalf of employees who formerly worked for the company, according to an email sent to the ombudsman's office late last year.
That email said there is “an extreme level of fear and chilling effect at Alyeska to bring concerns forward” because Hostler is retaliatory and has threatened to fire employees who disagree with him or oppose him.
“The current work environment for the past 3 to 4 years has become progressively worse,” says the email. “People are afraid to speak up on safety and integrity issues for fear of retaliation. [Hostler] has already done a lot of damage to the culture and character of Alyeska and the danger is he will do much more damage in the next year.”
Although not identified by name, the email sent to BP's Office of the Ombudsman late last year was also harshly critical of Alyeska's Human Resources Director Theresa Guim and Valdez Terminal Director Kathy Zinn, who were accused of advancing a culture of fear that permeates throughout the company because of their close ties to Hostler.
Garde immediately stepped in after that email was sent, according to people close to the ombudsman's office, BP officials and government officials knowledgeable about the events. Copies of some of the initial emails sent to the ombudsman's office were also sent to Stupak's and Guttenberg's offices.
Sporkin is said to have discussed the Alyeska issue with Lamar McKay, president of BP North America. McKay reportedly told Sporkin to just “deal with it” and that he did not want to have anything to do with the matter.
In February, a month after Sporkin's office was first contacted about the employee concerns, Alyeska, under pressure from Sporkin and Garde, hired Thebaud to investigate employee complaints about the impact the relocation would have on safety and integrity and the charges employees made against Hostler.
Thebaud, who along with another attorney, Jane Diecker, conducted interviews with employees in Fairbanks and Anchorage over several months, had previously conducted investigations for Alyeska and BP related to similar employee concerns.
One of the investigations Thebaud has conducted involved claims that Hostler had retaliated against one of the company's former senior executives, Robert Glen Plumlee.
In March of 2006, following a pipeline rupture that resulted in a large oil spill on the North Slope near BP's Prudhoe Bay facility, Plumlee, Alyeska's strategic planning coordinator, filed a complaint with then-Secretary of Labor Elaine Chao, against Hostler and Alyeska, alleging Hostler placed him under surveillance and kept a secret file on him after he cooperated with federal criminal investigators who were probing Alyeska and BP for environmental-related crimes.
The investigation was launched following revelations that BP and Alyeska failed to conduct corrosion inspections on its pipelines.
Plumlee said in his letter he was contacted by “U.S. Federal Criminal Investigators (Special Agents)” after he had met with Hostler in November 2005 to discuss a promotion.
One of the federal law enforcement officers who questioned Plumlee, Truthout has confirmed, was Scott West, the Environmental Protection Agency's (EPA) former special agent-in-charge. West was the special agent-in-charge at the EPA's Criminal Investigation Division, who had been probing alleged crimes committed by BP and the company's senior officials in connection with the March oil spill. West said he could not discuss the Plumlee interrogation.
But Plumlee said in his March 17, 2006, letter to Chao that he was “made to understand by these Special Agents that I was not the 'target' of their investigation although I was reminded that lying to a Federal Agent was a felony and also obstructing justice was a felony.”
“Understandably, I cooperated fully during three different days of interrogation by up to four Special Agents where they initially questioned me about environmental violations by BP and Alyeska, and then progressed to other areas where I provided a detailed account of Sarbanes-Oxley violations, Sherman Anti-Trust violations, Federal Energy Regulatory Commission (FERC) Common Carrier violations, Securities and Exchange Commission (SEC) violations, and various technical violations any of which could be identified as an 'imminent danger' to personnel under U.S. Department of Labor [Occupational Safety and Health Administration] requirements and retaliation against environmental whistleblowers who had detailed numerous violations under the various environmental acts. Also, I named and implicated a number of Alyeska executives and BP executives and senior managers to the Special Agents. Afterwards, I was forced by Alyeska to reveal my cooperation with the Special Agents or be faced with possible 'termination for cause.'”
Plumlee told federal investigators he was pressured to boost estimates of how much Alyeska was spending to fight corrosion on TAPS. Severe corrosion in one of BP's transit pipelines at Prudhoe Bay, which connects directly to TAPS, was the reason the company shut down its North Slope operations in 2006 following the large spill.
Plumlee claimed that company executives pressured him in December 2005 to alter the amount of money Alyeska spent on pipeline corrosion – from $28 million to $46 million – for the previous year, which he refused to do. But Alyeska apparently got someone else to inflate those figures, according to previously published reports and documents.
Plumlee added that it wasn't the first time he had been asked to cook the books on corrosion spending. “On September 19, 2005, an Alyeska executive asked him to pull together the numbers on corrosion spending for Steve Marshall, BP Exploration (Alaska) Inc.'s president,” according to an April 5, 2005, report in the Fairbanks News-Miner.
Plumlee said after federal criminal investigators interrogated him he began to cooperate with Thebaud's investigation.
“I provided Charles Thebaud the same detailed information that I had provided the Federal Agents,” Plumlee said in his letter. “Charles Thebaud, and my supervisor, Nathan Brock, Director of Strategic and Business Planning both took extensive notes during two 'interviews' where I held nothing back. The interviews lasted over six hours.
Plumlee alleged that after his initial interview with Thebaud, “Alyeska placed me under surveillance and [maintained] at least one set of documents identified as the 'Glen Plumlee – Secret File.'”
“A fellow Alyeska employee, who wishes at this time not to be identified, surreptitiously shared this file with me. During an after-hours review of those documents I saw numerous handwritten notes in the margins that showed that a senior Alyeska manager was directing the surveillance of me during time when I was not at work. That manager had given specific instructions on how the surveillance would take place. I made the Special Agents aware of the so-called 'Glen Plumlee – Secret File' and that I also suspected existence of other files and dossiers. I also notified my supervisor, Nathan Brock, as well as Kevin Hostler, CEO/President to cease and desist keeping any personnel files that I do not have access to.”
Hostler has never publicly discussed Plumlee's claims.
Thebaud recently completed his investigation into Alyeska employees' concerns. A copy of his report, which has not been released to employees, was turned over to Stupak's committee.
People familiar with the report's conclusions said it's damaging and is harshly critical of Hostler's management style. Egan, the Alyeska spokeswoman, said Hostler was not available to comment on the report's critical conclusions into Hostler leadership.
Two Congressional staffers, who have seen the report and commented on it after Hostler's meeting with oversight committee staffers last week, confirmed that it substantiated some employee concerns about the safety and integrity of TAPS. It's unclear what specific issues lead Thebaud to reach those conclusions.
However, Alyeska summarized the report's findings to employees in a company-wide email distributed June 30 far differently.
“Most of the concerns were not substantiated,” says the email sent to employees, obtained by Truthout. “Specifically, the concerns about safety, integrity and environmental protection were not substantiated.”
However, “the investigation did conclude that there are opportunities to improve the Open Work Environment,” says the email signed by TAPS owners Charles J. Coulson of BP Pipelines (Alaska) Inc., Bij Agarwai of ConocoPhillips Transportation Alaska Inc., Gary Pruessing of ExxonMobil Pipeline Company, Michelle West of Koch Alaska Pipeline Company and Jim Avioli of Unocal Pipeline Company. “This is consistent with the recent employee survey that demonstrated there has been a reduction in employee comfort in reporting concerns to senior management.”
Egan said Alyeska's “Business Practices/Employee Concerns program (which recently merged with our Compliance and Ethics Group) will develop a plan for enhancing the open work environment” to deal with issues of intimidation and fear.
A BP Alaska official and several people close to the ombudsman's office said Sporkin and Garde were “livid” by Alyeska's characterization of Thebaud's investigation.
These people said Sporkin fired off a letter to BP late last week stating that he perceived Thebaud's report did substantiate a number of safety and integrity issues raised by employees. Furthermore, Sporkin told McKay, who he had spoken to about the employee complaints prior to the launch of Thebaud's investigation, that he should order Alyeska to reverse its decision to relocate employees from Fairbanks to Anchorage.
Neither Sporkin nor Garde returned calls for comment.
Rinehart, the BP Alaska spokesman, said he was not familiar with Sporkin's letter and had no comment. Spokespeople for the other oil companies did not return calls for comment.
Egan said she was unaware of any such letter sent by Sporkin and she reiterated that Thebaud's report “indicates there is no substantiated safety or integrity concern.”
Scott Schloegel, Stupak's chief of staff, would not discuss the contents of the report, but he did say it was “serious” and “concerning.” He added that, while the relocation of the integrity management team was a “business decision” by Alyeska, the oversight staff intends to monitor whether the move will impact safety.
Alyeska “needs to know we are watching them,” Schloegel said.
Klinger, the spokeswoman for PHMSA, added that her agency couldn't do anything about the relocation and echoed Schloegel.
“It's a business decision,” Klinger said. “However, we'll be monitoring the move to determine if it affects the integrity of the pipeline.”
Egan noted that the oversight committee requested a copy of the 39-page relocation analysis, indicating that Congressional staffers may not be satisfied with the company's assertions that moving employees hundreds of miles away from the pipeline won't have a direct impact on safety.
That document says more than half of the integrity management team “are accountable for and play a lead role in identifying regulatory requirements, methods of compliance and methods of monitoring for at least 30 federal regulations.”
“All members of the Integrity Management Team provide key support to these Specialists in the execution of their duties,” the relocation analysis says. “The loss of key contributors in the move to Anchorage would result in a loss of critical knowledge and skills that are required to perform the functions necessary to insure continued regulatory compliance. This loss will leave Alyeska at risk of receiving” violations from the PHMSA, “as well as potential enforcement actions from” Alaska's Joint Pipeline Office.
Alyeska is now having difficulty filling those vacancies, which Hostler had said would happen by the end of June.
“The immediate risk to TAPS that is present because of the business decision is that several members of Alyeska's integrity management team have resigned,” the BP Alaska official said. “This presents a significant risk to the integrity monitoring of TAPS, emergency response capability, as will as a regulatory compliance risk. It is also clear that Alyeska has no plan to quickly place qualified and competent replacements in their vacated positions. The regulatory compliance risk is more than just paperwork, it represents a set of operating and maintenance standards that must be maintained and as the report highlights will be increased likelihood for violations. This is akin to [Minerals Management Service] not closely monitoring the compliance to its regulations on the Deepwater Horizon rig.”
“When you combine the removal of personnel from some of the TAPS pump stations as part of the strategic reconfiguration project with this action, you are left with considerably less capability to respond to integrity issues or emergency responses,” the BP official added. “The spill at pump station 9 is a case in point that it would have been spotted quicker and would have spilled less if any at all if that pump station had been manned.”
Emails sent to BP's ombudsman's office and the relocation analysis point out that the any loss of integrity management staff will “set Alyeska back on progress that [the company] made” since 2007, when it beefed up its integrity management team after Hostler testified to Congress about corrosion prevention efforts on TAPS.
A careful review of violation and penalty assessment records posted on the PHMSA web site lists more than 100 probable violation incidents between 2001 and 2007, many of which are related to integrity management issues such as corrosion monitoring deficiencies. But since 2007, there has been a reduction in violation assessments ,which, employees argue, is directly related to the company's investment in integrity management.
The analysis further states that a relocation to Anchorage would result in the loss of half of the integrity management team staff. That prediction was borne out, according Alyeska employees, as eight of the 18 people who were asked to relocate to Anchorage quit and two more are likely to depart the company. Alyeska is now having difficulty filling those vacancies, which Hostler was quoted as saying would happen by the end of June.
Replacing these personnel will be a challenge, according to a pipeline industry report published in July 2009.
The Interstate Natural Gas Association of America warned managers in the pipeline industry that areas of greatest personnel risk are “positions that require significant industry experience and would be at risk from a shrinking industry workforce pool due to attrition, such as pipeline integrity engineers, project engineers/managers, and construction managers.”