What We’ve Got Here is A Failure to Pig

In 2006, BP Exploration (Alaska) Inc. shut down its pipelines and oil production in Prudhoe Bay, Alaska after leaks were discovered in two of its pipelines. Both leaks resulted from internal corrosion due to sediment in the pipes. A year later, BP pled guilty to one count of violating the Clean Water Act. In the plea agreement, BP admitted that it was aware of the sediment before the leaks and and had failed to “pig” the pipelines. Pigging consists of cleaning the pipes and pushing an inspection tool through the pipes. The term is an initialization of “pipeline inspection guage”. In contracts filed with the Securities and Exchange Commission, BP promised to conduct its Prudhoe Bay oil operations as a “prudent operator”.

Promises, Promises

A securities fraud class action was filed against BP alleging that the promises in the contract would give a reasonable investor the impresion that BP was in compliance with its prudent operator promise. In Reese v. BP Exploration (Alaska) Inc., the Ninth Circuit Court of Appeals rejected this contention, finding that the promise was a “forward-looking” statement and not a misrepresentation of a current fact. The Court also rejected an argument that the repeated filing of the contract converted the contract into a statement of ongoing and current compliance.