La. Oil Spill Cleanup to Cost Millions; Citgo Seen Paying

June 29, 2006

The pricetag for cleaning up 47,000 barrels of waste oil spilled into a southwestern Louisiana waterway recently is likely to shoot upwards of $10 million and Citgo Petroleum Corp. will pay much of that bill, the state’s top oil spill official said
“As the responsible party, Citgo will pay,” said Roland Guidry, Louisiana’s oil spill coordinator.

Costs for the early days of the effort to clean up waste oil from Citgo’s storage tanks that was released into the Calcasieu Ship Channel totaled about $1 million a day, with 600 people on the scene to aid in the effort, Guidry said.

The spill comes at an inopportune time for the oil industry. It comes ahead of the Fourth of July weekend, which usually is marked by gasoline demand, and has led to a cut in production at several Lake Charles refineries, pushing up oil product prices when they are already a politically sensitive issue.

Unexpected cleanup expenditures only compound the cost pressures faced by the industry, especially in the U.S. Gulf Coast, which has experienced high labor demand since the post-Hurricane Katrina recovery effort got underway.

As more sophisticated equipment has come in, along with an additional 1,000 people, the price has risen to about $2 million a day. Just one week into the effort, Guidry estimated that Citgo has already run up a $10 million bill.

At the most, another week of intensive cleanup will be needed, Guidry said. After that, the price structure for the effort will change as fewer personnel using increasingly specialized equipment work for several months or more to address the more sensitive shoreline areas. During that period, the costs may subside, but the ultimate price tag will rest on just how clean Citgo ultimately makes the area, he said.

A representative from Citgo, a unit of Venezuelan state oil company Petroleos de Venezuela, declined to comment on the cleanup effort.

Beyond the burden of recovering the oil, Citgo may face fines often required of companies with significant spills, an official with a leading oil industry trade group said.

“Typically, anytime there’s a spill, the Coast Guard and/or state agencies will issue a fine,” said Richard Metcalf, the health, safety and environmental affairs coordinator for the Louisiana Mid-Continent Oil and Gas Association, a Baton Rouge trade group.

The fine would most likely come from the Coast Guard or a state agency, such as the Louisiana Department of Environmental Quality, Metcalf said. The agencies will scrutinize Citgo’s oil spill response plan in assessing whether the company was adequately prepared.

“Due to the size of this spill, they will review the oil spill response plan,” Metcalf said.

The spill has cut off traffic to three refineries and limited traffic at a fourth.

ConocoPhillips and Citgo have acknowledged that they cut the amount of crude oil they were processing at their refineries due to the blockage of their main supply route. ConocoPhillips’ refinery runs about 250,000 barrels a day normally and Citgo’s about 425,000 barrels per day. A third, Pelican Refining, is shut temporarily. Two barges were allowed into Calcasieu Refining, an 85,000-barrel per day plant.

The blockage has pushed up prices for crude and gasoline on the New York Mercantile Exchange.

A portion of the ship has reopened, the U.S. Coast Guard said, but 11 miles of the spill zone above the Intracoastal Waterway remain closed.

Jessica Resnick-Ault is a correspondent of Dow Jones Newswires.

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