June 2006 News Stories

Wall Street Journal
June 30, 2006

BP's Latest Problem May Signal
A Troublesome Culture of Fear
June 30, 2006

BP has tripped up in the U.S. -- again. Last year, an explosion at its Texas City, Texas, refinery killed 15 people, triggering several federal investigations. This year, authorities opened a criminal probe into the company following a large spill from its pipelines in Alaska. And now the European oil company has been charged with cornering the $30 billion-a-year U.S. propane market, forcing up prices for millions of rural Americans in 2004. Other oil majors haven't suffered a similar string of mishaps in the U.S. What has BP got wrong?

There is no cut-and-dried answer. It is not just because BP is unmanageably big. Other oil majors like Exxon Mobil and Royal Dutch Shell haven't had a similar run of bad luck in the U.S. Nor has BP had the same problems elsewhere. Something seems to be particularly wrong for the company in the U.S., which is why it has just appointed a new country head to improve matters.

One possible theory is BP didn't properly integrate Arco and Amoco, the two U.S. firms it bought in the late 1990s, and somehow a "Wild West" mentality continued. But it can't be that simple, given that BP's acquisition machine has successfully integrated companies bought elsewhere.

A more likely theory points in the opposite direction. BP did integrate Arco and Amoco successfully, especially in one aspect of the corporate culture -- the emphasis on improving financial returns. But that led to corners being cut, especially in assets that weren't seen as having high profit potential.

For many years, pipelines, refining and distribution all fitted into that category. The status of these unloved orphans was low throughout the oil industry, but it may have been especially low at BP. The company has traditionally focused on exploration and production. As a result, its downstream operations may have attracted less capital and, perhaps, lesser BP managers, too. The only reason similar failings didn't crop up in Europe or Asia is that BP has relatively little refining capacity there.

The string of mistakes hints at a more serious problem. BP may be increasingly dominated by a "Yes, Lord Browne" culture. This could have led to managers overpromising their chief executive on the results and budgets they can deliver. That is especially tough for underperforming and underinvested areas of the company's operations. If that is the case, the company's problems with its downstream U.S. assets were almost inevitable. But it does not bode that well for their solution.

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Wall Street Journal
June 30, 2006
A Glimpse Inside BP Trading
Documents in Fresh Complaints
Reveal Dealing-Room Strategies;
Sharing of 'Lessons Learned'
By CHIP CUMMINS
June 30, 2006; Page C1

BP PLC's global trading desk has long enjoyed a reputation for aggressive wheeling and dealing in the world's vast energy markets. But allegations the British giant manipulated U.S. propane prices paint a much more troubling picture of BP's trading operations.

Telephone conversations, correspondence and other documents -- released this week as part of civil and criminal complaints filed in the U.S. alleging energy-market manipulation -- offer a glimpse into one of BP's dealing rooms, where traders allegedly concocted and tested a bold but illegal strategy to boost profits. Management and compliance officials approved or encouraged the maneuvers, at times suggesting ways to avoid drawing regulatory attention, according to the complaints.

 RELATED ARTICLE
• Street Sleuth: BP Case Raises Tough Question ( see below)
 
First discovered in 1910, propane has become a globally traded commodity. See a map of the U.S. households heated by propane and facts about propane.The U.S. Commodity Futures Trading Commission filed Wednesday a civil complaint in Chicago alleging that BP illegally manipulated a crucial market for propane in early 2004, driving up prices for millions of consumers of the home-heating fuel. It identified a team of Houston traders who it said bought up propane to gain control of the market and thereby boost prices, in a strategy they thought might net as much as $20 million.

While the scheme temporarily increased prices, it didn't make BP much money, according to the CFTC complaint. Traders and managers, however, tried to learn from their mistakes, circulating a set of "lessons learned" to help refine the strategy for other traders and other energy markets, the complaint alleges. The U.S. Justice Department is pursuing a separate criminal investigation.

BP denies it engaged in market manipulation and says it will defend itself against the charges in court. The company declines to discuss the charges in detail, citing the pending litigation. BP executives said they have tightened compliance rules on trading floors.

BP has built a sizable proprietary trading business. The company sells the oil it pumps from the ground to customers, and it buys crude and other feedstock for its refineries and chemical plants. BP also buys and sells oil and petroleum products, and derivatives based on them, for its own account. The company made $2.97 billion in profit last year from its trading operations, about 13% of its 2005 net income of $22.34 billion.

 Critics say BP has an advantage over smaller players because it can use its financial heft and privileged view of how large volumes of oil, natural gas and petroleum products move through its vast pipeline systems and storage facilities.

The manipulation allegations raise questions about whether BP is inappropriately using its own operational information to aid its traders. In the "lessons learned" PowerPoint presentation that BP traders drafted after the propane trades came under scrutiny, a copy of which was part of the CFTC complaint, they noted that operational information from another BP unit could help future deals.

Company executives have said in the past that it is appropriate to use their operational knowledge to benefit the trading floor. "This is about the combination of physical assets and trade, and it's all about the webbed nature of the combination that allows you to create value," said BP Chief Executive John Browne in a 2004 interview. "You really are creating value. In most cases, the end user is benefiting through the reduction of risk."

The propane allegations are the latest in a series of compliance difficulties BP traders have faced over the past several years. CFTC investigators alleged that a BP trader executed in 2000 a series of wash trades -- prearranged swaps of the same amount of a commodity for the same price. Traders from a handful of other companies used such bogus deals to inflate revenue figures, exaggerate trading volumes or affect prices, though the intention of the BP trades isn't clear. The company settled and agreed to pay a $100,000 fine, without admitting or denying wrongdoing.

In 2003, the New York Mercantile Exchange fined BP a record $2.5 million for a series of improper crude-oil trades in 2001 and 2002, without disclosing the nature of the deals. BP settled again without admitting or denying wrongdoing. As part of the deal, BP promised to tighten compliance on its trading floor.

A few months after that settlement, however, a group of BP traders in Houston came up with a complex plan for making money in U.S. propane markets, according to the government complaints filed this week. Close to half of the U.S.'s propane demand goes to residential and commercial heating.

Much of that demand is concentrated in the Northeast and upper Midwest, in rural areas not serviced by natural-gas networks. That market is served by the Texas Eastern Products Pipeline Co., a pipeline and storage network that runs from Mont Belvieu, Texas, through Ohio and into New York, Pennsylvania and Illinois. Traders call propane running along this line "TET propane."

BP traders determined they could profit handsomely by buying up stored propane along the line and creating the impression of a supply shortage, according to the complaint. That would stoke prices, especially toward the end of the month as short traders scrambled for propane. Short traders have commitments to deliver propane at month-end delivery dates as part of a bet that prices will fall, but don't actually keep it on hand.

On Jan. 8, the government alleges, Mark Radley, manager of the Houston-based natural-gas liquids, or NGL, trading team, told other BP traders the market was "vulnerable to a squeeze," according to taped phone records. BP declined to discuss specific disciplinary action, but in an attachment to the CFTC complaint, regulators said Mr. Radley was fired by BP in connection with the trade. His attorney didn't return a phone call and email message seeking comment.

On Feb. 5, Mr. Radley discussed the benefits of the deal with a lieutenant on the trading floor, Dennis Abbott, according to the complaint. "What we stand to gain, is not just we'd make money out of it, but we would know from thereafter that we can control the market at will," he said, according to phone recordings.

In a criminal plea filed by the Department of Justice, Mr. Abbott admitted to participating in the alleged market manipulation and is cooperating in the criminal probe. His attorney declined to comment in an email.

Before the traders started buying, Mr. Radley and his superior, James Summers, vice president of BP's NGL trading division, met with Martin Marz, the division's compliance manager, according to the complaint. Mr. Marz approved the strategy but cautioned traders to refrain from using certain words in conjunction with the deal, including the word "squeeze," according to the complaint.

CFTC investigators said in their complaint that Mr. Marz has been removed from his 2004 position but is still at BP. His attorney didn't return a phone call seeking comment. It is unclear if Mr. Summers still works at BP. His attorney didn't return a phone call and email message seeking comment.

Through February, BP's position grew to more than 88% of the storage capacity on the line, according to the complaints. By late February, listed prices of TET propane started to tick sharply higher. By the end of the month, prices had risen from just above 60 cents a gallon early in the month to more than 90 cents a gallon in some cases, according to the complaint.

The spike was brief, however, with prices falling back to earth once the end of the month passed and pressure lessened among shorts to buy up physical propane. The cost of buying up the propane to corner the market ended up being more than the profit made by selling propane at higher prices, according to the CFTC complaint, making the total profitability of the plan unclear.

After the scheme fizzled, BP managers ordered up a review of the strategy to figure out how it could be improved in the future, regulators allege. That review included the "lessons learned" PowerPoint presentation. The aim of the review was partly to determine "if there's any applicable opportunities in some of the other markets" for the scheme, the complaint quotes Mr. Radley as saying.

The review also identified some key compliance risks, first among them "regulatory." The scheme didn't violate any current rules, BP officials determined in the presentation, but it "could increase the risk of regulatory intervention."

Write to Chip Cummins at chip.cummins@wsj.com

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Street Sleuth
Case Raises a Tough Query:
When Do Traders Cross Line?
By ANN DAVIS
June 30, 2006; Page C1

With BP PLC accused of artificially inflating the price of propane by withholding some of its inventory from the market, government officials and energy traders are grappling with a question: When does smart trading cross the line into market manipulation?

The shrewdest competitors in the energy-trading world these days deal heavily in physical shipments of fuel, not just contracts for the future delivery of such commodities. Owning actual oil, natural gas, propane and even electricity has two big advantages. It provides detailed knowledge of regional supply and demand and the pricing power that comes from holding large quantities of commodities.

Because big oil companies have legitimate reasons to hold or sell large quantities of fuel, their power to move markets can be immense. While there is nothing inherently illegal about keeping assets in storage or distributing them to trade more effectively, experts say, traders must tread carefully, particularly in smaller markets like propane, where prices can be manipulated more easily.

According to the Commodity Futures Trading Commission, which is working with the Department of Justice on the BP investigation, it all boils down to the intent of the trader and the power that trader has in the marketplace.

"When you squeeze a market, you're not letting fundamental factors influence the price," says Joan Manley, the CFTC's deputy enforcement director. "It's your own conduct that influences the price."

BP denies engaging in market manipulation and is disputing charges brought by the CFTC. It says it disciplined some traders charged by the CFTC "for failure to adhere to BP policies governing trading activities."

An explosion in the number of participants in the energy-trading world has led to an increase in so-called physical trading.

Dominant commodity traders such as Morgan Stanley and Goldman Sachs Group Inc. long have had strategies to own or lease fuel-storage terminals, oil tankers and power plants to give them more flexibility to hold onto inventory or sell it at opportune moments.

More recently, those Wall Street firms have taken physical trading to new levels with bids to buy, not lease, distribution facilities such as pipelines and production facilities including refineries. Hedge funds also have gotten into the game of dealing in physical energy and even metals assets.

Goldman Sachs last year bought a refinery with private-equity firm Kelso & Co. Morgan Stanley this month agreed to buy petroleum-products distributor TransMontaigne Inc. and is negotiating to buy the Heidmar Group of shipping and marine-logistics companies.

If the two deals go through, they would give Morgan Stanley access to storage terminals and pipelines in the U.S. and tankers around the world.

Ms. Manley says there is nothing wrong with making big bets in the marketplace based on supply and demand fundamentals -- for example, holding onto heating oil if a trader thinks the winter will worsen and the price will rise or selling if the trader thinks economic conditions will weaken demand.

So far, Wall Street's increased physical presence in the energy markets hasn't resulted in more enforcement cases against financial firms.

Since late 2002, the CFTC has levied civil penalties totaling nearly $300 million in 25 cases involving manipulation and other wrongdoing in the energy markets; nearly all involved energy producers and marketers.

To prove manipulation, Ms. Manley says, the CFTC has to prove that the trader intended to affect the price, had the ability to do so and successfully caused the price to move artificially.

In the BP case, Ms. Manley says, there was no explanation for the price spike in the propane BP was trading. There were ample inventories, other types of propane didn't shoot up and the winter wasn't cold enough to send demand soaring.

Although the CFTC had audiotapes in which BP traders discussed their ability "to control the market at will," Ms. Manley contends the agency still could prove manipulation based on these abnormal conditions. BP created a trading advantage where it was "the only game in town," she says.

Traders and commodities experts long have argued that the global oil market, where $1.5 trillion changes hands a year according to energy consultant Peter Fusaro, is too deep to be manipulated. Smaller markets, from silver to copper are a different story, and attempted manipulation in those markets has been the stuff of occasional scandal, including the failed attempt a quarter century ago by the Hunt brothers to manipulate silver prices.

As commodities prices have risen sharply over the past two years, a host of parties from consumer-watch groups and state officials to politicians have sought to claim that various energy and metals markets are susceptible to manipulation.

But the arguments didn't go that far. This May, amid big spikes in the price of gasoline, Federal Trade Commission officials told members of Congress that prices weren't being manipulated by big oil firms. An attempt by trade groups for farmers, fertilizer makers and others to blame speculators for driving up natural-gas prices during the past fall and winter were dealt a blow this spring because a mild winter subsequently caused gas inventories to build up and prices to slide about 45%.

The CFTC's case against BP is significant because it gives credence to critics' argument that energy markets need more protection.

"BP is a case where knowledge is power but without a moral compass," says Boston University School of Management Professor James Post. "When people with unique knowledge of commodities markets operate without a moral compass, the result can be public harm."

The case also bolsters the CFTC's contention that it is serious about cracking down on misconduct in the hot energy market.

It the past few years it brought and settled a series of price-manipulation cases alleging that natural-gas traders gave false information to trade publications in an attempt to manipulate price indexes for their own trading gain.

Write to Ann Davis at ann.davis@wsj.com

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Financial Times
June 30, 2006

http://www.ft.com/cms/s/10be2944-07d5-11db-9067-0000779e2340.html

More fuel for anti-BP sentiment
By Rebecca Bream
Published: June 30 2006 03:00 |
Last updated: June 30 2006 03:00

US federal investigator claims that BP illegally cornered part of the US propane market, the source of heating and cooking for millions of Americans, is the latest in a series of embarrassments for the oil group in North America.

BP has denied the charges and says it will fight the case but there is a risk that the lawsuit will add to the reputational damage it has already suffered in the US, one of its biggest markets.

In March last year, an explosion at BP's Texas City refinery, its biggest in the US, killed 15 people and injured about 500, making it the deadliest US refinery accident in more than a decade.

An investigation by the Department of Labor uncovered more than 300 violations at the refinery and BP, which did not admit fault, agreed to pay a $21m (£11.5m) fine. BP had to spend $1bn on repairs to the refinery, which was shut for many months. But that is not the end of the story; the Department of Labor has referred the Texas City case to the Department of Justice, which could ultimately press criminal charges against BP.

In March this year, there was a big oil spill at BP Alaska's operations at Prudhoe Bay, North America's largest oil field.

Up to 270,000 gallons of crude oil leaked from a corroded pipeline and the group is facing a criminal grand jury investigation into the spill.

This week's propane price-fixing charges brought by the US Commodity Futures Trading Commission come just a few years after BP promised to tighten the leash on its traders after being fined by the New York Mercantile Exchange.

BP agreed in 2003 to pay a $2.5m to settle Nymex allegations of improper crude-oil trading, without admitting or denying any wrong-doing.

The latest price-fixing charges are not earth shattering by themselves. The individual traders involved could pay the biggest price: Dennis Abbott, a trader at the Chicago-based BP Products North America, could face a jail term of up to five years and a $250,000 fine.

BP may face fines of $120,000 for each violation, plus restitution to potential victims who can show they were overcharged.

BP's London-listed shares barely registered the news yesterday, rising 1.3 per cent in line with the rest of the UK oil sector.

But analysts said the lawsuit could add to anti-BP sentiments among politicians and the public in the US at a time when high energy prices are a sensitive issue.

The increases were reflected in higher retail propane prices for homeowners and commercial customers, CFTC, the futures industry regulator, said this week.

Peter Hitchens, oil analyst at Teather & Greenwood in London, says: "If you look at the size of the company, [the price-fixing charge] is not going to be that important."

But, he says, it reflects the fact that oil company activities are being scrutinised like never before, "because they are making so much money".

Mr Hitchens says there were frequent accusations of price collusion aimed at oil companies, especially in the US, where lower fuel taxes made swings in oil prices more visible to consumers and politicians. Because propane is a fuel used to heat 7m households in the US and just as many barbecues, price movements in the market are widely-felt.

The US market accounts for 38 per cent of BP's total capital employed and the company is by far the largest producer of both oil and gas there, with assets scattered across the country from the Gulf of Mexico to the Rocky Mountains and Alaska.

There are signs that the string of negative events in the US has had an effect on BP's share price. Since March 2005, when the Texas refinery explosion occurred, the stock has underperformed the world oil and gas sector by 10.7 per cent.

One investment bank oil analyst notes that theprice-fixing accusations are unlikely to hit BP profit as propane is a small portion of its total downstream business. "But it could make politicians, the public and also investors look a bit harder at whether it is indicative of a wider problems going on."

BP rejects the idea that a deep-rooted weakness in the quality of its US management had contributed to the problems of the past 18 months.

Of the Texas City explosion, the Prudhoe Bay oil spill and the price-fixing accusations, the group said yesterday: "We absolutely believe they are unrelated events."

Ross Pillari, the chairman of BP America, was replaced at the start of last week in what has been seen as an effort to rejuvenate the management.

Bob Malone, the new chairman, was previously the chief executive of BP's shipping unit. "He will shake things up a little," says a person close to BP.

There is no doubt that BP will be unhappy about being the subject of another bad news story in the US, even if it is eventually cleared of price-fixing, as it has worked harder than most oil companies to clean up its image in recent years, ditching its old shield logo from the days when it was British Petroleum in favour of a sunflower, and adopting the motto 'Beyond Petroleum'.

The investment bank oil analyst says BP had "worked hard to minimise the fall-out" from the incidents in the US. "BP's problems in the US would have to get a lot worse before they started to damage its business opportunities there."


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http://www.ft.com/cms/s/b375a35e-07be-11db-9067-0000779e2340.html

Lawsuit poses further risk to BP’s image
By Rebecca Bream in London
Published: June 29 2006 23:39 |
Last updated: June 29 2006 23:39

The filing of a price-fixing lawsuit against BP on Wednesday, alleging that the oil company’s US-based traders manipulated the propane market, is the latest problem to hit the group’s North America operations.

BP has denied the charges, and says it will fight the case. But there is a risk that the lawsuit will add to the reputational damage the energy group has already suffered in the US, one of its biggest markets.

In March last year, an explosion at BP’s Texas City refinery, its biggest in the US, killed 15 people and injured about 500  making it the deadliest US refinery accident in more than a decade. An investigation by the Department of Labor uncovered more than 300 violations at the refinery and BP, which did not admit fault, agreed to pay a $21m fine.

BP had to spend $1bn on repairs to the refinery, which was shut for many months. But that is not the end of the story; the Department of Labor has referred the Texas City case to Department of Justice, which could ultimately press criminal charges against BP.

In March this year, there was a major oil spill at BP Alaska’s operations at Prudhoe Bay, North America’s largest oil field. Up to 270,000 gallons of crude oil leaked from a corroded pipeline, and the group is currently facing a criminal grand jury investigation into the spill.

Wednesday’s propane price-fixing charges, brought by the US Commodity Futures Trading Commission, made little impact on the share price. BP’s London-listed shares barely registered the news yesterday, rising 1.3 per cent, in line with the rest of the UK oil sector.

But analysts said the lawsuit could add to anti-BP sentiments among politicians and the public in the US, at a time when high energy prices are a sensitive issue. Peter Hitchens, oil analyst at Teather & Greenwood in London, said: “If you look at the size of the company, [the price-fixing charge] is not going to be that important.”

But Mr Hitchens said it reflected the fact that oil company activities are being scrutinised like never before, “because they are making so much money”.

Mr Hitchens said there were frequent accusations of price collusion aimed at oil companies, especially in the US, where lower fuel taxes made swings in oil prices more visible to consumers and politicians. Propane is a fuel used to heat 7m households in the US and just as many barbecues, and price movements in the market are widely-felt.

The US market accounts for 38 per cent of BP’s total capital employed, and the company is a major producer of both oil and gas there, with assets scattered across the country from the Gulf of Mexico to the Rocky Mountains and Alaska.

There are signs that the string of negative events in the US has had an effect on BP’s share price. Since March 2005, when the Texas refinery explosion occurred, the stock has underperformed the world oil and gas sector by 10.7 per cent.

One investment bank oil analyst said yesterday that the price-fixing accusations were unlikely to hit BP profits, as propane is a small portion of its total downstream business.

“But it could make politicians, the public and also investors look a bit harder at whether it is indicative of a wider problem going on.”

BP yesterday rejected the idea that a deep-rooted weakness in the quality of its US management had contributed to the problems of the last 18 months. Of the Texas City explosion, the Prudhoe Bay oil spill, and the price-fixing accusations, the group said yesterday: “We absolutely believe they are unrelated events.”

Ross Pillari, the chairman of BP America, was replaced at the start of last week, however, in what has been seen as an effort to rejuvenate management. Bob Malone, the new chairman, was previously the chief executive of BP’s shipping unit. “He will shake things up a little,” said a source close to BP. There is no doubt that BP will be unhappy to be the subject of another bad news story in the US, even if it is eventually cleared of price-fixing. The energy group has worked harder than most oil companies to clean up its image in recent years, ditching its old shield logo in favour of a sunflower, and adopting the motto ‘Beyond Petroleum’.

The investment bank oil analyst said that BP had “worked hard to minimise the fallout” from the incidents in the US, however, and that the company had reacted quickly to the Texas and Alaska accidents and been relatively transparent with the market.

“BP’s problems in the US would have to get a lot worse before they started to damage its business opportunities there.”

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Houston Chronicle
June 29, 2006

http://www.chron.com/disp/story.mpl/business/energy/4011116.html

BP unit accused of price-fixing plot
Houston trader pleads guilty to charges he and others conspired in propane market
By TOM FOWLER and DAVID IVANOVICH
Copyright 2006 Houston Chronicle

Houston-based traders for BP illegally cornered part of the propane market in February 2004, creating a sharp jump in prices for the popular heating fuel used by millions of rural homes, according to federal investigators.

One of the traders, Dennis Abbott, 34, pleaded guilty Wednesday to charges that he and others at BP Products North America conspired to manipulate the price of propane that flows from storage fields in Mont Belvieu, in Chambers County, via pipeline to Ohio, Pennsylvania and New York.

Propane prices showed an unusual spike during that month, climbing 50 percent, but it's not clear how much more consumers ended up paying for the propane.

The allegations are outlined in the criminal charges against Abbott and a civil complaint filed by the Commodities Futures Trading Commission. The criminal filings note Abbott conspired with at least five unnamed BP employees, an indication that charges against others in Houston could follow.

BP officials conceded Wednesday some of their employees did not adhere to company policy governing trading activity and that some were disciplined or dismissed. But they say their behavior did not result in manipulation of the market.

"We are prepared to make and prove that case in the courts," said BP spokesman Ronnie Chappell. "We take matters of business conduct very seriously and set clear expectations for all of our personnel regarding compliance with the law and internal policies."

The allegations are the latest in a string of troubles for the international energy giant.

An explosion at the company's Texas City refinery in March 2005 killed 15 and injured more than 170.

That led to $21.4 million in fines, millions of dollars in civil settlements and, most recently, a criminal investigation.

The U.S. Labor Department put BP on a watch list of companies having serious or repeated safety problems, and earlier this year, the Occupational Safety and Health Administration hit BP with another $2.4 million in fines for safety failures at a Toledo, Ohio, refinery.

Authorities have also opened a criminal investigation of BP's pipeline management in Alaska, where earlier this year there was a spill from a BP line at Prudhoe Bay.

Alleged scheme outlined
According to the court filings, the scheme began with BP managers telling traders to begin buying as much of the propane supplies in the Mont Belvieu storage fields as possible that would travel over a particular pipeline. Within the month they bought nearly 90 percent of that propane.

The plan was to hold onto the propane until the final days of the month when other businesses who were "short" of propane and needed to purchase it to meet obligations would be clamoring to purchase. At that point, BP could raise the price significantly since those buyers had no other options.

Investigators say BP did just that, essentially dictating to buyers the price they would pay in the closing days of February.

Investigators say recordings of phone conversations between BP traders show their intent while planning and carrying out the alleged scheme. In a Feb. 5, 2004, phone conversation, for example, Abbott and Mark Radley, manager of BP's natural gas liquids business, discussed getting others in management to approve of the plan.

"One, in terms of whether we should do this or not in terms of talking to (Jim Summers, then-vice president of natural gas liquids) is that, what we stand to gain is not just that we'd make money out of it," said Radley. "But we would know from thereafter that we could control the market at will."

Abbott, Radley and Summers could not be reached for comment.

BP ended up losing money on the alleged manipulation since it spent much more money than planned earlier in the month buying up propane and had to hold on to much of it into March, when prices declined.

Ignorance of law possible
Though ignorance of the law is not a defense, it's possible BP officials did not know their actions were illegal. Notes taken during a Feb. 19, 2004, meeting by Cameron Byers, then-chief operating officer of BP's North American gas and power business, seem to indicate the company didn't think physical trading of propane is regulated.

A "lessons learned" slide show BP officials put together after the alleged market-cornering incident noted: "No violation under current framework, but could increase the risk of regulatory intervention."

BP said it is cooperating with investigators, but Joan Manley, deputy director of enforcement at the CFTC, doesn't see it that way. "They've responded to our subpoenas, but we don't consider anything they've done to fit within the realm of true cooperation," Manley said.

The allegations were not a surprise to Rep. Tom Udall, D-N.M., who has long raised questions about the propane market. At his request, what was then known as the General Accounting Office examined price volatility in the propane market, issuing its report just eight months before the alleged manipulation at BP.

"We've seen higher prices than you would expect in a free, competitive market," Udall said. "There isn't good, solid competition in the propane market, so it makes it much more vulnerable to this type of manipulation."

tom.fowler@chron.com  and david.ivanovich@chron.com

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Wall Street Journal
June 29, 2006

Front Page
U.S. Accuses BP Of Manipulating Price of Propane
Trading Scheme Drove Up Heating Costs, Officials Say;
Company Disputes Charges
By JOHN R. WILKE in Washington and
CHIP CUMMINS in London
June 29, 2006; Page A1

RELATED DOCUMENTS:
CFTC Complaint:
http://online.wsj.com/documents/cftccomplaint20060628.pdf
CFTS Statement (see below)
http://online.wsj.com/article/SB115152599310393335.html?mod=article-outset-box
Attachment 1,Glossary:
http://www.cftc.gov/files/enf/06orders/opa5193-06-attachment-1-glossary.pdf
Exhibit A - Org Chart:
http://www.cftc.gov/files/enf/06orders/opa5193-06-exhibit-a-orghart.pdf
Exhibit B  Audio Tape
http://www.cftc.gov/files/enf/06orders/opa5193-06exhibit-b-audio.wav
Exhibit B - Audio Transcript
http://www.cftc.gov/enf/06orders/opa5193-06exhibit-b-audio.htm
Exhibit C - Audio Tape
http://www.cftc.gov/files/enf/06orders/opa5193-06exhibit-c-audio.wav
Exhibit C - Audio Transcript
http://www.cftc.gov/enf/06orders/opa5193-06exhibit-c-audio.htm
Exhibit D - Audio Tape
Exhibit D - Audio Transcript
http://www.cftc.gov/enf/06orders/opa5193-06exhibit-d-audio.htm
Exhibit E  2004 Position Summary
http://www.cftc.gov/files/enf/06orders/opa5193-06-2004-position-summary-v-teppco-inventory.pdf
Exhibit F  Feb Lessons Learned
http://www.cftc.gov/files/enf/06orders/opa-bp-lessons-learned.pdf
Exhibit G - Audio Tape
http://www.cftc.gov/files/enf/06orders/opa5193-06exhibit-g-audio.wav
Exhibit G - Audio Transcript
http://www.cftc.gov/enf/06orders/opa5193-06exhibit-g-audio.htm


Traders at global energy giant BP PLC secretly and illegally cornered part of the U.S. propane market in early 2004, driving up heating and cooking costs for millions of mostly rural Americans, federal investigators charged.

In a civil complaint filed in federal court in Chicago, the Commodity Futures Trading Commission outlined what it said was a scheme to manipulate the price of propane, and it alleged that executives at a BP trading unit approved the effort. (See the CFTC complaint and statement.)

The Justice Department filed a simultaneous criminal plea in Washington in which a former BP trader admitted to participating in the alleged conspiracy and agreed to cooperate in a continuing criminal investigation of others at BP.

The alleged conspiracy is the latest in a series of stumbles by the London-based company's U.S. operations. BP has paid millions of dollars in federal fines over the past few years in connection with a fatal 2005 refinery fire and other alleged safety and regulatory lapses, and remains under investigation by several federal agencies.

 
The case is based partly on audiotapes of BP traders, who were caught openly discussing the propane price-manipulation scheme, the federal complaint said. "In terms of whether we should do this or not," the complaint quoted one trader as saying, "what we stand to gain is not just that we'd make money out of it, but we would know from thereafter that we can control the market at will."

The manipulation effort caused a brief 50% spike in propane prices at the height of the home-heating season, affecting some seven million households that heat with propane as well as countless users who buy bottled gas for barbecues and agricultural and commercial uses, the federal complaint alleged.

Federal officials said the alleged manipulation scheme was conducted through the BP trading desk in Houston, where executives directed a secret plan to buy nearly all the propane stored along a major Texas-New York pipeline.

"BP used their financial power and trading skills" to capture this key supply line, in turn affecting futures prices, said Gregory Mocek, the CFTC's enforcement chief. "They ultimately drove up prices by establishing a dominant and controlling position in physical propane while simultaneously withholding a certain amount from the market," he said. As a result, "we believe many Americans paid higher heating bills in the winter of 2004."

A BP spokesman said the company couldn't comment on details of the allegations, citing its policy not to discuss litigation. But he said that "market manipulation did not occur. We are prepared to make and prove that case in the courts."

The BP spokesman said the company has already taken internal action in response. "In this situation, we investigated the trades in question and cooperated fully with the CFTC. We took disciplinary action, including dismissal of several employees, for failure to adhere to BP policies governing trading activities. We have also taken steps to strengthen supervision of our trading activities."

The BP traders conducted a "dry run" of the scheme in April 2003 and carried it out in February 2004, briefly seizing control of prices in the $30 billion propane market, the CFTC's complaint said. The effort had "the knowledge, advice and consent of senior management," the agency added.

In the audiotapes, traders crow about the cold weather in the Northeast at the time, though another trader worries that pricing movements "might look a bit funny." In another taped call, an outside market participant jokes that the BP trader he's dealing with might be "one of the Hunt brothers," a reference to the Texas investors' failed 1980s attempt to corner the silver market.

Coming at a time of high energy prices, the allegations of market manipulation could be politically embarrassing for BP and the whole energy industry, which is already under heightened scrutiny from state and federal lawmakers. Federal and state officials have launched a handful of investigations into alleged price-gouging in the gasoline market, but have uncovered little evidence of such behavior.

According to the complaint, BP built its dominant propane-market position to drive up prices in order to squeeze so-called shorts -- traders who had contracts to deliver propane but who didn't have supplies of the fuel on hand. With control of the market, the complaint alleges, BP dictated higher prices to these traders, driving up the market served by the Texas-New York pipeline. It also says the company expected to make $20 million from the effort.

Federal officials said the scheme drove average propane prices through 75 cents a gallon by Feb. 23, 2004 from about 60 cents on Feb. 9, just before BP began executing its strategy. Price spiked to as high as 94 cents in some transactions by Feb. 27, officials said. The increases were reflected in higher retail propane prices for homeowners and commercial customers, the CFTC said. Prices fell back in early March as the scheme unraveled, court documents show, and the effort ultimately fetched BP little money.

In pursuing its investigation, the Justice Department cut a plea deal with Dennis Abbott, one of the traders of Chicago-based BP Products North America Inc. He is expected to cooperate with the criminal investigation that could implicate other executives, including the president of the BP unit, Donald Byers, whose role is cited in the CFTC complaint. Mr. Byers's attorney, Neil Eggleston, declined to comment.

Mr. Abbott could face a five-year prison term and a $250,000 fine. BP itself could face fines of $120,000 for each violation -- and in a case such as this, there could be hundreds of violations -- plus triple any monetary gain. The CFTC also said it will seek to recover damages to consumers and others affected by the alleged scheme. And the government case is likely to be followed by private lawsuits seeking damages for farmers, homeowners, plastics manufacturers and others who can attempt to show that they were overcharged by BP.

The higher prices in 2004 would have disproportionately affected rural consumers, because propane is used to heat mobile homes and in towns where gas lines aren't available and electric heat is too expensive. "Everybody here uses propane," says Julie Them, a planning commissioner in the Northern Appalachian township of Ridgebury, Pa. "It's a rural county with a lot of people in need and on state and federal assistance -- and deliberately driving up propane prices is a heinous crime."

In Maine, another state with a large number of propane users, Attorney General Steven Rowe said he was pleased that federal authorities "are finally bringing a case based on excessive speculative trading in energy futures." He added: "I and many others have long believed that to be the root of some of the high fuel prices and market volatility."

In the past few years, BP's operations in the U.S. have been plagued by a string of problems. In March 2005, an explosion at its refinery in Texas City, Texas, killed 15 and injured more than 170, triggering several federal investigations. Late last year, BP paid a record $21.4 million in fines to regulators because of violations related to the accident. Justice Department officials were considering whether to pursue criminal charges in the case.

The U.S. Labor Department put BP on a national watch list of companies identified as having serious or repeated safety problems, triggering enhanced scrutiny. Earlier this year, the department's Occupational Safety and Health Administration fined BP $2.4 million for safety failures at its Toledo, Ohio, refinery. BP is contesting the Toledo fines.

Federal authorities also opened up a criminal probe of BP's pipeline management in Alaska after an oil spill from a BP line at Prudhoe Bay earlier this year.

The propane-trading charges come just a few years after BP promised to clean house at its trading organization in the wake of fines by the New York Mercantile Exchange in 2003. Late that year, BP agreed to pay a $2.5 million in a settlement with Nymex to resolve allegations of improper crude-oil trading. The settlement cited 10 oil trades in 2001 and 2002, which included wash trades -- simultaneous swaps of the same amount of a commodity for the same price. The technique can be used by traders to improperly boost trading volumes or revenue or to influence market pricing. BP and Nymex never disclosed the specific nature of the trades.

BP settled the allegations without admitting or denying wrongdoing, but it said at the time it had tightened rules for its traders and revamped its corporate-wide compliance program.

In an interview in September 2004 -- a year after the fines were announced -- BP Chief Executive John Browne said BP had redoubled efforts to improve ethics and compliance, including an education program for individual traders. "You can have all the rules you want in the world [but] it's the education of the individuals at the desks and the tone you set," he said. "You have to keep reinforcing that again and again and again."

Write to Chip Cummins at chip.cummins@wsj.com

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http://online.wsj.com/article/SB115152599310393335.html?mod=article-outset-box

CFTC Statement on BP
June 28, 2006 5:03 p.m.

U.S. Commodity Futures Trading Commission Charges BP Products North America, Inc. with Cornering the Propane Market and Manipulating the Price of Propane

Complaint Alleges that BP's Actions Resulted in Higher Prices for Residential and Commercial Consumers of Propane

WASHINGTON D.C. -- The U.S. Commodity Futures Trading Commission (CFTC) announced today the filing of a civil enforcement action in the United States District Court for the Northern District of Illinois against BP Products North America, Inc. (BP), a wholly owned subsidiary of BP plc, alleging that BP manipulated the price of February 2004 TET physical propane by, among other things, cornering the market for February 2004 TET physical propane. The CFTC also charges BP with attempting to manipulate the price of April 2003 TET physical propane by attempting to corner the April 2003 TET physical propane market.

The CFTC's complaint alleges that:

• With the knowledge, advice, and consent of senior management, BP employees developed and executed a speculative trading strategy in which BP cornered the February 2004 TET physical propane market;
 
• In developing this strategy, BP employees discussed BP's ability to "control the market at will" by cornering the market in TET propane;
 
• According to internal BP documents, BP's traders would establish a long February propane position, withhold a portion of that propane from the market, and drive up the price of propane;
 
• By cornering the TET propane market, BP employees sought to generate a profit for BP of at least $20 million "with potential for upside from there"; and
 
• BP's scheme to corner the market caused the price of TET propane to become artificially high.
 

"Cornering a commodity market is more than a threat to market integrity. It is an illegal activity that could have repercussions for commercial market participants as well as retail consumers around this country. This case clearly illustrates that complex and covert trading patterns will not prevent us from aggressively pursuing and exposing those that violate the Commodity Exchange Act," said Gregory Mocek, the CFTC's Director of Enforcement.

According to the complaint, in order to accomplish the corner during February 2004, BP employees purchased enormous quantities of propane to establish a dominant and controlling long position in February 2004 TET physical propane. The complaint further alleges that as a result of BP's strategy, as of February 17, 2004, BP's position in February 2004 TET physical propane exceeded the entire TEPPCO system propane inventory; and at the end of February 2004, BP owned over 88% of all TET propane.

Because BP possessed a dominant and controlling position in February 2004 TET propane, the complaint alleges, BP was able to dictate prices at which BP would sell the February 2004 TET propane to the shorts on at least February 27, 2004. According to the complaint, BP's actions caused the price of February 2004 TET propane to increase to over 90 cents per gallon on February 27, 2004a price that would not otherwise have been reached under the normal pressures of supply and demand. As alleged in the complaint, during the winter months, including February, TET propane is purchased by retail consumers, typically those in more rural regions, to heat their homes.

The CFTC complaint further alleges that February 2004 was not the first time that BP engaged in an effort to corner the TET physical propane market. BP, by and through its employees, attempted to manipulate the price of April 2003 TET physical propane through a similar strategy of taking a dominant and controlling long position, the complaint alleges. The complaint also alleges that a BP employee described the April 2003 TET propane trading strategy as a "trial run" of the February 2004 TET strategy to corner the propane market.

According to the lawsuit, "TET" propane is the primary propane used for residential and commercial heating in the Northeast United States, particularly in rural areas which are not served by natural gas pipelines; and, the price of TET propane at Mont Belvieu affects the price of propane paid by consumers. The term "TET propane" refers to propane that is deliverable at the TEPPCO storage facility in Mont Belvieu, Texas, or anywhere within the TEPPCO system. "TEPPCO" is an acronym for Texas Eastern Products Pipeline Co, LLC. Furthermore, prices of TET propane affect the price of the NYMEX futures contract for propane, in part, because the NYMEX propane contract provides for delivery of propane at TEPPCO, according to the complaint.

In its ongoing litigation, the CFTC is seeking permanent injunctive relief, disgorgement, restitution, and payment of civil monetary penalties.

The Commission appreciates the cooperative enforcement efforts of the President's Corporate Fraud Task Force and Criminal Fraud Section of the Department of Justice.

The following CFTC Division of Enforcement staff members are primarily responsible for this case: Joseph Konizeski, Joan Manley, Paul Hayeck, Judy Lee, and Christine Ryall.

Source: Commodity Futures Trading Commission

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Wall Street Journal

June 29, 2006

Bush Admin Leans On Alaska Lawmakers
To Act On Pipeline
DOW JONES NEWSWIRES
June 29, 2006 11:11 p.m.

JUNEAU, Alaska (AP)--The Bush administration is pressuring state lawmakers to pass legislation that would advance a proposed multibillion dollar natural gas pipeline.

In letters to the Alaska House and Senate, Vice President Dick Cheney urged prompt action during the upcoming special session.

"You have it in your hands to help ensure that the Alaska Gas Pipeline ultimately furnishes dependable, affordable, and environmentally sound energy for America's future," Cheney wrote in his letter, dated Tuesday.

Adding to the pressure was an announcement Thursday from the federal energy department, which said plans were in place to expedite the federal permitting process once a final contract is signed.

House Speaker John Harris, R-Valdez, said lawmakers also want to see the gas brought to market, but want to ensure Alaska gets a good deal.

"I think most of the senators and members of the House will probably look at that and say `That's nice, so glad they're thinking about us' and go on and do what we need to do for Alaskans," Harris said.

Alaska lawmakers will convene July 12 for a second special session to consider replacing the production tax on oil companies operating in the state. Lawmakers also will again consider legislation granting Gov. Frank Murkowski the authority to negotiate changes in a proposed fiscal contract with the three oil companies who would build and own the line along with the state.

Lawmakers adjourned the last special session June 8 after failing to reach an agreement on measures the governor said are necessary for reaching a final deal, including setting the tax rate on oil companies' Alaska profits.

Murkowski wants the tax rate set at 20%. Lawmakers want a higher base tax, but couldn't agree on what that should be in the special session. A measure setting the tax rate at 22.8% failed as the session died. At current oil prices, a 1% different would amount to about $150 million for the state treasury.

Still others want to see a tax placed on gross production instead.

Meanwhile, doubts have emerged in the last month over the contract proposal itself, particularly with the state's role as a 20% owner of the pipeline, the work commitments to build the pipeline, plans to lock in oil and gas taxes for decades to come and a proposal for the state to take tax and royalties in gas instead of cash.

If the Legislature reaches agreement, the governor will negotiate a deal with ConocoPhillips (COP), BP PLC (BP.LN) and Exxon Mobil Corp. (XOM). The companies will decide whether to build the pipeline about four years after the contract is signed.

The memorandum of understanding between the Department of Energy and 14 other departments and agencies lays out a framework for streamlining federal review of the project and reducing bureaucratic delays if the project moves forward.

The federal Alaska Natural Gas Pipeline Act in 2004 established the expedited review and incentives for the Alaska project.

The estimated $19 billion to $27 billion pipeline would stretch at least 2,100 miles from Prudhoe Bay to Alberta, Canada, and perhaps another 1,500 miles to Chicago. The pipeline would carry about 4 billion cubic feet of natural gas each day. It would supply about 10% of future U.S natural gas demand.

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Financial Times
June 29, 2006

  http://www.ft.com/cms/s/21df79ae-070c-11db-81d7-0000779e2340.html

Front Page-First Section
BP faces US energy price-fixing charges
By Jeremy Grant in Washington
Published: June 29 2006 03:00 |
Last updated: June 29 2006 03:00

BP was facing allegations of price manipulation last night after a US watchdog filed a civil suit against the UK-based group accusing it of cornering a significant portion of the propane market used by millions of Americans.

Dennis Abbott, a former BP energy trader, pleaded guilty to federal charges of conspiracy to manipulate prices and could face up to five years in prison.

If found guilty, BP could have to pay restitution to potential victims as well as fines up up to $120,000 per violation.

The suit is the latest in a series of setbacks for BP in north America, including the Prudhoe Bay spill and an explosion last year at a Texas refinery that killed 15.

Rising energy prices have emerged as a big political issue in the US. Last week ,Jesse Jackson, the civil rights leader, led a series of unrelated protests against BP.

The civil suit against BP has the potential to further inflame the debate. Propane is used by millions to heat trailer and rural homes homes and fuel cookers. It is also used heavily by industry.

The Commodity Futures Trading Commission, which regulates US futures markets, alleged in a lawsuit filed in Chicago that BP "unlawfully attempted to manipulate and did manipulate" the price of a type of propane used widely in February 2004.

The suit, a copy of which has been obtained by the Financial Times, also claimed that BP and six staff members, who are named, tried to manipulate prices in the same "TET" propane fuel a year earlier.

The suit against BP is likely to be one of the biggest cases of alleged energy price manipulation in the US. Gregory Mocek, CFTC director of enforcement, said: "Cornering a commodity market is … an illegal activity that could have repercussions for commercial market participants as well as retail consumers."

The CFTC said BP cornered the market by buying up a "dominant and controlling long position" in TET propane, forcing buyers to buy from BP at prices dictated by BP.

Ronnie Chappell, a BP spokesman in Houston, rejected the allegations. "Market manipulation did not occur and we are prepared to make and prove that case it the courts," he said.

"We investigated the trades in question and fully co-operated with the CFTC. We took disciplinary action including dismissal of several employees for failure to adhere to BP policies governing trading activities."

The action was alleged to have been masterminded by Mark Radley, then trading manager of natural gas liquids.

The CFTC suit includes what it says are transcripts of phone conversations purporting to show Mr Radley describing the 2003 attempt to corner the propane market as a "trial run" for the next year. Mr Radley and two of the other six employees have been fired by BP.

The alleged manipulation also affected the propane futures market at the New York Mercantile Exchange.

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Wall Street Journal
June 28, 2006

Investigators Say BP Cornered
U.S. Propane Market in 2004
By JOHN R. WILKE IN WASHINGTON and
CHIP CUMMINS IN LONDON
June 28, 2006 5:12 p.m.

Traders at global energy giant BP PLC secretly and illegally cornered a portion of the U.S. propane market in early 2004, driving up heating and cooking costs for millions of poor and rural Americans, federal investigators charged.

In a civil complaint filed in federal court in Chicago, the Commodity Futures Trading Commission outlined a scheme to manipulate the price of propane and charged that executives at a BP trading unit approved the effort. The Justice Department filed a simultaneous criminal filing in U.S. District Court in Washington in which a BP trader admitted to participating in a conspiracy and agreed to cooperate in a continuing criminal prosecution of others at BP.

The manipulation effort caused a brief, 50% price spike at the height of the home-heating season last year, affecting some seven million households that heat with propane and countless other users who buy bottled gas for barbecues, agricultural and commercial uses, the federal complaint alleged. (See the CFTC complaint and statement.)

A BP spokesman said the company couldn't comment on details of the allegations, citing its policy not to discuss matters in litigation. But, he said, "market manipulation did not occur. We are prepared to make and prove that case in the courts. We take matters of business conduct very seriously and set clear expectations for all our personnel regarding compliance with external laws and internal policies and procedures."

Still, BP spokesman said that the company has taken internal action in response. "In this situation, we investigated the trades in question and cooperated fully with the CFTC. We took disciplinary action, including dismissal of several employees, for failure to adhere to BP policies governing trading activities. We have also taken steps to strengthen supervision of our trading activities."

Alleged 'Dry Run' in 2003

The BP traders conducted a "dry run" of the scheme in April 2003 and carried it out in February 2004, "with the knowledge, advice and consent of senior management," the complaint said. The effort allowed the BP unit briefly to seize control of pricing on a crucial Texas-to-New York pipeline that influences futures prices across the $30 billion propane market.

Traders were caught on audiotape openly discussing the scheme, the complaint said. "In terms of whether we should do this or not," one trader said, "what we stand to gain is not just that we'd make money out of it, but we would know from thereafter that we can control the market at will." The complaint says the company expected to make $20 million from the effort.

The law allows for a $120,000 fine for each violationand in a case such as this, there could be hundreds of such actsplus triple any monetary gain, which officials say actually was minimal because the effort quickly unraveled. But the CFTC's complaint also seeks to recover damages to consumers and others affected by the alleged scheme, which could be far more substantial. And the government case is likely to be followed by private lawsuits seeking damages for farmers, homeowners, plastics manufacturers and others who can attempt to show that they were overcharged by BP.

At the same time, several BP traders and executives of the unit, BP Products North America Inc., could face criminal charges in the Justice Department investigation. In its filing in U.S. District Court in Washington, prosecutors say that one of the BP traders is cooperating in the inquiry.

The timing of the propane-trading charges could prove politically explosive for BP, and perhaps the broader energy industry. Lawmakers have hauled a handful of top oil executives to Capitol Hill to testify amid soaring oil prices. Federal and state officials also have launched a handful of investigations into alleged price-gouging and market-manipulation in gasoline markets across the country, though there has been little evidence companies acted improperly.

The propane market is much smaller than the nation's gasoline market, but large parts of the country still rely on the fuel to heat homes. If the propane market was manipulatedeven brieflyby BP traders, lawmakers and state law enforcement officials could seek, at least rhetorically, to more pointedly link the pain being felt by consumers from high energy prices with Big Oil staggering profits.

Latest Stumble for BP

The civil and criminal charges are the latest in a series of serious compliance stumbles in the U.S. for BP, the parent company with headquarters in London.

In March 2005, an explosion at its Texas City, Texas, refinery killed 15 and injured more than 170, triggering several federal investigations. Late last year, BP paid a record $21.4 million in fines to regulators because of violations related to the accident. Justice Department officials were considering whether to pursue criminal charges in the case ­ a highly unusual step for an industrial accident in Texas. Several federal agencies are still investigating the accident, and the status of the Justice Department inquiry isn't clear.

The U.S. Labor Department put the company on a national watch-list of companies identified as having serious or repeated safety problems, triggering enhanced scrutiny of its U.S. operations. Earlier this year, the department's Occupational Safety and Health Administration slapped BP with another $2.4 million in fines for safety failures at its Toledo, Ohio, refinery. BP is contesting the Toledo fines.

Federal authorities have also opened up a criminal probe of BP's pipeline management in Alaska, the site earlier this year of an oil spill from a BP line at Prudhoe Bay.

Unlike its biggest peer, Exxon Mobil Corp., BP has built a sizeable proprietary trading desk, based in large part in the U.S. The company sells the oil it pumps from the ground to customers, and it buys crude and other feedstock for its refineries and chemical plants. But just like a big bank or commodity-trading house, BP also buys and sells oil and petroleum products on its own account. It tries to make profits by taking advantage of sometimes-tiny differences in prices for various commodities around the world.

The propane trading charges come just a few years after BP promised to clean house at its trading organization in the wake of fines by the New York Mercantile Exchange in 2003. Late that year, BP agreed to pay a record fine of $2.5 million in a settlement with Nymex, resolving allegations of improper crude-oil trading. The settlement cited 10 oil trades in 2001 and 2002, including wash trading ­ essentially, simultaneously swapping the same amount of a commodity for the same price. The move can be used by traders to improperly boost trading volumes, revenue or influence market pricing. BP and Nymex never disclosed the specific nature of the trades.

BP settled the allegations without admitting or denying wrongdoing, but it said at the time it had tightened rules for its traders and revamped its corporate-wide compliance program. In an interview in September 2004 ­ a year after the fines were announced -- Lord Browne said BP had redoubled efforts to improve ethics and compliance, including an education program for individual traders.

"You can have all the rules you want in the world [but] it's the education of the individuals at the desks and the tone you set," he said. "You have to keep reinforcing that again and again and again. The code of conduct is not a piece of paper dreamt up and put on the web site. It is actually real. And if you find someone violating the code of conduct you fire them very quickly."

The CFTC has aggressively monitored commodities trading amid today's high prices and after a series of power- and natural-gas trading misconduct by the likes of Enron Corp. a few years ago. Early this year, the CFTC fined a top Royal Dutch Shell PLC trader on one of the Anglo-Dutch oil giant's trading subsidiaries over a series of bogus deals executed on Nymex. The exact nature of the Shell trades ­ executed in 2003 and 2004 ­ weren't disclosed in a CFTC settlement. Shell and one of its top futures traders agreed to pay $300,000 in penalties. Shell neither admitted nor denied wrongdoing.

In large measure, the agency is limited in its enforcement scope to activity on regulated exchanges, though it can go after off-exchange trades if they appear to have affected exchange prices. While just a small portion of the world's vast energy markets are traded on regulated exchanges, the exchange prices often provide benchmarks for the much larger, so-called over-the-counter markets. That could open BP up to huge liabilities from private lawsuits.

Write to John R. Wilke at john.wilke@wsj.com  and Chip Cummins at chip.cummins@wsj.com

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Wall Street Journal
June 22, 2006
2nd UPDATE:
US Environmental Agency Probes BP Texas City
DOW JONES NEWSWIRES
June 21, 2006 6:26 p.m.
 
(Updates to specify the EPA-mandated conditions that must exist for BP to test its benzene controls, as well as the class of chemicals in which BP is the heaviest polluter. Adds additional comments from BP spokesman.)
By Matthew Dalton
Of DOW JONES NEWSWIRES
 
NEW YORK (Dow Jones)--The U.S. Environmental Protection Agency is investigating BP PLC (BP) for possible violations of air pollution rules at the company's Texas City refinery, according to EPA documents.

The investigation would be the latest to highlight a series of environmental and operational problems at the refinery since an explosion there last year killed 15 people.

"The matter is under enforcement review," said Cynthia Fanning, an EPA spokeswoman.

According to investigative requests sent to BP last year and in April, the refinery may be allowing large amounts of benzene to evaporate from its wastewater plant. Benzene, a natural component of crude oil, is classified as a known carcinogen by the EPA.

The agency documents, obtained by Dow Jones Newswires, raise concerns that devices at the refinery called enhanced biodegradation units, which use microorganisms to reduce the benzene content of wastewater, aren't functioning properly. Benzene evaporates easily so if the units aren't breaking it down, the evaporation becomes a major air pollution problem.

BP disagreed with the EPA's concerns. "We believe the enhanced biodegradation units at the Texas City refinery are working as designed and effectively removing benzene from refinery waste streams," said Ronnie Chappell, a BP spokesman in Houston.

Last September the EPA asked BP to perform a series of tests to determine whether the units were functioning properly. In late April the agency told BP its response to its first request was "inadequate" on several fronts.

Chappell said the refinery can't perform the tests requested by the EPA now because the agency wants them done when the refinery and wastewater treatment plant are running at full capacity. The refinery is only operating at half capacity now, after BP shut the facility down for extensive maintenance last year. Chappell said BP will perform the requested tests once the plant is operating at full capacity in the coming months.

Studies have questioned whether biodegradation units effectively remove benzene. Evidence indicates that the organisms used in those devices don't effectively break down the benzene and take days to do so.

Nevertheless, most refineries rely heavily on biodegradation units to limit emissions of benzene and a few other chemicals from their wastewater treatment plants.

The Texas City refinery in 2004 was the seventh largest emitter of benzene pollution in the country, according to an EPA database of toxic chemical emissions. It released 141,000 pounds of the chemical, though that data doesn't include emissions that might have occurred from the biodegradation units.

The same data, released in May, showed that the refinery was the largest U.S. emitter of toxic chemicals tracked in the database, mainly due to emissions of formaldehyde and ammonia. The disclosure generated criticism of BP and led the company's officials to question whether their own data they supplied to the EPA is accurate.

Chappell said the refinery's emissions were estimated using a new methodology that the company is now re-examining.

"We're in the process of doing stack testing to verify whether this is an accurate methodology," he said.

Chappell also noted that other kinds of pollution aren't included in the EPA database. He said including those emissions could reveal that other facilities are heavier polluters than BP's Texas City refinery.

BP is also still under investigation by the federal government for violations of environmental and workplace safety rules that may have caused the explosion in March 2005 that killed 15 people and wounded around 170.

The Texas City facility is the third largest oil refinery in the U.S.

Facing this greater scrutiny from regulators and investors, BP said on Monday it's appointing a new head of the division. Under the transition, Robert Malone, 54, who heads BP's London-based shipping division, will relocate to Houston and replace current BP America President Ross Pillari, 55, who is retiring.

 
-By Matthew Dalton; Dow Jones Newswires; 201-938-4604; matthew.dalton@dowjones.com  

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Wall Street Journal
June 21, 2006

BP Appoints New Head For Troubled US Unit
DOW JONES NEWSWIRES
June 20, 2006 7:31 a.m.
(This article was originally published Monday)
By John M. Biers
Of DOW JONES NEWSWIRES
 
HOUSTON (Dow Jones)--Facing greater scrutiny from regulators and investors over its accident-prone U.S. arm, BP PLC (BP) announced Monday it's appointing a new head of the division.

Under the transition announced Monday, Robert Malone, 54, who heads BP's London-based shipping division, will relocate to Houston and replace current BP America President Ross Pillari, 55, who is retiring.

The shift comes amid a persistent string of operational problems at U.S. sites. A BP spokesman said the shift is not related to BP's safety problems in the U.S.

"It's just business as normal," said BP spokesman Ronnie Chappell.

Neither Pillari nor his assistant returned phone calls from Dow Jones Newswires seeking comment. Chappell said Pillari was declining interview requests Monday.

A March 2005 accident at BP's largest U.S. refinery in Texas killed 15 contract workers and injured 170. Federal regulators recently slapped a $2.4 million fine on BP's Ohio refinery amid sharp criticism of the company. The company also faces a criminal investigation related to spills from its Alaska pipeline.

The shift comes ahead of a final report into the Texas refining calamity by the U.S. Chemical Safety And Hazard Investigation Board, expected in October or November. The board has previously said that the safety deficiencies at Texas City were long-standing, and should have been detected by the company earlier. The CSB plans to question Pillari and may also query BP Chief Executive John Browne.

Pillari, appearing at a gloomy 6 a.m. press conference the morning after the Texas disaster, was the first BP executive to speak publicly in the aftermath of one of the worst U.S. industrial accidents in recent history. Browne appeared later that Thursday morning at a separate news conference.

 -By John M. Biers, Dow Jones Newswires; 713-547-9214; john.biers@dowjones.com

(Jessica Resnick-Ault contributed to this report.)

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Wall Street Journal
June 20, 2006
BP Replaces Its Top U.S. Executive
Malone Is Named President,
Chairman of American Unit
By CHIP CUMMINS
June 20, 2006; Page B13

LONDON -- BP PLC replaced its top executive in the U.S., marking the latest management shuffle following a series of safety and environmental problems there.

The company said Robert Malone will become chairman and president of BP America Inc., the company's main U.S. operating unit. The 54-year-old Mr. Malone, who will be based in Houston, also will serve as BP's top executive and "chief representative" in the U.S., BP said.

The executive, who most recently headed up BP's shipping arm, will take up his new job amid heightened scrutiny in Washington of BP's U.S. operations and of the oil industry as a whole, thanks to high energy prices.

Last year, an explosion at BP's Texas City, Texas, refinery killed 15. U.S. workplace-safety regulators put the company on a program of increased inspection and fined it $21.4 million. In April, the Occupational Safety and Health Administration fined BP an additional $2.4 million for safety problems at its Toledo, Ohio, plant. BP is contesting the Ohio fines.

Last year after the Texas accident, BP Chief Executive John Browne shook up the company's global health, safety and environmental-management team, appointing John Mogford, a trusted and long-time operations manager, to the new role of group vice president for safety and operations.

Mr. Malone succeeds Ross Pillari, 55, who had headed up BP operations in the U.S., Canada and Latin America. BP will split that larger role between Mr. Malone in the U.S. and another executive, who will head up its Canada and Latin American business.

A BP spokesman said that Mr. Pillari decided to step down after the reorganization and that his retirement wasn't triggered by the recent operational problems. Mr. Pillari, a 35-year BP veteran, declined to comment.

Write to Chip Cummins at chip.cummins@wsj.com

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AFX Europe
June 20, 2006

http://www.forbes.com/facesinthenews/2006/06/20/bp-america-malone-cx_po_0620autofacescan01.html

BP America To Get New Chairman
Parmy Olson, 06.20.06, 7:17 AM ET
London -
Time for a change? It could be the burgers, the acute American work ethic, or just that good ol' Texas Tea that Robert A. Malone can look forward to when he moves from London to Houston to become the new face of BP Group in North America. The native Texan will be replacing Ross Pillari, 55, who plans to retire as head of the oil giant's North and South American operations.

BP has not made clear when Malone will be taking the reins, though the firm did announce a tweak to its management structure. Pillari, who managed BP's business in the U.S., Canada and Latin America, will see his role split into two. While Malone takes over the North American Operations, David Peattie, currently the exploration and production group vice president, will oversee the company's Canadian and Latin American business.

BP America's executive reshuffle comes on the back of several awkward setbacks for the company in the Land of Liberty. Last March, 15 BP workers were killed in an explosion at its Texas City refinery, the company's hurricane-damaged Thunderhorse platform in the Gulf of Mexico didn't bode well for profit, and most recently an oil leak in one of its Alaskan pipelines saw BP doled a subpoena from a U.S. grand jury.

Hence, plenty for Malone to do to as he steps up to the helm. The 54-year-old is coming from a stint as CEO of BP Shipping, which operates the company's fleet of oil and gas tankers. It's possible Malone will come to miss his old post, considering the remarks he made a recent company newsletter "I’ve spent 30 years with BP and over half of that has involved downsizing and closing and melding businesses together," the company cited him as saying with a 'gentle Texan drawl', "But now in the shipping business, I have to say it doesn’t get any better than this." Here's hoping that more troubles in North America don't prove that to be something of an insightful assertion.

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Houston Chronicle
June 20, 2006

http://www.houstonchronicle.com/disp/story.mpl/business/energy/3984740.html

Texas native will head BP America
Robert Malone to lead company with high-profile problems in U.S.
By LYNN J. COOK

The head of BP America, Ross Pillari, is retiring July 1 after 35 years with the company and will be replaced by Robert Malone, who has most recently been running BP Shipping Ltd.

Malone will move from London to Houston, where BP has 7,000 employees working in refining, pipelines, and oil and natural gas exploration and production.

Like Pillari, Malone, who is a Texas native, will become the face of BP in the United States.

BP has had several high-profile problems in the U.S. recently, including the March 2005 explosion at its Texas City refinery that killed 15 workers and injured scores, the near-toppling of the Thunderhorse platform in the Gulf of Mexico during last year's hurricane season and a severe oil spill from a BP-operated pipeline in Alaska this spring.

BP spokesman Ronnie Chappell said Pillari's retirement and Malone's promotion are not related to those incidents.

"Absolutely not," he said.

BP has restructured Pillari's old job, creating two positions, Chappell said.

Malone, 54, will become chairman of BP America, overseeing operations in the United States, and David Peattie, a senior executive in London with BP Exploration and Production, will now oversee Canada and Central and South America.

Pillari, 55, who was chairman of BP America for almost five years, headed both North and South American operations.

"I have known Bob Malone for more than two decades. He brings broad experience to his new position and a proven record of success in the companies he has led," BP's London-based CEO, Lord John Browne, said in a prepared statement.

In a telephone interview on Monday, Malone called himself "transparent and direct," and said he plans to talk to BP employees and people outside the company to get a handle on what BP's biggest issues are before he tries to tackle them.

Although Malone is a native Texan, he has not worked in Houston before. In the last three decades he has worked for Kennecott Copper Corp., the Standard Oil Company of Ohio, Sohio, and BP, including a stint as CEO of Alyeska Pipeline Service Co., operator the Trans-Alaska Pipeline.

During his most recent tenure at the helm of BP Shipping, the division added 48 double-hulled tankers to its fleet.

When asked how he planned to address the disparity between BP's image as the environmentally friendly energy company and recent problems, Malone said: "I would hope by the way we operate in the U.S. is what changes the image, not what I say or do."

ljcook@chron.com

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Reuters.com
June 19,2006

http://today.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?view=CN&storyID=2006-06-19T174438Z_01_N19330605_RTRIDST_0_ENERGY-BP-UPDATE-1.XML&rpc=66
 

Robert Malone, to oversee operations in the United States.
 

NEW YORK, June 19 (Reuters) - British oil company BP Plc (BP.L: Quote, Profile, Research) on Monday said it named the head of its shipping operations, Robert Malone, to oversee operations in the United States.

Malone, who until now was chief executive of BP Shipping Ltd., becomes chairman and president of BP America Inc., the company said.

A BP spokesman said the company has decided to split what had been the single role of running all operations in the Americas into two positions, one for the United States and one for Latin America and Canada. An executive for the latter position has not yet been named, the spokesman said.

Ross Pillari, who had been the top BP executive for the Americas in the old position, opted to retire when the company split the position in two, the spokesman said.

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Anchorage Daily News
June 17, 2006

http://www.adn.com/money/industries/oil/story/7867359p-7760799c.html

Problems tarnish image of BP's CEO
BIG OIL: Prudhoe Bay spill, fatal blast at Texas refinery hurt his name.
By CHIP CUMMINS
The Wall Street Journal
Published: June 17, 2006
Last Modified: June 17, 2006 at 03:39 AM

LONDON -- For years, John Browne has been lionized for turning BP into an oil powerhouse while embracing the green movement years before it was cool in the executive suite. Business groups showered him with management awards; Vanity Fair featured him in its recent environmental issue alongside such green darlings as Al Gore and Julia Roberts.

Now, though, a different group of image makers is taking aim at BP and its cigar-puffing, opera fan of a chief executive: American regulators and activist investors who say BP isn't living up to its environmental and safety promises.

An investigative agency looking into a deadly blast at a BP refinery in Texas last year is considering questioning Browne in its probe of the accident. A top Labor Department official lashed out recently at the company after inspectors found serious safety problems at another refinery in Ohio. And federal officials in Alaska have opened a criminal investigation related to a BP oil spill discovered March 2 at Prudhoe Bay.

BP is Alaska's No. 2 oil producer and runs almost all of the North Slope oil fields on behalf of itself and other companies. It also owns about half of the 800-mile trans-Alaska pipeline.

Meanwhile, so-called socially responsible investors -- a growing group who make investment decisions by gauging a company's record on everything from environmental to social issues, like inclusive hiring -- are starting to ask tough questions of a chief executive officer they have long admired.

"Is this a systemic problem or a series of one-offs? The jury is still out," says Robert Barrington, London-based director of governance and socially responsible investments at F&C Asset Management, which has about $206 billion under management. "There's no doubt (Browne) is very committed to these issues, but only time will tell whether action meets words."

The extra scrutiny hasn't hurt BP's bottom line. Even though the company has been hit with fines totaling $23.8 million at the Texas and Ohio refineries, that still amounts to just one-tenth of 1 percent of BP's annual profit of some $22.3 billion in 2005.

But perhaps as important for a company that packages itself as "Beyond Petroleum," BP's corporate reputation -- and Browne's personal one -- is taking a hit. The bashing comes as Big Oil finds itself under attack from politicians in Washington and Europe over high oil prices.

After a refinery explosion in Texas City, Texas, killed 15 workers in March 2005, the U.S. Occupational Safety and Health Administration put BP on a national watch list of safety violators in all industries, and the company agreed to pay a $21.4 million fine. OSHA inspectors descended on another BP refinery in Toledo, Ohio, and found more problems. In April, Edwin Foulke, a top Labor Department official, charged that BP had failed to learn lessons from the Texas City accident. The company was among firms that "ignore their obligations under the law and continually place their employees at risk," he said. BP is contesting $2.4 million in fines in Toledo.

Goldman Sachs Group Inc. is likely to downgrade BP in a closely watched index ranking oil companies in environmental, social and corporate governance issues. Last summer BP came out on top. "I think this year their poorer performance will be reflected in their score," says Sarah Forrest, an analyst who works on the list.

BP says it is cooperating with investigators probing the various accidents. Browne calls 2005 a "quite challenging" year, but he doesn't believe the succession of incidents point to a systemic problem at BP. Instead, they are a "series of unrelated events," he says. "And I want to make the point that there are not that many events; that is not to excuse any one of them."

Even as U.S. operations have slipped up, BP's safety record globally has improved along with that of the entire industry. Some activists and investors applauded BP for acting quickly to investigate the Texas accident and make changes in operations. And environmental leaders still have a soft spot for Browne, who broke ranks with his industry in 1997 by acknowledging the threat of global warming.

"All I would ask people to do is to take a balanced view of this, remembering the totality of the situation," Browne says. "What they should be assured about is that BP is doing something about it."

BP's swift response to its embarrassments has helped contain the damage. Browne visited the Texas City refinery the day after the explosion and met with workers. BP took responsibility for the accident and settled with victims and their families, offering packages that even some members of the notoriously aggressive plaintiffs bar in South Texas considered generous. Browne also shook up the company's management team responsible for health, safety and environmental issues. He says he welcomes the scrutiny by regulators. John Mogford, BP's new senior group vice president for safety and operations, is scheduled to meet with investors in New York next week to discuss the lessons learned from Texas City.

Browne, who won a peerage from Queen Elizabeth II, has taken a personal rap on the knuckles as well. At its annual shareholder meeting earlier this year, Peter Sutherland, BP's nonexecutive chairman, said the board fully backed Browne. But the compensation committee, made up of independent directors, doled out a smaller bonus for 2005 compared with the year before, partly because of the problems. Browne took home a pay package valued at approximately $12 million, 14 percent more than in 2004. But his bonus was reduced to roughly $3.3 million from $5.9 million.

"It's absolutely correct that my bonus was reduced," says Browne. "It was the right leadership position to take."

Meanwhile, Don Holmstrom, an investigator for the U.S. Chemical Safety and Hazard Investigation Board, says he doesn't rule out calling in Browne for questioning in his continuing Texas City review. Holmstrom says that because the refinery had a history of accidents before the explosion, "we want to know specifically what was done, what was put into place, what action was taken" on the corporate level to improve safety beforehand.

A federal agency that probes chemical-industry accidents, the board doesn't have the power to levy fines. It typically delves into the technical causes of accidents, so an interview with Browne would be unusual. Still, Holmstrom says he has already interviewed other corporate brass and has yet to decide about Browne.

 

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Reuters.com
June 16, 2006

http://today.reuters.com/news/newsArticle.aspx?type=reutersEdge&storyID=2006-06-16T160915Z_01_N16405405_RTRUKOC_0_US-ENERGY-BP-SAFETY.xml

BP not criminally liable for Alaska oil spill: CEO
Fri Jun 16, 2006 12:09 PM ET
By Robert Campbell

NEW YORK (Reuters) - BP Plc's <BP.L> pipeline monitoring system exceeded regulatory requirements prior to a pipeline rupture and oil spill in Alaska and the company believes it will not be held criminally liable for the accident, Chief Executive John Browne told Reuters.

Workers on March 2 discovered that at a BP pipeline had leaked at least 200,000 gallons of crude oil, the largest spill ever on Alaska's North Slope, prompting the British company to revamp its safety standards.

"We had a world-class corrosion monitoring and spill detection system, much better than required by regulation. It worked, it continued to work, but there was an event," Browne said in an interview late Thursday.

"We are now responding by making standards even higher than those mandated anywhere in the world," he added.

The spill came less than a year after a blast at BP's big refinery in Texas City, Texas, killed 15 people and injured scores more, dealing a blow to its reputation in the United States and prompting a government investigation.

The United States Environmental Protection Agency's criminal investigations arm has convened a federal grand jury to determine whether there is enough evidence to charge BP with a crime over the Alaska spill.

BP says it is cooperating with the investigation and, when asked if he thought there was any possibility BP could be held criminally liable for the spill, Browne replied emphatically, "I certainly don't."

The EPA investigation into the spill comes as the U.S. Department of Transportation said on June 5 that it believed BP's corrosion management practices were unsound.

BP was ordered to clean the pipelines by mid-June, but the company has been unable to comply, arguing that the large volume of sediment in the pipelines makes it impossible to clean them quickly.

Company officials say the government's decision this week to allow the company to continue operating its Alaskan pipelines without immediately cleaning them should be taken as a sign that the federal authorities are still confident in BP's ability to operate the lines safely.

TEXAS CITY

The spill probe added to the already intense scrutiny BP was facing from regulators following the Texas City explosion. The company has been fined $21.4 million by federal workplace safety regulators and has paid more than $500 million in compensation to many of the victims and their families.

The accident raised questions about the safety culture within BP. While the company has taken responsibility for the accident, it says the cause of the tragedy was the failure of refinery employees to follow written procedures.

The union at Texas City has argued that BP management should share some of the blame and the Chemical Safety Board, a federal agency, is currently investigating the accident.

The CSB is interviewing BP managers and may even interview Browne, who said BP was taking steps to improve the supervision of operating units by country heads and other senior managers.

"BP is a highly decentralized company, so authority is delegated to the appropriate level, and with that authority comes responsibility," Browne said.

"The real question is whether or not the checks and balances are effective. We've made a big action, which is to completely change the way in which we do our audit, to make sure that we don't have anything that could be ignored."

BP's internal safety data will now be more oriented toward tracking "near misses" and other leading indicators of potential safety problems, Browne explained.

"Texas City broke an extraordinarily good safety track record for BP, both in the United States and worldwide. We responded very rapidly to that event and we have both applied the lessons learned from that event at Texas City and elsewhere in the United States and worldwide," Browne said.

BP expects further scrutiny from regulators and the public, Browne said, adding he welcomed a spotlight on the company's activities while acknowledging the bad publicity from the accident would not likely go away soon.

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Wall Street Journal
June 16, 2006

BP's Accidents Put Its Celebrated CEO
On the Hot Seat
By CHIP CUMMINS
June 16, 2006; Page B1

LONDON -- For years, John Browne has been lionized for turning BP PLC into an oil powerhouse while embracing the green movement years before it was cool in the executive suite. Business groups showered him with management awards; Vanity Fair featured him in its recent environmental issue alongside such green darlings as Al Gore and Julia Roberts.

Now, though, a different group of image makers is taking aim at BP and its cigar-puffing, opera fan of a chief executive: American regulators and activist investors who say BP isn't living up to its environmental and safety promises.

 
An investigative agency looking into a deadly blast at a BP refinery in Texas last year is considering questioning Lord Browne in its probe of the accident. Federal officials in Alaska have opened a criminal investigation related to a BP oil spill at Prudhoe Bay, and a top Labor Department official lashed out recently at the company after inspectors found serious safety problems at another refinery in Ohio.

Meanwhile, so-called socially responsible investors -- a growing group who makes investment decisions by gauging a company's track record on everything from environmental to social issues, like inclusive hiring -- are starting to ask tough questions of a chief executive officer they have long admired.

"Is this a systemic problem or a series of one-offs? The jury is still out," says Robert Barrington, London-based director of governance and socially responsible investments at F&C Asset Management PLC, which has about £112 billion ($206 billion) under management. "There's no doubt [Lord Browne] is very committed to these issues, but only time will tell whether action meets words."

The extra scrutiny hasn't hurt BP's bottom line. Even though the company has been hit with fines totaling $23.8 million at the Texas and Ohio refineries, that still amounts to just one-tenth of 1% of BP's annual profit of some $22.34 billion in 2005.

But perhaps as important for a company that packages itself as "Beyond Petroleum," BP's corporate reputation -- and Lord Browne's personal one -- is taking a hit. The bashing comes as Big Oil finds itself under attack from politicians in Washington and Europe over high oil prices.

After a refinery explosion in Texas City, Texas, killed 15 workers in March 2005, the U.S. Occupational Safety and Health Administration put BP on a national watch list of safety violators in all industries, and the company agreed to pay a $21.4 million fine. OSHA inspectors descended on another BP refinery in Toledo, Ohio, and found more problems. In April, Edwin Foulke, a top Labor Department official, charged that BP had failed to learn lessons from the Texas City accident. The company was among firms that "ignore their obligations under the law and continually place their employees at risk," he said. BP is contesting $2.4 million in fines in Toledo.

Goldman Sachs Group Inc. is likely to downgrade BP in a closely watched index ranking oil companies in environmental, social and corporate governance issues. Last summer BP came out on top. "I think this year their poorer performance will be reflected in their score," says Sarah Forrest, an analyst who works on the list.

BP says it is cooperating with investigators probing the various accidents. Lord Browne calls 2005 a "quite challenging" year, but he doesn't believe the succession of incidents point to a systemic problem at BP. Instead, they are a "series of unrelated events," he says. "And I want to make the point that there are not that many events; that is not to excuse any one of them."

Even as U.S. operations have slipped up, BP's safety record globally has improved along with that of the entire industry. Some activists and investors applauded BP for acting quickly to investigate the Texas accident and make changes in operations. And environmental leaders still have a soft spot for Lord Browne, who broke ranks with his industry in 1997 by acknowledging the threat of global warming.

"All I would ask people to do is to take a balanced view of this, remembering the totality of the situation," Lord Browne says. "What they should be assured about is that BP is doing something about it."

BP's swift response to its embarrassments has helped contain the damage. Lord Browne visited the Texas City refinery the day after the explosion and met with workers. BP quickly took responsibility for the accident and settled with victims and their families, offering packages that even some members of the notoriously aggressive plaintiffs bar in South Texas considered generous. Lord Browne also shook up the company's management team responsible for health, safety and environmental issues. He says he welcomes the scrutiny by regulators. John Mogford, BP's new senior group vice president for safety and operations, is scheduled to meet with investors in New York next week to discuss the lessons learned from Texas City.

Lord Browne, who won a peerage from Queen Elizabeth II, has taken a personal rap on the knuckles as well. At its annual shareholder meeting earlier this year, Peter Sutherland, BP's nonexecutive chairman, said the board fully backed Lord Browne. But the compensation committee, made up of independent directors, doled out a smaller bonus for 2005 compared with the year before, partly because of the problems. Lord Browne took home a pay package valued at £6.5 million, 14% more than in 2004. But his bonus was reduced to £1.8 million from £2.3 million.

"It's absolutely correct that my bonus was reduced," says Lord Browne. "It was the right leadership position to take."

Meanwhile, Don Holmstrom, an investigator for the U.S. Chemical Safety and Hazard Investigation Board, says he doesn't rule out calling in Lord Browne for questioning in his continuing Texas City review. Mr. Holmstrom says that because the refinery had a history of accidents before the explosion, "we want to know specifically what was done, what was put into place, what action was taken" on the corporate level to improve safety beforehand.

A federal agency that probes chemical-industry accidents, the board doesn't have the power to levy fines. It typically delves into the technical causes of accidents, so an interview with Lord Browne would be unusual. Still, Mr. Holmstrom says he has already interviewed other corporate brass and has yet to decide about Lord Browne.

Write to Chip Cummins at chip.cummins@wsj.com 

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Financial Times
June 15, 2006

http://news.ft.com/cms/s/d36baa60-fc0a-11da-b1a1-0000779e2340.html

BP hunts for site to dump pipe sludge
By Sheila McNulty in Houston
Published: June 15 2006 03:00 |
Last updated: June 15 2006 03:00

BP is scrambling to find a place to dump large volumes of sludge that have built up in its Alaska pipelines after the UK company failed to perform high-tech "pigging'' cleaning and corrosion checks on some lines for up to 16 years.

The problem is so severe that BP, three months after the US Department of Transportation (DoT) ordered BP to use high-tech equipment to check the lines for corrosion, has missed today's deadline to do so. It has yet to rid the pipes of sludge in order to make way for the tests.

The company says it is still "working to assess sediment quantities'' in some of the transit lines.

BP considered pushing the sludge through its system into Alyeska Pipeline Service's Trans Alaska Pipeline System to get it off the oilfield. But the Joint Pipeline Office, which combines federal and state regulators to ensure the safety of Alaska's oil industry, blocked that option.

Alyeska conducts "pigging'' to clean its lines every two weeks, and it wanted to minimise BP sludge entering its system, which transports oil from Prudhoe Bay, North America's largest oilfield, 800 miles across Alaska to be loaded on to tankers and shipped out of the state.

"Any course of action has to meet our requirements that any pigging materials would not adversely impact the safe and efficient transportation of crude oil,'' said Mike Heatwole, Alyeska spokesman.

Daren Beaudo, BP spokesman, said that if the volume of solids is such that it requires "special handling needs'' BP might divert them to a tank, from where they can be disposed.

Those close to the talks said a dedicated tank might well have to be built to hold such a large volume of sludge. In general, such waste is reinjected into the ground through wells, but after being stagnant for so long, they say, there are concerns about toxicity levels, which might prevent re-injection. In that case, BP might be forced to store the waste indefinitely in a tank or truck it out of Alaska.

DoT ordered the lines cleaned following a 270,000-gallon spill on March 2 from a corroded pipeline.

The DoT says sludge build-up contributes to corrosion, and it wanted the pipes cleared to check for that problem. John Dingell, senior Democrat on the US House of Representatives' Committee on Energy and Commerce, has said BP officials had told his staff there could be up to 2,000 cubic yards of sludge in the lines. Only when BP removes the sludge can it initiate DoT-mandated, routine high-tech maintenance cleaning, such as that done by Alyeska.

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Reuters.com
June 13, 2006

http://today.reuters.com/stocks/QuoteCompanyNewsArticle.aspx?view=CN&storyID=2006-06-13T185446Z_01_N13525718_RTRIDST_0_ENERGY-BP-ALASKA.XML&rpc=66

U.S. lets BP continue to run Alaska pipelines
Tue Jun 13, 2006 2:54pm ET168

NEW YORK, June 13 (Reuters) - U.S. regulators will allow BP to continue to operate the oil transit lines from its giant Prudhoe Bay, Alaska, oil fields without performing a special pipeline cleaning operation that had been ordered following a large oil spill from one of the lines in March.

In a letter to BP dated June 12, the Pipeline and Hazardous Materials Safety Administration said it was prepared to evaluate BP's alternative inspection plans and that it would not order the shutdown of the transit lines that connect the Prudhoe Bay field with the Trans-Alaska pipeline.

"We are pleased that (the PHMSA) has authorized the continued operation of the Prudhoe Bay oil transit lines and determined that they have made a preliminary determination that the testing alternatives that we have proposed will meet the agency's intent," BP spokesman Ronnie Chappell said.

A corroded BP transit pipeline ruptured and leaked at least 200,000 gallons of crude oil in March, resulting in the worst oil spill on the Alaska North Slope. Following the spill, the PHMSA ordered BP to undertake a number of corrective actions.

Among the actions mandated by the PHMSA was a requirement to perform pigging operations on all oil transit lines in Alaska by June 15. Pigging is an oil industry term for sending a device down a pipeline to clean it.

Prior to the spill, BP had not carried out so-called smart pigging, which uses a special device to detect corrosion, on some transit lines since 1990. The company had instead relied on other inspection methods to assess the integrity of the above-ground transit lines.

BP intends to carry out the full pigging program ordered by the PHMSA and the company has changed its maintenance policies to ensure that transit lines in Alaska are cleaned with smart pigs able to detect corrosion at least every five years, Chappell said.

According to Chappell, BP was unable to comply with the PHMSA's deadline because of the amount of sediment that would be produced during pigging.

A federal grand jury investigating the leak has also subpoenaed BP, asking the company to physically turn over the segment of pipeline where the leak occurred as evidence, which further complicated plans to perform the PHMSA mandated pigging, Chappell said.

BP currently estimates it will be able to complete the entire pigging program mandated by the PHMSA on the North Slope by the first quarter of 2007.

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Corporate Crime Reporter
June 14, 2006

http://www.corporatecrimereporter.com/bp061406.htm

Grand Jury Subpoena Sends Vinson & Elkins to BP Alaska
20 Corporate Crime Reporter 25(1), June 14, 2006

Lawyers from Vinson & Elkins will descend this week upon the offices of BP Alaska (BPXA) at Prudhoe Bay to collect documents requested by a federal grand jury in Anchorage.

BP Alaska is being investigated by the grand jury for a March 2006 oil spill of 270,000 gallons of crude oil at Prudhoe Bay that was caused by corrosion of a crude oil pipeline.

According to an internal BPXA e-mail from Kemp Copeland to BP Alaska staff dated June 8, 2006, lawyers from Vinson & Elkins will be at BP’s Prudhoe Bay facilities “to identify and duplicate documentation that may be responsive to the government's subpoena.”

“The V&E teams will be visiting the major oil production facilities and offices in the Prudhoe Bay Unit arriving June 11th and departing June 20th,” Copeland wrote.

“An interview schedule will be developed, and some of you will receive a telephone call within the next few days to set up an interview time,” Copeland advised. “While the teams will do their best to minimize disruptions and to accommodate prior commitments, please be as flexible as possible when it comes to your availability.”

“The document collection interviews will be conducted by the V&E teams and will focus primarily on identifying documents, paper and electronic, which are responsive to the subpoena,” Copeland wrote.

“Any hard-copy responsive documents that are needed for day-to-day operations will be temporarily taken to the PBOC [Prudhoe Bay Operations Center] where they will be scanned and returned within a day,” Copeland wrote. “If you have any questions regarding this process, please feel free to raise them when you are contacted by the document collection team to schedule your interview.”

In a related development, Congressman John Dingell (D-Michigan) this week called on the Department of Transportation to explain why it is letting BP Alaska escape from a June 15 deadline to correct the corrosive pipe problems that are plaguing its Prudhoe Bay operations.

"The Department of Transportation must explain why it is not requiring BP to meet all of the requirements of the (order) imposed after the spill," Dingell said. "Did the Department of Transportation not mean what it said in the order? Or are the BP pipelines in such a sorry state that compliance is impossible?"

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Financial Times
June 14, 2006

http://news.ft.com/cms/s/686e4c40-fb42-11da-b4d0-0000779e2340.html

US politician seeks answers on BP delay
By Sheila McNulty in Houston
Published: June 14 2006 03:00 |
Last updated: June 14 2006 03:00

A US Congressman yesterday demanded that US officials explain their decision to waive a deadline for BP to perform high-tech maintenance and corrosion checks on Alaska pipelines, following a 270,000-gallon spill of crude oil from a corroded pipeline

With BP's Alaska operations under grand jury investigation following the spill, the Department of Transportation (DoT) sought to play down the extension yesterday.

"BP won't be able to postpone testing requirements,'' the department said.

However, the department said it was letting its deadline to perform the high-tech testing by tomorrow pass unmet, permitting BP to do the tests when it deems it "technically feasible" to do so.

"The Department of Transportation must explain why it is not requiring BP to meet all of the requirements of the corrective action order imposed after the spill," said John D. Dingell, senior Democrat on the US House of Representatives' committee on energy and commerce.

"Did DoT not mean what it said in the order?" Mr Dingell said.

"Or are the BP pipelines in such a sorry state that compliance is impossible?"

The Congressman had earlier said BP officials had told his staff there could be up to 2,000 cubic yards of sludge in the lines, after some went as long as 16 years without the high-tech scraper "pigging" to clean the sludge out of the lines and the "smart pigging" to check for corrosion.

The sludge only came to light following the spill on March 2 - the biggest ever at Prudhoe Bay, North America's largest oil field.

The department responded by issuing a corrective action order requiring BP to "smart pig" key lines within 90 days, but BP admitted to the sludge build-up, and said it could not meet the deadline.

"We are still evaluating data and working to assess sediment quantities in these transit lines," BP said.

It said some lines were further affected by a grand jury subpoena requirement to remove a segment of the oil transit line, which made pigging impossible.

The federal grand jury criminal investigation was instigated after the March spill.

Not only is it embarrassing for the oil group, but if the grand jury indicts BP and it is convicted, it could face significant fines and heightened scrutiny, and individual employees could face prison terms.

"We are pleased DOT has authorised continued operation of Prudhoe Bay oil transit lines," BP said.

It said the DOT was satisfied that BP had done direct ultrasonic inspection of multiple locations where corrosion was likely.

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Anchorage Daily News
June 9, 2006

http://www.adn.com/money/industries/oil/pipeline/story/7816891p-7731268c.html

BP confirms receiving subpoena over Prudhoe Bay oil leak
INVESTIGATION: The spill in March was the largest ever on the North Slope.
The Associated Press
Published: June 9, 2006
Last Modified: June 9, 2006 at 01:49 AM

LONDON -- British oil company BP PLC confirmed Thursday that it had received a subpoena from a U.S. grand jury investigating a massive oil leak in Alaska.

BP blamed the incident at Prudhoe Bay field in March on a small hole caused by corrosion in a pipeline. It was the largest spill ever on the North Slope.

"We are fully cooperating with the investigation and we are carrying out our own investigation into what caused the corrosion," BP spokesman David Nicholas said. "We believe that our actions were at all times proper."

Up to 267,000 gallons were believed to have spilled onto the frozen ground from a 34-inch-diameter pipeline in the tundra about 250 miles above the Arctic Circle.

The arctic-grade carbon-steel pipe, which leads eventually to the trans-Alaska