The Guardian: Inquiry into BP ‘market manipulation’

EXTRACT: BP’s fall from grace comes after a period in the limelight when its rival Shell had sacked its chairman after regulators found it guilty of overbooking reserves. It took 18 months for Shell’s share price to recover.

THE ARTICLE

· Investigators look at crude oil and petrol trading
· Browne called to testify in person over Texas fire

Terry Macalister
Wednesday August 30, 2006

BP faced a further serious attack on its integrity yesterday with the disclosure that US federal investigators were looking into allegations it had manipulated oil and unleaded petrol markets.

The latest setback came 24 hours after Lord Browne, the chief executive, was told by a US state judge that he would have to personally testify in death and injuries cases resulting from the Texas City refinery fire last year.

In the latest allegations to hit BP over its oil trading practices, the US commodity futures trading commission (CFTC) sent subpoenas to the company as part of an inquiry into possible manipulation of the global over-the-counter crude oil market in 2003 and 2004.

A BP spokesman in London said: “We are aware of the investigations and we are cooperating but we are not going to comment on the specifics.” Britain’s biggest company is already facing a civil complaint lodged by federal commodity regulators for allegedly manipulating the American market for propane gas.

The CFTC undertook a similar inquiry into oil trading in 2003, which resulted in no charges against BP, but the same year the company paid $2.5m (£1.3m) to the New York mercantile exchange to settle allegations of improper crude oil trading.

BP has also been summoned before US Congress next week over pipeline spills from its Prudhoe Bay field in Alaska. The field was forced to partly shut down this month amid accusations that maintenance had been neglected. After 15 people were killed at the Texas City refinery, in the second fire in two years, BP was also hit last year by the capsizal of its Thunder Horse production platform in the US Gulf, reinforcing accusations the company had lost its way in the US.

This has all happened during a period when Lord Browne has agreed to stand down at the end of 2008 after he reaches retirement age – but not before he had been involved in an embarrassing row with his chairman, Peter Sutherland.

Fadel Gheit, oil analyst with New York brokerage Oppenheimer & Co and a longtime supporter of Lord Browne and BP, said the scale of the problems facing the company had brought it to a “crisis”.

“I am sorry for Lord Browne and BP but they have lost their winning streak and found a losing streak. There is no question the company has been badly damaged. Whether it is permanent or irreversible, it’s going to be on his [Lord Browne’s] report card.”

Mr Gheit pointed out that BP’s share price was already suffering compared with its rivals, in a year of rocketing oil prices and huge profits for energy firms. BP, which has the largest part of its business in the US after a series of acquisitions there, has seen its shares gain only 6% this year. Shell has gained 15% and ExxonMobil 25%. That was before BP shares lost 12.5p yesterday to 593p.

The blow to the British company’s image has also come after Lord Browne has been held up as a model industrialist. He has built up high expectations among investors and the public by vowing BP would go “beyond petroleum”. This involved embracing the need to fight climate change. He has also tried to lead the way as an ethical business by promising transparency in oil dealings and commitment to human rights. Some industry experts fear endless accolades and awards for Lord Browne have sown the seeds of complacency.

The accidents at Texas City and Thunder Horse have already highlighted the company’s safety record in the US. If BP is found to be guilty of systematically neglecting pipelines in Alaska or manipulating the oil and gas markets, politicians and the public could increasingly turn against the company.

One industry expert said: “If there is anything like unethical trading going on, people do not like that. Anything seen as slimy would be unacceptable.”

BP has already dismissed a group of propane traders for trading irregularities, opening itself up to civil claims from regulators. The company said it would appeal against the demand by the Texan state judge Susan Criss that Lord Browne put himself forward to be questioned under oath in injury cases brought over the 2005 Texas City refinery fire. “Neither Lord Browne nor [refining and marketing boss John Manzoni] have unique knowledge of the Texas City incident,” said a BP spokesman.

BP’s fall from grace comes after a period in the limelight when its rival Shell had sacked its chairman after regulators found it guilty of overbooking reserves. It took 18 months for Shell’s share price to recover.

Now the tables have been turned, with some even questioning whether Lord Browne may be forced to leave early. He has said he wants to leave with the company in good shape and its image restored.

The BP chief executive said at the company’s financial results last month that the difficulties had all come out of separate parts of the business and were not linked. However, the more such problems arise, the harder it could become to sustain that argument. Its corporate image is already taking a beating – as Mr Gheit said: “Its not so much that BP stands for ‘beyond petroleum’ at present so much as ‘big problems’.”

Tarnished legacy: Lord Browne

It’s all part of the image: BP and Lord Browne are one product – sharp, understated but with clear attention to detail. It’s a brand that has been lauded everywhere, no less so than in the City, where the FT once uniquely devoted six pages over three days to the man dubbed by some as the Sun King.

But this monarch, who preached the gospel of ethical capitalism, is now in trouble. His US kingdom is under fire from politicians, regulators and increasingly lawyers, alleging market manipulation, misrepresentation of maintenance records and negligence.

The timing could not be worse for the oilman’s son who used his enormous charm, guile and energy to turn a failing mid-size business into a global colossus through a series of audacious takeovers. Now Lord Browne must leave for retirement in 2008 having lost a battle with his chairman, Peter Sutherland, to stay on.

Lord Browne joined BP straight from Cambridge University and reached the top in 1995. An only child who has never married, he makes no secret of BP being his surrogate family. Work-obsessed he might be, but that does not stop him finding time to collect Colombian artefacts or spending weekends at his flat in Venice.

BP’s problems threaten to seriously tarnish what should have been a golden legacy and reinforce the view long held by green critics that the nice suits hid nasty surprises.

Terry Macalister

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