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Washington Post: New Probe Another Problem for BP

U.S. Panel, Justice Dept. to Examine Firm’s Oil and Gas Trading

By Stephen Voss and Mathew Carr
Bloomberg News
Wednesday, August 30, 2006; Page D02

BP PLC, the world’s third-largest oil company, is under investigation by U.S. authorities for possible manipulation of crude oil and gasoline markets, a further blow to a reputation that has already suffered from recent oil spills in Alaska.

The crude oil inquiry is being led by the U.S. Commodity Futures Trading Commission, which regulates futures markets, and the Justice Department is probing the company’s gasoline trades, BP spokesman Robert Wine in London said. BP is “cooperating fully,” he said.
 
BP and chief executive John Browne already face investigations in the United States over an Alaskan oil spill, a refinery explosion in Texas that killed 15 people in 2005 and an alleged plot to manipulate propane prices. The U.S. setbacks have contributed to a 16 percent drop in BP shares since April 24, compared with a 7.4 percent jump at Exxon Mobil Corp, the world’s largest oil company.

“The company is in a minefield right now. Every time they turn around, there is an explosion,” said Fadel Gheit, senior vice president of oil and gas research at Oppenheimer & Co. in New York. “There is no win here. It’s either a loss or a draw. They are trying to minimize the loss.”

BP is “aware of investigations being done by U.S. authorities,” Wine said. “We routinely assist regulators and other authorities in their requests to understand the facts related to our business. We do not comment on the specifics of these requests.”

The crude oil and gasoline inquiries were reported earlier by the Wall Street Journal, which said the CFTC has sent subpoenas to BP and other energy traders in its investigation of crude oil over-the-counter prices in 2003 and 2004. Federal authorities are also assessing whether BP used information about its pipelines and storage tanks at Cushing, Okla., the delivery point for U.S. crude futures contracts, to influence benchmarks, the paper said.

The separate gasoline investigation, which has continued for more than a year, includes a criminal probe by the Justice Department and is focused on one day’s trading on the New York Mercantile Exchange in 2002, the newspaper said, citing unidentified lawyers and traders.

BP lost its position as the world’s second-largest oil company by market value to Royal Dutch Shell PLC after BP said this month that it had to shut down the Prudhoe Bay field in Alaska because of inadequate testing for pipeline corrosion.

BP plans to appeal a decision by a Texas court Monday ordering Browne and the company’s head of refining and marketing, John Manzoni, to testify before a lawyer representing workers injured in the Texas City, Tex., refinery blast and relatives of workers who were killed.

“The plan is to appeal on the grounds that neither has unique knowledge of the incident,” Toby Odone, a London-based BP spokesman, said yesterday by telephone.

The two executives are “important witnesses for the jury to hear from regarding budget cutbacks that threatened the safety of BP operations, the poor state of BP refineries before the explosion and the ongoing investigation at the highest levels of BP into senior BP management’s role in the explosion,” one of the lawyers, Brent Coon, said in an e-mail yesterday.

BP is one of the world’s largest energy traders. Its profit from trading oil and natural gas rose 56 percent in 2005, to $2.9 billion, as energy prices soared. It produces the equivalent of about 4 million barrels of oil and gas a day, has a stake in 24 refineries and sells fuel through some 25,000 service stations worldwide.

“BP is known for being an extremely aggressive trader of crude, so it’s an easy accusation to throw at them,” said Bruce Evers, an oil analyst at Investec Henderson Crosthwaite in London. “There seems to be almost a witch hunt going on, with investigations into BP. I’m sure similar charges could be leveled at other companies.”

BP, Shell and securities firms such as Goldman Sachs Group Inc. and Morgan Stanley can have influence in energy trading and typically use derivatives such as futures and over-the-counter contracts to bet on prices or manage the risks of cost increases. Exxon Mobil does not participate in speculative derivatives trading, said spokesman Mark Boudreaux.

BP was fined $2.5 million by the New York Mercantile Exchange in September 2003 to resolve charges of crude-oil trading violations in 2001 and 2002. BP neither admitted nor denied breaking the futures exchange’s rules in that settlement.

In July 2003, BP agreed to pay $3 million as part of a settlement to charges by the Federal Energy Regulatory Commission that the company profited from phony, or “wash” trades in the power market during the California energy crisis of 2000 and 2001.

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