The Wall Street Journal: BP Moves to Clean Up Troubles

Guilty Plea on 2005 Blast,
Trading-Charges Settlement
Expected to Come Tomorrow

By ANN DAVIS in Houston, MATTHEW DALTON in New York, GUY CHAZAN in London
October 24, 2007; Page A3

New BP PLC Chief Executive Tony Hayward is making sweeping moves to clean up the oil giant’s operational and regulatory troubles. Among them: an expected agreement to plead guilty to U.S. criminal environmental charges and pay a $50 million fine related to a deadly Texas refinery explosion two years ago, according to people familiar with the matter.

The London-based company also is expected to pay $303 million to settle civil charges and avoid criminal prosecution in the U.S. for allegedly manipulating and cornering the propane market in 2004, said people familiar with that matter. The settlement includes a compliance overhaul that could end BP’s reign as one of the oil industry’s most aggressive energy traders, they said.

The expected guilty plea would conclude a long-running probe by the Justice Department and the Environmental Protection Agency into whether BP cut corners on safeguards at its plant in Texas City, Texas. It isn’t expected to include criminal fines or charges against any BP workers or managers, said the people familiar with the matter.

A BP spokesman declined to comment. Spokeswomen for the Justice Department and the EPA declined to comment.

A spokeswoman at the Commodity Futures Trading Commission, which was conducting the probe into the propane market allegations along with the Justice Department, declined to comment.

Both the expected guilty plea and the trading settlement, expected to be announced tomorrow, follow a recent shake-up of BP’s management ranks and mark an effort by the oil giant to wipe its slate clean. The probes have come as the company looks to improve its results in an increasingly tough operating environment. Yesterday, it said third-quarter profit dropped 29% from a year earlier, to $4.41 billion.

The Texas City settlement levies a corporate criminal fine on BP for violations of the U.S. Clean Air Act, said people familiar with the matter. The explosion killed 15 people and injured more than 170. It wasn’t clear how severe the charges would be, what other penalties they might carry or whether it would subject BP to sanctions or monitoring in the U.S.
 
BP, without admitting fault, agreed to a $21.4 million fine with the federal Occupational Safety and Health Administration in September 2005 to settle violations of workplace safety rules at Texas City.

Other companies this year have run afoul of the Clean Air Act, which governs air pollution, and faced criminal proceedings. In June, a federal jury in Corpus Christi, Texas, found Citgo Petroleum Corp. a unit of Petroleos de Venezuela SA, guilty of two felony criminal violations of the act. The company said at the time it would appeal. The Justice Department said last month that Honeywell International Inc. would pay an $8 million criminal fine after pleading guilty to violating the act.

The profit slide and the multiple enforcement probes have proved a baptism by fire for Mr. Hayward, who took the helm in May after predecessor, John Browne, quit. Mr. Hayward took over a company whose share-price performance was lagging behind its closest peers. In addition, he had to contend with the refinery blast, corrosion in an Alaskan oil pipeline the following year and a variety of U.S. energy-trading investigations.

The CFTC, the main energy-market regulator, is expected to announce a new civil case tomorrow against an individual BP gasoline trader for alleged wrongdoing in that market, lawyers informed of the case say. It is unclear whether the trader still works for BP.
 
Historically, BP has derived more of its earnings from trading than other major oil companies have. BP’s trading desk has long held a reputation for aggressive risk-taking and for using its massive storage and refinery assets as part of bigger market bets. That has led to increased scrutiny from the CFTC as well as from criminal investigators at the Justice Department.

The CFTC last year alleged BP manipulated propane prices in 2004, sending them spiking 50% higher at the height of the home-heating season, driving up heating and cooking costs for millions of mostly rural Americans. BP traders were caught on tape openly discussing the alleged propane price-manipulation scheme. That case included a guilty plea by a former BP trader last year in a related criminal case.

BP’s attorneys have been working overtime in recent months to settle probes involving its propane, gasoline and crude-oil trading activities. This year, BP disclosed it had concluded an independent review of its “trading compliance culture” and had taken steps to strengthen compliance. People familiar with the settlement say BP is settling the propane matter and taking those steps in hopes of neutralizing an additional, longstanding investigation into its crude-oil trading desk.

The pending trading settlement requires BP to change its business culture and overhaul its compliance methods under the government’s watch. The payment includes civil penalties that are among the highest the CFTC has ever levied.

As part of the propane settlement, BP will pay $125 million in civil penalties to the CFTC, $100 million in similar civil penalties to the Justice Department, $53 million to consumers of propane who lost money from the alleged price manipulation and $25 million into a consumer-fraud fund, a person briefed on the settlement said.

BP also will submit to a government-appointed compliance monitor’s oversight for the next three to five years. In addition, it agreed not to link the pay of its trading-desk compliance officers to profits from marketing and trading, and agreed to keep trading activities from being housed under other departments not subject to oversight.

FRESH SWEEP
 
•  The News: BP is expected to plead guilty to criminal charges and pay a $50 million fine related to a deadly refinery blast in Texas. It is also expected to pay $303 million to settle propane-trading allegations.

•  The Background: BP’s new chief executive is trying to put a host of problems behind the company.

•  The Challenge: BP is looking to improve results in a tough climate that saw third-quarter profit fall 29%.

Write to Ann Davis at [email protected] and Matthew Dalton at [email protected]

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