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US: U.S. Agencies Open Another Investigation Into Energy Trading at BP

by Jad MouawadNew York Times
August 30th, 2006

BP, the giant oil company, acknowledged yesterday that federal investigators were looking into possible trading irregularities in oil and gasoline markets.

The company said yesterday that it was “aware of investigations” by the federal authorities and was cooperating with them.

The agencies, the Commodity Futures Trading Commission and the Justice Department, are examining possible manipulation in the over-the-counter crude oil market in 2003 and 2004, and in gasoline trading in 2002, according to reports yesterday. Other trading companies may also be part of the inquiry.

News of the investigations was reported yesterday by The Wall Street Journal.

The accusations are the latest blow to BP, which faces a range of investigations in the United States, including claims that it failed to properly maintain pipelines in Alaska, leading to an oil spill earlier this year. It is also under scrutiny for safety failures that led to an explosion at a refinery in Texas City last year that killed 15 people, and is facing allegations that its traders manipulated the propane market.

A spokesman for BP, Ronnie Chappell, said: “We routinely assist regulators and other authorities in their request to understand the facts related to our businesses. Having said that, we do not comment on the specifics of these requests or the agencies that make the requests.”

A spokesman for the Justice Department, Bryan Sierra, declined to comment. A spokesman for the trading commission, Dennis Holden, declined to confirm whether the agency had subpoenaed BP.

BP’s troubles have led to heightened scrutiny over its practices and safety record at a time when high oil and gasoline prices have pushed energy companies into the limelight.

More than any other oil company, BP, based in London, has nurtured an image of environmental responsibility, which risks being tarnished by missteps in the United States. The company has acknowledged the problem and last month appointed a new manager for its American operations, Robert A. Malone.

BP is the largest oil and natural gas producer in America.

Turning up the political heat on the company, lawmakers in Congress are asking BP executives to appear before the House Committee on Energy and Commerce next week to answer questions about the Alaska spill. Representative Joe Barton, the Texas Republican who is the committee’s chairman, said in an Aug. 11 letter to BP’s chief executive, Lord Browne, that the Alaska shutdown was a result of “chronic neglect.’’

Separately, a judge in Texas has ordered Lord Browne to be available for questioning about the explosion at the BP refinery. BP said it would appeal that ruling, arguing that Lord Browne had “no unique knowledge” in the case.

In the most embarrassing, and costly, mishap to date, BP was forced to temporarily shut Alaska’s biggest oil field, Prudhoe Bay, after detecting heavy corrosion and a small leak in a critical pipeline. The emergency announcement earlier this month caught oil markets by surprise and drove global prices to nearly $77 a barrel. Oil prices have since retreated to below $70 a barrel on the New York Mercantile Exchange.

The Prudhoe Bay field produces 400,000 barrels a day, or 8 percent of American crude oil, and is the largest field in North America.

But a few days later, BP said it would avert a total shutdown by keeping one side of the oil field open while it replaced 16 miles of corroded or damaged pipeline. The company is now producing about 150,000 barrels of oil and natural gas a day from the western side of the field, but aims to reach about 200,000 barrels a day until repairs are completed.

An analyst at A. G. Edwards, Bruce Lanni, said BP was being made a target by investigators, in part because its recent problems had made the company a very public entity.

“Obviously because of the number of incidents that BP has had recently and how visible they have been,” Mr. Lanni said, “the company has become a focal point of a number of investigations. Their visibility has increased as a result of this.”

He added, “but these problems are not just endemic to BP, they affect the entire industry.”

BP has faced inquiries over its trading practices in the past. Its trading desk, which last year accounted for 13 percent of its $22 billion in profits, has a reputation for its aggressive tactics. In June, the Commodity Futures Trading Commission accused BP of trying to corner the propane market.

In 2003, the company was fined $2.5 million by the New York Mercantile Exchange to resolve charges of oil trading violations in 2001 and 2002. While it settled the charge, BP neither admitted nor denied breaking the exchange’s rules.

BP also agreed that year to pay $3 million as part of a settlement to claims that it had profited from false trades in the power market during the California energy crisis of 2000 and 2001.

In London, BP’s shares fell 2 percent, to 593 pence.






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