By Steven Mufson
Washington Post Staff Writer
Wednesday, October 24, 2007; D05
BP has agreed to pay $303 million to settle civil charges that it cornered the propane market three years ago and inflated heating and cooking costs for about 7 million mostly rural American households, a source familiar with the accord said.
The London oil giant has been fighting criminal and civil charges by the Commodity Futures Trading Commission that it "purchased enormous quantities of propane to establish a dominant and controlling" position in the market and then drove prices up 50 percent by keeping fuel supplies off the market.
Previously BP had denied the charges, though it had fired several employees for violating company policies. One former BP trader pleaded guilty last year to charges of "conspiring to manipulate and corner the propane market." The CFTC was looking to widen its investigation to earlier years, BP had said recently.
Under the settlement, which is to be announced tomorrow by the Justice Department and CFTC, BP will also agree to overhaul its trading operations and submit to oversight by a government-appointed monitor for three to five years, according to the Wall Street Journal, which reported the deal on its Web site yesterday.
The settlement appears to be part of a wider effort by BP's new chief executive Tony Hayward to put several legal battles behind the company. The Journal quoted unnamed sources as saying BP was close to entering a guilty plea on criminal charges for Clean Air Act violations related to a Texas refinery explosion that killed 15 people and injured 170 others.
Separately, BP has been negotiating with Transportation Department officials over tighter federal oversight of its Alaska pipelines, said another source who has been involved in investigating BP's troubled U.S. operations. BP's pipeline on the North Slope near the giant Prudhoe Bay oil fields was plagued by oil leaks caused by corrosion last year.
The company still faces private lawsuits regarding the Texas City accident in March 2005; BP has set aside $1.6 billion for those claims.
Spokesmen for the CFTC, BP and the Justice Department declined to comment, as did a representative for the U.S. Postal Inspection Service, which took part in the propane price manipulation investigation. Steven Peikin, a defense lawyer for BP at Sullivan & Cromwell in New York, referred calls to BP.
The reported settlements coincided with the release of BP's lackluster third-quarter earnings, though the company's shares rose in part because the results were not as bad as most analysts expected.
"On a Scale of 1 to 'Dreadful' . . . Not Bad," was the title of a Citigroup report, playing off a recent downbeat comment BP chief executive Hayward reportedly made about the company's third-quarter earnings prospects.
Hayward, who took over this year from John Browne, is battling to reverse the company's fortunes. Over the past two years, BP suffered a series of setbacks as a result of Alaska pipeline leaks, the fatal refinery explosion in Texas City, Tex., delays in completing a Gulf of Mexico production platform and the propane-manipulation charges. Some described the string of problems as a reflection on Browne's management and cost-cutting efforts; Hayward has announced plans to reorganize and reduce the ranks of senior management.
"Fundamentally, the company's problems are very evident in these results," Citigroup's analysts noted. BP reported a more than 3 percent drop in its oil and natural gas production, as well as losses in refining and the trading side of its gas, power and renewables business.
Overall, reported profit fell 29 percent, to $4.41 billion (23 cents a share), from $6.23 billion (31 cents) in the year-earlier period, BP said. Capital spending declined 5 percent.
The drop in production came across the board, with declines in the United States, Russia and other areas. But BP indicated that new production is coming online this quarter. It started production from fields in Azerbaijan and offshore Angola, and it expects to start production soon from the Atlantis field in the Gulf of Mexico.
The company also said it expects to return refineries at Texas City and Whiting, Ind., to full capacity in the first half of 2008. Together they can process more than 850,000 barrels of crude oil a day.
Other sources said BP is negotiating with Russia to expand oil production near its current operations and to build a pipeline to China that would tap natural gas now being flared from oil fields.
Staff writer Carrie Johnson contributed to this report.