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Bloomberg: BP’s Crude, Gasoline Trading Under U.S. Investigation (Update 4)

EXTRACT: BP lost its position as Europe’s largest oil company by market value to Royal Dutch Shell Plc after BP earlier this month said it had to shut down the Prudhoe Bay field in Alaska because of inadequate testing for pipeline corrosion.

THE ARTICLE

By Stephen Voss

Aug. 29 (Bloomberg) — BP Plc, Europe’s second-largest oil company, is being investigated by U.S. authorities for possible manipulation of crude and gasoline markets, a further blow to a reputation that’s already suffering from spills in Alaska.

The crude oil inquiry is led by the U.S. Commodity Futures Trading Commission, which regulates futures markets, and the Justice Department is probing its gasoline trades, BP spokesman Robert Wine in London said. BP is “cooperating fully,” he said.

BP and Chief Executive Officer John Browne already face civil and criminal investigations in the U.S., including grand juries that are examining an Alaskan oil spill and a 2005 Texas City refinery explosion that killed 15 people. The U.S. government in June alleged BP traders attempted to manipulate propane prices, a charge BP denied.

“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. Investors should keep an eye on it, but it shouldn’t cause too much concern.”

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.”

Storage Tanks

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, Oklahoma, the delivery point for U.S. crude futures contracts, to influence benchmarks.

The separate gasoline investigation, which has been going on 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.

The shares of BP fell 3.5 pence to 602 pence at 1:43 p.m. in London, valuing the company at 119 billion pounds ($226 billion). BP lost its position as Europe’s largest oil company by market value to Royal Dutch Shell Plc after BP earlier this month said it had to shut down the Prudhoe Bay field in Alaska because of inadequate testing for pipeline corrosion. BP stock has fallen 6.7 percent this month, versus a 1.3 percent slide at Shell.

BP plans to appeal a decision by a Texas court yesterday ordering chief executive Browne and the company’s head of refining and marketing, John Manzoni, to testify before a lawyer representing workers injured in the Texas City 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 today 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 today.

Big Oil Trader

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, 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.

BP is no stranger to controversy in trading. 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 Californian energy crisis of 2000 and 2001.

To contact the reporter on this story: Stephen Voss in London at [email protected]

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