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Daily Telegraph: Browne’s annus miserabilis at BP is not over

By Christopher Hope
(Filed: 31/08/2006)

The Texas explosion investigation, allegations of market rigging and huge oil leaks are making life tough, says Christopher Hope

Some time in the next few months, a clutch of lawyers from Texas are due to arrive at BP’s plush headquarters in London’s St James’s Square looking for the company’s chief executive Lord Browne of Madingley.
  
Lord Browne: to face oil refinery blast questions
 
The lawyers will be armed with tape recorders and a list of questions for Lord Browne about the catastrophic blast at BP’s Texas City oil refinery last year, which killed 15 people and left another 180 injured, resulting in a record $21.3m fine for safety violations.

The arrival of the men from the law firm Brent Coon & Associates at the HQ of Britain’s biggest company will be the most physical reminder yet of the litany of problems facing BP in North America.

They are certainly mounting up. Earlier this week it emerged that the US government had begun criminal and civil investigations into whether BP manipulated crude oil and unleaded petrol markets.

The US’s Commodity Futures Trading Commission (CFTC) has sent subpoenas to BP and energy traders in an inquiry into the alleged manipulation of the over-the-counter crude oil market in 2003 and 2004.

The paper also disclosed details of a separate investigation into the wholesale petrol market by the US Justice Department. The justices are understood to be examining a single day’s trading on the New York Mercantile Exchange in 2002.

These latest investigations are in addition to a third earlier inquiry, disclosed in June, into whether BP had manipulated the market for propane.

Then, BP was accused by the CFTC of driving up the price of bottled and heating gas prices, making an illegal $20m (£11m) profit. BP was accused of manipulating the market for propane in February 2004 after allegedly trying the same tactic in April 2003.

More controversial were tapes released by the commission detailing alleged conversations between BP traders. In one extract, two traders, Dennis Abbott and Cody Claborn, purportedly discussed their positions in the propane market.

Abbott: “How does it feel taking on the whole market, man?”

Claborn: “Whew. It’s pretty big man.”

Abbott: “Dude, you’re the entire [expletive] propane market!” Abbott goes on to express some concerns, but they are brushed aside by Mark Radley, their manager.

Radley: “Don’t worry about it, it’s the first two days of the month. Plenty of lead time for people to think that barrels will emerge and take a short position.”

Abbott: “No, it’s cool. I dig it, it just, sometimes it’s hard, it just feels hard to take on the whole market sometimes.”

It does not stop there. In Washington, congressmen are starting an investigation into BP’s troubled Prudhoe Bay field in Alaska next week. In March, more than 200,000 gallons of oil spilled from one pipe. Earlier this month, oil prices surged after BP had to partly shut down one of the fields because of corrosion problems.

This inquiry by the House energy and commerce committee, which begins on September 7, wants to examine whether BP failed to inspect and maintain the pipeline properly until it was ordered to do so by regulators.

This drip, drip, drip of bad news from the US is starting to affect sentiment towards BP on the London stock market where £1 of every £6 paid in dividends to UK pension funds comes from BP.

One fund manager controlling around 1pc of the stock said he was concerned that the problems could hint at a wider malaise. “You would be concerned by a succession of issues which appear to be cropping up. That is syptomatic, but of what problems – we don’t know,” he said.

Another major investor told The Daily Telegraph: “Are they are a series of individual problems or is there a systemic problem? You do suspect from the problems at the refinery and Prudhoe that there may be underinvestment.

“BP has been operating at full capacity and so it might be difficult to shut down a refinery when petrol is selling for £1 a litre.

“There is this feeling that they have not been doing all they needed to do in terms of capex. It is not that they have not got enough money.”

A BP spokesman said: “We routinely assist regulators and other authorities in their requests 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 them.”

For its part, BP does not believe there is any link between the various problems hitting the company in the US. Rather, the problems are emerging because of the current regulatory focus in America on BP’s operations in the wake of the Texas City blast last year.

One person familiar with the company said: “BP is under incredible scrutiny. Everybody in the US is trying to take a pot-shot. There is no connection between these things – they are all in different parts of BP run by different people and management. They are not linked.”

On Texas City, the company is appealing the decision by a Texas judge to allow the lawyers to question Lord Browne and another executive director, John Manzoni.

Industry sources question whether quizzing Lord Browne is a crude attempt to pressure the oil-and-gas giant to settle the case.

One source asked: “What does John Browne know about the detailed plans for Texas City?” Other more junior managers with greater knowledge of the refinery have already been deposed.

BP sources acknowledge concerns in the City about underinvestment. While this might have been the case when oil was trading at $10 a barrel in the 1990s, investment has been increased since then. BP invested $14bn to $15bn in capital expenditure in each of the past two years.

At Prudhoe Bay, sources privately question whether the company was “pigging” or checking the pipes frequently enough. BP engineers are puzzling over why the corrosion affected only parts of the pipes in which the flow of oil had slowed.

Robert Malone, the 54-year-old Texan brought in as chief of BP’s Americas business, has embarked on a whistle-stop tour of the US facilities to review the state of operations. He was appointed in July, having won a reputation as an effective manager of the trans-Alaskan pipeline in the late 1990s.

It all adds up to a dreadful summer for Lord Browne, who this time last month was at the centre of a tussle with his chairman Peter Sutherland about when he should retire from the oil giant. He is now proposing to step down at the end of 2008.

Speaking at the company’s half-year results, Lord Browne tried to defuse the alleged row. “It would have been better if July had been cancelled,” he joked. He will probably add August to that list now, too.

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