$373 Million: BP Not 'Beyond' Prosecution

Oct. 25, 2007 — -- After a massive government investigation into a propane price-fixing scheme and environmental infractions, oil and gas giant BP has agreed to pay $373 million in fines and restitution.

The Justice Department announced Thursday that BP admitted to creating a price-fixing scheme designed to manipulate propane markets, and to environmental violations related to a 2005 refinery explosion in Texas and crude oil leaks in the company's Alaskan pipeline system.

One plea stemmed from the Justice Department's prosecution of a March 2005 explosion at BP's Texas City, Texas, oil refinery, which killed 15 workers and injured more than 170 others, becoming one of the worst industrial accidents in recent memory.

BP will pay $50 million in criminal fines for violating the Clean Air Act.

"An investigation revealed that the explosion was caused by improperly released vapor and liquid," Acting Attorney General Peter Keisler explained at a Thursday press conference, "and that several procedures required by the Clean Air Act to reduce the possibility of just such an explosion were either not followed or had not been established in the first place."

Another $12 million in fines, plus another $4 million to be paid to each the National Fish and Wildlife Foundation and the state of Alaska, addressed a violation of the Clean Water Act, and a BP subsidiary's criminal liability for crude oil leaking from the company's pipelines into the Alaskan wilderness.

"BP committed serious environmental crimes in our two largest states, with terrible consequences for people and the environment," said the Environmental Protection Agency's Granta Nakayama.

But the bulk of the fines and restitution payments -- approximately $353 million -- are part of an agreement to defer prosecution on charges that BP conspired to violate the Commodity Exchange Act and commit fraud.

Investigators said BP traders stockpiled propane, and then hoarded the supply, forcing the market prices to skyrocket.

The alleged price gouging affected as many as 7 million propane customers in the Northeast and Midwest, who depended on fuel to heat their homes, to the tune of $53 million.

"These agreements are an admission that, in these instances, our operations failed to meet our own standards and the requirements of the law. For that, we apologize," BP America Chairman and President Bob Malone said in a statement.

"In the months and years since these violations occurred, we have made real progress in the areas of process safety performance and risk management," Malone added. "Oversight of our trading operations has also been greatly enhanced.

"However, there is more to do and we are committed to doing it," he said.

Just before the price-fixing scheme rolled out, however, BP executives coldly discussed their alleged scheme to corner the propane market.

In a tape recorded conversation, BP's former head of the natural gas liquids trading division, Mark Radley, tells his deputy Dennis Abbott: "In terms of whether we should do this or not ... is that, what we stand to gain is not just that we'd make money out of it, but we would know from thereafter that we could control the market at will.

"If we never break the threshold, we'll never know what the answer is, do you know what I mean?" Radley asks.

The market was apparently fixed. Prices were inflated as much as 50 percent. But to the traders, it sounded like a joke.

In a separate recording apparently captured after the trading coup, Abbott asks another trader, Cody Claborn, "How does it feel taking on the whole market, man?"

"Whew! [Laughter] It's pretty big, man," Claborn replies.

"Dude, you're the entire [expletive] propane market," Abbott exclaims.

The recodings were made with the traders' knowledge, as part of BP policy.

"Our feelings were outrage, that these people were taking advantage of innocent consumers, potentially, and manipulating the markets," said Walter Lukken, chairman of the Commodities Futures Trading Commission.

A Chicago grand jury returned an indictment Thursday, individually charging some of the former BP traders heard on the tapes.

Claborn, Radley, former BP vice-president for natural gas liquids James Summers and trader Carrie Kienenberger have been charged with conspiracy for their alleged roles in cornering the propane market in 2004.

The 20-count indictment also charges them with wire fraud and violating the Commodity Exchange Act.

Abbott pleaded guilty to related charges in June 2006 and agreed to cooperate with the government's investigation.

The joke was on consumers, but now BP officials are not laughing. As part of the agreement with the Justice Department, the company will have to return some of the money from their inflated bills to its customers.

More audio and transcripts are available here.