BP is facing another reputational hit after a judge in the US ruled two of its employees manipulated a key benchmark to make profits on trades made in the wake of Hurricane Ike in 2008.
The Financial Times reports a Federal Energy Regulatory Commission judge agreed with submissions by the regulator's lawyers that the two traders deliberately flooded the market with loss-making physical gas to hold down prices in Houston, after Ike made landfall in Texas in September 2008. This was in order to benefit from the 'spread' in prices relative to the benchmark Henry Hub in Louisiana, where it made a number of derivatives bets that yielded an overall profit of up to $250,000 (£160,000).
The manipulation was said to have persisted for 48 days and could yield a fine of up to $48m (£31m). The eventual penalty will be decided by the full commission after it has reviewed the findings and heard an appeal from BP, which strongly disagreed with a verdict it says is "without merit".
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Emphasising the issues BP has faced in recent years, the disproportionate size of the fine relative to the gain made is because the latest ruling comes just a year after BP settled a case with the US Justice Department and Commodity Futures Trading Commission over separate market-fixing allegations. The Wall Street Journal reports it paid $303m in penalties and "agreed to a permanent injunction barring it from further manipulative activity".
It also comes just a month after the company reached a record settlement of $18.7bn (£12bn) with US regulators in connection with the Deepwater Horizon disaster five years ago. Shares in the company actually rose after that agreement was announced as the amount was less severe than some investors had feared.
Shares were down more than one per cent to 379p in Friday trading.
BP investors react with 'relief' at record £12bn penalty
03 July
Investors in British oil exploration giant BP reacted with relief yesterday after a record settlement of $18.7bn (£12bn) was reached with US regulators in connection with the Deepwater Horizon disaster five years' ago.
In what reports suggest is the biggest penalty for a single entity in US history, the Financial Times says BP has agreed to pay:
· a $5.5bn civil penalty for breaches of the Clean Water Act;
· $7.1bn in damages to the country and five states;
· $4.9bn to settle 'economic and other claims' by the five states;
· up to $1bn to settle claims with 400 local authorities; and
· potential further penalties of $232m for natural resource damages.
The Times says the deal will result in the company paying an additional $10bn on top of the $44bn it had already either paid out or set aside in penalties and clean-up operations following the disaster that killed 11 workers and led to 3.2 million barrels of oil spilling into the Gulf of Mexico and coating hundreds of miles of beaches, mangroves and marshes.
Despite the scale of the payout, BP’s share price rose 4.5 per cent to 437.5p, valuing it at £80bn. The positive reaction reflects "relief" that the oil company has drawn a line under the dispute, which had tarred relations with the US government.
It also reflects key concessions, including that payments to settle claims can be spread over 18 years and that the $5.5bn civil penalty was at the lower end of expectations. The FT says US regulators were initially seeking $13bn.
The agreement, which has to be approved by a federal judge, comes after a US district court judge ruled last year that BP was "grossly negligent". The oil giant was told it would have to meet two-thirds of claims arising from the disaster, with the remainder landing on its drilling partners for the well, Transocean and Halliburton.
According to the Wall Street Journal most of the money will end up in Louisiana, Mississippi, Alabama, Texas and Florida.
