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Settlements Avoid More Charges

October 26, 2007

By Tom Fowler, Houston Chronicle

Oct. 26–Though they lack the drama and human tragedy of the refinery explosion behind BP’s guilty plea Thursday, the simultaneous settlements involving Alaska pipeline spills and gaming of propane markets were important resolutions for the company.

BP said Thursday it will pay $303.5 million as part of a deferred prosecution agreement in a case alleging that its traders manipulated propane prices. It will pay another $20 million and plead guilty to breaking clean water laws in two Alaska oil pipeline spills last year.

In the propane settlement the company agreed for a court-appointed monitor to oversee BP trading operations for three years. But the accord also includes an understanding that the government won’t pursue potential charges involving oil and gasoline trading, a source familiar with the agreement told the Chronicle.

The Alaska settlement also will free the company from further criminal charges by state and federal officials as it invests $250 million in improving the infrastructure for the country’s single largest oil field.

In a statement, BP America Chairman and President Robert Malone said the settlements represent the company’s commitment to “prevent another tragedy like Texas City, to make our Prudhoe Bay pipeline corrosion program more responsive to changing operating conditions and to ensure that our participation in the nation’s energy markets is always appropriate.”

But as BP began putting the energy trading issues behind it, four former BP traders from Houston were indicted by a federal grand jury in Chicago in connection with the same transactions.

They’re accused of scheming to manipulate the price of propane flowing through a pipeline from Mont Belvieu, in Chambers County, to markets in Ohio, Pennsylvania and New York in 2004.

The four charged are James Summers, a former vice president in charge of natural gas liquids trading; Mark Radley, a manager of the natural gas liquids business who reported to Summers and supervised a number of traders; Cody Claborn, who traded propane; and Carrie Kienenberger, who traded ethane.

Attorneys for the four asserted their clients’ innocence.

“Carrie was a 27-year-old junior employee with zero authority over propane,” said Kienenberger’s attorney, David Gerger.

Claborn’s attorney, Mitch Lansden, called the indictment “a travesty of justice,” and a lawyer for Summers, J.C. Nickens, said his client is the victim of the government’s “Javert-like zeal to get BP” — a reference to the relentless detective who pursued the protagonist in the classic novel Les Miserables.

“The system at the moment has failed Mr. Summers, but we hope for better results as we move from the assertion to the proof stage,” Nickens said.

Charles Mills, an attorney for Radley, said his client “looks forward to an acquittal based on all the facts.”

Each trader was indicted on one count of conspiracy, 12 counts of commodity price manipulation and seven counts of wire fraud.

Also announced Thursday was the settlement of civil charges against former BP gasoline trader Paul Kelly of the Chicago area, who will pay a $400,000 fine to the Commod- ity Futures Trading Commis- sion for attempting to manipu- late gasoline futures prices.

Kelly’s attorney declined to comment.

As part of the Alaska agreement, BP will plead guilty to a misdemeanor violation of the U.S. Federal Water Pollution Control Act related to two major corrosion-related leaks in the system of pipelines that feeds oil from wells in the Prudhoe Bay area to the Trans Alaska Pipeline.

BP will pay a $12 million fine and be on three years’ probation. It will also pay restitution of $4 million to the state of Alaska and make a $4 million payment to the National Fish and Wildlife Foundation.

As part of the propane trading settlement, BP will pay a $125 million civil fine to the U.S. Commodity Futures Trading Commission, $100 million to the Justice Department, $53.3 million to a restitution fund meant for purchasers of the propane BP sold, and $25 million to a U.S. Postal Service consumer fraud education fund.

BP originally said it didn’t believe it did anything wrong in the trading case.

“Our view of the legality of these trades changed as our knowledge of the facts surrounding them became more complete,” Malone said in his statement. “This settlement acknowledges our failure to adequately oversee our trading operation.”

tom.fowler@chron.com

Chronicle reporter David Ivanovich contributed to this story from Washington.

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