By Christian Berthelsen And Sarah Kent
A U.S. regulatory judge ruled BP PLC manipulated the Texas
natural gas market in 2008 and said fines against the British
energy company could increase because the scheme took place after
earlier market manipulation.
The ruling by Carmen A. Cintron, an administrative law judge for
the U.S. Federal Energy Regulatory Commission, found BP flooded a
Texas delivery point with natural gas to drive down prices there in
the physical market, while at the same time placing trades in
related financial markets that would benefit from the reduced
price.
BP didn't respond to a request for comment Thursday. It
maintained in case filings and an earlier hearing that the trading
wasn't improper and that FERC's analysis of the evidence was
flawed. A FERC spokeswoman declined to comment.
The ruling is the latest sign of increasing oversight of
physical and financial commodities markets in the wake of the 2008
financial crisis and such scandals as the 2001 collapse of Enron.
Traders like BP, one of the biggest oil and gas merchants in the
world, are preparing for a raft of new regulations in Europe, while
tightening scrutiny in the U.S. has driven a number of banks out of
the physical commodities trading business altogether. FERC has
proved to be a particularly aggressive market watchdog, pursuing
high-profile cases against J.P. Morgan Chase & Co., Barclays
PLC and Deutsche Bank in recent years.
Enforcement lawyers from FERC have sought fines in the BP case
of nearly $50 million, even as the government's own evidence showed
the activity netted the company less than $250,000 in profits.
The case is the latest black eye for BP as it struggles to
rehabilitate its reputation in the wake of its fatal oil-platform
blowout in the Gulf of Mexico five years ago. The company reached a
landmark $18.7 billion settlement last month resolving federal and
state claims related to the subsequent spill. This gas-market
ruling will also add to pressure on the company as it tries to
right itself amid a dramatic slump in oil prices.
The conduct in the gas market occurred just a year after BP
settled a case with the U.S. Justice Department and the U.S.
Commodity Futures Trading Commission, paying $303 million to
resolve charges that it manipulated the propane market.
In that case, the company also agreed to a permanent injunction
barring it from further manipulative activity and submitted to an
independent monitor over its trading. In her ruling, Judge Cintron
said BP could face increased penalties because the conduct occurred
less than five years after the propane case was settled.
The case was kicked off after junior BP trader Clayton Luskie
phoned senior BP trader Gradyn Comfort on a recorded line and asked
how to describe their market strategy in a way that didn't "make it
sound like we're manipulating" the gas market. BP turned over the
tape to the monitor and regulators, even as it maintained Mr.
Luskie had misspoken.
But FERC maintained trading records and market data showed BP
did increase money-losing sales of physical gas at the Houston Ship
Channel while increasing financial bets that price gaps between
there and the benchmark Henry Hub would widen.
The amount of the fine being imposed on BP wasn't decided by
Judge Cintron. The full FERC commission will decide on a penalty
amount after reviewing the judge's conclusions. Judge Cintron also
concluded BP's internal investigation of the matter was
"ineffective and biased," which could further enhance penalties
because BP was required to have a strong compliance program as part
of the propane settlement.
Write to Christian Berthelsen at christian.berthelsen@wsj.com
and Sarah Kent at sarah.kent@wsj.com
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