October 23, 2007 / 7:50 PM / 11 years ago

BP to pay $303 million to settle propane charges: source

WASHINGTON (Reuters) - BP Plc (BP.L) will pay $303 million to settle civil charges that it tried to manipulate propane prices in the United States by cornering the market in February 2004, a source familiar with the matter said on Tuesday.

The U.S. Department of Justice and the Commodity Futures Trading Commission (CFTC) will announce the deal on Thursday, according to the source, who spoke on condition of anonymity because of the sensitivity of the case.

BP, which is in the process of reorganizing after a series of mishaps at its U.S. operations, is the largest supplier of propane in North America.

Regulators have said that BP used a controlling position in the propane market to drive up prices for the gas, which mostly went to rural customers to heat their homes.

Spokesmen for BP and the CFTC declined to comment.

In a 42-page complaint filed in a U.S. district court in Illinois in June 2006, the CFTC alleged that “with the knowledge, advice, and consent of senior management, BP employees developed and executed a speculative trading strategy in which BP cornered the February 2004 ... physical propane market.”

Employees at BP Products North America Inc., a wholly owned subsidiary of BP Plc, sought a profit of at least $20 million through its actions, the CFTC said at the time.

According to the CFTC’s complaint, BP employees bought “enormous quantities” of propane, until it owned more than 88 percent of all supplies to be delivered through the TEPPCO products pipeline from Mont Belvieu, Texas, to markets in the Northeast and Midwest United States.

BP had a “dominant and controlling position” in propane that allowed it to drive prices up above 90 cents per gallon on February 27, 2004, the CFTC said in its complaint.

Earlier on Tuesday, BP said its quarterly profit fell 45 percent to $3.87 billion, excluding gains from its inventory on hand.

The drop from year-earlier levels was due to lower production, refinery problems and fewer asset sales.

Analysts said the weak third-quarter result should represent a low point for BP, whose Chief Executive Tony Hayward outlined a plan to turn around BP’s “dreadful” performance earlier this month.

BP has come under increased regulatory scrutiny since a fatal refinery explosion in Texas in 2005 and a series of oil spills at its field in Alaska.

Reporting by Michael Erman and Robert Campbell; additional reporting by Chris Baltimore in Washington

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