Beaumont (Tex.) Enterprise, October 25, 2007

BP WILL PLEAD TO FELONY IN TEXAS CITY PLANT BLAST

By Kristen Hays and Tom Fowler, Houston Chronicle

BP will plead guilty next month to violating the Clean Air Act and pay a $50 million fine for lax safety that contributed to the deaths of 15 workers in the March 2005 explosion at its Texas City refinery, U.S. Attorney Don DeGabrielle said today.

DeGabrielle said in a Houston news conference that the Nov. 27 felony plea and fine stem from a confluence of events: BP's lack of process safety systems in place, its knowing placement of flimsy trailers near an aging vent stack that was a potential ignition source in a unit that boosted the octane in gasoline; and failure to inform workers that the company was about to restart the unit, a potentially dangerous process that requires particular attention to safety.

As DeGabrielle spoke in Houston, acting Attorney General Peter Keisler opened a news conference in Washington to discuss the Texas City deal as well as two other agreements to settle separate BP investigations.

Those deals are:

* A guilty plea to an environmental crime and $20 million in payments related to 2006 leaks in oil pipelines feeding the Trans Alaskan Pipeline in Prudhoe Bay, Alaska. The case stems from two spills from corroded pipelines, including a 267,000-gallon leak that was the largest spill ever on Alaska's North Slope.

* A $303.5 million fine and a non-prosecution agreement to settle allegations that BP manipulated of the price of propane three years ago.

Although the company avoided criminal prosecution in the propane trading case, four former BP traders were indicted today in Chicago on charges relating to the case. Accused of conspiring to manipulate and corner the propane market in February 2004, they face charges of mail and wire fraud and violations of the Commodity Exchange Act .

In a statement today, BP American Chairman and President Bob Malone said:

"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. They represent an absolute commitment to work with the government as we continue our efforts 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.

"In the months and years since these violations occurred, we have made real progress in the areas of process safety performance and risk management. Oversight of our trading operations has also been greatly enhanced. However, there is more to do and we are committed to doing it."

DeGabrielle said that BP Products North America, the London-based oil giant's U.S. arm, will enter the felony plea related to the Texas City explosion before U.S. District Judge Gray Miller. In addition to the plea and fine, BP will serve probation for three years.

DeGabrille characterized the deal as an "agreement in principle," since Miller has not yet approved it.

DeGabrielle, U.S. attorney for the Southern District of Texas, also said the investigation into events leading up to and surrounding the explosion is continuing. That means that while the corporation is discharging its criminal liability with the settlement, assuming it completes its probation, individuals still could face criminal charges.

"Part of the agreement with BP is that they will continue to cooperate as they have throughout this investigation with us," he said. "This includes making employees and witnesses available to us, making other documentary and physical evidence available to us as needed or requested" by various agencies, including the FBI, Environmental Protection Agency, U.S. Occupational Safety and Health Administration, and the Texas Commission on Environmental Quality.

DeGabrielle acknowledged the disparity between the fines for the explosion, which resulted in multiple deaths and scores of injuries, and the trading manipulation, which involved no fatalities. He said the Clean Air Act calculates criminal fines with a mathematical formula that doesn't account for loss of human life.

The law considers money that a company may have saved by deferring repairs to equipment and failing to implement process safety measures and profits made from the unit where the explosion occurred, DeGabrielle said. That unit wasn't a big profit-maker for BP and at times lost money, he said.

Under the law, the $50 million fine was the maximum the government would have been able to prove in court that BP should pay, he said. By contrast, the trading settlement involves a civil fine and no criminal prosecution.

The Clean Air Act that allows for criminal prosecution of environmental laws was enacted in 1990 in response to history's worst industrial accident -- the 1984 release of poisonous gas from a Union Carbide pesticide plant in Bhopal, India that killed at least 15,000 people and injured more than 100,000.

In response to the Bhopal disaster, the U.S. chemical industry implemented new safety rules and Congress created the U.S. Chemical Safety and Hazard Investigation Board to investigate explosions and releases of toxic gas.

That board's two-year probe into the Texas City blast was the longest in its history. Its exhaustive report, issued in March this year a few days before the two-year anniversary of the explosion, reached many of the same conclusions as the criminal probe -- BP was lax on process safety and put portable trailers too close to the blast site.

Process safety involves operations and handling of hazardous materials as opposed to personal safety, which focuses on prevention of falls and other individual accidents. The safety board concluded that BP focused too much on personal safety and failed to make process safety a priority.

The 15 contractors who died were in a trailer 121 feet from the blast site, in violation of BP's own policy that called for placing trailers at least 300 feet away. After the disaster, the company moved all trailers off the refinery site. The company also is pouring $1 billion into improvements at the plant.

The American Petroleum Institute, the oil and gas industry's trade group, in June this year released new standards that suggest companies conduct detailed blast safety analyses before placing any portable buildings closer than 1,930 feet to a process unit area in a refinery. API, which has no enforcement capability, also set distance limits between buildings and such units depending on the unit's size.

The chemical safety board also concluded that deep budget cuts that occurred both before and after BP acquired the Texas City plant with its purchase of Amoco Corp. in 1998 laid the foundation for the disaster. BP has disputed any link between cost-cutting and the explosion.

The March 23, 2005, blast occurred when a tower in a unit that boosts octane in gasoline overfilled with hydrocarbons that flowed to the old vent stack. The stack spewed flammable liquid, which fell to the ground and formed a vapor cloud that ignited.

The unit has been closed since the explosion during probes by federal regulators and prosecutors. BP has said it does not intend to restart the unit.

In the settlement announced today, BP admitted that on the morning of the blast, several procedures required under the Clean Air Act for ensuring the mechanical integrity and a safe startup either had not been established or were ignored.

The company also admitted it had failed to perform a relief valve study to determine whether the stack had the capacity to safely release excess hydrocarbons.

BP also admitted that it had become a regular practice at the company to locate temporary trailers occupied by contract employees near the stacks even though BP knew there had been previous releases of hydrocarbons from those structures.

About 4,000 lawsuits were filed against BP after the explosion, most of which the company has settled, including all involving deaths. Hundreds that involve injuries or property damage are still pending. The only case to go to trial so far involved four plaintiffs who said they suffered from emotional distress and other blast-related ailments. That one was settled last month on what would have been the 10th day of testimony.

The company has set aside at least $1.6 billion to resolve lawsuits

BP's efforts to resolve the lengthy criminal investigations this week illustrate the company's desire to move past missteps that sapped its image and competitive edge.

"The cost of settling these things is small compared to the cost of an efficient, well-run, well-directed business," said Robin West, chairman of oil consulting firm PFC Energy in Washington.

BP chief executive Tony Hayward "is doing the right thing to clear the decks," West said.

The BP settlements come nearly six months into Hayward's tenure as chief executive officer and coincide with other efforts to clean up problems and restore credibility through improved safety and operations.

West said that Hayward's predecessor, John Browne, transformed what was once a weak BP into a Big Oil behemoth through acquisitions, most notably that of Amoco. Browne also promoted BP's image through its "Beyond Petroleum" campaign emphasizing environmental responsibility and boosted its footprint in Russia with the 2003 formation of TNK-BP with Russian investors.

But Browne and the company came under fire in the last years of his tenure with the explosion, delays in getting Gulf of Mexico oil platforms operating, the pipeline leak, trading allegations and slips in performance that left BP trailing its peers.

Browne abruptly resigned from BP in May upon acknowledging that during a legal battle with a tabloid, he had lied to a British court about how he met a former companion. Hayward, who ran BP's exploration and production division under Browne, took the top spot.

Analysts say Hayward appears to be making good on vows to improve. BP is streamlining operations and shedding redundant management to give workers such as engineers and refinery workers more of a voice in what Hayward says had become an overly complex organization.

On Wednesday, the company announced that up to 350 jobs could be cut in its North Sea operations, where declining production and increased costs of doing business call for shrinking the work force.

In addition, the company aims to restore most refining capacity at its Texas City and Whiting, Ind., refineries by early next year and move ahead on getting delayed Gulf of Mexico platforms in operation that will boost overall production.

"John was more interested in being a statesman than simply operating a business," West said. "I think what Tony has done is absolutely correct. Clearly, he's rolled up his sleeves and is directly involved in the day-to-day management of the business, which is critical."

tom.fowler@chron.com

kristen.hays@chron.com

Copyright The Beaumont Enterprise 2007