Wednesday, June 2, 2010

A Potted History of BP Trading

Joke: Why did the bumblebee fly with his legs crossed? He was looking for a bee pee station!
The first time I heard of BP was when it installed a gas station on the corner near my high school in Bath, Maine. BP was largely unknown in New England in the 1970's. Unlike today.
Fast forward from high school to my first real job in London in 1981, where I was reporting on oil prices for Platt's (a McGraw-Hill company, now under the Standard and Poor's umbrella). I would speak daily to the oil trading offshoot of BP, known as BP Amro. The traders were located in the Hague in Holland, for some reason. They soon moved to London, where the action was. (Albeit to the City - where only dusty financial types lingered. The real action was in the West End where Vitol, Vanol, Marc Rich, etc. worked and played.) From the beginning, I saw that BP traders were different from the rest.  For a start they all seemed to have northern or Scottish accents. (The accent norm in the oil business in London at that time was wide-boy Essex or Kent.) I'm told that is because BP recruited engineers, who were mainly educated at Sheffield University near Manchester. They were more like barroom brawlers than oil traders. In an industry where heavy drinking was practically a requirement, the BP boys put everyone else to shame. There was a pub under their City offices to which most of the trading desk (or bench as they insisted on calling it) would decamp for the afternoon. This was before cellphones, so there were dedicated phone lines behind the bar so that they wouldn't miss a deal. Because underneath the fug of smoke and beer, there were some pretty sharp traders. Maybe it was the northern stubborn streak, but once they had a mind to do a deal they did it. Corners were cut if necessary, and lies were told. But, hey - that was part of the business. My sources tell me that BP's trading desk was and still is the most successful of any oil company. It also had a reputation for being a skinflint. Salaries were pathetic and there were no real bonuses at the time. Then after losing trader upon trader to Phibro or Vitol, BP started to pay its traders properly, and to reward them with decent bonuses. It realized that training someone from college all the way to the trading desk, only to lose them a year later, was perhaps more expensive than rewarding them in relationship to industry standards.
Besides the skinflint reputation, there also a whiff of the bully about the company. The traders often turned violent after bouts of drinking. The BP Curry, a legendary 'lunch' party at the end of the annual Institute of Petroleum Week, would usually end in fisticuffs. Sometimes these even involved journalists, and one of my old reporters got pounded a few times. (He was a stickler for the truth, so perhaps it was not the industry for him.) BP's Chicago trading office still takes 2 hour pub breaks at lunchtime, my sources tell me, something that is rather unusual in the US - even for Brits living here. But the money was piling in, and no one at BP cared too much about what the outside world thought of them.
Then, in 1987 BP's Grangemouth refinery started showing some cracks. A fire was followed days later by a hydrocracker explosion. It was so powerful that, according to a friend who worked there, a farmer on his tractor a mile away was blown into the air - with his tractor. He survived, but two BP fitters did not. Grangemouth continued to deteriorate and in 2000 suffered several incidents including a major catalytic cracker fire, despite continued warnings about possible safety violations from the Health and Safety Executive. A fire at its US Texas City refinery in 2005 killed 15 people. BP was beginning to get a bad rep for safety. Many fines later, the deepwater oil rig in the Gulf blew.
I am not trying to pass judgment on BP. It was and is a fine oil company, and I have many friends who have passed through its doors. I do wonder, though, if in the pursuit of profits perhaps too many corners were cut.

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