BP’s traders lost $100 million in a “debacle” of a deal with a West African commodities firm, according to details from a London employment lawsuit that offers a rare glimpse into the business on the oil giant’s trading floor.
BP bought crude oil and sold gasoline in a series of deals with Taleveras Energy that left the UK company exposed when Taleveras entered into insolvency procedures in 2015, a former senior trader at BP said in a legal filing. Traders then rushed to charter an oil tanker to collect oil cargoes in an attempt to make good the shortfall of lost funds.
The trading mishap was revealed in a suit brought by Jonathan Zarembok, who alleged he was pushed out for voicing concerns about potential bribery in Nigeria, as well as speaking up in the aftermath of the Taleveras deal. He said BP’s trading unit sought to “sweep under the carpet” some of the consequences of the loss.
“BP is defending in full and denies all allegations made by the claimant,” the firm said in a statement declining to comment while the lawsuit is underway. The London employment tribunal is scheduled to run for six weeks.
Zarembok, who traded on BP’s West Africa desk, reported to Dan Wise, the company’s crude oil trading head, who is named as a defendant in the lawsuit.
“Dan was – and remains – powerful in BP and in the industry more generally,” Zarembok said in his witness statement.
The crude team “acted to limit damages to BP but it appears now it is blowing up in our face”, Wise said in a message disclosed in the case, as he was facing an internal disagreement between BP’s crude oil and gasoline traders over how to allocate the losses from Taleveras.
Wise is set to testify in the suit later this week.
Although better known for its oil fields, refineries and fuel stations, BP is one of the world’s largest commodity traders. Alongside rivals Royal Dutch Shell Plc and Total SE, it bets its own money on the ups and downs of the global oil and natural gas markets. The firm takes “educated but speculative” positions, Zarembok said in legal filings for the suit that started last week.
The trading arm keeps its trading profit a closely guarded secret but typically records around $2 billion to $3 billion annually in pretax profit from trading oil and gas. Zarembok said in his legal filings that his four-person team was typically set a target of making around $75 million per year.
BP initially had an open credit line of $30 million with Taleveras and entered into a series of deals where BP offset payments owed to Taleveras against money owing for gasoline sales.
This offset arrangement allowed BP traders “to sell large quantities of gasoline on deferred payment terms to a counter-party, which would otherwise have represented an unacceptable credit risk,” Zarembok said in his witness statement.
A lawyer who represented Taleveras said he didn’t have instructions to comment on the case. Messages left with Taleveras requesting a statement weren’t returned.
When Taleveras defaulted on a number of payments for gasoline, traders were left out of pocket. In addition to trying to take ownership of oil tanks held in South Africa, they considered taking hold of real estate belonging to the founder of the company.
BP’s own incident report concluded that the traders didn’t run sufficient due diligence over some of the pledged oil cargoes and that the credit department failed to flag the potential exposure, according to filings prepared to the lawsuit.