Wall St. vets battle BP in fallout over Canada refinery

Mon Mar 7, 2016 8:11am EST
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By Jarrett Renshaw and Jessica Resnick-Ault

NEW YORK (Reuters) - A legal battle between a team of former Wall Street oil traders and behemoth producer BP plc (BP.L: Quote) over a remote Canadian refinery sheds rare light on the murky world of crude trading.

The first salvo in the previously unreported dispute was fired by BP in December. The oil company demanded, through arbitration, $110 million from the private equity-backed NARL Refining for its alleged failure to properly manage and maximize profits from the Come-by-Chance plant in Newfoundland.

NARL filed a counter arbitration claim along with two lawsuits accusing BP - which is the refinery's sole supplier under a two-year contract - of providing varieties of crude that benefit its trading book but hurt the refinery's equipment and profits.

The dispute could jeopardize the ongoing operation of the 115,000 barrel per day (bpd) refinery. It also exposes a rift in the rough-and-tumble global oil market, where disputes often are handled quietly to avoid compromising long-term relationships or revealing trading strategies.

"Disagreements among parties in supply contracts are not uncommon, but we don't typically see these conflicts out in the open," said Ed Hirs, an energy economist at the University of Houston. "That's why these contracts call for disputes to go to arbitration, keeping it out of public view."

BP and NARL Refining declined to comment.

Hirs said contracts include negotiated terms that majors such as BP would prefer to keep private. The allegation that BP put its interest over those of a client could also hurt business, he said.

The refinery's operators are SilverPeak Financial Partners, a group of Wall Street veterans, including Neal Shear, who helped build Morgan Stanley's oil trading division; Kaushik Amin, former chief executive officer of RBS Sempra Commodities and global head of liquid markets for Lehman Brothers; and Harsh Rameshwar from Merrill Lynch Commodities.   Continued...

A Wall Street sign is seen in Lower Manhattan in New York, January 20, 2016. REUTERS/Mike Segar