BP 2006 Annual Report Download - page 41

Regulation of the group’s business
BP’s exploration and production activities are conducted in many different
countries and are therefore subject to a broad range of legislation and
regulations. These cover virtually all aspects of exploration and production
activities, including matters such as licence acquisition, production rates,
royalties, pricing, environmental protection, export, taxes and foreign
exchange. The terms and conditions of the leases, licences and contract
under which these oil and gas interests are held vary from country to
country. These leases, licences and contracts are generally granted by
or entered into with a government entity or state company and are
sometimes entered into with private property owners. These
arrangements with governmental or state entities usually take the
form of licences or production-sharing agreements. Arrangements with
private property owners are usually in the form of leases.
Licences (or concessions) give the holder the right to explore for and
exploit a commercial discovery. Under a licence, the holder bears the risk
of exploration, development and production activities and provides the
financing for these operations. In principle, the licence holder is entitled
to all production, minus any royalties that are payable in kind. A licence
holder is generally required to pay production taxes or royalties, which
may be in cash or in kind. Less typically, BP may explore for and exploit
hydrocarbons under a service agreement with the host entity in exchange
for reimbursement of costs and/or a fee paid in cash rather than
production.
Production-sharing agreements entered into with a government entity
or state company generally require BP to provide all the financing and
bear the risk of exploration and production activities in exchange for a
share of the production remaining after royalties, if any.
In certain countries, separate licences are required for exploration
and production activities and, in certain cases, production licences are
limited to a portion of the area covered by the exploration licence. Both
exploration and production licences are generally for a specified period of
time (except for licences in the US, which typically remain in effect until
production ceases). The term of BP’s licences and the extent to which
these licences may be renewed vary by area.
Frequently, BP conducts its exploration and production activities in
joint venture with other international oil companies, state companies or
private companies.
In general, BP is required to pay income tax on income generated
from production activities (whether under a licence or production-sharing
agreement). In addition, depending on the area, BP’s production activities
may be subject to a range of other taxes, levies and assessments,
including special petroleum taxes and revenue taxes. The taxes imposed
on oil and gas production profits and activities may be substantially higher
than those imposed on other activities, particularly in Angola, Norway,
the UK, Russia, South America and Trinidad & Tobago.
BP’s other activities, including its interests in pipelines and its
commodities and trading activities, are also subject to a broad range
of legislation and regulations in various countries in which it operates.
Health, safety and environmental regulations are discussed in more
detail in Environmental protection on page 42.
For certain information regarding environmental proceedings, see
Environmental protection – US regional review on page 45.
Safety, environmental and social performance
This section reviews BP’s 2006 performance with respect to safety,
the environment, employees and relations with communities. A more
comprehensive report on our non-financial performance will be found
in BP Sustainability Report 2006.
BP’s approach to being a responsible business has three levels. At the
first level, we work to comply with local laws and regulations. At the
second level, we seek to go further than regulations require, setting our
own standards and designing processes to help us meet them. At the
third level – beyond our own operations and our direct control – we have a
role to play in addressing issues that are relevant to our work, such as
climate change and sustainable development.
BP’s operations
Safety
During 2006, we took action to address a number of specific safety issues
as well as building more comprehensive systems for managing them,
including specific investments and targeted programmes in response to
the March 2005 explosion and fire at the Texas City refinery.
As a group, we aspire to be an industry leader in the three dimensions
of safety – personal safety, process safety and the environment. BP has a
strong track record in personal safety and on the environment but we
have more to do to move towards process safety excellence.
In total, there were seven workforce fatalities in the course of BP’s
operations during 2006, compared with 27 fatalities in 2005. We deeply
regret the loss of these lives. The 2006 figure has reduced significantly to
the lowest level in nearly 20 years of reporting. This includes a reduction
in driving-related fatalities, which were 14 in 2003, to two in 2006, after
we implemented our new driving safety standard. Our reported
recordable injury frequency fell to 0.47 per 200,000 hours worked, the
lowest in our recorded history.
For many years, we have operated using a management system called
getting HSE right (gHSEr) and we are building on this foundation to
strengthen our approach to safety, particularly process safety. To help
sustain and reinforce this momentum, we have formalized our approach
by establishing a group operations risk committee (GORC) as a
subcommittee of the group chief executive’s meeting (GCEM). Its
membership consists of heads of operating segments, the group
managing director responsible for safety, the deputy chief executive of
exploration and production, the head of the safety and operations function
and the group engineering director. The role of this committee is to
provide assurance that group operational risks are being identified
and managed in accordance with approved policy and to guide BP’s
overall approach.
The main focus for GORC is management systems, particularly
for process safety, across the group. The immediate priority for this
committee is to monitor the implementation of a six-point plan to apply
lessons learned from the Texas City incident and other priorities (see
below). GORC is overseeing a detailed review of process safety
measures and practices across BP’s operations to identify improvements.
Over time, we will consolidate these management system
improvements into a sustainable, integrated framework incorporating
strengthened standards and based on a commitment to continuous
improvement. This will form part of a new operating management system
(OMS) that will incorporate and expand on gHSEr, underpinned by a
consistent set of standards and processes covering health, safety,
operational integrity and environmental issues. The first wave of
implementation of the OMS began in January 2007 in all our US
refineries and other selected locations across our worldwide operations.
BP Annual Report and Accounts 2006 39