BP 2006 Annual Report Download - page 59

The following table summarizes the nature of the group’s unconditional purchase obligations.
$million
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Payments due by period
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Purchase obligations – payments due by period Total 2007 2008 2009 2010 2011
2012 and
thereafter
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Crude oil and oil products 58,036 47,247 4,865 1,368 1,126 1,518 1,912
Natural gas 37,923 18,070 4,622 2,954 1,892 1,549 8,836
Chemicals and other refinery feedstocks 12,906 5,162 1,541 956 997 590 3,660
Power 20,148 14,464 4,407 1,270 7 – –
Utilities 1,618 197 156 131 106 106 922
Transportation 3,704 830 530 407 369 299 1,269
Use of facilities and services 4,685 984 602 487 451 438 1,723
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total 139,020 86,954 16,723 7,573 4,948 4,500 18,322
The following table summarizes the group’s capital expenditure commitments at 31 December 2006 and the proportion of that expenditure for which
contracts have been placed. For jointly controlled assets, the net BP share is included in the amounts shown. The group expects its total capital
expenditure excluding acquisitions to be around $18 billion in 2007.
$million
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Capital expenditure commitments including
amounts for which contracts have been placed Total 2007 2008 2009 2010 2011
2012 and
thereafter
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Committed on major projects 22,273 11,175 5,607 2,812 1,659 423 597
Amounts for which contracts have been placed 9,773 5,782 2,127 1,171 435 67 191
Liquidity risk
Liquidity risk is the risk that suitable sources of funding for the group’s
business activities may not be available. The group has long-term debt
ratings of Aa1 and AA+, assigned respectively by Moody’s and Standard
&Poor’s.
The group has access to a wide range of funding at competitive rates
through the capital markets and banks. It co-ordinates relationships with
banks, borrowing requirements, foreign exchange requirements and cash
management centrally. The group believes it has access to sufficient
funding, including through the commercial paper markets, and also has
undrawn committed borrowing facilities to meet currently foreseeable
borrowing requirements. At 31 December 2006, the group had substantial
amounts of undrawn borrowing facilities available, including committed
facilities of $4,700 million, of which $4,300 million are in place for at least
five years (2005 $4,500 million expiring in 2006 and 2004 $4,500 million
expiring in 2005). These facilities are with a number of international banks
and borrowings under them would be at pre-agreed rates. Certain of
these facilities support the group’s commercial paper programme.
Critical accounting policies
The significant accounting policies of the group are summarized
in Financial statements – Note 1 on page 100.
Inherent in the application of many of the accounting policies used
in the preparation of the financial statements is the need for BP
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual outcomes could differ from the estimates and assumptions
used. The following summary provides further information about the
critical accounting policies that could have a significant impact on the
results of the group and should be read in conjunction with the Notes
on financial statements.
The accounting policies and areas that require the most significant
judgements and estimates to be used in the preparation of the
consolidated financial statements are in relation to oil and natural gas
accounting, including the estimation of reserves, the recoverability of
asset carrying values, deferred taxation, provisions and contingencies,
and pensions and other post-retirement benefits.
Oil and natural gas accounting
The group follows the successful efforts method of accounting for its
oil and natural gas exploration and production activities.
The acquisition of geological and geophysical seismic information, prior
to the discovery of proved reserves, is expensed as incurred, similar to
the accounting for research and development costs.
Licence and property acquisition costs are initially capitalized within
intangible assets. These costs are amortized on a straight-line basis until
such time as either exploration drilling is determined to be successful or it
is unsuccessful and all costs are written off. Each property is reviewed on
an annual basis to confirm that drilling activity is planned and that it is not
impaired. If no future activity is planned, the remaining balance of the
licence and property acquisition costs is written off.
For exploration wells and exploratory-type stratigraphic test wells, costs
directly associated with the drilling of wells are temporarily capitalized
within non-current intangible assets, pending determination of whether
potentially economic oil and gas reserves have been discovered by the
drilling effort. These costs include employee remuneration, materials and
fuel used, rig costs, delay rentals and payments made to contractors. The
determination is usually made within one year after well completion, but
can take longer, depending on the complexity of the geological structure.
If the well did not encounter potentially economic oil and gas quantities,
the well costs are expensed as a dry hole and are reported in exploration
expense. Exploration wells that discover potentially economic quantities
of oil and gas and are in areas where major capital expenditure (e.g.
offshore platform or a pipeline) would be required before production could
begin, and where the economic viability of that major capital expenditure
depends on the successful completion of further exploration work in the
area, remain capitalized on the balance sheet as long as additional
exploration appraisal work is under way or firmly planned.
For complicated offshore exploration discoveries, it is not unusual
to have exploration wells and exploratory-type stratigraphic test wells
remaining suspended on the balance sheet for several years while
additional appraisal drilling and seismic work on the potential oil and gas
field is performed or while the optimum development plans and timing are
established. All such carried costs are subject to regular technical,
commercial and management review on at least an annual basis to
confirm the continued intent to develop, or otherwise extract value
from, the discovery. If this is no longer the case, the costs are
immediately expensed.
Once a project is sanctioned for development, the carrying values of
licence and property acquisition costs and exploration and appraisal costs
are transferred to production assets within property, plant and equipment.
Field development costs subject to depreciation are expenditures incurred
to date, together with sanctioned future development expenditure
approved by the group.
BP Annual Report and Accounts 2006 57