BP 2006 Annual Report Download - page 66

The following table shows, by major currency, the group’s finance debt at 31 December 2006 and 2005 and the weighted average interest
rates achieved at those dates through a combination of borrowings and other derivative instruments entered into to manage interest rate
and currency exposures.
% years $ million % $ million $ million
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fixed rate debt Floating rate debt
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Weighted
average
interest
rate
Weighted
average time
for which
rate is fixed Amount
Weighted
average
interest
rate Amount Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
At 31 December 2006
US dollar 5 3 5,998 6 17,055 23,053
Sterling –––53535
Euro 3 8 61 4 134 195
Other currencies 7 8 299 8 428 727
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total loans 6,358 17,652 24,010
At 31 December 2005
US dollar 7 11 665 5 18,073 18,738
Sterling –––67676
Euro – – – 3 150 150
Other currencies 9 14 157 12 41 198
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total loans 822 18,340 19,162
The group’s earnings are sensitive to changes in interest rates over the
forthcoming year as a result of the floating rate instruments included in
the group’s finance debt at 31 December 2006. These include the effect
of interest rate and currency swaps and forwards utilized to manage
interest rate risk. If the interest rates applicable to floating rate
instruments were to have increased by 1% on 1 January 2007, the
group’s 2007 earnings before taxes would decrease by approximately
$180 million. This assumes that the amount and mix of fixed and floating
rate debt, including finance leases, remains unchanged from that in place
at 31 December 2006 and that the change in interest rates is effective
from the beginning of the year. Where the interest rate applicable to an
instrument is reset during a quarter it is assumed that this occurs at the
beginning of the quarter and remains unchanged for the rest of the year.
In reality, the fixed/floating rate mix will fluctuate over the year and
interest rates will change continually. Furthermore, the effect on
earnings shown by this analysis does not consider the effect of an overall
reduction in economic activity which could accompany such an increase
in interest rates.
Derivatives held for trading
In conjunction with the risk management activities discussed above, the
group also trades interest rate and foreign exchange rate derivatives and,
in addition, undertakes trading and risk management of certain specified
commodities. In order to disclose a complete picture of activities in
relation to commodity derivatives, all activity (trading and risk
management) is included in aggregate in Financial statements – Note 36
on page 141.
The group’s operational, risk management and trading activities in oil,
natural gas, power and financial markets are managed within a single
integrated function. The group’s risk management policy requires the
management of only certain short-term exposures in respect of its equity
share of production and certain of its refinery and marketing activities.
These risks are managed in combination with the group’s supply and
trading activities.
To this end, the group’s supply and trading function uses the full range
of conventional financial and commodity derivatives available in the
related commodity markets. Natural gas swaps, options and futures are
used to convert specific sale and purchase contracts from fixed prices to
market prices. Swaps are also used to manage exposures to gas price
differentials between locations. The group’s oil supply and trading
activities undertake the full range of conventional derivative financial and
commodity instruments and physical cargoes available in the commodity
markets. Power trading is undertaken using a combination of over-the-
counter forward contracts and other derivative contracts, including options
and futures. This activity is on both a standalone basis and in conjunction
with gas derivatives in relation to gas-generated power margin. In
addition, NGLs are traded around certain US inventory locations using
over-the-counter forward contracts in conjunction with over-the-counter
swaps, options and physical inventories.
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