BP 2008 Annual Report Download - page 58

Performance review
BP Annual Report and Accounts 2008
Performance review
$ million
2008 2007 2006
Environmental expenditure
Operating expenditure 755 662 596
Clean-ups 64 62 59
Capital expenditure 1,104 1,033 806
Additions to environmental remediation provision 270 373 423
Additions to decommissioning provision 326 1,163 2,142
Operating and capital expenditure on the prevention, control, abatement
or elimination of air, water and solid waste pollution is often not incurred
as a separately identifiable transaction. Instead, it forms part of a larger
transaction that includes, for example, normal maintenance expenditure.
The figures for environmental operating and capital expenditure in the
table are therefore estimates, based on the definitions and guidelines of
the American Petroleum Institute.
Environmental operating expenditure of $755 million in 2008 was
higher than in 2007 and reflects continuing integrity management activity.
There were no individually significant factors driving the increase.
The increase in environmental operating expenditure in 2007
compared with 2006 is primarily due to increased integrity management
activity and activity associated with the implementation of the Baker
Panel recommendations. Similar levels of operating and capital
expenditures are expected in the foreseeable future. In addition to
operating and capital expenditures, we also create provisions for future
environmental remediation. Expenditure against such provisions is
normally in subsequent periods and is not included in environmental
operating expenditure reported for such periods. The charge for
environmental remediation provisions in 2008 includes $234 million
resulting from a reassessment of existing site obligations and $36 million
in respect of provisions for new sites.
Provisions for environmental remediation are made when a clean-
up is probable and the amount of the obligation can be reliably estimated.
Generally, this coincides with commitment to a formal plan of action or, if
earlier, on divestment or on closure of inactive sites.
The extent and cost of future environment restoration,
remediation and abatement programmes are often inherently difficult to
estimate. They often depend on the extent of contamination, and the
associated impact and timing of the corrective actions required,
technological feasibility and BP’s share of liability. Though the costs of
future programmes could be significant and may be material to the
results of operations in the period in which they are recognized, it is not
expected that such costs will be material to the group’s overall results of
operations or financial position.
In addition, we make provisions on installation of our oil- and gas-
producing assets and related pipelines to meet the cost of eventual
decommissioning. On installation of an oil or natural gas production
facility a provision is established that represents the discounted value of
the expected future cost of decommissioning the asset. Additionally, we
undertake periodic reviews of existing provisions. These reviews take
account of revised cost assumptions, changes in decommissioning
requirements and any technological developments. The level of increase
in the decommissioning provision varies with the number of new
fields coming onstream in a particular year and the outcome of the
periodic reviews.
Provisions for environmental remediation and decommissioning
are usually set up on a discounted basis, as required by IAS 37
‘Provisions, Contingent Liabilities and Contingent Assets’.
Further details of decommissioning and environmental provisions
appear in Financial statements – Note 37 on page 158. See also
Environment on page 43.
Suppliers and contractors
Our processes are designed to enable us to choose suppliers carefully
on merit, avoiding conflicts of interest and inappropriate gifts and
entertainment. We expect suppliers to comply with legal requirements
and we seek to do business with suppliers who act in line with BP’s
commitments to compliance and ethics, as outlined in the code of
conduct. We engage with suppliers in a variety of ways, including
performance review meetings to identify mutually advantageous ways
to improve performance.
Creditor payment policy and practice
Statutory regulations issued under the UK Companies Act 1985 require
companies to make a statement of their policy and practice in respect of
the payment of trade creditors. In view of the international nature of the
group’s operations there is no specific group-wide policy in respect of
payments to suppliers. Relationships with suppliers are, however,
governed by the group’s policy commitment to long-term relationships
founded on trust and mutual advantage. Within this overall policy,
individual operating companies are responsible for agreeing terms and
conditions for their business transactions and ensuring that suppliers are
aware of the terms of payment.
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