BP 2009 Annual Report Download - page 135

BP Annual Report and Accounts 2009
Notes on financial statements
8. Impairment review of goodwill continued
Financial statements
133
In the prior year it was estimated that the long-term price of oil that would cause the recoverable amount to be equal to the carrying amount for each
cash-generating unit would be of the order of $38 per barrel for the UK and $50 per barrel for the US. It was estimated that the long-term price of gas
that would cause the total recoverable amount to be equal to the total carrying amount of goodwill and related non-current assets for the US cash-
generating unit would be of the order of $4/mmBtu (Henry Hub). As a significant amount of gas from the North Sea is sold under fixed-price contracts, or
contracts priced using non-gas indices, it was estimated that no reasonably possible change in gas prices would cause the UK headroom to be reduced to
zero. It was estimated that no reasonably possible change in oil and gas prices would cause the headroom in Rest of World to be reduced to zero.
Estimated production volumes are based on detailed data for the fields and take into account development plans for the fields agreed by
management as part of the long-term planning process. In 2008, it was estimated that, if all our production were to be reduced by 10% for the whole
of the next 15 years, this would not be sufficient to reduce the excess of recoverable amount over the carrying amounts of each cash-generating unit
to zero. Consequently, management believes no reasonably possible change in the production assumption would cause the carrying amounts to
exceed the recoverable amounts.
Management also believes that currently there is no reasonably possible change in discount rate that would cause the carrying amounts in the
UK, US or Rest of World to exceed the recoverable amounts.
Refining and Marketing
$ million
2009 2008
US West
Rhine FVC Lubricants Other Total Rhine FVC Coast FVC Lubricants Other Total
Goodwill 655 3,416 174 4,245 637 1,579 3,043 203 5,462
Excess of recoverable amount
over carrying amount 2,034 n/a n/a n/a 3,603 1,629 5,445 n/a n/a
For all cash-generating units, the cash flows for the first two or five years are derived from the business segment plan. For determining the value in
use for each of the cash-generating units, cash flows for a period of 10 years have been discounted and aggregated with a terminal value.
Rhine FVC
As a result of the continuing integration of our businesses into fuels value chains, convenience retail operations in the Rhine region were incorporated
into the Rhine FVC from the beginning of 2009. The key assumptions to which the calculation of value in use for the Rhine FVC is most sensitive are
refinery gross margins, production volumes, and discount rate. Refinery gross margins used in the plan are derived from assumptions that are
consistent with those used to develop the regional Global Indicator Margin (GIM). The regional GIM is based on a single representative crude with
product yields characteristic of the typical level of upgrading complexity available in the region. The average values assigned to the regional GIM and
refinery production volume over the plan period are $4.05 per barrel and 254mmbbl a year (2008 $5.50 per barrel and 250mmbbl a year). The values
reflect past experience and are consistent with external sources. Cash flows beyond the five-year plan period are extrapolated using a 2.4% growth rate
(2008 cash flows beyond the three-year plan period were extrapolated using a 1.2% growth rate).
2009
Sensitivity analysis
Sensitivity of value in use to a change in refinery margins of $1 per barrel ($ billion) 2.2
Adverse change in refinery margins to reduce recoverable amount to carrying amount ($ per barrel) 0.9
Sensitivity of value in use to a 5% change in production volume ($ billion) 0.8
Adverse change in production volume to reduce recoverable amount to carrying amount (mmbbl per year) 31
Sensitivity of value in use to a change in the discount rate of 1% ($ billion) 0.8
Discount rate to reduce recoverable amount to carrying amount 14%
Lubricants
The key assumptions to which the calculation of value in use for the Lubricants unit is most sensitive are operating unit margins, sales volumes, and
discount rate. The values assigned to these key assumptions reflect past experience. No reasonably possible change in any of these key assumptions
would cause the unit’s carrying amount to exceed its recoverable amount. For 2008 the average values assigned to the operating margin and sales
volumes over the plan period were 70 cents per litre and 3.4 billion litres per year, respectively. Cash flows beyond the two-year plan period are
extrapolated using a 3% growth rate (2008 cash flows beyond the three-year plan period were extrapolated using a 3% growth rate).
US West Coast FVC
As disclosed in Note 3, the impairment review of goodwill allocated to the US West Coast FVC resulted in the recognition of an impairment loss in
2009 to write off the entire balance of $1,579 million. The key assumptions to which the calculation of value in use for the US West Coast FVC was
most sensitive in 2008 were refinery gross margins, production volumes and discount rates. The average value assigned to the refinery gross
margin during the plan period was based on a $7.60 per barrel regional GIM. The average value assigned to the production volume was 170mmbbl a
year over the plan period. Cash flows beyond the three-year plan period were extrapolated using a 2% growth rate. These assumptions reflected
past experience and were consistent with external sources.