BP 2010 Annual Report Download - page 128

Additionalinformationforshareholders
Otherprovisionsandliabilitiesarerecognizedintheperiodwhenit
becomesprobablethattherewillbeafutureoutowoffundsresulting
frompastoperationsoreventsandtheamountofcashoutowcanbe
reliablyestimated.Thetimingofrecognitionandquanticationofthe
liabilityrequiretheapplicationofjudgementtoexistingfactsand
circumstances,whichcanbesubjecttochange.Sincetheactualcash
outowscantakeplacemanyyearsinthefuture,thecarryingamountsof
provisionsandliabilitiesarereviewedregularlyandadjustedtotakeaccount
ofchangingfactsandcircumstances.
Achangeinestimateofarecognizedprovisionorliabilitywould
resultinachargeorcredittonetincomeintheperiodinwhichthechange
occurs(withtheexceptionofdecommissioningcostsasdescribedabove).
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provisionfor
environmentalliabilitiesisestimatedbasedoncurrentlegaland
constructiverequirements,technology,pricelevelsandexpectedplans
forremediation.Actualcostsandcashoutowscandifferfrom
estimatesbecauseofchangesinlawsandregulations,public
expectations,prices,discoveryandanalysisofsiteconditionsand
changesinclean-uptechnology.
Theprovisionforenvironmentalliabilitiesisreviewedatleast
annually.Theinterestrateusedtodeterminethebalancesheetobligation
at31December2010was1.5%(20091.75%).
AsfurtherdescribedinFinancialstatements–Note44on
page218,thegroupissubjecttoclaimsandactions.Thefactsand
circumstancesrelatingtoparticularcasesareevaluatedregularlyin
determiningwhetheritisprobablethattherewillbeafutureoutowof
fundsand,onceestablished,whetheraprovisionrelatingtoaspecic
litigationshouldbeadjusted.Accordingly,signicantmanagement
judgementrelatingtocontingentliabilitiesisrequired,sincetheoutcomeof
litigationisdifculttopredict.
Gulf of Mexico oil spill
AsaconsequenceoftheGulfofMexicooilspill,asdescribedon
pages34-39,BPhasincurredcostsduringtheyearandhasrecognized
liabilitiesforfuturecosts.Liabilitiesofuncertaintimingoramountand
contingentliabilitieshavebeenaccountedforand/ordisclosedin
accordancewithIAS37‘Provisions,contingentliabilitiesandcontingent
assets’.BP’srightsandobligationsinrelationtothe$20-billiontrustfund
whichwasestablishedduringtheyearhavebeenaccountedforin
accordancewithIFRIC5‘Rightstointerestsarisingfromdecommissioning,
restorationandenvironmentalrehabilitationfunds’.
ThetotalamountsthatwillultimatelybepaidbyBPinrelationtoall
obligationsrelatingtotheincidentaresubjecttosignicantuncertaintyand
theultimateexposureandcosttoBPwillbedependentonmanyfactors.
Furthermore,theamountofclaimsthatbecomepayablebyBP,theamount
ofnesultimatelyleviedonBP(includinganydeterminationofBP’s
negligence),theoutcomeoflitigation,andanycostsarisingfromany
longer-termenvironmentalconsequencesoftheoilspill,willalsoimpact
upontheultimatecostforBP.Althoughtheprovisionrecognizedisthe
currentbestestimateofexpendituresrequiredtosettlecertainpresent
obligationsattheendofthereportingperiod,therearefutureexpenditures
forwhichitisnotpossibletomeasuretheobligationreliably.
Themagnitudeandtimingofpossibleobligationsinrelationtothe
GulfofMexicooilspillaresubjecttoaveryhighdegreeofuncertaintyas
describedfurtherinRiskfactorsonpages27-32.Anysuchpossible
obligationsarethereforecontingentliabilitiesand,atpresent,itisnot
practicabletoestimatetheirmagnitudeorpossibletimingofpayment.
Furthermore,othermaterialunanticipatedobligationsmayariseinfuturein
relationtotheincident.RefertoFinancialstatements–Note44on
page218forfurtherinformation.
Expendituretobemetfromthe$20-billiontrustfund
InJune2010BPagreedwiththeUSgovernmentthatitwouldestablisha
trustfundof$20billiontobeavailabletosatisfylegitimateindividualand
businessclaimsadministeredbytheGulfCoastClaimsFacility(GCCF),
stateandlocalgovernmentclaimsresolvedbyBP,naljudgmentsand
settlements,stateandlocalresponsecosts,andnaturalresourcedamages
andrelatedcosts.Fines,penaltiesandclaimsadministrationcostsarenot
coveredbythetrustfund.BP’sobligationtomakecontributionstothetrust
fundwasrecognizedinfullandisincludedwithinotherpayablesonthe
balancesheetaftertakingaccountofthetimevalueofmoney.The
establishmentofthetrustfunddoesnotrepresentacaporooronBP’s
liabilitiesandBPdoesnotadmittoaliabilityofthisamount.
AnassethasbeenrecognizedrepresentingBP’srighttoreceive
reimbursementfromthetrustfund.Thisistheportionoftheestimated
futureexpenditureprovidedforthatwillbesettledbypaymentsfromthe
trustfund.BPwillnotactuallyreceiveanyreimbursementsfromthetrust
fund,butratherpaymentswillbemadedirectlytoclaimantsfromthe
trustfund.
BPhasprovidedforitsbestestimateofitemsthatwillbepaid
throughthe$20-billiontrustfund.Itisnotpossible,atthistime,tomeasure
reliablyanyotheritemsthatwillbepaidfromthetrustfund,namelyany
obligationinrelationtoNaturalResourceDamagesclaims,andclaims
assertedincivillitigation,norisitpracticabletoestimatetheirmagnitudeor
possibletimingofpayment.Althoughtheseitems,whichwillbepaid
throughthetrustfund,havenotbeenprovidedforatthistime,BP’sfull
obligationunderthe$20-billiontrustfundhasbeenexpensedintheincome
statement,takingaccountofthetimevalueofmoney.
Otherexpenditurenotcoveredbythe$20-billiontrustfund
Forthoseitemsnotcoveredbythetrustfunditisnotpossibletomeasure
reliablyanyobligationinrelationtootherlitigationorpotentialnesand
penalties,exceptforthoserelatingtotheCleanWaterAct.Therearea
numberoffederalandstateenvironmentalandotherprovisionsoflaw,
otherthantheCleanWaterAct,underwhichoneormoregovernmental
agenciescouldseekcivilnesandpenaltiesfromBP.Giventhelarge
numberofclaimsthatmaybeasserted,itisnotpossibleatthistimeto
determinewhetherandtowhatextentanysuchclaimswouldbe
successfulorwhatpenaltiesorneswouldbeassessed.
ContingentassetsrelatingtotheGulfofMexicooilspill
BPistheoperatoroftheMacondowellandholdsa65%workinginterest,
withtheremaining35%interestheldbytwoco-owners,Anadarko
PetroleumCorporation(APC)andMOEXOffshore2007LLC(MOEX).
UndertheOperatingAgreement,MOEXandAPCareresponsiblefor
reimbursingBPfortheirproportionatesharesofthecostsofalloperations
andactivitiesconductedundertheOperatingAgreement.Inaddition,the
partiesareresponsiblefortheirproportionatesharesofallliabilities
resultingfromoperationsoractivitiesconductedundertheOperating
Agreement,exceptwhereliabilityresultsfromaparty’sgrossnegligence
orwilfulmisconduct,inwhichcasethatpartyissolelyresponsible.BP
doesnotbelievethatithasbeengrosslynegligentunderthetermsofthe
OperatingAgreementoratlaw.
Asat31December2010,$6billionhadbeenbilledtothe
co-owners,whichBPbelievestobecontractuallyrecoverable.Asfurther
costsareincurred,BPbelievesthatadditionalamountsarebillabletoour
co-ownersundertheOperatingAgreement.
Ourco-ownershaveeachwrittentoBPindicatingthattheyare
withholdingpaymentinlightoftheinvestigationssurrounding,and
determinationoftherootcausesof,theincident.Inaddition,APChas
publiclyaccusedBPofhavingbeengrosslynegligentandstatedithasno
liabilityfortheincident,bothofwhichclaimsBPrefutesandintendsto
challengeinanylegalproceedings.Therearealsoauditrightsconcerning
billingsundertheOperatingAgreementwhichmaybeexercisedbyAPC
andMOEX,andwhichmayormaynotleadtoanadjustmentofthe
amountbilled.BPmayultimatelyneedtoenforceitsrightstocollect
paymentfromtheco-ownersthroughanarbitrationproceedingasprovided
forintheOperatingAgreement.Thereisariskthatamountsbilledto
co-ownersmaynotultimatelyberecoveredshouldourco-ownersbefound
notliableforthesecostsorbeunabletopaythem.
126BPAnnualReportandForm20-F2010