BP 2010 Annual Report Download - page 197

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Notesonnancialstatements
Financial statements
34.Derivativenancialinstrumentscontinued
Thefollowingtableshowsthechangesduringtheyearinthenetfairvalueofderivativesheldfortradingpurposeswithinlevel3ofthefairvaluehierarchy.
 $million
    Oil Natural gas Power
        price price price Total
Netfairvalueofcontractsat1January2010    215 72 (1) 286
Gains(losses)recognizedintheincomestatement   21 637 (1) 657
Settlements   (54) (11) 1 (64)
Purchases    – – – –
Sales     – – – –
Transfersoutoflevel3    (18) (38) – (56)
Transfersintolevel3   – 4 – 4
Exchangeadjustments   – 3 – 3
Netfairvalueofcontractsat31December2010   164 667 (1) 830
 
 $million
      Oil Naturalgas Power
        Currency price price price Other Total
Netfairvalueofcontractsat1January2009   3 149 17 – – 169
Gains(losses)recognizedintheincomestatement   (1) 205 91 – (1) 294
Settlements   – (91) (5) – – (96)
Purchases    – – – 1 – 1
Sales     – – – (2) 1 (1)
Transfersoutoflevel3   (2) (50) (4) – – (56)
Transfersintolevel3   – 2 (25) – – (23)
Exchangeadjustments   – – (2) – – (2)
Netfairvalueofcontractsat31December2009   – 215 72 (1) – 286

Theamountrecognizedintheincomestatementfortheyearrelatingtolevel3held-for-tradingderivativesstillheldat31December2010wasa
$651milliongain(2009$278milliongainrelatingtoderivativesstillheldat31December2009).
Gainsandlossesrelatingtoderivativecontractsareincludedeitherwithinsalesandotheroperatingrevenuesorwithinpurchasesintheincome
statementdependinguponthenatureoftheactivityandtypeofcontractinvolved.Thecontracttypestreatedinthiswayincludefutures,options,swaps
andcertainforwardsalesandforwardpurchasescontracts.Gainsorlossesariseoncontractsenteredintoforriskmanagementpurposes,optimization
activityandentrepreneurialtrading.Theyalsoariseoncertaincontractsthatarefornormalprocurementorsalesactivityforthegroupbutthatarerequired
tobefairvaluedunderaccountingstandards.Alsoincludedwithinsalesandotheroperatingrevenuesaregainsandlossesoninventoryheldfortrading
purposes.Thetotalamountrelatingtoalloftheseitemswasanetgainof$1,428million(2009$3,735millionnetgainand2008$6,721millionnetgain).
Embeddedderivatives
Priortothedevelopmentofanactivegastradingmarket,UKgascontractswerepricedusingabasketofavailablepriceindices,primarilyrelatingtooil
products,powerandination.AfterthedevelopmentofanactiveUKgasmarket,certaincontractswereenteredintoorrenegotiatedusingpricing
formulaenotdirectlyrelatedtogasprices,forexample,oilproductandpowerprices.Inthesecircumstances,pricingformulaehavebeendeterminedtobe
derivatives,embeddedwithintheoverallcontractualarrangementsthatarenotclearlyandcloselyrelatedtotheunderlyingcommodity.Theresultingfair
valuerelatingtothesecontractsisrecognizedonthebalancesheetwithgainsorlossesrecognizedintheincomestatement.
Alltheembeddedderivativesrelatetocommodityprices,arecategorizedinlevel3ofthefairvaluehierarchyandarevaluedusinginputsthat
includepricecurvesforeachofthedifferentproductsthatarebuiltupfromactivemarketpricingdata.Wherenecessary,theseareextrapolatedtothe
expiryofthecontracts(thelastofwhichisin2018)usingallavailableexternalpricinginformation.Additionally,wherelimiteddataexistsforcertain
products,pricesareinterpolatedusinghistoricandlong-termpricingrelationships.
Embeddedderivativeassetsandliabilitieshavethefollowingfairvaluesandmaturities.
 $million
  2010
       Less than Over
1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total
Assets    18 – – – – – 18
Liabilities   (325) (326) (285) (281) (212) (196) (1,625)
Netfairvalue  (307) (326) (285) (281) (212) (196) (1,607)
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 $million
          2009
       Lessthan     Over
       1year 1-2years 2-3years 3-4years 4-5years 5years Total
Assets    134 – – – – 3 137
Liabilities   (154) (236) (231) (227) (232) (388) (1,468)
Netfairvalue  (20) (236) (231) (227) (232) (385) (1,331)
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BPAnnualReportandForm20-F2010 195