BP 2010 Annual Report Download - page 203

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Notesonnancialstatements
Financial statements
37.Provisionscontinued
Throughtheapplicationofthisapproach,BPhasconcludedthatareasonablerangeofpossibleoutcomesfortheamountoftheprovisionasat
31December2010is$6billionto$13billion.BPbelievesthattheprovisionrecordedat31December2010of$9.2billionrepresentsareliablebest
estimatefromwithinthisrangeofpossibleoutcomes.ThisamountisshownaspayablefromthetrustfundunderLitigation and claims inthetableabove.
Theprovisionisinadditiontothe$3.4billionofclaimspaidin2010.Ofthistotalpaid,$3.2billionisincludedwithinutilizationofprovisioninthetable,and
theremaining$0.2billionwasaperiodexpenditurepriortotherecognitionoftheprovisionattheendofthesecondquarter2010.Alsoincludedwithinthe
totalutilizationofprovisionof$4billionunderLitigation and claimsareamountsrelatingtoclaimsadministrationcostsandlegalfees.Ofthetotal
paymentsof$3.4billionduringtheyear,$3billionwaspaidoutofthetrustfundand$0.4billionwaspaidbyBP.
BP’smanagementhasutilizedactuarialtechniquesanditsjudgementindeterminingthisreliablebestestimate.However,itispossiblethatthenal
outcomecouldlieoutsidethisrange.
Manykeyassumptionsunderlieandinuenceboththerangeofpossibleoutcomesandthereliablebestestimatesoftotalexpendituresderivedfor
bothcategoriesofclaims.Thesekeyassumptionsincludetheamountsthatwillultimatelybepaidinrelationtocurrentclaims,thenumber,typeand
amountsforclaimsnotyetreported,thescopeandnumberofclaimsthatcanberesolvedsuccessfullyintheclaimsprocess,theresolutionofrejected
claims,theoutcomesofanylitigation,theeffectsontourismandsheriesandothereconomicandenvironmentalfactors.
Theoutcomesofclaimsandlitigationarelikelytobepaidoutovermanyyearstocome.BPwillre-evaluatetheassumptionsunderlyingthisanalysis
onaquarterlybasisasmoreinformationbecomesavailableandtheclaimsprocessmatures.
BPalsofacesotherlitigationforwhichnoreliableestimateofthecostcancurrentlybemade.Thereforenoamountshavebeenprovidedforthese
items.SeeNote44forfurtherinformation.
Legal fees
Estimatedlegalfeeshavebeenprovidedforwherewehavebeenabletoestimatereliablythosewhichwillariseinthenexttwoyears.
CleanWaterActpenalties
AprovisionhasbeenmadefortheestimatedpenaltiesforstrictliabilityunderSection311oftheCleanWaterAct.Suchpenaltiesaresubjecttoastatutory
maximumcalculatedastheproductofaper-barrelmaximumpenaltyrateandthenumberofbarrelsofoilspilled.Uncertaintiescurrentlyexistinrelationto
boththeper-barrelpenaltyratethatwillultimatelybeimposedandthevolumeofoilspilled.
AchargeforpotentialCleanWaterActSection311penaltieswasrstincludedinBP’ssecond-quarter2010interimnancialstatements.Atthe
timethatchargewastaken,thelatestestimatefromtheintra-agencyFlowRateTechnicalGroupcreatedbytheNationalIncidentCommanderinchargeof
thespillresponsewasbetween35,000and60,000barrelsperday.Themid-pointofthatrange,47,500barrelsperday,wasusedforthepurposesof
calculatingthecharge.ForthepurposesofcalculatingtheamountoftheoilowthatwasdischargedintotheGulfofMexico,theamountofoilthathad
beenorwasprojectedtobecapturedinvesselsonthesurfacewassubtractedfromthetotalestimatedowupuntilwhenthewellwascappedon
15July2010.Theresultofthiscalculationwasanestimatethatapproximately3.2millionbarrelsofoilhadbeendischargedintotheGulf.Thisestimateof
3.2millionbarrelswascalculatedusingatotalowof47,500barrelsperdaymultipliedbythe85daysfrom22April2010through15July2010lessan
estimateoftheamountcapturedonthesurface(approximately850,000barrels).
Thisestimateddischargevolumewasthenmultipliedby$1,100perbarrel–themaximumamountthestatuteallowsintheabsenceofgross
negligenceorwilfulmisconduct–forthepurposesofestimatingapotentialpenalty.Thisresultedinaprovisionof$3,510millionforpotentialpenalties
underSection311.
Inutilizingthe$1,100per-barrelinput,thecompanytookintoaccountthattheactualper-barrelpenaltyacourtmayimpose,orthattheGovernment
mightagreetoinsettlement,couldbelowerthan$1,100perbarrelifitweredeterminedthatsuchalowerpenaltywasappropriatebasedonthefactorsa
courtisdirectedtoconsiderinassessingapenalty.Inparticular,indeterminingtheamountofacivilpenalty,Section311directsacourttoconsidera
numberofenumeratedfactors,including”theseriousnessoftheviolationorviolations,theeconomicbenettotheviolator,ifany,resultingfromthe
violation,thedegreeofculpabilityinvolved,anyotherpenaltyforthesameincident,anyhistoryofpriorviolations,thenature,extent,anddegreeof
successofanyeffortsoftheviolatortominimizeormitigatetheeffectsofthedischarge,theeconomicimpactofthepenaltyontheviolator,andanyother
mattersasjusticemayrequire.”Civilpenaltiesabove$1,100perbarreluptoastatutorymaximumof$4,300perbarrelofoildischargedwouldonlybe
imposedifgrossnegligenceorwilfulmisconductwereallegedandsubsequentlyproven.Thecompanyexpectstoseekassessmentofapenaltylower
than$1,100perbarrelbasedonseveralofthesefactors.However,the$1,100per-barrelratewasutilizedforthepurposesofcalculatingachargeafter
consideringandweighingallpossibleoutcomesandinlightof:(i)thecompany’sconclusionthatitdidnotactwithgrossnegligenceorengageinwilful
misconduct;and(ii)theuncertaintyastowhetheracourtwouldassessapenaltybelowthe$1,100statutorymaximum.
On2August2010,theUnitedStatesDepartmentofEnergyandtheFlowRateTechnicalGrouphadissuedanestimatethat4.9millionbarrelsofoil
hadowedfromtheMacondowell,and4.05millionbarrelshadbeendischargedintotheGulf(thedifferencebeingtheamountofoilcapturedbyvessels
onthesurfaceaspartofBP’swellcontainmentefforts).
ItwasandremainsBP’sview,basedontheanalysisofavailabledatabyitsexperts,thatthe2August2010Governmentestimateandothersimilar
estimatesarenotreliableestimatesbecausetheyarebasedonincompleteorinaccurateinformation,restinlargepartonassumptionsthathavenotbeen
validated,andaresubjecttofargreateruncertaintiesthanhavebeenacknowledged.AsBPhaspubliclyasserted,includingata22October2010meeting
withthestaffoftheNationalCommissionontheBPDeepwaterHorizonOilSpillandOffshoreDrilling,thecompanybelievesthatthe2August2010
dischargeestimateandsimilarestimatesareoverstatedbyasignicantamount,andthattheowrateispotentiallyintherangeof20-50%lower.Ifthe
owrateis50%lowerthanthe2August2010estimate,thentheamountofoilthatowedfromtheMacondowellwouldbeapproximately2.5million
barrels,andtheamountdischargedintotheGulfwouldbeapproximately1.6millionbarrels.Iftheowrateis20%lowerthanthe2August2010estimate,
thentheamountofoilthatowedfromtheMacondowellwouldbeapproximately3.9millionbarrelsandtheamountdischargedintotheGulfwouldbe
approximately3.1millionbarrels,whichisnotmateriallydifferentfromtheamountweusedforouroriginalestimateatthesecondquarter.
BPAnnualReportandForm20-F2010 201