BP 2010 Annual Report Download - page 204

Notesonnancialstatements
37.Provisionscontinued
Therefore,forthepurposesofcalculatingaprovisionfornesandpenaltiesunderSection311oftheCleanWaterAct,thecompanyhascontinuedtouse
anestimateof3.2millionbarrelsofoildischargedtotheGulfofMexicoasitscurrentbestestimate,asdenedinparagraphs36-40ofIAS37‘Provisions,
contingentliabilitiesandcontingentassets’,oftheamountwhichmaybeusedincalculatingthepenaltyunderSection311oftheCleanWaterAct.This
reectsanestimateoftotalowfromthewellofapproximately4millionbarrels,andanestimateofapproximately850,000barrelscapturedbyvesselson
thesurface.Inutilizingthisestimate,thecompanyhastakenintoconsiderationnotonlyitsownanalysisoftheowanddischargeissue,butalsothe
analysesandconclusionsofotherparties,includingtheUSgovernment.TheestimateofBPandofotherpartiesastohowmuchoilwasdischargedtothe
GulfofMexicomaychange,perhapsmaterially,overtime.Onefactorthatwouldimpacttheowrateestimateisthecompletionoftheanalysisonthe
blowoutpreventerwhichisnowinthecustodyofthefederalgovernment.Similarsituationsexistwithregardtootherpiecesofphysicalevidencecriticalto
theowrateanalysis.ChangesinestimatesastoowanddischargecouldaffecttheamountactuallyassessedforCleanWaterActnesandpenalties.
Theyear-endprovisioncontinuedtobebasedonaper-barrelpenaltyof$1,100forthereasonsdiscussedabove,includingthecompany’s
continuedconclusionthatitdidnotactwithgrossnegligenceorengageinwilfulmisconduct.
Theamountandtimingofthesecostswilldependuponwhatisultimatelydeterminedtobethevolumeofoilspilledandtheper-barrelpenaltyrate
thatisimposed.Itisnotcurrentlypracticabletoestimatethetimingofexpendingthesecostsandtheprovisionhasbeenincludedwithinnon-current
liabilitiesonthebalancesheet.Nootheramountshavebeenprovidedasat31December2010inrelationtootherpotentialnesandpenaltiesbecauseit
isnotpossibletomeasuretheobligationreliably.Finesandpenaltiesarenotcoveredbythetrustfund.
38.Pensionsandotherpost-retirementbenets
Mostgroupcompanieshavepensionplans,theformsandbenetsofwhichvarywithconditionsandpracticesinthecountriesconcerned.Pensionbenets
maybeprovidedthroughdenedcontributionplans(moneypurchaseschemes)ordenedbenetplans(nalsalaryandothertypesofschemeswith
committedpensionpayments).Fordenedcontributionplans,retirementbenetsaredeterminedbythevalueoffundsarisingfromcontributionspaidin
respectofeachemployee.Fordenedbenetplans,retirementbenetsarebasedonsuchfactorsastheemployees’pensionablesalaryandlengthof
service.Denedbenetplansmaybeexternallyfundedorunfunded.Theassetsoffundedplansaregenerallyheldinseparatelyadministeredtrusts.
Inparticular,theprimarypensionarrangementintheUKisafundednalsalarypensionplanunderwhichretiredemployeesdrawthemajorityof
theirbenetasanannuity.Witheffectfrom1April2010,BPcloseditsUKplantonewjoinersotherthansomeofthosejoiningtheNorthSeaSPU.The
planremainsopentoongoingaccrualforthoseemployeeswhohadjoinedBPonorbefore31March2010.ThemajorityofnewjoinersintheUKhavethe
optiontojoinadenedcontributionplan.
IntheUS,arangeofretirementarrangementsareprovided.Theseincludeafundednalsalarypensionplanforcertainheritageemployeesanda
cashbalancearrangementfornewhires.RetiredUSemployeestypicallytaketheirpensionbenetintheformofalumpsumpayment.USemployeesare
alsoeligibletoparticipateinadenedcontribution(401k)planinwhichemployeecontributionsarematchedwithcompanycontributions.
Thelevelofcontributionstofundeddenedbenetplansistheamountneededtoprovideadequatefundstomeetpensionobligationsastheyfall
due.During2010,contributionsof$411million(2009$9millionand2008$6million)and$694million(2009$795millionand2008$362million)were
madetotheUKplansandUSplansrespectively.Inaddition,contributionsof$188million(2009$204millionand2008$130million)weremadetoother
fundeddenedbenetplans.Theaggregatelevelofcontributionsin2011isexpectedtobeapproximately$1,250million,andincludescontributionsinall
countriesthatweexpecttoberequiredtomakebylaworundercontractualagreementsaswellasanallowancefordiscretionaryfunding.
Certaingroupcompanies,principallyintheUS,providepost-retirementhealthcareandlifeinsurancebenetstotheirretiredemployeesand
dependants.Theentitlementtothesebenetsisusuallybasedontheemployeeremaininginserviceuntilretirementageandcompletionofaminimum
periodofservice.Theplansarefundedtoalimitedextent.
Theobligationandcostofprovidingpensionsandotherpost-retirementbenetsisassessedannuallyusingtheprojectedunitcreditmethod.The
dateofthemostrecentactuarialreviewwas31December2010.Thegroup’sprincipalplansaresubjecttoaformalactuarialvaluationeverythreeyearsin
theUK,withvaluationsbeingrequiredmorefrequentlyinmanyothercountries.ThemostrecentformalactuarialvaluationoftheUKpensionplanswasas
at31December2008.
Thematerialnancialassumptionsusedforestimatingthebenetobligationsofthevariousplansaresetoutbelow.Theassumptionsarereviewed
bymanagementattheendofeachyear,andareusedtoevaluateaccruedpensionandotherpost-retirementbenetsat31December.Thesame
assumptionsareusedtodeterminepensionandotherpost-retirementbenetexpenseforthefollowingyear,thatis,theassumptionsat31December
2010areusedtodeterminethepensionliabilitiesatthatdateandthepensionexpensefor2011.
%
Financialassumptions    UK   US   Other
     2010 2009 2008 2010 2009 2008 2010 2009 2008
Discountrateforpension
 planliabilities 5.5 5.8 6.3 4.7 5.4 6.3 5.3 5.8 5.7
Discountrateforotherpost-
 retirementbenetplans n/a n/a n/a 5.3 5.8 6.2 n/a n/a n/a
Rateofincreaseinsalaries 5.4 5.3 4.9 4.1 4.2 2.2 3.8 3.8 3.5
Rateofincreaseforpensions
 inpayment 3.5 3.4 3.0 – – – 1.8 1.8 1.7
Rateofincreaseindeferred
 pensions 3.5 3.4 3.0 – – – 1.3 1.2 1.0
Ination  3.5 3.4 3.0 2.3 2.4 0.4 2.3 2.3 2.0

Ourdiscountrateassumptionsarebasedonthird-partyAAcorporatebondindicesandforourlargestplansintheUK,USandGermanyweuseyieldsthat
reectthematurityproleoftheexpectedbenetpayments.TheinationrateassumptionsforourUKandUSplansarebasedonthedifferencebetween
theyieldsonindex-linkedandxed-interestlong-termgovernmentbonds.Inothercountriesweuseeitherthisapproach,orthecentralbankination
target,oradvicefromthelocalactuarydependingontheinformationthatisavailabletous.Theinationassumptionsareusedtodeterminetherateof
increaseforpensionsinpaymentandtherateofincreaseindeferredpensionswherethereissuchanincrease.
202BPAnnualReportandForm20-F2010