BP 2010 Annual Report Download - page 34
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Joint ventures and other contractual arrangements – BP may not
have full operational control and may have exposure to
counterparty credit risk and disruptions to our operations
and strategic objectives due to the nature of some of its
business relationships.
Manyofourmajorprojectsandoperationsareconductedthroughjoint
venturesorassociatesandthroughcontractingandsub-contracting
arrangements.Thesearrangementsofteninvolvecomplexriskallocation,
decision-makingprocessesandindemnicationarrangements.Incertain
cases,wemayhavelesscontrolofsuchactivitiesthanwewouldhaveif
BPhadfulloperationalcontrol.Ourpartnersmayhaveeconomicor
businessinterestsorobjectivesthatareinconsistentwithoropposedto,
thoseofBP,andmayexercisevetorightstoblockcertainkeydecisionsor
actionsthatBPbelievesareinitsorthejointventure’sorassociate’sbest
interests,orapprovesuchmatterswithoutourconsent.Additionally,our
jointventurepartnersorassociatesorcontractualcounterpartiesare
primarilyresponsiblefortheadequacyofthehumanortechnical
competenciesandcapabilitieswhichtheybringtobearonthejointproject,
andintheeventthesearefoundtobelacking,ourjointventurepartnersor
associatesmaynotbeabletomeettheirnancialorotherobligationsto
theircounterpartiesortotherelevantproject,potentiallythreateningthe
viabilityofsuchprojects.Furthermore,shouldaccidentsorincidentsoccur
inoperationsinwhichBPparticipates,whetherasoperatororotherwise,
andwhereitisheldthatoursub-contractorsorjoint-venturepartnersare
legallyliabletoshareanyaspectsofthecostofrespondingtosuch
incidents,thenancialcapacityofthesethirdpartiesmayproveinadequate
tofullyindemnifyBPagainstthecostsweincuronbehalfofthejoint
ventureorcontractualarrangement.Shouldakeysub-contractor,suchasa
lessorofdrillingrigs,benolongerabletomaketheseassetsavailableto
BP,thiscouldresultinseriousdisruptiontoouroperations.WhereBPdoes
nothaveoperationalcontrolofaventure,BPmaynonethelessstillbe
pursuedbyregulatorsorclaimantsintheeventofanincident.
Oursystemsofcontrol
TheboardisresponsibleforthedirectionandoversightofBP.Theboard
hassetanoverallgoalforBP,whichistomaximizelong-termshareholder
valuethroughtheallocationofitsresourcestoactivitiesintheoil,natural
gas,petrochemicalsandenergybusinesses.Theboarddelegatesauthority
forachievingthisgoaltothegroupchiefexecutive(GCE).
Theboardmaintainsvepermanentcommitteesthatare
composedentirelyofnon-executives.Theboardanditscommittees
monitor,amongotherthings,theidenticationandmanagementofthe
group’srisks–bothnancialandnon-nancial.Duringtheyear,theboard’s
committeesengagewithexecutivemanagement,thegeneralauditorand
othermonitoringandassuranceproviders(suchasthegroupheadofsafety
andoperationalrisks,thegroupcomplianceandethicsofcerandthe
externalauditor)onaregularbasisaspartoftheiroversightofthegroup’s
risks.Signicantincidentsthatoccurandmanagement’sresponsetothem
areconsideredbytheappropriatecommitteeandreportedtotheboard.In
Julytheboardestablishedanewcommitteeofnon-executives,theGulfof
Mexicocommittee,tomonitortheresponseofthecompanytotheGulfof
MexicoincidentthroughoversightofthenewGCRO.Thecommittee
engageswithGCROmanagementonaregularbasistomonitorthe
responsetotheincidentandmanagementoftherisksarising.(See Board
performance report on pages 90-105.)
Thecompanymaintainsacomprehensivesystemofinternal
control.Thiscomprisestheholisticsetofmanagementsystems,
organizationalstructures,processes,standardsandbehavioursthatare
employedtoconductourbusinessanddeliverreturnsforshareholders.
Thesystemisdesignedtomeettheexpectationsofinternalcontrolofthe
CorporateGovernanceCodeintheUKandofCOSO(Committeeof
SponsoringOrganizationsoftheTreadwayCommission)intheUS.It
addressesrisksandhowweshouldrespondtothemaswellastheoverall
controlenvironment.Eachcomponentofthesystemhasbeendesignedto
respondtoaparticulartypeorcollectionofrisks.Materialrisksare
describedintheRiskfactorssection(see pages 27-32).
Keyelementsofoursystemofinternalcontrolare:thecontrol
environment;themanagementofriskandoperationalperformance
(includinginrelationtonancialreporting);andthemanagementofpeople
andindividualperformance.ControlsincludetheBPcodeofconduct,our
operatingmanagementsystem(OMS),ourleadershipframeworkandour
principlesfordelegationofauthority,whicharedesignedtomakesure
employeesunderstandwhatisexpectedofthem.
Aspartofthecontrolsystem,theGCE’sseniorteam–knownas
theexecutiveteam–issupportedbysub-committeesthatareresponsible
forandmonitorspecicgrouprisks.Theseincludethegroupoperations
riskcommittee(GORC),thegroupnancialriskcommittee(GFRC),the
resourcecommitmentsmeeting(RCM),thegrouppeoplecommittee
(GPC),andthegroup’sdisclosurecommittee(GDC),whichreviewsthe
disclosurecontrolsandproceduresoverreporting.
Operationsandinvestmentsareconductedandreportedin
accordancewith,andassociatedrisksaretherebymanagedthrough,
relevantstandardsandprocesses.TheserangefromOMSwhichisthe
structuredsetofprocessesdesignedtodeliversafe,responsibleand
reliableoperatingactivity,togroupstandards,whichsetoutprocessesfor
majorareassuchasfraudandmisconductreporting,throughtodetailed
administrativeinstructions.TheGCEconductsregularperformancereviews
withthesegmentsandkeyfunctionstomonitorperformanceandthe
managementofriskandtointerveneifnecessary.Peoplemanagementis
basedonperformanceobjectives,throughwhichindividualsare
accountableforspecicactivitieswithinagreedboundaries.
FollowingtheGulfofMexicooilspill,thecompanyestablishedthe
GCROinJunetomanagethecompany’sresponseactivities,including
managingclean-upandrestorationcosts,claimsmanagementand
litigation.Lessonslearnedfromtheincidentandtherecommendationsof
BP’sinternalinvestigationarebeingembeddedintoallareasofthesystem
ofinternalcontrolandinparticularinOMS.
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