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Businessreview
Business review
WeaimtomanageourGHGemissionsthroughafocusonoperational
energyefciencyandreductionsinaringandventing.Also,weexpect
thatadditionalregulationofGHGemissionsinthefutureandinternational
accordsaimedataddressingclimatechangewillhaveanincreasingimpact
onourbusinesses,operatingcostsandstrategicplanning,butmayalso
offeropportunitiesinthedevelopmentoflow-carbontechnologiesand
businesses.SeeRegulationofthegroup’sbusiness–Greenhousegas
regulationonpage78.
Tohelpaddressthisexpectation,wefactoracarboncostintoour
investmentappraisalsandtheengineeringdesignofnewprojects.Wedo
thisbyrequiringlargerprojects,andthoseforwhichemissionscostswould
beamaterialpartoftheproject,tomakerealisticassumptionsaboutthe
likelycarbonpriceduringthelifetimeoftheproject.Inindustrialized
countries,thisassumptioniscurrently$40pertonneofCO2.Thisisused
asabasisforassessingtheeconomicvalueoftheinvestmentandfor
optimizingthewaytheprojectisengineeredandtheconsequencesfor
emissions.Thishelpstoensureourinvestmentsarecompetitiveunder
scenariosinwhichthepriceofcarbonishigherthanitistoday.
Adaptationtoclimatechangeimpacts
ForseveralyearsBPhassponsoredresearch,includingclimatemodelling,
intotheimpactsofclimatechangeonbothexistingoperationsandnew
projects.Introducedin2010,theE&SGDPnowrequiresscreeningfor
potentialclimatechangeimpactsinmajornewprojects,projectsinnew
accesslocationsandthosethatcouldaffectaninternationallyprotected
area.
Forlargerprojectswhereclimateimpactsareidentiedasarisk,
weputamitigationprogrammeinplace.Ourcurrentengineeringpractices
addressclimateimpactsinthesamewayasanyotherphysicaland
ecologicalimpacts.Thesepracticesareperiodicallyreviewedandupdated.
Formanyclimate-relatedimpacts,theappropriateengineering
solutionsarealreadyknown,becausesomewhereinouroperationswe
alreadyhaveexperienceanddesignfacilitiestowithstandweather
extremes,suchashurricanes,monsoonsandArcticconditions.
Water
Toimproveourunderstandingandactuponthegrowingglobalissueof
waterscarcity,BPistakingamorestrategicapproachtowater
management.Wearecurrentlydevelopingourplansinregardstowater
management,whichincludeincreasingourcapabilitytomanageemerging
waterrisksandengagingwithexternalorganizationstodevelopsustainable
watermanagementpractices.
Environmental expenditure
$million
2010 2009 2008
EnvironmentalexpenditurerelatingtotheGulfofMexicooilspill
Spillresponse 13,628 – –
Additionstoenvironmentalremediationprovision 929 – –
Otherenvironmentalexpenditure
Operatingexpenditure 716 701 755
Capitalexpenditure 911 955 1,104
Clean-ups 55 70 64
Additionstoenvironmentalremediationprovision 361 588 270
Additionstodecommissioningprovision 1,800 169 327
BPincurredsignicantcostsin2010inresponsetotheGulfofMexicooil
spill.Thespillresponsecostof$13,628millionincludesamountsprovided
during2010of$10,883million,ofwhich$9,840millionhasbeenexpended
during2010,and$1,043millionremainsasaprovisionat31December
2010.Themajorityofthisremainingamountisexpectedtobeexpended
during2011.Inaddition,afurther$2,745millionofclean-upcostswere
incurredintheyearthatwerenotprovidedfor.
Additionstoenvironmentalprovisionsin2010inrespectoftheGulf
ofMexicooilspillrelatetoBP’scommitmenttofundthe$500-millionGulf
ofMexicoResearchInitiative,aresearchprogrammetostudytheimpact
oftheincidentonthemarineandshorelineenvironmentoftheGulfcoast,
andtheestimatedcostsofassessinginjurytonaturalresources.BPfaces
claimsundertheOilPollutionActof1990fornaturalresourcedamages,
buttheamountofsuchclaimscannotbeestimatedreliablyuntilthesize,
locationanddurationoftheimpactisassessed.
ForfurtherinformationrelatingtotheGulfofMexicooilspillsee
Financialstatements–Note2onpage158,Note37onpage199and
Note44onpage218.
Operatingandcapitalexpenditureontheprevention,control,
abatementoreliminationofair,waterandsolidwastepollutionisoftennot
incurredasaseparatelyidentiabletransaction.Instead,itformspartofa
largertransactionthatincludes,forexample,normalmaintenance
expenditure.Theguresforenvironmentaloperatingandcapital
expenditureinthetablearethereforeestimates,basedonthedenitions
andguidelinesoftheAmericanPetroleumInstitute.
Environmentaloperatingexpenditureof$716millionin2010wasat
asimilarlevelto2009,whilein2008,itwaslowerduetoareductionin
newprojectsundertaken.Inaddition,therewasasignicantreductionin
thesulphuroilpremiumpaidduetoagreateruseoflow-sulphurfuel.
Similarlevelsofoperatingandcapitalexpendituresareexpectedin
theforeseeablefuture.Inadditiontooperatingandcapitalexpenditures,
wealsocreateprovisionsforfutureenvironmentalremediation.
Expenditureagainstsuchprovisionsnormallyoccursinsubsequentperiods
andisnotincludedinenvironmentaloperatingexpenditurereportedfor
suchperiods.Thechargeforenvironmentalremediationprovisionsin2010
included$307millionresultingfromareassessmentofexistingsite
obligationsand$54millioninrespectofprovisionsfornewsites.The
chargeforenvironmentalremediationprovisionsin2009included
$582millionresultingfromareassessmentofexistingsiteobligationsand
$6millioninrespectofprovisionsfornewsites.
Provisionsforenvironmentalremediationaremadewhenaclean-up
isprobableandtheamountoftheobligationcanbereliablyestimated.
Generally,thiscoincideswiththecommitmenttoaformalplanofactionor,
ifearlier,ondivestmentoronclosureofinactivesites.
Theextentandcostoffutureenvironmentalrestoration,
remediationandabatementprogrammesareinherentlydifcultto
estimate.Theyoftendependontheextentofcontamination,andthe
associatedimpactandtimingofthecorrectiveactionsrequired,
technologicalfeasibilityandBP’sshareofliability.Thoughthecostsof
futureprogrammescouldbesignicantandmaybematerialtotheresults
ofoperationsintheperiodinwhichtheyarerecognized,itisnotexpected
thatsuchcostswillbematerialtothegroup’soverallresultsofoperations
ornancialposition.
Inaddition,wemakeprovisionsoninstallationofouroil-and
gas-producingassetsandrelatedpipelinestomeetthecostofeventual
decommissioning.Oninstallationofanoilornaturalgasproductionfacility
aprovisionisestablishedthatrepresentsthediscountedvalueofthe
expectedfuturecostofdecommissioningtheasset.
Thelevelofincreaseinthedecommissioningprovisionvarieswith
thenumberofneweldscomingonstreaminaparticularyearandthe
outcomeoftheperiodicreviews.Therewasasignicantincreasein2010,
drivenbyactivityintheGulfofMexico.On15October2010,theBureauof
OceanEnergyManagement,RegulationandEnforcement(BOEMRE)
issuedNoticetoLessees(NTL)2010-G05,whichrequiresthatidle
BPAnnualReportandForm20-F2010 73