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Businessreview
Business review
Maritimeregulations
BPShipping’soperationsaresubjecttoextensivenationalandinternational
regulationsgoverningliability,operations,training,spillpreventionand
insurance.Theseinclude:
• InUSwaters,theOPA90imposesliabilityandspillpreventionand
planningrequirementsgoverning,amongstothers,tankers,bargesand
offshorefacilities.Italsomandatesalevyonimportedanddomestically
producedoiltofundtheoilspillresponse.Followingthe2010oilspillin
theGulfofMexico,severalmembersoftheUSCongresshave
introducedbillsproposingtoincreaseoreliminatetheOPA90liability
caps,someofthemseektoimposearetroactiveexpansionofliability.
Atthistime,noneofthebillshavebeenenactedintolawandtheirfate
isuncertain.Somestates,includingAlaska,Washington,Oregonand
California,imposeadditionalliabilityforoilspills.
• OutsideUSterritorialwaters,BPShippingtankersaresubjectto
internationalliability,spillresponseandpreparednessregulationsunder
theUN’sInternationalMaritimeOrganization,includingtheInternational
ConventiononCivilLiabilityforOilPollution,theMARPOL,the
InternationalConventiononOilPollution,Preparedness,Responseand
Co-operationandtheInternationalConventiononCivilLiabilityfor
BunkerOilPollutionDamage.InApril2010,anewprotocol,the
HazardousandNoxiousSubstance(HNS)Convention2010was
adoptedtoaddressissuesthathaveinhibitedraticationofthe
InternationalConventiononLiabilityandCompensationforDamagein
ConnectionwiththeCarriageofHazardousandNoxiousSubstancesby
Sea1996(theHNSConvention).Thisprotocolwillenterintoforcewhen
(1)atleast12stateshaveagreedtobeboundbyit(fourofthestates
musthaveatleast2milliongrosstonnesofshipping)and(2)
contributingpartiesintheconsentingstateshavereceivedatleast
40milliontonnesofcontributingcargoesintheprecedingyear.
Tomeetitsnancialresponsibilityrequirements,BPShippingmaintains
marineliabilitypollutioninsurancetoamaximumlimitof$1billionforeach
occurrencethroughmutualinsuranceassociations(P&IClubs)butthere
canbenoassurancethataspillwillnecessarilybeadequatelycoveredby
insuranceorthatliabilitieswillnotexceedinsurancerecoveries.
Certaindenitions
Unlessthecontextindicatesotherwise,thefollowingtermshavethe
meaningshownbelow:
Replacement cost prot
Replacementcostprotorlossreectsthereplacementcostofsupplies.
Thereplacementcostprotorlossfortheyearisarrivedatbyexcluding
fromprotorlossinventoryholdinggainsandlossesandtheirassociated
taxeffect.Replacementcostprotorlossforthegroupisnotarecognized
GAAPmeasure.
Inventory holding gains and losses
Inventoryholdinggainsandlossesrepresentthedifferencebetweenthe
costofsalescalculatedusingtheaveragecosttoBPofsuppliesacquired
duringtheperiodandthecostofsalescalculatedontherst-inrst-out
(FIFO)methodafteradjustingforanychangesinprovisionswherethenet
realizablevalueoftheinventoryislowerthanitscost.UndertheFIFO
method,whichweuseforIFRSreporting,thecostofinventorychargedto
theincomestatementisbasedonitshistoriccostofpurchase,or
manufacture,ratherthanitsreplacementcost.Involatileenergymarkets,
thiscanhaveasignicantdistortingeffectonreportedincome.The
amountsdisclosedrepresentthedifferencebetweenthecharge(tothe
incomestatement)forinventoryonaFIFObasis(afteradjustingforany
relatedmovementsinnetrealizablevalueprovisions)andthechargethat
wouldhavearisenifanaveragecostofsupplieswasusedfortheperiod.
Forthispurpose,theaveragecostofsuppliesduringtheperiodis
principallycalculatedonamonthlybasisbydividingthetotalcostof
inventoryacquiredintheperiodbythenumberofbarrelsacquired.The
amountsdisclosedarenotseparatelyreectedinthenancialstatements
asagainorloss.Noadjustmentismadeinrespectofthecostof
inventoriesheldaspartofatradingpositionandcertainothertemporary
inventorypositions.
Managementbelievesthisinformationisusefultoillustrateto
investorsthefactthatcrudeoilandproductpricescanvarysignicantly
fromperiodtoperiodandthattheimpactonourreportedresultunderIFRS
canbesignicant.Inventoryholdinggainsandlossesvaryfromperiodto
periodprincipallyduetochangesinoilpricesaswellaschangesto
underlyinginventorylevels.Inorderforinvestorstounderstandthe
operatingperformanceofthegroupexcludingtheimpactofoilprice
changesonthereplacementofinventories,andtomakecomparisonsof
operatingperformancebetweenreportingperiods,BP’smanagement
believesitishelpfultodisclosethisinformation.
BPAnnualReportandForm20-F2010 81