BP 2011 Annual Report Download - page 196

194 BP Annual Report and Form 20-F 2011194 BP Annual Report and Form 20-F 2011
Notes on financial statements
The total amount in the income statement is analysed in the table below. Costs charged directly to the income statement in 2010 in relation to spill
response, environmental and litigation and claims are those that arose prior to recording a provision at the end of the second quarter of that year.
$ million
2011 2010
Trust fund liability – discounted –19,580
Change in discounting relating to trust fund liability 43 240
Recognition of reimbursement asset (4,038) (12,567)
Other –8
Total (credit) charge relating to the trust fund (3,995) 7,261
Spill response – amount provided 586 10,883
– costs charged directly to the income statement 85 2,745
Total charge relating to spill response 671 13,628
Environmental – amount provided 1,167 929
– change in discount rate relating to provisions 17 5
– costs charged directly to the income statement –70
Total charge relating to environmental 1,184 1,004
Litigation and claims – amount provided 3,430 14,939
– costs charged directly to the income statement –184
Total charge relating to litigation and claims 3,430 15,123
Clean Water Act penalties – amount provided –3,510
Other costs charged directly to the income statement 427 332
Settlements credited to the income statement (5,517) –
(Profit) loss before interest and taxation (3,800) 40,858
Finance costs 58 77
(Profit) loss before taxation (3,742) 40,935
The total amounts that will ultimately be paid by BP in relation to all obligations relating to the incident are subject to significant uncertainty as described
above under Provisions and contingencies.
Pre-tax cash flows amounted to $8,906 million (2010 $17,658 million) and the impact on net cash provided by operating activities, on a post-tax
basis, amounted to $6,813 million (2010 $16,019 million).
3. Business combinations
Business combinations in 2011
BP undertook a number of business combinations in 2011. Total consideration paid in cash amounted to $11.3 billion, offset by cash acquired of
$0.4 billion. In addition, the fair value of contingent consideration payable amounted to $0.1 billion.
On 30 August 2011, BP acquired from Reliance Industries Limited (Reliance) a 30% interest in 21 oil and gas production-sharing agreements
(PSAs) operated by Reliance in India for $7,026 million. This includes the producing KG D6 block.
In addition, on 17 November 2011, the companies formed a 50:50 joint venture for the sourcing and marketing of gas in India.
This transaction provides BP with access to an emerging market with growth in energy demand; it builds BP’s business in natural gas and it
represents an important partnership with a leading national energy business.
The transaction has been accounted for as a business combination using the acquisition method. Measurement period adjustments to the
acquisition-date fair values of the identifiable assets and liabilities acquired, and contingent consideration payable, were recognized between the date of
acquisition and 31 December 2011. These adjustments reflected new information obtained, including further understanding of the acquired assets and
potential development options, and amounted to an overall decrease of $785 million in the net fair value of the identifiable assets and liabilities acquired,
an increase of $854 million in the goodwill arising on acquisition and the recognition of $69 million of contingent consideration.
Goodwill of $2,523 million arose on acquisition, attributed to market access and other benefits arising from the business combination. It is
currently uncertain as to whether goodwill recognized for accounting purposes will be deductible for income tax purposes in India, as jurisprudence in
this area is currently evolving.
The provisional fair values of the identifiable assets and liabilities acquired, as at the date of acquisition, are as shown in the table below.
$ million
Assets
Property, plant and equipment 1,860
Intangible assets 2,970
Inventories 55
Prepayments 5
Liabilities
Trade and other payables (145)
Provisions (242)
4,503
Goodwill arising on acquisition 2,523
Total consideration 7,026
The consideration for the transaction included $6,957 million in cash. In addition, contingent consideration of up to $1,800 million, dependent upon
exploration success in certain of the interests resulting in the development of commercial discoveries, was agreed. The fair value of contingent
consideration recognized as at the acquisition date amounted to $69 million.
2. Significant event – Gulf of Mexico oil spill continued
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