BP 2011 Annual Report Download - page 234

232 BP Annual Report and Form 20-F 2011
Notes on financial statements
36. Provisions continued
$ million
Environmental Spill response
Litigation and
claims
Clean Water
Act penalties Total
At 1 January 2010 –––––
New or increased provisions 929 10,883 14,939 3,510 30,261
Unwinding of discount 4 – – – 4
Change in discount rate 5 – – – 5
Utilization (129) (9,840) (3,966) –(13,935)
At 31 December 2010 809 1,043 10,973 3,510 16,335
Of which – current 314 982 6,642 –7,938
– non-current 495 61 4,331 3,510 8,397
Of which – payable from the trust fund 382 –9,162 –9,544
As described in Note 2, BP has recorded provisions at 31 December 2011 relating to the Gulf of Mexico oil spill including amounts in relation to
environmental expenditure, spill response costs, litigation and claims, and Clean Water Act penalties, each of which is described below. The total amounts
that will ultimately be paid by BP are subject to significant uncertainty as described in Note 2.
Subsequent to BP releasing its preliminary announcement of the fourth quarter 2011 results on 7 February 2012, BP announced on 3 March 2012
that it had reached a proposed settlement with the Plaintiffs’ Steering Committee (PSC), subject to final written agreement and court approvals, to resolve
the substantial majority of legitimate economic loss and medical claims stemming from the Deepwater Horizon accident and oil spill. The proposed
settlement has been reflected in the financial statements for 2011 included in this report.
Certain items are subject to settlement discussions or may be subject to settlement discussions in the future. Any further settlements which may
be reached relating to the Deepwater Horizon accident and oil spill could impact the amount and timing of any future payments.
Environmental
The amounts committed by BP for a 10-year research programme to study the impact of the incident on the marine and shoreline environment of the
Gulf of Mexico have been provided for. BP’s commitment is to provide $500 million of funding, and the remaining commitment, on a discounted basis, of
$421 million was included in provisions at 31 December 2011. This amount is expected to be spent over the remaining life of the programme.
As a responsible party under the Oil Pollution Act of 1990 (OPA 90), BP faces claims by the United States, as well as by State, tribal, and foreign
trustees, if any, for natural resource damages (“Natural Resource Damages claims”). These damages include, among other things, the reasonable costs
of assessing the injury to natural resources as well as some emergency restoration projects which are expected to occur over the next two years. BP
has been incurring natural resource damage assessment costs and a provision has been made for the estimated costs of the assessment phase. The
assessment covers a large area of potential impact and will take some time to complete in order to determine both the severity and duration of the
impact of the oil spill. The process of interpreting the large volume of data collected is expected to take at least several months and, in order to determine
potential injuries to certain animal populations, data will need to be collected over one or more reproductive cycles. This expected assessment spend is
based upon past experience as well as identified projects. During 2011, BP entered a framework agreement with natural resource trustees for the United
States and five Gulf Coast states, providing for up to $1 billion to be spent on early restoration projects to address natural resource injuries resulting from
the Gulf of Mexico oil spill. Funding for these projects will come from the $20-billion trust fund. The total amount provided for these items was $1,096
million at 31 December 2011. Until the size, location and duration of the impact is assessed, it is not possible to estimate reliably either the amounts
or timing of the remaining Natural Resource Damages claims other than the emergency and early restoration agreements noted above, therefore no
amounts have been provided for these items and they are disclosed as a contingent liability. See Note 43 for further information.
Spill response
Further amounts were provided relating to the spill response during 2011, totalling $0.6 billion. This primarily reflected increased costs of shoreline
clean-up, patrolling and maintenance and vessel decontamination. The majority of the active clean-up of the shorelines had been completed by the end of
the year.
Litigation and claims
Individual and Business Claims, and State and Local Claims under the Oil Pollution Act of 1990 (OPA 90) and claims for personal injury
BP faces claims under OPA 90 by individuals and businesses for removal costs, damage to real or personal property, lost profits or impairment of
earning capacity, loss of subsistence use of natural resources and for personal injury (“Individual and Business Claims”) and by state and local government
entities for removal costs, physical damage to real or personal property, loss of government revenue and increased public services costs
(“State and Local Claims”).
The estimated future cost of settling Individual and Business Claims, State and Local Claims under OPA 90 and claims for personal injuries, both
reported and unreported, has been provided for. Claims administration costs and legal fees have also been provided for.
Subsequent to BP releasing its preliminary announcement of the fourth quarter 2011 results on 7 February 2012, BP announced on 3 March
2012 that it had reached a proposed settlement with the PSC, subject to final written agreement and court approvals, to resolve the substantial majority
of legitimate economic loss and medical claims stemming from the Deepwater Horizon accident and oil spill. The details of the proposed settlement
agreement are explained in Legal proceedings on pages 160 to 164.
In 2010 and for the 2011 preliminary results, BP believed that the history of claims received, and settlements made, provided sufficient data to
enable the company to use an approach based on a combination of actuarial methods and management judgements to estimate IBNR (Incurred But Not
Reported) claims to determine a reliable best estimate of BP’s exposure for claims not yet reported in relation to Individual and Business claims, and State
and Local claims under OPA 90. The amount provided for these claims was determined in accordance with IFRS and represented BP’s best estimate of
the expenditure required to settle its obligations at the balance sheet date.
In estimating the amount of the provision, BP determined a range of possible outcomes for Individual and Business Claims, and State and Local
Claims. As disclosed in the preliminary announcement of the fourth quarter 2011 results, BP had concluded that a reasonable range of possible outcomes
for the amount of the provision as at 31 December 2011 was $4.1 billion to $8.3 billion. This range was for claims payable through the Gulf Coast Claims
Facility and State and Local Claims only.
http://www.bp.com/downloads/provisions