BP 2011 Annual Report Download - page 74

72 BP Annual Report and Form 20-F 2011
Business review
Operating and capital expenditure on the prevention, control, abatement
or elimination of air, water and solid waste pollution is often not incurred
as a separately identifiable transaction. Instead, it forms part of a larger
transaction that includes, for example, normal maintenance expenditure.
The figures for environmental operating and capital expenditure in the table
are therefore estimates, based on the definitions and guidelines of the
American Petroleum Institute.
Environmental operating expenditure of $704 million in 2011 was at
a similar level to 2009 and 2010.
Similar levels of operating and capital expenditures are expected in
the foreseeable future. 2011 capital expenditure was lower than in 2010
due to the completion of various capital projects in our US refineries.
In addition to operating and capital expenditures, we also create
provisions for future environmental remediation. Expenditure against such
provisions normally occurs in subsequent periods and is not included in
environmental operating expenditure reported for such periods.
Provisions for environmental remediation are made when a clean-
up is probable and the amount of the obligation can be reliably estimated.
Generally, this coincides with the commitment to a formal plan of action or,
if earlier, on divestment or on closure of inactive sites.
The extent and cost of future environmental restoration,
remediation and abatement programmes are inherently difficult to
estimate. They often depend on the extent of contamination, and
the associated impact and timing of the corrective actions required,
technological feasibility and BP’s share of liability. Though the costs of
future programmes could be significant and may be material to the results
of operations in the period in which they are recognized, it is not expected
that such costs will be material to the group’s overall results of operations
or financial position.
Additions to our environmental remediation provision increased in
2011 largely due to changes in scope reassessments of the remediation
plans of a number of our US retail sites. The charge for environmental
remediation provisions in 2011 included $12 million in respect of provisions
for new sites (2010 $54 million and 2009 $6 million).
In addition, we make provisions on installation of our oil- and
gas-producing assets and related pipelines to meet the cost of eventual
decommissioning. On installation of an oil or natural gas production facility
a provision is established that represents the discounted value of the
expected future cost of decommissioning the asset.
The level of increase in the decommissioning provision varies with
the number of new fields coming onstream in a particular year and the
outcome of the periodic reviews. There was a significant increase in 2010,
driven by activity in the Gulf of Mexico and this trend has continued in
2011 as a result of changes in estimation and detailed reviews of expected
future costs; the majority of the increase related to our sites in Trinidad, the
Gulf of Mexico and the North Sea.
On 15 October 2010, the Bureau of Ocean Energy Management,
Regulation and Enforcement (BOEMRE) issued Notice to Lessees
(NTL) 2010-G05, which requires that idle infrastructure on active
leases is decommissioned earlier than previously was required and
establishes guidelines to determine the future utility of idle infrastructure
on active leases. As a consequence, the timing and methodology
of well abandonment have changed, reflected in an increase to the
decommissioning provision.
Additionally, we undertake periodic reviews of existing provisions.
These reviews take account of revised cost assumptions, changes in
decommissioning requirements and any technological developments.
Provisions for environmental remediation and decommissioning
are usually set up on a discounted basis, as required by IAS 37 ‘Provisions,
Contingent Liabilities and Contingent Assets’.
Further details of decommissioning and environmental provisions
appear in Financial statements – Note 36 on page 231.
Respecting human rights
BP supports the Universal Declaration of Human Rights, which lays out the
rights to which all human beings are entitled. We have also supported recent
multi-stakeholder efforts to establish clear, universally-applicable guidelines
on the responsibilities of businesses in relation to human rights issues.
We are a signatory to two voluntary agreements with implications for
specific aspects of human rights: the UN Global Compact, which helps
businesses align their operations and strategies with 10 principles,
including some that are related to human rights, and the Voluntary
Principles on Security and Human Rights, which define good practice for
security operations in extractive industry companies. We have contributed
to the work of oil and gas industry organization IPIECA’s human rights task
force, which works on human rights issues and develops good practice
guidance for companies in our industry.
In 2011 the UN Human Rights Council unanimously endorsed the
Guiding Principles on Business and Human Rights. These outline specific
responsibilities for businesses in relation to human rights. We participated
in discussions on the development of the Guiding Principles, and in 2011
we completed a comparison between our current policies and practices
and the expectations in the Guiding Principles, to help us identify what
work will be needed to achieve alignment with the principles.
BP’s code of conduct makes it clear that certain provisions, such
as BP’s stance on the rights and dignity of communities, relate directly
to human rights. See page 31 for further information about our code of
conduct.
Revenue transparency and business ethics
As a member of the Extractive Industries Transparency Initiative (EITI), we
work with governments, non-governmental organizations and international
agencies to improve transparency in this area. In several countries that are
in the process of becoming EITI compliant, BP is supporting the process;
for example, BP is an active member of the Trinidad & Tobago EITI steering
committee. In countries that have achieved EITI compliance, including
Azerbaijan and Norway, BP submits an annual report on payments to their
governments.
We have taken part in consultations in relation to new or proposed
revenue transparency reporting requirements in the US and Europe for
companies in the extractive industries. BP will fully comply with the
appropriate mandatory regulations when they come into effect.
We are working to respond effectively to the standards flowing
from the UK Bribery Act as well as other anti-corruption legislation such
as the Foreign Corrupt Practices Act in the US. Bribery and corruption are
serious risks in the oil and gas industry. Our code of conduct requires that
our employees or others working on behalf of BP do not engage in bribery
or corruption in any form in both the public and private sectors.
In 2011, we issued a group-wide anti-bribery and corruption
standard, which applies to all BP employees and contractors. The standard
requires annual bribery and corruption risk assessments; due diligence
on all parties with whom BP does business; appropriate anti-bribery and
corruption clauses in contracts and the training of personnel in anti-bribery
and corruption measures.
Socio-economic development
We believe each BP project has the potential to benefit local communities
by creating jobs, generating tax revenues and providing opportunities for
local suppliers. Our presence in a location also has the potential to bring
indirect economic benefits.
We run a range of programmes to build the skills of businesses
in places where we work and to develop the local supply chain. These
range from financing to sharing global standards and practice in areas such
as health and safety. The programmes can benefit local companies by
empowering them to reach the standards needed to supply BP and other
clients. At the same time BP benefits from the local sourcing of goods and
services.
BP’s social investments – the contributions we make to social and
community programmes in locations where we operate – aim to support
development programmes that we believe will seek to create a meaningful
and sustainable impact – one that is relevant to local needs, aligned with
BP’s business and undertaken in partnership with local organizations.
The programmes we support fall into three broad categories:
building business skills and developing enterprise, supporting education
and other community needs and sharing technical expertise with local
governments. In some developing economies we also support community
infrastructure programmes that help people improve their access to basic