BP 2012 Annual Report Download - page 171

Additional disclosures 169
BP Annual Report and Form 20-F 2012
On 21 April 2011, BP announced an agreement with natural resource
trustees for the US 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 Incident. Funding for these projects will come
from the $20-billion Trust fund.
A claim was commenced against BP by a group of claimants on 26 July
2012 in Ecuador. The majority of the claimants represent local NGOs. The
claim alleges that through the Incident and BP’s response to it, BP
violated the “rights of nature”. The claim is not monetary but rather seeks
injunctive relief. Two previous claims on identical grounds were previously
dismissed at an early stage by the Ecuadorian courts. On 3 December
2012, the Ecuadorian court of first instance dismissed the claim. On
7 December 2012, the claimants filed a timely notice of appeal to the
Ecuadorian court of second instance. On 28 February 2013, the court
affirmed the dismissal by the lower court.
BP’s potential liabilities resulting from threatened, pending and potential
future claims, lawsuits and enforcement actions relating to the Incident,
together with the potential cost of implementing remedies sought in the
various proceedings, cannot be fully estimated at this time but they have
had and are expected to have a material adverse impact on the group’s
business, competitive position, cash flows, prospects, liquidity,
shareholder returns and/or implementation of its strategic agenda,
particularly in the US. These potential liabilities may continue to have a
material adverse effect on the group’s results and financial condition. See
Financial statements – Note 2 on page 194 for information regarding the
financial impact of the Incident.
Pending investigations and reports relating to
the Deepwater Horizon oil spill
The US Chemical Safety and Hazard Investigation Board (CSB) is
conducting an investigation of the Incident that is focused on the
explosions and fire, and not the resulting oil spill or response efforts. As
part of this effort, on 24 July 2012, the CSB conducted a hearing at which
it released its preliminary findings on, among other things, the use of
safety indicators by industry (including BP and Transocean) and
government regulators in offshore operations prior to the accident. The
CSB found that BP and other offshore industry members have placed too
great an emphasis on personal safety rather than process safety overall.
The CSB has indicated that it plans to issue its final report in April 2013.
The CSB will seek to recommend improvements to BP and industry
practices and to regulatory programmes to prevent recurrence and
mitigate potential consequences.
A Committee of the National Academy of Engineering/National Research
Council is looking at the methodologies available for assessing spill
impacts on ecosystem services in the Gulf of Mexico, with a final report
expected in the first or second quarter of 2013.
Other legal proceedings
The US Federal Energy Regulatory Commission (FERC) and the US
Commodity Futures Trading Commission (CFTC) are currently
investigating several BP entities regarding trading in the next-day natural
gas market at Houston Ship Channel during September, October and
November 2008. The FERC Office of Enforcement staff notified BP on
12 November 2010 of their preliminary conclusions relating to alleged
market manipulation in violation of 18 C.F.R. Sec. 1c.1. On 30 November
2010, CFTC Enforcement staff also provided BP with a notice of intent to
recommend charges based on the same conduct alleging that BP
engaged in attempted market manipulation in violation of Section 6(c),
6(d), and 9(a)(2) of the Commodity Exchange Act. On 23 December 2010,
BP submitted responses to the FERC and CFTC November 2010 notices
providing a detailed response that it did not engage in any inappropriate or
unlawful activity. On 28 July 2011, the FERC staff issued a Notice of
Alleged Violations stating that it had preliminarily determined that several
BP entities fraudulently traded physical natural gas in the Houston Ship
Channel and Katy markets and trading points to increase the value of their
financial swing spread positions. Other investigations into BP’s trading
activities continue to be conducted from time to time.
On 23 March 2005, an explosion and fire occurred at the Texas City
refinery. Fifteen workers died in the incident and many others were
injured. BP Products has resolved all civil injury claims and all civil and
criminal governmental claims arising from the March 2005 incident.
In March 2007, the US Chemical Safety and Hazard Investigation Board
(CSB) issued a report on the incident. The report contained
recommendations to the Texas City refinery and to the board of directors
of BP. To date, CSB has accepted as satisfactorily addressed the majority
of BP’s responses to its recommendations. BP and the CSB are
continuing to discuss the remaining open recommendations with the
objective of the CSB agreeing to accept these as satisfactorily addressed
as well.
On 29 October 2009, the US Occupational Safety and Health
Administration (OSHA) issued citations to the Texas City refinery related
to the Process Safety Management (PSM) Standard. On 12 July 2012,
OSHA and BP resolved 409 of the 439 citations. The agreement required
that BP pay a civil penalty of $13,027,000 and that BP abate the alleged
violations by 31 December 2012. BP completed these requirements and
the agreement has terminated. The settlement excluded 30 citations for
which BP and OSHA could not reach agreement. However, the parties
agreed that BP’s penalty liability will not exceed $1 million if those
citations are resolved through litigation. Additional efforts will be made in
the future to resolve these citations.
On 8 March 2010, OSHA issued 65 citations to BP Products and BP-
Husky for alleged violations of the PSM Standard at the Toledo refinery,
with penalties of approximately $3 million. These citations resulted from
an inspection conducted pursuant to OSHA’s Petroleum Refinery Process
Safety Management National Emphasis Program. Both BP Products and
BP-Husky contested the citations, and a trial of 42 citations was
completed in June 2012 before an Administrative Law Judge from the
OSH Review Commission. A decision is expected in mid-2013.
A flaring event occurred at the Texas City refinery in April and May 2010.
This flaring event is the subject of civil lawsuit claims for personal injury
and, in some cases, property damage by roughly 50,000 individuals. These
lawsuit claims have been consolidated in a Texas multi-district litigation
proceeding in Galveston, Texas. A trial of six selected plaintiffs is
scheduled for trial in September 2013. Also, this flaring event, and other
refinery emissions from December 2008 through 2010, is the subject of a
purported class action, on behalf of some local residential property
owners, filed in US federal district court in Galveston. The purported class
plaintiffs claim that refinery emissions caused their residential properties
to lose value. No class has been certified, and no trial date has been set.
In addition, the flares involved in this event are the subject of a federal
government enforcement action.
In March and August 2006, oil leaked from oil transit pipelines operated by
BP Exploration (Alaska) Inc. (BPXA) at the Prudhoe Bay unit on the North
Slope of Alaska. On 12 May 2008, a BP p.l.c. shareholder filed a
consolidated complaint alleging violations of federal securities law on
behalf of a putative class of BP p.l.c. shareholders against BP p.l.c., BPXA,
BP America, and four officers of the companies, based on alleged
misrepresentations concerning the integrity of the Prudhoe Bay pipeline
before its shutdown on 6 August 2006. On 8 February 2010, the Ninth
Circuit Court of Appeals accepted BP’s appeal from a decision of the
lower court granting in part and denying in part BP’s motion to dismiss the
lawsuit. On 29 June 2011, the Ninth Circuit ruled in BP’s favour that the
filing of a trust related agreement with the SEC containing contractual
obligations on the part of BP was not a misrepresentation which violated
federal securities laws. The BP p.l.c. shareholder filed an amended
complaint, in response to which BP filed a new motion to dismiss, which
was granted on 14 March 2012. The plaintiff has appealed the court’s
dismissal of the case, and the appeal is pending. On 31 March 2009, the
State of Alaska filed a complaint seeking civil penalties and damages
relating to these events. The complaint alleges that the two releases and
BPXA’s corrosion management practices violated various statutory,
contractual and common law duties to the State, resulting in penalty
liability, damages for lost royalties and taxes, and liability for punitive
damages. In December 2011, the State of Alaska and BPXA entered into a
Dispute Resolution Agreement concerning this matter that resulted in
arbitration of the amount of the State’s lost royalty income and payment
by BPXA of the additional amount of $10 million on account of other
Additional disclosures