BP 2012 Annual Report Download - page 230

33. Derivative financial instruments
An outline of the group’s financial risks and the objectives and policies pursued in relation to those risks is set out in Note 26.
In the normal course of business the group enters into derivative financial instruments (derivatives) to manage its normal business exposures in relation
to commodity prices, foreign currency exchange rates and interest rates, including management of the balance between floating rate and fixed rate
debt, consistent with risk management policies and objectives. Additionally, the group has a well-established entrepreneurial trading operation that is
undertaken in conjunction with these activities using a similar range of contracts. At 31 December 2012, the group was also party to certain equity price
derivatives arising in connection with the anticipated completion of the transaction with Rosneft – see below for further information.
IAS 39 prescribes strict criteria for hedge accounting, and requires that any derivative that does not meet these criteria should be classified as heldfor
trading and fair valued, with gains and losses recognized in the income statement.
The carrying amounts of derivative financial instruments at 31 December are set out below.
$ million
2012 2011
Asset Liability Asset Liability
Derivatives held for trading
Currency derivatives 175 (189) 217 (217)
Oil price derivatives 841 (707) 823 (536)
Natural gas price derivatives 3,536 (2,496) 5,305 (3,603)
Power price derivatives 719 (589) 843 (663)
Equity price derivatives 71 – ––
5,342 (3,981) 7,188 (5,019)
Embedded derivatives
Commodity price contracts – (1,112) – (1,417)
– (1,112) – (1,417)
Cash flow hedges
Equity price derivatives 1,339 – ––
Currency forwards, futures and cylinders 51 (41) 25 (159)
Cross-currency interest rate swaps 1–––
1,391 (41) 25 (159)
Fair value hedges
Currency forwards, futures and swaps 875 (247) 842 (398)
Interest rate swaps 1,193 – 840 –
2,068 (247) 1,682 (398)
8,801 (5,381) 8,895 (6,993)
Of which – current 4,507 (2,658) 3,857 (3,220)
– non-current 4,294 (2,723) 5,038 (3,773)
Derivatives held for trading
The group maintains active trading positions in a variety of derivatives. The contracts may be entered into for risk management purposes, to satisfy
supply requirements or for entrepreneurial trading. Certain contracts are classified as held for trading, regardless of their original business objective, and
are recognized at fair value with changes in fair value recognized in the income statement. Trading activities are undertaken by using a range of contract
types in combination to create incremental gains by arbitraging prices between markets, locations and time periods. The net of these exposures is
monitored using market value-at-risk techniques as described in Note 26.
228 Financial statements
BP Annual Report and Form 20-F 2012