BP 2012 Annual Report Download - page 237

36. Provisions
$ million
Decommissioning Environmental Spill response
Litigation and
claims
Clean Water Act
penalties Other Total
At 1 January 2012 17,240 3,264 336 10,976 3,510 2,316 37,642
Exchange adjustments 261 3 – – – 19 283
Acquisitions –––– –2424
New or increased provisions 3,756 1,350 109 6,080 – 1,260 12,555
Derecognition of provision for items that
cannot be reliably estimated – – – (794) – – (794)
Write-back of unused provisions – (65) – (50) – (271) (386)
Unwinding of discount 107 9 – 18 – 6 140
Utilization (651) (841) (100) (5,979) – (411) (7,982)
Reclassified as liabilities directly associated
with assets held for sale (3,048) (91) – – – (11) (3,150)
Deletions (350) (1) – – – (60) (411)
At 31 December 2012 17,315 3,628 345 10,251 3,510 2,872 37,921
Of which – current 721 1,235 277 4,506 – 848 7,587
– non-current 16,594 2,393 68 5,745 3,510 2,024 30,334
$ million
Decommissioning Environmental Spill response
Litigation and
claims
Clean Water Act
penalties Other Total
At 1 January 2011 10,544 2,465 1,043 11,967 3,510 2,378 31,907
Exchange adjustments (27) (4) – (13) – (12) (56)
Acquisitions 163 – – 9 – 118 290
New or increased provisions 4,596 1,677 586 3,821 – 1,145 11,825
Write-back of unused provisions (1) (140) – (92) – (416) (649)
Unwinding of discount 195 27 – 15 – 6 243
Change in discount rate 3,211 90 – 45 – 10 3,356
Utilization (342) (840) (1,293) (4,715) – (876) (8,066)
Reclassified as liabilities directly associated
with assets held for sale (51) – – – – – (51)
Deletions (1,048) (11) – (61) – (37) (1,157)
At 31 December 2011 17,240 3,264 336 10,976 3,510 2,316 37,642
Of which – current 596 1,375 282 8,518 – 467 11,238
– non-current 16,644 1,889 54 2,458 3,510 1,849 26,404
Provisions not related to the Gulf of Mexico oil spill
The group makes full provision for the future cost of decommissioning oil and natural gas wells, facilities and related pipelines on a discounted basis
upon installation. The provision for the costs of decommissioning these wells, production facilities and pipelines at the end of their economic liveshas
been estimated using existing technology, at current prices or future assumptions, depending on the expected timing of the activity, and discounted
using a real discount rate of 0.5% (2011 0.5%). The weighted average period over which these costs are generally expected to be incurred is estimated
to be approximately 20 years. While the provision is based on the best estimate of future costs and the economic lives of the facilities and pipelines,
there is uncertainty regarding both the amount and timing of these costs.
Provisions for environmental remediation are made when a clean-up is probable and the amount of the obligation can be estimated reliably. Generally,
this coincides with commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites. The provision for environmental
liabilities has been estimated using existing technology, at current prices and discounted using a real discount rate of 0.5% (2011 0.5%). The weighted
average period over which these costs are generally expected to be incurred is estimated to be approximately five years. The extent and cost of future
remediation programmes are inherently difficult to estimate. They depend on the scale of any possible contamination, the timing and extent of
corrective actions, and also the group’s share of the liability.
The litigation category includes provisions for matters related to, for example, commercial disputes, product liability, and allegations of exposures of third
parties to toxic substances. Included within the other category at 31 December 2012 are provisions for deferred employee compensation of $618 million
(2011 $666 million). These provisions are discounted using either a nominal discount rate of 2.5% (2011 2.5%) or a real discount rate of 0.5% (2011
0.5%), as appropriate.
Financial statements 235
BP Annual Report and Form 20-F 2012
Financial statements