BP 2012 Annual Report Download - page 256

43. Contingent liabilities continued
Other contingent liabilities
There were contingent liabilities at 31 December 2012 in respect of guarantees and indemnities entered into as part of the ordinary course of the
group‘s business. No material losses are likely to arise from such contingent liabilities. Further information is included in Note 26.
Lawsuits arising out of the Exxon Valdez oil spill in Prince William Sound, Alaska, in March 1989 were filed against Exxon (now ExxonMobil), Alyeska
Pipeline Service Company (Alyeska), which operates the oil terminal at Valdez, and the other oil companies that own Alyeska. Alyeska initially responded
to the spill until the response was taken over by Exxon. BP owns a 46.9% interest (reduced during 2001 from 50% by a sale of 3.1% to Phillips) in
Alyeska through a subsidiary of BP America Inc. and briefly indirectly owned a further 20% interest in Alyeska following BP‘s combination with Atlantic
Richfield Company (Atlantic Richfield). Alyeska and its owners have settled all the claims against them under these lawsuits. Exxon has indicated that it
may file a claim for contribution against Alyeska for a portion of the costs and damages that Exxon has incurred. BP will defend any such claims
vigorously. It is not possible to estimate any financial effect.
In the normal course of the group‘s business, legal proceedings are pending or may be brought against BP group entities arising out of current and past
operations, including matters related to commercial disputes, product liability, antitrust, premises-liability claims, general environmental claims and
allegations of exposures of third parties to toxic substances, such as lead pigment in paint, asbestos and other chemicals. BP believes that the impactof
these legal proceedings on the group‘s results of operations, liquidity or financial position will not be material.
With respect to lead pigment in paint in particular, Atlantic Richfield, a subsidiary of BP, has been named as a co-defendant in numerous lawsuits
brought in the US alleging injury to persons and property. Although it is not possible to predict the outcome of the legal proceedings, Atlantic Richfield
believes it has valid defences that render the incurrence of a liability remote; however, the amounts claimed and the costs of implementing the
remedies sought in the various cases could be substantial. The majority of the lawsuits have been abandoned or dismissed against Atlantic Richfield. No
lawsuit against Atlantic Richfield has been settled nor has Atlantic Richfield been subject to a final adverse judgment in any proceeding. Atlantic
Richfield intends to defend such actions vigorously.
The group files income tax returns in many jurisdictions throughout the world. Various tax authorities are currently examining the group‘s income tax
returns. Tax returns contain matters that could be subject to differing interpretations of applicable tax laws and regulations and the resolution of tax
positions through negotiations with relevant tax authorities, or through litigation, can take several years to complete. While it is difficult to predict the
ultimate outcome in some cases, the group does not anticipate that there will be any material impact upon the group‘s results of operations, financial
position or liquidity.
The group is subject to numerous national and local environmental laws and regulations concerning its products, operations and other activities. These
laws and regulations may require the group to take future action to remediate the effects on the environment of prior disposal or release of chemicals or
petroleum substances by the group or other parties. Such contingencies may exist for various sites including refineries, chemical plants, oil fields,
service stations, terminals and waste disposal sites. In addition, the group may have obligations relating to prior asset sales or closed facilities. The
ultimate requirement for remediation and its cost are inherently difficult to estimate. However, the estimated cost of known environmental obligations
has been provided in these accounts in accordance with the group‘s accounting policies. While the amounts of future costs could be significant and
could be material to the group‘s results of operations in the period in which they are recognized, it is not practical to estimate the amounts involved. BP
does not expect these costs to have a material effect on the group‘s financial position or liquidity.
The group also has obligations to decommission oil and natural gas production facilities and related pipelines. Provision is made for the estimated costs
of these activities, however there is uncertainty regarding both the amount and timing of these costs, given the long-term nature of these obligations.
BP believes that the impact of any reasonably foreseeable changes to these provisions on the group‘s results of operations, financial position or liquidity
will not be material.
The group generally restricts its purchase of insurance to situations where this is required for legal or contractual reasons. This is because external
insurance is not considered an economic means of financing losses for the group. Losses will therefore be borne as they arise rather than being spread
over time through insurance premiums with attendant transaction costs. The position is reviewed periodically.
44. Capital commitments
Authorized future capital expenditure for property, plant and equipment by group companies for which contracts had been signed at 31 December 2012
amounted to $14,068 million (2011 $12,517 million). In addition, at 31 December 2012, the group had contracts in place for future capital expenditure
relating to investments in jointly controlled entities of $275 million (2011 $296 million) and investments in associates of nil (2011 $36 million). BP’s share
of capital commitments of jointly controlled entities amounted to $825 million (2011 $1,244 million). The group has also signed definitive and binding
sale and purchase agreements for the sale of BP’s 50% interest in TNK-BP to Rosneft and for BP’s further investment in Rosneft, as described in
Note 4.
254 Financial statements
BP Annual Report and Form 20-F 2012