BP 2012 Annual Report Download - page 64

Business review: BP in more depth
BP Annual Report and Form 20-F 2012
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number of key areas as part of the ongoing effort to assess and address
injury to natural resources in the Gulf of Mexico.
Natural resource damages assessment
Since May 2010, more than 200 initial and amended work plans have
been developed to study resources and habitat by state and federal
trustees and BP, and by the end of 2012 BP had paid $973 million to
support the assessment process, including co-operative and independent
studies. The study data will inform an assessment of injury to the Gulf
Coast natural resources and the development of a restoration plan to
mitigate the identified injuries. Detailed analysis and interpretation
continue on the data that have been collected.
Scientists are studying a range of species, including marine mammals,
birds, fish and plants to understand how wildlife populations may have
been affected by the accident. Teams of experts are also studying habitats
such as wetlands and beaches, with the goal of returning these resources
to their baseline condition – the condition they would be in if the
Deepwater Horizon accident had not occurred. In addition, experts are
looking at how recreational uses of natural resources may have been
affected so that lost opportunities to enjoy those activities can be
addressed through restoration.
Early restoration projects
In 2012, work began on the initial set of early restoration projects identified
through an agreement BP signed with state and federal trustees in April
2011. The trustees also approved two new early restoration projects in
December 2012, which are designed to improve nesting habitat for birds
and loggerhead sea turtles on a number of Gulf Coast beaches.
Under the early restoration framework agreement, BP agreed to fund up
to $1 billion in early restoration projects to accelerate efforts to restore
natural resources injured as a result of the Deepwater Horizon accident.
The framework requires BP and the trustees to agree on the potential
projects, funding and the natural resources benefits the projects are
expected to provide. The trustees will then implement the projects.
The agreement between BP and the trustees makes it possible for
restoration to begin at an earlier stage of the NRDA process than usual.
Natural Resource Damages (NRD) restoration projects are typically funded
only after the NRD assessment is complete and a final settlement has
been reached or a final court judgment has been entered. This process
often takes many years, and restoration is often delayed during that time.
The early restoration framework agreement allows the parties to expedite
projects to restore, replace or acquire the equivalent of injured natural
resources in the Gulf soon after an injury is identified, reducing the time
needed to achieve restoration of those resources.
BP committed to fund the estimated $60 million cost of the eight initial
early restoration projects that were approved by the trustees in April 2012
following public review and comment. The eight projects will collectively
restore and enhance wildlife, habitats, the ecosystem services provided
by those habitats, and provide additional access for fishing, boating and
related recreational uses. Funding will come from the $20-billion Trust.
Following a 30-day public comment period, the trustees approved on
21 December 2012 the two new projects to improve habitat for nesting
birds and sea turtles that will cost an additional estimated $9 million. The
trustees and BP are working to identify additional projects for public
review and comment. More information about the status of early
restoration can be found on the NOAA website.
Sharing the information
In 2012 BP produced a second progress report on the NRDA effort and
made presentations at scientific conferences to describe studies that are
under way. The trustees have already made some of the data sets from
these studies available online while others are still being finalized. BP
seeks to share data and information collected from the co-operative
NRDA studies with stakeholders and members of the public once these
have been approved for release by the trustees.
Supporting the Gulf of Mexico Research Initiative
BP has committed $500 million over 10 years to fund independent
scientific research through the Gulf of Mexico Research Initiative. The
goal of the research initiative is to improve society’s ability to understand,
respond to and mitigate the potential impacts of oil spills to marine and
coastal ecosystems.
Through a competitive review process, the initiative approved funding in
August 2012 for 19 grants that will provide approximately $20 million to
researchers over the next three years. Including funding awarded in 2010
and 2011, the total funding awarded by the end of 2012 was $184 million.
Grant recipients are investigating the fate of oil releases; the ecological
and human health aspects of spills; and the development of new tools and
technology for future spill response, mitigation and restoration.
Financial update
The group income statement for 2012 includes a pre-tax charge of
$5.0 billion in relation to the Gulf of Mexico oil spill. The charge for the
year reflects the agreement with the US government, adjustments to
provisions and the ongoing costs of the Gulf Coast Restoration
Organization. As at 31 December 2012, the total cumulative charge
recognized to date for the accident amounts to $42.2 billion.
The cumulative income statement charge does not include amounts for
obligations that BP considers are not possible, at this time, to measure
reliably. The total amounts that will ultimately be paid by BP in relation to
all the obligations relating to the accident are subject to significant
uncertainty and the ultimate exposure and cost to BP will be dependent
on many factors, as discussed under Contingent liabilities in Note 43 on
page 253, including in relation to any new information or future
developments. These could have a material impact on our consolidated
financial position, results of operations and cash flows. The risks
associated with the accident could also heighten the impact of the other
risks to which the group is exposed, as further described under Risk
factors on pages 38-44.
For details regarding the impacts and uncertainties relating to the Gulf of
Mexico oil spill refer to Financial statements – Note 2 on page 194, Note
36 on page 235 and Note 43 on page 253. See also Proceedings and
investigations relating to the Gulf of Mexico oil spill on pages 59-62.
Trust update
BP, in agreement with the US government, set up the $20-billion
Deepwater Horizon Oil Spill Trust (the Trust) to provide confidence that
funds would be available to satisfy individual and business claims, final
judgments in litigation and litigation settlements, state and local response
costs and claims, and natural resource damages and related costs.
BP contributed a total of $4.9 billion to the Trust in 2012. The Trust has
now been fully funded. Payments made during 2012 were $2.8 billion for
individual and business claims, medical settlement programme payments,
NRD assessment and early restoration, state and local government
claims, DHCSSP expenses and other resolved items. These payments
were made from the Trust and qualified settlement funds (QSFs)
established for paying the costs of the settlement agreements with the
PSC and funded by the Trust. An additional $1.8 billion was paid from the
Trust into the $2.3-billion seafood compensation fund, extinguishing BP’s
liability, which had not yet been paid to claimants. As at 31 December
2012, the cumulative amount paid from the Trust and QSFs since
inception was $9.5 billion, and the remaining cash balance was $10.5 billion,
including $1.8 billion remaining in the seafood compensation fund.
As at 31 December 2012, the cumulative charges for provisions to be
paid from the Trust and the associated reimbursement asset recognized
amounted to $17.8 billion. The increased charges in 2012 reflect higher
provision estimates for claims paid prior to establishing the DHCSSP,
claims and administration costs of the DHCSSP and NRD assessment
costs. A further $2.2 billion could be provided in subsequent periods for
items covered by the Trust, with no net impact on the income statement.
The amount of cumulative charges for provisions described above will
increase as more information becomes available, the interpretation of the
protocols established in the economic and property damages settlement
agreement is clarified and the claims process matures, enabling BP to
estimate reliably the cost of claims which currently cannot be estimated
reliably and are therefore not provided for. See Plaintiffs’ Steering
Committee settlements on page 60 and Financial statements – Note 36
on page 235 for further information.
Legal proceedings and investigations
On 25 February 2013, the first phase of a Trial of Liability, Limitation,
Exoneration and Fault Allocation commenced in the federal multi-district
litigation proceeding in New Orleans. For further information on this and
other legal proceedings, see pages 162-169.