BP 2013 Annual Report Download - page 180

26. Derivative financial instruments – continued
The fair value gain (loss) on embedded derivatives is shown below.
$ million
2013 2012 2011
Commodity price embedded derivatives 459 347 190
Other embedded derivatives –– (122)
Fair value gain (loss) 459 347 68
Cash flow hedges
At 31 December 2013, the group held currency forwards and futures contracts and cylinders that were being used to hedge the foreign currency risk of
highly probable forecast transactions. Note 19 outlines the management of risk aspects for currency risk. For cash flow hedges the group only claims
hedge accounting for the intrinsic value on the currency with any fair value attributable to time value taken immediately to the income statement. The
pre-tax amount reclassified from equity and recognized in the income statement in production and manufacturing expenses was a loss of $4 million
(2012 $62 million loss and 2011 $195 million gain). The amount reclassified from equity and recognized in the carrying amount of non-financial assets
was a loss of $17 million (2012 $19 million loss and 2011 $13 million gain). The amounts remaining in equity at 31 December 2013 in relation to these
cash flow hedges consist of deferred gains of $85 million maturing in 2014, deferred losses of $23 million maturing in 2015 and deferred gains of $10
million maturing in 2016 and beyond.
At 31 December 2012, BP had entered into three agreements to sell its 50% interest in TNK-BP and acquire 18.5% of Rosneft, as described in Note 6.
During the period from signing until completion on 21 March 2013, these agreements represented derivative financial instruments that were required
to be measured at fair value. BP designated two of the agreements, for the acquisition of a 5.66% shareholding in Rosneft from Rosneftegaz, and for
the acquisition of a 9.80% shareholding from Rosneft, as hedging instruments in a cash flow hedge, and so changes in the fair values of these
agreements were recognized in other comprehensive income. The third agreement, under which BP sold its 50% interest in TNK-BP in exchange for
cash and a 3.04% shareholding in Rosneft, was also a derivative financial instrument, but its fair value could not be reliably measured. An asset of
$1,410 million related to these agreements was recognized on the balance sheet at 31 December 2012, of which $1,339 million related to the fair
value of the cash flow hedge derivatives. The derivatives measured at fair value at 31 December 2012 were categorized in level 3 of the fair value
hierarchy using inputs that included the quoted Rosneft share price. During 2013, a charge of $2,061 million was recognized in other comprehensive
income in relation to these agreements and $4 million was recognized in the income statement. The resulting cumulative charge of $651 million
recognized in other comprehensive income would only be recognized in the income statement if the investment in Rosneft were either sold or
impaired. The cash flow hedge derivatives were valued using the quoted Rosneft share price at the time the deal completed, of $7.60 per share.
Fair value hedges
At 31 December 2013, the group held interest rate and cross-currency interest rate swap contracts as fair value hedges of the interest rate risk on fixed
rate debt issued by the group. The effectiveness of each hedge relationship is quantitatively assessed and demonstrated to continue to be highly
effective. The loss on the hedging derivative instruments recognized in the income statement in 2013 was $1,240 million (2012 $536 million gain and
2011 $328 million gain) offset by a gain on the fair value of the finance debt of $1,228 million (2012 $537 million loss and 2011 $327 million loss).
The interest rate and cross-currency interest rate swaps mature within one to 10 years, with an average maturity of four to five years (2012 four to five
years) and are used to convert sterling, euro, Swiss franc, Australian dollar, Canadian dollar and Hong Kong dollar denominated borrowings primarily
into US dollar floating rate debt. Note 19 outlines the group’s approach to interest rate and currency risk management.
27. Finance debt
$ million
2013 2012
Current Non-current Total Current Non-current Total
Borrowings 7,340 40,317 47,657 9,372 38,412 47,784
Net obligations under finance leases 41 494 535 29 355 384
7,381 40,811 48,192 9,401 38,767 48,168
Disposal deposits –––632 – 632
7,381 40,811 48,192 10,033 38,767 48,800
The main elements of current borrowings are the current portion of long-term borrowings that are due to be repaid in the next 12 months of
$6,230 million (2012 $6,240 million) and issued commercial paper of $1,050 million (2012 $3,028 million). Finance debt does not include accrued
interest, which is reported within other payables.
Deposits for disposal transactions of $632 million were included in current finance debt at 31 December 2012. This unsecured debt was extinguished
on completion of the transactions in 2013. There were no deposits for disposal transactions included within finance debt at 31 December 2013.
At 31 December 2013, $141 million (2012 $142 million) of finance debt was secured by the pledging of assets. The remainder of finance debt was
unsecured.
176 BP Annual Report and Form 20-F 2013