BP 2013 Annual Report Download - page 56

BP Annual Report and Form 20-F 201352
in respect of our operations, our reputation and shareholder value could be
damaged and development opportunities may be precluded.
Competition – BP’s group strategy depends upon continuous innovation
and efficiency in a highly competitive market.
The oil, gas and petrochemicals industries are highly competitive. There is
strong competition, both within the oil and gas industry and with other
industries, in supplying the fuel needs of commerce, industry and the
home. Competition puts pressure on the terms of access to new
opportunities, licence costs and product prices, affects oil products
marketing and requires continuous management focus on improving
efficiency, while ensuring safety and operational risk is not compromised.
The implementation of group strategy requires continued technological
advances and innovation including advances in exploration, production,
refining, petrochemicals manufacturing technology and advances in
technology related to energy usage. Our performance could be impeded
if competitors developed or acquired intellectual property rights to
technology that we require, if our innovation lagged the industry, or if
we fail to adequately protect our company brands and trade marks.
Our competitive position in comparison to our peers could be adversely
affected if competitors offer superior terms for access rights or licences,
if we fail to control our operating costs or manage our margins, or if we fail
to sustain, develop and operate efficiently a high quality portfolio of assets.
Joint and other contractual arrangements – BP may not have full
operational control and may have exposure to counterparty credit risk and
disruptions to our operations and strategic objectives due to the nature of
some of its business relationships.
Many of our major projects and operations are conducted through joint
arrangements or associates and through contracting and sub-contracting
arrangements. These arrangements often involve complex risk allocation,
decision-making processes and indemnification arrangements, and BP has
less control of such activities than we would have if BP had full ownership
and operational control. Our partners may have economic or business
interests or objectives that are inconsistent with, or opposed to, those of
BP and may exercise veto rights to block certain key decisions or actions
that BP believes are in its or the joint arrangement’s or associate’s best
interests, or approve such matters without our consent. Additionally, our
joint arrangement partners or associates or contractual counterparties are
primarily responsible for the adequacy of the human or technical
competencies and capabilities which they bring to bear on the joint project
and, in the event these are found to be lacking, then safety, the
performance of the project and BP’s costs may be adversely affected. Our
joint arrangement partners or associates may not be able to meet their
financial or other obligations to their counterparties or to the relevant
project, potentially threatening the viability of such projects. Furthermore,
should accidents or incidents occur in operations in which BP participates,
whether as operator or otherwise, and where it is held that our sub-
contractors or joint arrangement partners are legally liable to share any
aspects of the cost of responding to such incidents, the financial capacity
of these third parties may prove inadequate to fully indemnify BP against
the costs we incur on behalf of the joint or contractual arrangement.
Should a key sub-contractor, such as a lessor of drilling rigs, no longer be
able to make these assets available to BP, this could result in serious
disruption to our operations. Where BP does not have operational control
of a venture, BP may nonetheless still be pursued by regulators or
claimants in the event of an incident.
Rosneft investment – any future erosion of our relationship with Rosneft
could adversely impact our business, strategic objectives, the level of our
reserves and our reputation.
On 21 March 2013, we completed the sale of our 50% interest in TNK-BP
to Rosneft and the purchase of additional shares in Rosneft. We now own
a total shareholding in Rosneft of 19.75%. To the extent we fail to maintain
a good commercial relationship with Rosneft in the future, or to the extent
that as a non-controlling shareholder in Rosneft we are unable in the future
to exercise significant influence over our investment in Rosneft or other
growth opportunities in Russia, our business and strategic objectives in
Russia and our ability to recognize our share of Rosneft’s reserves may be
adversely impacted.
Investment efficiency – poor investment decisions could negatively
impact our business.
Our organic growth is dependent on creating a portfolio of quality options
and investing in the best options. Ineffective group strategy, investment
selection and/or subsequent execution could lead to loss of opportunity,
loss of value and higher capital expenditure.
Reserves progression – inability to progress upstream resources in a
timely manner could adversely affect our long-term replacement of
reserves and negatively impact our business.
Successful execution of our group strategy depends critically on sustaining
long-term reserves replacement. If upstream resources are not progressed
in a timely and efficient manner due to commercial, technical, regulatory or
other reasons, we will be unable to sustain long-term replacement of
reserves.
Major project delivery – our group plan depends upon successful
delivery of major projects, and failure to deliver major projects successfully
could adversely affect our financial performance.
Successful execution of our group plan depends critically on implementing
the activities to deliver major projects over the plan period. Poor delivery of
or operational challenges at any major project that underpins production or
production growth and/or any other major programme designed to
enhance shareholder value, including maintenance turnaround
programmes, could adversely affect our financial performance and our
operating cash flows.
Digital infrastructure – a breach of our digital security or a failure of our
digital infrastructure could result in serious damage to business operations,
personal injury, damage to assets, harm to the environment, reputational
damage, breaches of regulations, litigation, legal liabilities and reparation
costs.
The reliability and security of our digital infrastructure are critical to
maintaining the availability of our business applications, including the
reliable operation of technology in our various business operations and the
collection and processing of financial and operational data, as well as the
confidentiality of certain third-party information. A breach of our digital
security or failure of our digital infrastructure, due to intentional actions
such as cyber-attacks, negligence or otherwise, could cause serious
damage to business operations and, in some circumstances, could result in
the loss of data or sensitive information, injury to people, loss of control of
or damage to assets, harm to the environment, reputational damage,
breaches of regulations, litigation, legal liabilities and reparation costs.
Crisis management, business continuity and disaster recovery – the
group must be able to respond to and recover quickly and effectively from
any disruption or incident, as failure to do so could adversely affect our
business and operations.
Crisis management and contingency plans are required to respond to, and
to continue or recover operations following, a disruption or an incident.
If we do not respond, or are perceived not to respond, in an appropriate
manner to either an external or internal crisis, our business and operations
could be severely disrupted. Inability to restore or replace critical capacity
to an agreed level within an agreed timeframe would prolong the impact of
any disruption and could severely affect our business and operations.