BP 2013 Annual Report Download - page 59

Strategic report
BP Annual Report and Form 20-F 2013 55
Treasury and trading activities – control of these activities depends on
our ability to process, manage and monitor a large number of transactions.
Failure to do this effectively could lead to business disruption, financial
loss, regulatory intervention or damage to our reputation.
In the normal course of business, we are subject to operational risk around
our treasury and trading activities. Control of these activities is highly
dependent on our ability to process, manage and monitor a large number
of complex transactions across many markets and currencies.
Shortcomings or failures in our systems, risk management methodology,
internal control processes or people could lead to disruption of our
business, financial loss, regulatory intervention or damage to our
reputation. See Legal proceedings on page 257.
Safety and operational risks
The risks inherent in our operations include a number of hazards that,
although many may have a low probability of occurrence, can have
extremely serious consequences if they do occur, such as the Gulf of
Mexico oil spill. The occurrence of any such risks could have a consequent
material adverse impact on the group’s business, competitive position,
cash flows, results of operations, financial position, prospects, liquidity,
shareholder returns and/or implementation of the group’s strategic goals.
Process safety, personal safety and environmental risks – the nature
of our operations exposes us to a wide range of significant health, safety,
security and environmental risks, the occurrence of which could result in
regulatory action, legal liability and increased costs and damage to our
reputation.
The nature of the group’s operations exposes us to a wide range of
significant health, safety, security and environmental risks. The scope of
these risks is influenced by the geographic range, operational diversity and
technical complexity of our activities. In addition, in many of our major
projects and operations, risk allocation and management is shared with
third parties such as contractors, sub-contractors, joint arrangement
partners and associates. See Strategic and commercial risks – Joint and
other contractual arrangements above.
There are risks of technical integrity failure as well as risk of natural
disasters and other adverse conditions in many of the areas in which we
operate, which could lead to loss of containment of hydrocarbons and
other hazardous material, as well as the risk of fires, explosions or other
incidents. In addition, inability to provide safe environments for our
workforce and the public while at our facilities or premises could lead to
injuries or loss of life and could result in regulatory action, legal liability and
damage to our reputation.
Our operations are often conducted in hazardous, remote or
environmentally sensitive locations, in which the consequences of a spill,
explosion, fire or other incident could be greater than in other locations.
These operations are subject to various environmental and safety laws,
regulations and permits and the consequences of failure to comply with
these requirements can include remediation obligations, penalties, loss of
operating permits and other sanctions. Accordingly, inherent in our
operations is the risk that if we fail to abide by environmental and safety
and protection standards, such failure could lead to damage to the
environment and could result in regulatory action, legal liability, material
costs, damage to our reputation or denial of our licence to operate.
BP’s group-wide operating management system (OMS) addresses health,
safety, security, environmental and operations risks, and aims to provide a
consistent framework within which the group can analyse the performance
of its activities and identify and remediate shortfalls. There can be no
assurance that OMS will adequately identify all process safety, personal
safety and environmental risk or provide the correct mitigations, or that all
operations will be in conformance with OMS at all times.
Under the terms of the DoJ settlement (see Legal proceedings on
page 264), a process safety monitor will review, evaluate, and provide
recommendations concerning BPXP’s process safety and risk
management procedures for deepwater drilling in the Gulf of Mexico.
Incidents of non-compliance with the recommendations of the process
safety monitor could be damaging to our reputation and shareholder value
and could subject us to further regulatory action or penalties under the
terms of the DoJ settlement. Multiple events of non-compliance could call
into question the integrity of our operations.
Security – hostile acts against our staff and activities could cause harm to
people and disrupt our operations.
Security threats require continuous oversight and control. Acts of terrorism,
piracy, sabotage, cyber-attacks and similar activities directed against our
operations and facilities, pipelines, transportation or computer systems
could cause harm to people and could severely disrupt business and
operations. Our business activities could also be severely disrupted by,
among other things, conflict, civil strife or political unrest in areas where
we operate.
Product quality – failure to meet product quality standards could lead to
harm to people and the environment and loss of customers.
Supplying customers with on-specification products is critical to
maintaining our licence to operate and our reputation in the marketplace.
Failure to meet product quality standards throughout the value chain could
lead to harm to people and the environment and loss of customers.
Drilling and production – these activities require high levels of
investment and are subject to natural hazards and other uncertainties.
Activities in challenging environments heighten many of the drilling and
production risks including those of integrity failures, which could lead to
curtailment, delay or cancellation of drilling operations, or inadequate
returns from exploration expenditure.
Exploration and production require high levels of investment and are
subject to natural hazards and other uncertainties, including those relating
to the physical characteristics of an oil or natural gas field. Our exploration
and production activities are often conducted in extremely challenging
environments, which heighten the risks of technical integrity failure and
natural disasters discussed above. The cost of drilling, completing or
operating wells is often uncertain. We may be required to curtail, delay or
cancel drilling operations because of a variety of factors, including
unexpected drilling conditions, pressure or irregularities in geological
formations, equipment failures or accidents, adverse weather conditions
and compliance with governmental requirements. In addition, exploration
expenditure may not yield adequate returns, for example in the case of
unproductive wells or discoveries that prove uneconomic to develop.
The Gulf of Mexico oil spill illustrates the risks we face in our drilling and
production activities.
Transportation – all modes of transportation of hydrocarbons involve
inherent and significant risks.
All modes of transportation of hydrocarbons involve inherent risks. An
explosion or fire or loss of containment of hydrocarbons or other hazardous
material could occur during transportation by road, rail, sea or pipeline.
This is a significant risk due to the potential impact of a release on people
and the environment and given the high volumes potentially involved.