BP 2006 Annual Report Download - page 144

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36 Derivative financial instruments continued
The following tables show the fair value of derivatives and other financial instruments held for trading purposes. The fair values at the year end are not
materially unrepresentative of the position throughout the year.
Changes during the year in the net fair value of derivatives held for trading purposes were as follows.
$ million
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Currency
Oil
price
Natural gas
price
Power
price Other
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fair value of contracts at 1 January 2006 23 (61) 529 183 –
Contracts realized or settled in the year (16) 85 (327) (37) (106)
Fair value of options at inception – 36 247 (70) 45
Fair value of other new contracts entered into during the year ––21–
Change in fair value due to changes in valuation techniques or key assumptions –1–––
Other changes in fair values relating to price 98 231 421 (22) 174
Exchange adjustments – 4 (17) (13) –
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fair value of contracts at 31 December 2006 105 296 855 42 113
$ million
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Currency
Oil
price
Natural gas
price
Power
price Other
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fair value of contracts at 1 January 2005 (54) (171) 558 177 –
Contracts realized or settled in the year 23 175 (735) 76 –
Fair value of options at inception – (73) (65) (9) –
Fair value of other new contracts entered into during the year – – 24 10 –
Other changes in fair values relating to price 54 8 747 (71) –
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fair value of contracts at 31 December 2005 23 (61) 529 183 –
If at inception of a contract the valuation cannot be supported by observable market data, any gain or loss determined by the valuation methodology is
not recognized in the income statement but is deferred on the balance sheet and commonly known as ‘day one profit’. When all of the remaining
contracts can be valued using observable market data this gain or loss is recognized in income. Changes in valuation from this initial valuation are
recognized immediately through income.
The following table shows the change in the associated fair value of assets and liabilities.
$ million
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2006 2005
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Natural
gas price Power price
Natural
gas price Power price
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fair value of contracts not recognized through the income statement at 1 January (39) (10) (15) –
Fair value of new contracts at inception not recognized in the income statement (2) (1) (24) (10)
Fair value recycled into the income statement 511 ––
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fair value of contracts not recognized through profit at 31 December (36) – (39) (10)
Derivative assets held for trading have the following fair values, contractual or notional values and maturities.
$ million
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2006
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Less than
1 year 1-2 years 2-3 years 3-4 years 4-5 years
Over
5 years Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Currency derivatives
Fair value 117 – 12 3 2 3 137
Notional value 6,338 75 241 89 54 23 6,820
Oil price derivatives
Fair value 2,520 116 20 7 1 – 2,664
Notional value 52,591 4,736 210 62 1 – 57,600
Natural gas price derivatives
Fair value 4,532 919 374 166 114 453 6,558
Notional value 81,102 33,499 9,837 5,186 3,396 6,941 139,961
Power price derivatives
Fair value 2,845 274 86 27 – – 3,232
Notional value 16,063 4,999 1,171 17 – – 22,250
Other derivatives
Fair value 64 26 23 – – – 113
Notional value 213 149 137 – – – 499
Total derivative assets held for trading
Fair value 10,078 1,335 515 203 117 456 12,704
Notional value 156,307 43,458 11,596 5,354 3,451 6,964 227,130