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44. Contingent liabilities
There were contingent liabilities at 31 December 2008 in respect of guarantees and indemnities entered into as part of the ordinary course of the
group’s business. No material losses are likely to arise from such contingent liabilities. Further information is included in Note 28.
Approximately 200 lawsuits were filed in State and Federal Courts in Alaska seeking compensatory and punitive damages arising out of the
Exxon Valdez oil spill in Prince William Sound in March 1989. Most of those suits named Exxon (now ExxonMobil), Alyeska Pipeline Service Company
(Alyeska), which operates the oil terminal at Valdez, and the other oil companies that own Alyeska. Alyeska initially responded to the spill until the
response was taken over by Exxon. BP owns a 46.9% interest (reduced during 2001 from 50% by a sale of 3.1% to Phillips) in Alyeska through a
subsidiary of BP America Inc. and briefly indirectly owned a further 20% interest in Alyeska following BP’s combination with Atlantic Richfield
Company (Atlantic Richfield). Alyeska and its owners have settled all the claims against them under these lawsuits. Exxon has indicated that it may file
a claim for contribution against Alyeska for a portion of the costs and damages which it has incurred. If any claims are asserted by Exxon that affect
Alyeska and its owners, BP will defend the claims vigorously. It is not possible to estimate any financial effect.
Since 1987, Atlantic Richfield, a current subsidiary of BP, has been named as a co-defendant in numerous lawsuits brought in the US alleging
injury to persons and property caused by lead pigment in paint. The majority of the lawsuits have been abandoned or dismissed as against Atlantic
Richfield. Atlantic Richfield is named in these lawsuits as alleged successor to International Smelting and Refining and another company that
manufactured lead pigment during the period 1920-1946. Plaintiffs include individuals and governmental entities. Several of the lawsuits purport to be
class actions. The lawsuits (depending on plaintiff) seek various remedies, including: compensation to lead-poisoned children; cost to find and remove
lead paint from buildings; medical monitoring and screening programmes; public warning and education on lead hazards; reimbursement of
government healthcare costs and special education for lead-poisoned citizens; and punitive damages. No lawsuit against Atlantic Richfield has been
settled nor has Atlantic Richfield been subject to a final adverse judgment in any proceeding. The amounts claimed and, if such suits were successful,
the costs of implementing the remedies sought in the various cases could be substantial. While it is not possible to predict the outcome of these legal
actions, Atlantic Richfield believes that it has valid defences and it intends to defend such actions vigorously and thus the incurrence of a liability by
Atlantic Richfield is remote. Consequently, BP believes that the impact of these lawsuits on the group’s results of operations, financial position or
liquidity will not be material.
In addition, various group companies are parties to legal actions and claims that arise in the ordinary course of the group’s business. While the
outcome of such legal proceedings cannot be readily foreseen, BP believes that they will be resolved without material effect on the group’s results of
operations, financial position or liquidity. The group files income tax returns in many jurisdictions throughout the world. Various tax authorities are
currently examining the group’s income tax returns. Tax returns contain matters that could be subject to differing interpretations of applicable tax laws
and regulations and the resolution of tax positions through negotiations with relevant tax authorities, or through litigation, can take several years to
complete. While it is difficult to predict the ultimate outcome in some cases, the group does not anticipate that there will be any material impact upon
the group’s results of operations, financial position or liquidity.
The group is subject to numerous national and local environmental laws and regulations concerning its products, operations and other activities.
These laws and regulations may require the group to take future action to remediate the effects on the environment of prior disposal or release of
chemicals or petroleum substances by the group or other parties. Such contingencies may exist for various sites including refineries, chemical plants,
oil fields, service stations, terminals and waste disposal sites. In addition, the group may have obligations relating to prior asset sales or closed
facilities. The ultimate requirement for remediation and its cost are inherently difficult to estimate. However, the estimated cost of known
environmental obligations has been provided in these accounts in accordance with the group’s accounting policies. While the amounts of future costs
could be significant and could be material to the group’s results of operations in the period in which they are recognized, it is not practical to estimate
the amounts involved. BP does not expect these costs to have a material effect on the group’s financial position or liquidity.
The group generally restricts its purchase of insurance to situations where this is required for legal or contractual reasons. This is because
external insurance is not considered an economic means of financing losses for the group. Losses will therefore be borne as they arise rather than
being spread over time through insurance premiums with attendant transaction costs. The position is reviewed periodically.
45. Capital commitments
Authorized future capital expenditure for property, plant and equipment by group companies for which contracts had been placed at 31 December
2008 amounted to $14,062 million (2007 $8,263 million). In addition, at 31 December 2008, the group had contracts in place for future capital
expenditure relating to investments in jointly controlled entities of $644 million (2007 $1,039 million) and investments in associates of $160 million
(2007 $74 million).
Capital commitments of jointly controlled entities amounted to $1,540 million (2007 $2,273 million).
BP Annual Report and Accounts 2008
Notes on financial statements