BP 2010 Annual Report Download - page 65


Businessreview
Business review
Maritimesecurityissues
Atastrategiclevel,BPavoidsknownareasofpirateattackorarmed
robbery;wherethisisnotpossiblefortradingreasonsandweconsiderit
safetodoso,wewillcontinuetotradevesselsthroughtheseareas,
subjecttotheadoptionofheightenedsecuritymeasures.
2010hasseencontinuingpirateactivityintheGulfofAden,
extendingwellintotheIndianOcean(fromtheeastcoastofSomaliato
approximately250mileswestoftheMaldives)andtothenorthintothe
ArabianSea.Despiteanincreasinglevelofpiracyactivity,thenumberof
vesselsactuallyattackedand/orhijackedhasremainedroughlythesameas
2009,asaresultofstrongernavalinterventionofftheSomalicoast,
heightenedawarenessofthethreat,andprotectivemeasuresadoptedby
transitingships.
Atpresent,wefollowavailablemilitaryandgovernmentagency
adviceandareparticipatinginprotectivegrouptransitsthroughtheGulfof
AdenInternationallyRecommendedTransitCorridor.BPsupportsthe
protectivemeasuresrecommendedintheinternationalshippingindustry
guideBest Management Practice 3 – Piracy off the Coast of Somalia and
Arabian Sea Area.a
Aluminium
Ouraluminiumbusinessisanon-integratedproducerandmarketerof
rolledaluminiumproducts,headquarteredinLouisville,Kentucky,US.
ProductionfacilitiesarelocatedinLoganCounty,Kentucky,andarejointly
ownedwithNovelis.Theprimaryactivityofouraluminiumbusinessisthe
supplyofaluminiumcoiltothebeveragecanbusiness,whichit
manufacturesprimarilyfromrecycledaluminium.
Treasury
Treasurymanagesthenancingofthegroupcentrally,ensuringliquidity
sufcienttomeetgrouprequirementsandmanageskeynancialrisks
includinginterestrate,foreignexchange,pensionandnancialinstitution
creditrisk.FromlocationsintheUK,theUSandtheAsiaPacicregion,
TreasuryprovidestheinterfacebetweenBPandtheinternationalnancial
marketsandsupportsthenancingofBP’sprojectsaroundtheworld.
Treasurytradesforeignexchangeandinterestrateproductsinthenancial
markets,hedginggroupexposuresandgeneratingincrementalvalue
throughoptimizingandmanagingcashows.Forinformationontherole
performedbyTreasuryinmanagingthegroup’sliquidityintheaftermathof
theGulfofMexicooilspill,seeLiquidityandcapitalresourceson
pages63-64andFinancialstatements–Note2onpage158.Trading
activitiesareunderpinnedbythecompliance,control,andriskmanagement
infrastructurecommontoallBPtradingactivities.
Insurance
Thegroupgenerallyrestrictsitspurchaseofinsurancetosituationswhere
thisisrequiredforlegalorcontractualreasons.Lossesareborneasthey
arise,ratherthanbeingspreadovertimethroughinsurancepremiumswith
attendanttransactioncosts.Thisapproachhasbeenreviewedfollowing
theGulfofMexicooilspillandithasbeenconcludedthatthegroupwill
continuewithitscurrentapproachofnotgenerallypurchasing
insurancecover.
aJ ointlypublishedbyindustrybodies,includingtheOilCompaniesInternationalMarineForum
(OCIMF)andsupportedbymilitaryoperationsintheregion.
Liquidityandcapitalresources
FollowingtheGulfofMexicooilspill,thegroupfacedsignicantcosts
relatingtotheimmediateresponseactivitiesaswellassignicant
uncertaintyregardingtheultimatemagnitudeofitsliabilitiesandtimingof
cashoutows.
InJune,Moody’sInvestorsServiceandStandard&Poor’s(S&P)
downgradedthegroup’slong-termcreditratingsfromAa1(stableoutlook)
andAA(stableoutlook)respectively,toA2(negativewatch)andA(negative
watch)respectively.FitchdowngradedBPtoBBB.Allthreeratingagencies
havesubsequentlyremovedthegroupfromratingswatch,Moody’sand
Fitchhavecurrentlyplacedthegroup’sratingonA2(stableoutlook)and
A(stableoutlook)respectively,andS&PhasplacedourratingonA
(negativeoutlook).
Followingtheincidentthegroupwasrequiredtomakesubstantial
cashpaymentsinconnectionwiththeoilspill.InvestorsinBP’sUS
IndustrialRevenue/Municipalbondsandinbondsassociatedwithlong-term
gassupplycontractslargelyexercisedtheiroptiontotenderthebondsfor
repayment.Asaresult,at31December2010,BPwasholdingall
$1.5billionoftheoutstandingbondsassociatedwithlong-termgassupply
contractsandhadrepaid$2.5billionofUSIndustrialRevenue/Municipal
bondswithBPeitherholdingorretiringthebonds.Thegroupalso
experiencedincreasedrequirementstopostlettersofcredittocollateralize
anumberofenvironmentalliabilitiesintheUSandtheUKtotalling
$624millionandpostfurthercashcollateralundertradingagreements
totalling$728million.
Inresponse,BPinstigatedaprogrammeearlyinthesecondquarter
of2010toincreaseavailableliquidity.Wesecuredadditionalbanklines
totalling$12billionandannouncedthetemporarysuspensionofquarterly
dividendpaymentsbeginningwiththepaymentthathadbeenscheduledto
occurinJune2010.BPalsoannouncedadisposalprogrammeaimedat
raising$30billiontobecompletedbytheendof2011.Signicantdeposits
werenegotiatedaspartofthesetransactions.Depositstotalling$5billion
wereheldattheendofthethirdquarterand$6.2billionwasheldatthe
endoftheyear,signicantlyincreasingavailableliquidity.Including
deposits,$17billionwasraisedthroughthedisposalprogrammein2010.
Afurther$0.7billionoffundswereraisedthroughborrowingswhichwere
securedonworkingcapitalandotherassets.BPalsoraised$4.6billion
duringthethirdquarterfromsyndicatedbankloansbackedbyfuturecrude
oilsalesoverave-yearperiodfromBP’sinterestsinspecicoffshore
AngolaandAzerbaijanelds.
Theseinitiativesandthestrengthofourunderlyingcashows
(includingforecastingunderdifferentstressscenarios)ensuredthegroup
hadsufcientworkingcapitaltomeetitsrequirementsatalltimes.
Earlyinthefourthquarterof2010,BPaccessedtheUSand
Europeancapitalmarketswithbondissuancestotalling$6.25billion,with
maturitiesofbetweenfourand10years.
BPAnnualReportandForm20-F2010 63