BP 2011 Annual Report Download - page 224

222 BP Annual Report and Form 20-F 2011
Notes on financial statements
26. Financial instruments and financial risk factors continued
The group manages liquidity risk associated with derivative contracts, other than derivative hedging instruments, based on the expected maturities of both
derivative assets and liabilities as indicated in Note 33. Management does not currently anticipate any cash flows that could be of a significantly different
amount, or could occur earlier than the expected maturity analysis provided.
The table below shows cash outflows for derivative hedging instruments based upon contractual payment dates. The amounts reflect the
maturity profile of the fair value liability where the instruments will be settled net, and the gross settlement amount where the pay leg of a derivative will
be settled separately from the receive leg, as in the case of cross-currency interest rate swaps hedging non-US dollar finance debt. The swaps are with
high investment-grade counterparties and therefore the settlement day risk exposure is considered to be negligible. Not shown in the table are the gross
settlement amounts for the receive leg of derivatives that are settled separately from the pay leg, which amount to $9,099 million at 31 December 2011
(2010 $6,725 million) to be received on the same day as the related cash outflows.
$ million
2011 2010
Within one year 1,738 986
1 to 2 years 1,372 1,682
2 to 3 years 1,115 1,358
3 to 4 years 298 1,124
4 to 5 years 1,262 295
5 to 10 years 3,459 947
9,244 6,392
The group has issued third-party guarantees, as described above under credit risk. These amounts represent the maximum exposure of the group,
substantially all of which could be called within one year.
27. Other investments
$ million
2011 2010
Current Non-current Current Non-current
Equity investments – listed –876 –953
– unlisted –252 –238
Repurchased gas pre-paid bonds 288 989 1,532 –
288 2,117 1,532 1,191
Equity investments have no fixed maturity date or coupon rate, and are classified as available-for-sale financial assets. As such they are recorded at fair
value with the gain or loss arising as a result of changes in fair value recorded directly in other comprehensive income. Accumulated fair value changes are
recycled to the income statement on disposal, or when the investment is impaired.
The fair value of listed investments has been determined by reference to quoted market bid prices and as such are in level 1 of the fair value
hierarchy. Unlisted investments are stated at cost less accumulated impairment losses.
The most significant listed investment is the group’s stake in Rosneft which had a fair value of $873 million at 31 December 2011 (2010
$948 million). The fair value loss arising on revaluation of this investment during 2011 has been recorded within other comprehensive income.
In 2011, impairment losses of $12 million were incurred relating to unlisted investments; there were no impairment losses relating to listed
investments. In 2010, no impairment losses were incurred relating to either unlisted investments or listed investments.
BP has entered into long-term gas supply contracts which are backed by gas pre-paid bonds. In 2010, BP was unsuccessful in the remarketing of
these bonds and repurchased them. The outstanding bonds associated with these long-term gas supply contracts held by BP are recorded within other
investments, with the related liability recorded within other payables on the balance sheet. The fair value of the gas pre-paid bonds is the same as the
carrying amount, as the bonds are based on floating rate interest with weekly market re-set, and as such are in Level 1 of the fair value hierarchy.
BP has no investments pledged as security for liabilities as at 31 December 2011. As at 31 December 2010, BP had pledged listed equity
investments with a carrying value of $948 million as part of a financing arrangement. As BP had retained substantially all the risks and rewards associated
with the shares, they continued to be reflected as an asset on the balance sheet, with a liability being reflected within finance debt. The terms of the
arrangement meant that BP could request to have the shares returned at any time with 20 days notice, up to the date of maturity (in three tranches, up to
December 2013), subject to repayment of the outstanding loan. The financing arrangement was terminated during 2011.
28. Inventories
$ million
2011 2010
Crude oil 7,702 8,969
Natural gas 178 112
Refined petroleum and petrochemical products 14,909 13,997
22,789 23,078
Supplies 2,057 1,669
24,846 24,747
Trading inventories 815 1,471
25,661 26,218
Cost of inventories expensed in the income statement 285,618 216,211