BP 2012 Annual Report Download - page 198

2. Significant event – Gulf of Mexico oil spill continued
The $20-billion trust fund may not be sufficient to satisfy all claims under OPA 90 or otherwise that will ultimately be paid.
The Trust agreement does not require BP to make further contributions to the trust fund in excess of the agreed $20 billion should this be insufficient to
cover all claims administered by the GCCF and the new court-supervised claims processes, or to settle other items that are covered by the trust fund, as
described above. Should the $20-billion trust fund not be sufficient, BP would commence settling legitimate claims and other costs by making payments
directly to claimants or directly to the QSFs, as appropriate. In this case, increases in estimated future expenditure above $20 billion would be
recognized as provisions with a corresponding charge in the income statement. The provisions would be utilized and derecognized at the point that BP
made the payments. Under the terms of the Economic and Property Damages Settlement Agreement, several QSFs were established during 2012.
These QSFs each relate to specific elements of the agreement, have and will be funded through payments from the Trust, and are available to make
payments to claimants in accordance with those elements of the agreement.
As at 31 December 2012, the cash balances in the Trust and the QSFs amounted to $10,471 million, including $1,847 million remaining in the seafood
compensation fund yet to be distributed. Under the terms of the Economic and Property Damage Settlement, the QSFs are subject to certain minimum
balances that shall be maintained in the respective funds.
The Economic and Property Damages Settlement with the PSC provides for a transition from the GCCF to the DHCSSP. A transitional claims facility for
economic and property damages claims commenced operation in March 2012. The transitional claims facility ceased processing new claims in June
2012. The DHCSSP began processing new claims from claimants under the Economic and Property Damages Settlement. In addition, a separate BP
claims programme began processing claims from claimants not in the Economic and Property Damages Settlement Class as determined by the
Economic and Property Damages Settlement Agreement or who have requested to opt out of that settlement. Moreover, upon the effective date of the
Medical Benefits Class Action Settlement (that is, after any appeals of the final approval of that settlement are exhausted), a separate court-supervised
settlement programme will begin paying medical claims and implementing other aspects of the medical benefits settlement, such as the Periodic
Medical Consultation Program. In addition, some payments to projects under the Gulf Region Health Outreach Program portion of the Medical Benefits
Class Action Settlement have already been made.
BP pledged certain Gulf of Mexico assets, through an overriding royalty interest, as collateral for the obligation to fund the Trust pursuant to an
agreement entered into in September 2010. As noted above, in November 2012 BP met its $20-billion funding obligation to the Trust. Upon completion
of the funding obligation, the overriding royalty interest provided as collateral terminated pursuant to its terms.
Provisions and contingencies
At 31 December 2012, BP has recorded certain provisions and disclosed certain contingent liabilities as a consequence of the Gulf of Mexico oil spill.
These are described below under Oil Pollution Act of 1990 and Other items.
Oil Pollution Act of 1990 (OPA 90)
The claims against BP under OPA 90 fall into three categories: (i) claims by individuals and businesses for removal costs, damage to real or personal
property, lost profits or impairment of earning capacity and loss of subsistence use of natural resources (“Individual and Business Claims”); (ii) claims by
state and local government entities for removal costs, physical damage to real or personal property, loss of government revenue and increased public
services costs (“State and Local Claims”); and (iii) claims by the United States, a State trustee, an Indian tribe trustee, or a foreign trustee for natural
resource damages (“Natural Resource Damages claims”). In addition, BP faces civil litigation in which claims for liability under OPA 90 along with other
causes of actions, including personal injury claims, are asserted by individuals, businesses and government entities.
Provisions have been recorded for Individual and Business Claims and State and Local Claims, except as noted below. A provision has also been
recorded for claims administration costs, natural resource damage assessment costs and costs relating to early natural resource damages restoration
agreements. BP considers that it is not possible to measure reliably any obligation in relation to natural resource damage claims (other than the
estimated costs of the assessment phase and the costs relating to early restoration agreements), the cost of business economic loss claims under the
PSC settlement not yet received or processed by the DHCSSP, or any other potential litigation (including through excluded parties from the PSC
settlement and any obligation in relation to other potential private or governmental litigation), fines, or penalties, other than as described above. These
items are therefore disclosed as contingent liabilities – see Note 43 for further information.
Significant uncertainties exist in relation to the amount of claims that are to be paid and will become payable through the claims process established
pursuant to the PSC settlement. There is significant uncertainty in relation to the amounts that ultimately will be paid in relation to current claims,and
the number, type and amounts payable for claims not yet reported. In addition, there is further uncertainty in relation to interpretations of the claims
administrator regarding the protocols under the Economic and Property Damages Settlement and judicial interpretation of these protocols, and the
outcomes of any further litigation including in relation to potential opt-outs from the settlement or otherwise. See Note 36 for further information.
The $20-billion trust fund described above is available to satisfy the OPA 90 claims and litigation referred to above. BP’s rights and obligations in relation
to the trust fund have been recognized and $20 billion, adjusted to take account of the time value of money, was charged to the income statement in
2010.
Other items
Provisions at 31 December 2012 also include amounts in relation to completing the oil spill response, BP’s commitment to a 10-year research
programme in the Gulf of Mexico, the discounted cost of the agreement with the US government to settle all federal criminal charges, estimated
penalties for liability under Clean Water Act Section 311 and estimated legal fees. These are not covered by the trust fund.
The provision does not reflect any amounts in relation to fines and penalties except for those relating to the Clean Water Act, as it is not possible to
estimate reliably either the amount or timing of such additional items. BP also considers that it is not possible to measure reliably any obligation in
relation to litigation other than as included within the settlement with the PSC as set forth in Note 36 and the settlement with the US government for
federal criminal charges. These items are therefore disclosed as contingent liabilities. Further information on provisions is provided below and inNote
36. Further information on contingent liabilities is provided in Note 43.
Provision movements
A provision has been recognized for estimated future expenditure relating to the incident, for items that can be measured reliably at this time, in
accordance with BP’s accounting policy for provisions, as set out in Note 1.
196 Financial statements
BP Annual Report and Form 20-F 2012