BP 2012 Annual Report Download - page 205

During 2011, the Upstream segment recognized impairment losses of $1,443 million. The main elements were a $555-million impairment loss relating
to a number of our interests in the Gulf of Mexico, caused by an increase in the decommissioning provision as a result of further assessments of the
regulations relating to idle infrastructure and a decrease in our assumption of the discount rate for provisions; the $393-million write-down of our interest
in the Fayetteville shale gas asset in the US, triggered by a decrease in value by reference to a sale transaction by a partner of its interest in the same
asset; and the $153-million write-down of our interest in the proposed Denali gas pipeline in Alaska, resulting from a decision not to proceed with the
project. There were several other impairment losses amounting to $342 million in total that were not individually significant. These impairment losses
were partly offset by reversals of impairment of certain of our interests in the Gulf of Mexico and Egypt amounting to $146 million in total, triggered by
an increase in our assumption of long-term oil prices.
During 2010, the Upstream segment recognized impairment losses of $1,259 million. The main elements were the $501-million write-down of assets in
the Gulf of Mexico, triggered by an increase in the decommissioning provision as a result of new regulations in the US relating to idle infrastructure;
impairments of oil and gas properties in the Gulf of Mexico and onshore North America of $310 million and $80 million respectively, as a result of
decisions to dispose of assets at a price lower than the assets’ carrying values; a $341-million write-down of accumulated costs in Sakhalin, Russia,
triggered by a change in the outlook on the future recoverability of the investment; and several other individually insignificant impairment losses
amounting to $27 million in total.
Downstream
During 2012, the Downstream segment recognized impairment losses of $2,892 million, largely related to assets held for sale for which sales prices had
been agreed, see Note 4 for further information. This impairment loss included $1,552 million relating to the Texas City refinery and associated assets
and $1,042 million relating to the Carson refinery and associated assets.
During 2011, the Downstream segment recognized impairment losses of $599 million. Impairment losses of $398 million related to assets classified as
held for sale. Other impairment losses were also recognized relating to retail churn in Europe and other minor asset disposals amounting to $201 million
in total.
During 2010, the Downstream segment recognized impairment losses amounting to $144 million relating to retail churn in Europe and other minor asset
disposals. These losses were largely offset by the reversal of a previously recognized impairment loss of $141 million relating to the investment in our
jointly controlled entity China American Petrochemical Company resulting from a change in market conditions.
Other businesses and corporate
During 2012, 2011 and 2010, Other businesses and corporate recognized impairment losses totalling $318 million, $58 million and $113 million
respectively related to various assets in the Alternative Energy business. The amount for 2012 includes $258 million in respect of the decision not to
proceed with an investment in a biofuels production facility under development in the US.
6. Segmental analysis
The group’s organizational structure reflects the various activities in which BP is engaged. In 2012, BP had three reportable segments: Upstream,
Downstream and TNK-BP. BP’s activities in low-carbon energy are managed through our Alternative Energy business, which is reported in Other
businesses and corporate.
Upstream’s activities include oil and natural gas exploration, field development and production; midstream transportation, storage and processing; and
the marketing and trading of natural gas, including liquefied natural gas (LNG), together with power and natural gas liquids (NGLs). The segment is
organized into three functional divisions – Exploration, Developments and Production – integrated through a Strategy and Integration organization.
Downstream’s activities include the refining, manufacturing, marketing, transportation, and supply and trading of crude oil, petroleum, petrochemicals
products and related services to wholesale and retail customers.
From 1 January 2012, the group’s investment in TNK-BP is reported as a separate operating segment, rather than within the Upstream segment,
reflecting the way in which the investment is managed. On 22 October 2012, BP announced that it had signed heads of terms for a proposed
transaction to sell its 50% share in TNK-BP to Rosneft. Following this agreement, BP’s investment in TNK-BP met the criteria to be classified as held for
sale and the transaction is expected to complete in the first half of 2013. See Note 4 for further information.
Other businesses and corporate comprises the Alternative Energy business, Shipping, Treasury (which in the segmental analysis includes all of the
group’s cash, cash equivalents and associated interest income), and corporate activities worldwide. It also included the group’s aluminium business until
its disposal during 2011. The Alternative Energy business is an operating segment that has been aggregated with the other activities within Other
businesses and corporate as it does not meet the materiality thresholds for separate segment reporting.
In 2010, following the Gulf of Mexico incident, we established the Gulf Coast Restoration Organization (GCRO) and equipped it with dedicated
resources and capabilities to manage all aspects of our response to the incident. This organization reports directly to the group chief executive and is
overseen by a board committee, however it is not an operating segment.
The accounting policies of the operating segments are the same as the group’s accounting policies described in Note 1. However, IFRS requires that
the measure of profit or loss disclosed for each operating segment is the measure that is provided regularly to the chief operating decision maker for the
purposes of performance assessment and resource allocation. For BP, this measure of profit or loss is replacement cost profit or loss before interest
and tax which reflects the replacement cost of supplies by excluding from profit or loss inventory holding gains and lossesa. Replacement cost profit or
loss for the group is not a recognized measure under IFRS.
Sales between segments are made at prices that approximate market prices, taking into account the volumes involved. Segment revenues and
segment results include transactions between business segments. These transactions and any unrealized profits and losses are eliminated on
consolidation, unless unrealized losses provide evidence of an impairment of the asset transferred. Sales to external customers by region are based on
the location of the seller. The UK region includes the UK-based international activities of Downstream.
aInventory holding gains and losses represent the difference between the cost of sales calculated using the average cost to BP of supplies acquired during the period and the cost of sales calculated on
the first-in first-out (FIFO) method after adjusting for any changes in provisions where the net realizable value of the inventory is lower than its cost. Under the FIFO method, which we use for IFRS
reporting, the cost of inventory charged to the income statement is based on its historic cost of purchase, or manufacture, rather than its replacement cost. In volatile energy markets, this can have a
significant distorting effect on reported income. The amounts disclosed represent the difference between the charge (to the income statement) for inventory on a FIFO basis (after adjusting for any
related movements in net realizable value provisions) and the charge that would have arisen if an average cost of supplies was used for the period. For this purpose, the average cost of supplies during
the period is principally calculated on a monthly basis by dividing the total cost of inventory acquired in the period by the number of barrels acquired. The amounts disclosed are not separately reflected in
the financial statements as a gain or loss. No adjustment is made in respect of the cost of inventories held as part of a trading position and certain other temporary inventory positions.
Financial statements 203
BP Annual Report and Form 20-F 2012
Financial statements
5. Disposals and impairment continued