BP 2012 Annual Report Download - page 45

Business review: BP in more depth
Business review: BP in more depth
BP Annual Report and Form 20-F 2012
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Reporting – failure to accurately report our data could lead to
regulatory action, legal liability and reputational damage.
External reporting of financial and non-financial data is reliant on the integrity
of systems and people. Failure to report data accurately and in compliance
with external standards could result in regulatory action, legal liability and
damage to our reputation.
As of the date of the SEC settlement, 10 December 2012, and for a period of
three years thereafter, we are unable to rely on the safe harbor provisions
regarding forward-looking statements provided by the regulations issued
under the Securities Act, and the Securities Exchange Act of 1934, as
amended. Our inability to rely on these safe harbor provisions may expose
us to future litigation and liabilities in connection with forward-looking
statements in our public disclosures.
Changes in external factors could affect our results of operations and
the adequacy of our provisions.
We remain exposed to changes in the external environment, such as new
laws and regulations (whether imposed by international treaty or by national
or local governments in the jurisdictions in which we operate), changes in tax
or royalty regimes, price controls, government actions to cancel or
renegotiate contracts, market volatility or other factors. Such factors could
reduce our profitability from operations in certain jurisdictions, limit our
opportunities for new access, require us to divest or write-down certain
assets or affect the adequacy of our provisions for pensions, tax,
environmental and legal liabilities. Potential changes to pension or financial
market regulation could also impact funding requirements of the group.
Treasury and trading activities – control of these activities depends
on our ability to process, manage and monitor a large number of
transactions. Failure to do this effectively could lead to business
disruption, financial loss, regulatory intervention or damage to our
reputation.
In the normal course of business, we are subject to operational risk around
our treasury and trading activities. Control of these activities is highly
dependent on our ability to process, manage and monitor a large number of
complex transactions across many markets and currencies. Shortcomings or
failures in our systems, risk management methodology, internal control
processes or people could lead to disruption of our business, financial loss,
regulatory intervention or damage to our reputation.
Following the Gulf of Mexico oil spill, Moody’s Investors Service, Standard
and Poor’s and Fitch Ratings downgraded the group’s long-term credit
ratings. Since that time, the group’s credit ratings have improved somewhat
but are still lower than they were immediately before the Gulf of Mexico oil
spill. The impact that a significant operational incident can have on the
group’s credit ratings, taken together with the reputational consequences of
any such incident, the ratings and assessments published by analysts and
investors’ concerns about the group’s costs arising from any such incident,
ongoing contingencies, liquidity, financial performance and volatile credit
spreads, could increase the group’s financing costs and limit the group’s
access to financing. The group’s ability to engage in its trading activities
could also be impacted due to counterparty concerns about the group’s
financial and business risk profile in such circumstances. Such
counterparties could require that the group provide collateral or other forms
of financial security for its obligations, particularly if the group’s credit ratings
are downgraded. Certain counterparties for the group’s non-trading
businesses could also require that the group provide collateral for certain of
its contractual obligations, particularly if the group’s credit ratings were
downgraded below investment grade or where a counterparty had concerns
about the group’s financial and business risk profile following a significant
operational incident. In addition, BP may be unable to make a drawdown
under certain of its committed borrowing facilities in the event that we are
aware that there are pending or threatened legal, arbitration or administrative
proceedings which, if determined adversely, might reasonably be expected
to have a material adverse effect on our ability to meet the payment
obligations under any of these facilities. Credit rating downgrades could
trigger a requirement for the company to review its funding arrangements
with the BP pension trustees. Extended constraints on the group’s ability to
obtain financing and to engage in its trading activities on acceptable terms
(or at all) would put pressure on the group’s liquidity. In addition, this could
occur at a time when cash flows from our business operations would be
constrained following a significant operational incident, and the group could
be required to reduce planned capital expenditures and/or increase asset
disposals in order to provide additional liquidity, as the group did following
the Gulf of Mexico oil spill.
Safety and operational risks
The risks inherent in our operations include a number of hazards that,
although many may have a low probability of occurrence, can have
extremely serious consequences if they do occur, such as the Gulf of
Mexico oil spill. The occurrence of any such risks could have a consequent
material adverse impact on the group’s business, competitive position, cash
flows, results of operations, financial position, prospects, liquidity,
shareholder returns and/or implementation of the group’s strategic goals.
Process safety, personal safety and environmental risks – the nature
of our operations exposes us to a wide range of significant health,
safety, security and environmental risks, the occurrence of which
could result in regulatory action, legal liability and increased costs
and damage to our reputation.
The nature of the group’s operations exposes us to a wide range of
significant health, safety, security and environmental risks. The scope of
these risks is influenced by the geographic range, operational diversity and
technical complexity of our activities. In addition, in many of our major
projects and operations, risk allocation and management is shared with third
parties such as contractors, sub-contractors, joint venture partners and
associates. See Strategic and commercial risks – Joint ventures and other
contractual arrangements on page 39.
There are risks of technical integrity failure as well as risk of natural disasters
and other adverse conditions in many of the areas in which we operate,
which could lead to loss of containment of hydrocarbons and other
hazardous material, as well as the risk of fires, explosions or other incidents.
In addition, inability to provide safe environments for our workforce and the
public while at our facilities or premises could lead to injuries or loss of life
and could result in regulatory action, legal liability and damage to our
reputation.
Our operations are often conducted in difficult or environmentally sensitive
locations, in which the consequences of a spill, explosion, fire or other
incident could be greater than in other locations. These operations are
subject to various environmental and safety laws, regulations and permits
and the consequences of failure to comply with these requirements can
include remediation obligations, penalties, loss of operating permits and
other sanctions. Accordingly, inherent in our operations is the risk that if we
fail to abide by environmental and safety and protection standards, such
failure could lead to damage to the environment and could result in
regulatory action, legal liability, material costs, damage to our reputation or
denial of our licence to operate.
BP’s group-wide operating management system (OMS) intends to address
health, safety, security, environmental and operations risks, and to provide a
consistent framework within which the group can analyse the performance
of its activities and identify and remediate shortfalls. There can be no
assurance that OMS will adequately identify all process safety, personal
safety and environmental risk or provide the correct mitigations, or that all
operations will be in conformance with OMS at all times.
Security – hostile activities against our staff and activities could
cause harm to people and disrupt our operations.
Security threats require continuous oversight and control. Acts of terrorism,
piracy, sabotage, cyber-attacks and similar activities directed against our
operations and offices, pipelines, transportation or computer systems could
cause harm to people and could severely disrupt business and operations.
Our business activities could also be severely disrupted by, among other
things, conflict, civil strife or political unrest in areas where we operate.
Product quality – failure to meet product quality standards could lead
to harm to people and the environment and loss of customers.
Supplying customers with on-specification products is critical to maintaining
our licence to operate and our reputation in the marketplace. Failure to meet
product quality standards throughout the value chain could lead to harm to
people and the environment and loss of customers.