BP 2012 Annual Report Download - page 93

Business review: BP in more depth
Business review: BP in more depth
BP Annual Report and Form 20-F 2012
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and the ratio of net debt to net debt plus equity are non-GAAP measures.
We believe that these measures provide useful information to investors.
Net debt enables investors to see the economic effect of gross debt,
related hedges and cash and cash equivalents in total. The net debt ratio
enables investors to see how significant net debt is relative to equity from
shareholders. See Financial statements – Note 35 on page 234 for gross
debt, which is the nearest equivalent measure on an IFRS basis, and for
further information on net debt.
Included in net debt are cash and cash equivalents of $19.5 billion at
31 December 2012 (2011 $14.1 billion). BP manages its cash position to
ensure the group has adequate cover to respond to potential short-term
market illiquidity, and expects to maintain a strong cash position. Cash
balances are pooled centrally where permissible, and deployed globally as
required. Cash surpluses are deposited with creditworthy banks and
money market funds with short maturities to ensure availability. The group
holds $2 billion of cash outside the UK and it is not expected that any
significant tax will arise on repatriation. Further information on the
management of liquidity risk and credit risk is provided in Financial
statements – Note 26 on page 220, and on the cash position in Financial
statements – Note 30 on page 226.
The group also has access to significant sources of liquidity in the form of
committed bank facilities. At 31 December 2012, the group had available
undrawn committed standby borrowing facilities of $6.8 billion (2011
$6.9 billion) available to draw and repay by mid-March 2014.
BP believes that, taking into account the amounts of undrawn borrowing
facilities and increased levels of cash and cash equivalents, and the
ongoing ability to generate cash, including further disposal proceeds, the
group has sufficient working capital for foreseeable requirements.
Uncertainty remains regarding the amount and timing of future
expenditures relating to the Gulf of Mexico oil spill and the implications for
future activities. See Risk factors on pages 38-44, and Financial
statements – Note 2 on page 194, Note 36 on page 235 and Note 43 on
page 253 for further information.
Off-balance sheet arrangements
At 31 December 2012, the group’s share of third-party finance debt of
equity-accounted entities was $6,900 million (2011 $7,003 million). These
amounts are not reflected in the group’s debt on the balance sheet. The
group has issued third-party guarantees under which amounts
outstanding at 31 December 2012 are $237 million (2011 $415 million) in
respect of liabilities of jointly controlled entities and associates and
$713 million (2011 $1,430 million) in respect of liabilities of other third
parties. Of these amounts, $166 million (2011 $220 million) of the jointly
controlled entities and associates guarantees relate to borrowings and for
other third-party guarantees, $543 million (2011 $1,267 million) relates to
guarantees of borrowings. Details of operating lease commitments, which
are not recognized on the balance sheet, are shown in the table below
and in Note 14 on page 211.
Contractual commitments
The following table summarizes the group’s principal contractual
obligations at 31 December 2012, distinguishing between those for which
a liability is recognized on the balance sheet and those for which no
liability is recognized. Further information on borrowings and finance
leases is given in Financial statements – Note 34 on page 233 and more
information on operating leases is given in Financial statements – Note 14
on page 211.
$ million
Payments due by period
Expected payments by period under contractual
obligations and commercial commitments Total 2013 2014 2015 2016 2017
2018 and
thereafter
Balance sheet obligations
Borrowingsa 51,676 10,232 6,607 6,482 6,481 6,135 15,739
Finance lease future minimum lease payments 604 59 54 54 53 50 334
Decommissioning liabilitiesb 20,200 767 528 442 525 647 17,291
Environmental liabilitiesb 4,029 1,524 1,093 224 215 222 751
Pensions and other post-retirement benefitsc 26,532 1,908 1,894 1,931 1,923 1,918 16,958
Total balance sheet obligations 103,041 14,490 10,176 9,133 9,197 8,972 51,073
Off-balance sheet obligations
Operating lease future minimum lease paymentsd 18,459 4,531 3,494 2,666 2,007 1,566 4,195
Unconditional purchase obligationse 190,771 109,244 17,355 11,994 8,713 7,987 35,478
Total off-balance sheet obligations 209,230 113,775 20,849 14,660 10,720 9,553 39,673
Total 312,271 128,265 31,025 23,793 19,917 18,525 90,746
a Expected payments include interest payments on borrowings totalling $3,894 million ($863 million in 2013, $728 million in 2014, $607 million in 2015, $485 million in 2016, $365 million in 2017 and
$846 million thereafter), and exclude disposal deposits of $632 million included in current finance debt on the balance sheet.
b The amounts are undiscounted. Environmental liabilities include those relating to the Gulf of Mexico oil spill, including liabilities for spill response costs.
c Represents the expected future contributions to funded pension plans and payments by the group for unfunded pension plans and the expected future payments for other post-retirement benefits.
d The future minimum lease payments are before deducting related rental income from operating sub-leases. In the case of an operating lease entered into solely by BP as the operator of a jointly
controlled asset, the amounts shown in the table represent the net future minimum lease payments, after deducting amounts reimbursed, or to be reimbursed, by joint venture partners. Where BP is
not the operator of a jointly controlled asset BP’s share of the future minimum lease payments are included in the amounts shown, whether BP has co-signed the lease or not. Where operating lease
costs are incurred in relation to the hire of equipment used in connection with a capital project, some or all of the cost may be capitalized as part of the capital cost of the project.
e Represents any agreement to purchase goods or services that is enforceable and legally binding and that specifies all significant terms. The amounts shown include arrangements to secure
long-term access to supplies of crude oil, natural gas, feedstocks and pipeline systems. In addition, the amounts shown for 2013 include purchase commitments existing at 31 December 2012
entered into principally to meet the group’s short-term manufacturing and marketing requirements. The price risk associated with these crude oil, natural gas and power contracts is discussed in
Financial statements – Note 26 on page 220.