BP 2014 Annual Report Download - page 53

Digital infrastructure and cybersecurity – breach of our digital security
or failure of our digital infrastructure could damage our operations and our
reputation.
A breach or failure of our digital infrastructure due to intentional actions
such as attacks on our cybersecurity, negligence or other reasons, could
seriously disrupt our operations and could result in the loss or misuse of
data or sensitive information, injury to people, disruption to our business,
harm to the environment or our assets, legal or regulatory breaches and
potentially legal liability. These could result in significant costs or
reputational consequences.
Climate change and carbon pricing – public policies could increase
costs and reduce future revenue and strategic growth opportunities.
Changes in laws, regulations and obligations relating to climate change
could result in substantial capital expenditure, taxes and reduced
profitability. In the future, these could potentially impact our upstream
assets, revenue generation and strategic growth opportunities.
Competition – inability to remain efficient, innovate and retain an
appropriately skilled workforce could negatively impact delivery of our
strategy in a highly competitive market.
Our strategic progress and performance could be impeded if we are
unable to control our development and operating costs and margins, or to
sustain, develop and operate a high-quality portfolio of assets efficiently.
We could be adversely affected if competitors offer superior terms for
access rights or licences, or if our innovation in areas such as exploration,
production, refining or manufacturing lags the industry. Our performance
could also be negatively impacted if we fail to protect our intellectual
property.
Our industry faces increasing challenge to recruit and retain skilled and
experienced people in the fields of science, technology, engineering and
mathematics. Successful recruitment, development and retention of
specialist staff is essential to our plans.
Crisis management and business continuity – potential disruption
to our business and operations could occur if we do not address an
incident effectively.
Our business and operating activities could be disrupted if we do not
respond, or are perceived not to respond, in an appropriate manner to any
major crisis or if we are not able to restore or replace critical operational
capacity.
Insurance – our insurance strategy could expose the group to material
uninsured losses.
BP generally purchases insurance only in situations where this is legally
and contractually required. We typically bear losses as they arise rather
than spreading them over time through insurance premiums. This means
uninsured losses could have a material adverse effect on our financial
position, particularly if they arise at a time when we are facing material
costs as a result of a significant operational event which could put pressure
on our liquidity and cash flows.
Safety and operational risks
Process safety, personal safety, and environmental risks – we are
exposed to a wide range of health, safety, security and environmental risks
that could result in regulatory action, legal liability, increased costs, damage
to our reputation and potentially denial of our licence to operate.
Technical integrity failure, natural disasters, human error and other adverse
events or conditions could lead to loss of containment of hydrocarbons or
other hazardous materials, as well as fires, explosions or other personal
and process safety incidents, including when drilling wells, operating
facilities and those associated with transportation by road, sea or pipeline.
There can be no certainty that our operating management system or other
policies and procedures will adequately identify all process safety, personal
safety and environmental risks or that all our operating activities will be
conducted in conformance with these systems. See Safety on page 39.
Such events, including a marine incident, or inability to provide safe
environments for our workforce and the public while at our facilities,
premises or during transportation, could lead to injuries, loss of life or
environmental damage. We could as a result face regulatory action and
legal liability, including penalties and remediation obligations, increased
costs and potentially denial of our licence to operate. Our activities are
sometimes conducted in hazardous, remote or environmentally sensitive
locations, where the consequences of such events could be greater than in
other locations.
Drilling and production – challenging operational environments and other
uncertainties can impact drilling and production activities.
Our activities require high levels of investment and are often conducted in
extremely challenging environments which heighten the risks of technical
integrity failure and the impact of natural disasters. The physical
characteristic of an oil or natural gas field, and cost of drilling, completing or
operating wells is often uncertain. We may be required to curtail, delay or
cancel drilling operations because of a variety of factors, including
unexpected drilling conditions, pressure or irregularities in geological
formations, equipment failures or accidents, adverse weather conditions
and compliance with governmental requirements.
Security – hostile acts against our staff and activities could cause harm to
people and disrupt our operations.
Acts of terrorism, piracy, sabotage and similar activities directed against our
operations and facilities, pipelines, transportation or digital infrastructure
could cause harm to people and severely disrupt business and operations.
Our activities could also be severely affected by conflict, civil strife or
political unrest.
Product quality – supplying customers with off-specification products
could damage our reputation, lead to regulatory action and legal liability,
and potentially impact our financial performance.
Failure to meet product quality standards could cause harm to people and
the environment, damage our reputation, result in regulatory action and
legal liability, and impact financial performance.
Compliance and control risks
US government settlements – our settlements with legal and regulatory
bodies in the US in respect of certain charges related to the Gulf of Mexico
oil spill may expose us to further penalties, liabilities and private litigation or
could result in suspension or debarment of certain BP entities.
Settlements with the US Department of Justice (DoJ) and the US
Securities and Exchange Commission (SEC) impose significant compliance
and remedial obligations on BP and its directors, officers and employees,
including the appointment of an ethics monitor, a process safety monitor
and an independent third-party auditor. Failure to comply with the terms
of these settlements could result in further enforcement action by the DoJ
and the SEC, expose us to severe penalties, financial or otherwise, and
subject BP to further private litigation, each of which could impact our
operations and have a material adverse effect on the group’s reputation
and financial performance. Failure to satisfy the requirements or comply
with the terms of the administrative agreement with the US Environmental
Protection Agency (EPA), under which BP agreed to a set of safety and
operations, ethics and compliance and corporate governance
requirements, could result in suspension or debarment of certain
BP entities.
Regulation – changes in the regulatory and legislative environment could
increase the cost of compliance, affect our provisions and limit our access
to new exploration opportunities.
Governments that award exploration and production interests may impose
specific drilling obligations, environmental, health and safety controls,
controls over the development and decommissioning of a field and
possibly, nationalization, expropriation, cancellation or non-renewal of
contract rights. Royalties and taxes tend to be high compared with those of
other commercial activities, and in certain jurisdictions there is a degree of
uncertainty relating to tax law interpretation and changes. Governments
may change their fiscal and regulatory frameworks in response to public
pressure on finances, resulting in increased amounts payable to them or
their agencies.
Such factors could increase the cost of compliance, reduce our profitability
in certain jurisdictions, limit our opportunities for new access, require us to
divest or write-down certain assets or curtail or cease certain operations, or
affect the adequacy of our provisions for pensions, tax, decommissioning,
environmental and legal liabilities. Potential changes to pension or financial
market regulation could also impact funding requirements of the group.
★ Defined on page 252. BP Annual Report and Form 20-F 2014 49
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