BP 2015 Annual Report Download - page 238

interest in the joint arrangement or co-ownership. Conventionally, all
costs, benefits, rights, obligations, liabilities and risks incurred in carrying
out joint arrangement or co-ownership operations under a lease or
licence are shared among the joint arrangement or co-owning parties
according to these agreed ownership interests. Ownership of joint
arrangement or co-owned property and hydrocarbons to which the joint
arrangement or co-ownership is entitled is also shared in these
proportions. To the extent that any liabilities arise, whether to
governments or third parties, or as between the joint arrangement
parties or co-owners themselves, each joint arrangement party or
co-owner will generally be liable to meet these in proportion to its
ownership interest. In many upstream operations, a party (known as the
operator) will be appointed (pursuant to a joint operating agreement) to
carry out day-to-day operations on behalf of the joint arrangement or
co-ownership. The operator is typically one of the joint arrangement
parties or a co-owner and will carry out its duties either through its own
staff, or by contracting out various elements to third-party contractors or
service providers. BP acts as operator on behalf of joint arrangements
and co-ownerships in a number of countries where it has exploration
and production activities.
Frequently, work (including drilling and related activities) will be
contracted out to third-party service providers who have the relevant
expertise and equipment not available within the joint arrangement or
the co-owning operator’s organization. The relevant contract will specify
the work to be done and the remuneration to be paid and will typically
set out how major risks will be allocated between the joint arrangement
or co-ownership and the service provider. Generally, the joint
arrangement or co-owner and the contractor would respectively allocate
responsibility for and provide reciprocal indemnities to each other for
harm caused to and by their respective staff and property. Depending on
the service to be provided, an oil and gas industry service contract may
also contain provisions allocating risks and liabilities associated with
pollution and environmental damage, damage to a well or hydrocarbon
reservoir and for claims from third parties or other losses. The allocation
of those risks vary among contracts and are determined through
negotiation between the parties.
In general, BP incurs income tax on income generated from production
activities (whether under a licence or PSA). In addition, depending on
the area, BP’s production activities may be subject to a range of other
taxes, levies and assessments, including special petroleum taxes and
revenue taxes. The taxes imposed on oil and gas production profits and
activities may be substantially higher than those imposed on other
activities, for example in Abu Dhabi, Angola, Egypt, Norway, the UK, the
US, Russia and Trinidad & Tobago.
Environmental regulation
Current and proposed fuel and product specifications, emission controls
(including control of vehicle emissions), climate change programmes
and regulation of unconventional oil and gas extraction under a number
of environmental laws may have a significant effect on the production,
sale and profitability of many of BP’s products.
There are also environmental laws that require BP to remediate and
restore areas affected by the release of hazardous substances or
hydrocarbons associated with our operations or properties. These laws
may apply to sites that BP currently owns or operates, sites that it
previously owned or operated, or sites used for the disposal of its and
other parties’ waste. See Financial Statements – Note 22 for information
on provisions for environmental restoration and remediation.
A number of pending or anticipated governmental proceedings against
certain BP group companies under environmental laws could result in
monetary or other sanctions. Group companies are also subject to
environmental claims for personal injury and property damage alleging
the release of, or exposure to, hazardous substances. The costs
associated with future environmental remediation obligations,
governmental proceedings and claims could be significant and may be
material to the results of operations in the period in which they are
recognized. We cannot accurately predict the effects of future
developments, such as stricter environmental laws or enforcement
policies, or future events at our facilities, on the group, and there can be
no assurance that material liabilities and costs will not be incurred in the
future. For a discussion of the group’s environmental expenditure see
page 233.
A significant proportion of our fixed assets are located in the US and the
EU. US and EU environmental, health and safety regulations significantly
affect BP’s operations. Significant legislation and regulation in the US
and the EU affecting our businesses and profitability includes the
following:
United States
• The Clean Air Act (CAA) regulates air emissions, permitting, fuel
specifications and other aspects of our production, distribution and
marketing activities. Stricter limits on sulphur in fuels will affect us in
future, as will actions on greenhouse gas (GHG) emissions and other
air pollutants. The revised lower ambient air quality standard for ozone,
finalized by the Environmental Protection Agency (EPA) in October
2015, as well as proposed new restrictions on methane and volatile
organic emissions and on gas flaring, will affect our US operations in
the future. States may also have separate, stricter air emission laws in
addition to the CAA.
• The Energy Policy Act of 2005 and the Energy Independence and
Security Act of 2007 affect our US fuel markets by, among other
things, imposing renewable fuel mandates and imposing GHG
emissions thresholds for certain renewable fuels. States such as
California also impose additional carbon fuel standards as well as Low
Emission Vehicle (LEV) and Zero Emission Vehicle (ZEV) standards
imposed on vehicle manufacturers. These regulations will have an
impact on fuel demand and product mix in California and those states
adopting LEV and ZEV standards.
• The Clean Water Act regulates wastewater and other effluent
discharges from BP’s facilities, and BP is required to obtain discharge
permits, install control equipment and implement operational controls
and preventative measures.
• The Resource Conservation and Recovery Act regulates the
generation, storage, transportation and disposal of wastes associated
with our operations and can require corrective action at locations
where such wastes have been disposed of or released.
• The Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) can, in certain circumstances, impose the entire
cost of investigation and remediation on a party who owned or
operated a site contaminated with a hazardous substance, or arranged
for disposal of a hazardous substance at a site. BP has incurred, or is
likely to incur, liability under the CERCLA or similar state laws,
including costs attributed to insolvent or unidentified parties. BP is also
subject to claims for remediation costs under other federal and state
laws, and to claims for natural resource damages under the CERCLA,
the Oil Pollution Act of 1990 (OPA 90) (discussed below) and other
federal and state laws. CERCLA also requires notification of releases of
hazardous substances to national, state and local government
agencies, as applicable. In addition, the Emergency Planning and
Community Right-to-Know Act requires notification of releases of
designated quantities of certain listed hazardous substances to state
and local government agencies, as applicable.
• The Toxic Substances Control Act regulates BP’s manufacture, import,
export, sale and use of chemical substances and products.
• The Occupational Safety and Health Act imposes workplace safety and
health requirements on BP operations along with significant process
safety management obligations, requiring continuous evaluation and
improvement of operational practices to enhance safety and reduce
workplace emissions at gas processing and refining facilities.
• In May 2012, the US adopted the UN Global Harmonization System
(GHS) for hazard classification and labelling of chemicals and products,
with the modification of the Occupational Safety & Health
Administration (OSHA) Hazard Communication Standard. This required
BP to reassess the hazards of all of its chemicals and products against
new GHS criteria as adopted or modified by OSHA and warning labels
and safety data sheets were updated accordingly by 1 June 2015.
• The US Department of Transportation (DOT) regulates the transport of
BP’s petroleum products such as crude oil, gasoline, petrochemicals
and other hydrocarbon liquids.
234 BP Annual Report and Form 20-F 2015