BP 2005 Annual Report Download - page 104

102 Making energy more
Notes on financial statements continued
48 Contingent liabilities
There were contingent liabilities at 31 December 2005 in respect of guarantees and indemnities entered into as part of the ordinary course of the
group’s business. No material losses are likely to arise from such contingent liabilities. Group companies have issued guarantees under which
amounts outstanding at 31 December 2005 were $1,228 million (2004 $1,281 million and 2003 $635 million) in respect of borrowings of jointly
controlled entities and associates and $736 million (2004 $650 million and 2003 $304 million) in respect of liabilities of other third parties.
Approximately 200 lawsuits were filed in State and Federal Courts in Alaska seeking compensatory and punitive damages arising out of the Exxon Valdez
oil spill in Prince William Sound in March 1989. Most of those suits named Exxon (now ExxonMobil), Alyeska Pipeline Service Company (Alyeska), which
operates the oil terminal at Valdez, and the other oil companies that own Alyeska. Alyeska initially responded to the spill until the response was taken over by
Exxon. BP owns a 47% interest (reduced during 2001 from 50% by a sale of 3% to Phillips) in Alyeska through a subsidiary of BP America Inc. and briefly
indirectly owned a further 20% interest in Alyeska following BP’s combination with Atlantic Richfield Company (Atlantic Richfield). Alyeska and its owners
have settled all the claims against them under these lawsuits. Exxon has indicated that it may file a claim for contribution against Alyeska for a portion of the
costs and damages which it has incurred. If any claims are asserted by Exxon that affect Alyeska and its owners, BP will defend the claims vigorously.
Since 1987, Atlantic Richfield, a current subsidiary of BP, has been named as a co-defendant in numerous lawsuits brought in the US alleging
injury to persons and property caused by lead pigment in paint. The majority of the lawsuits have been abandoned or dismissed as against Atlantic
Richfield. Atlantic Richfield is named in these lawsuits as alleged successor to International Smelting & Refining which, along with a predecessor
company, manufactured lead pigment during the period 1920-1946. Plaintiffs include individuals and governmental entities. Several of the lawsuits
purport to be class actions. The lawsuits (depending on plaintiff) seek various remedies, including: compensation to lead-poisoned children; cost to
find and remove lead paint from buildings; medical monitoring and screening programmes; public warning and education on lead hazards;
reimbursement of government healthcare costs and special education for lead-poisoned citizens; and punitive damages. No lawsuit against Atlantic
Richfield has been settled nor has Atlantic Richfield been subject to a final adverse judgement in any proceeding. The amounts claimed and, if such
suits were successful, the costs of implementing the remedies sought in the various cases could be substantial. While it is not possible to predict
the outcome of these legal actions, Atlantic Richfield believes that it has valid defences and it intends to defend such actions vigorously and thus
the incurrence of a liability by Atlantic Richfield is remote. Consequently, BP believes that the impact of these lawsuits on the group’s results of
operations, financial position or liquidity will not be material.
In addition, various group companies are parties to legal actions and claims that arise in the ordinary course of the group’s business. While the
outcome of such legal proceedings cannot be readily foreseen, BP believes that they will be resolved without material effect on the group’s results
of operations, financial position or liquidity.
The group is subject to numerous national and local environmental laws and regulations concerning its products, operations and other activities.
These laws and regulations may require the group to take future action to remediate the effects on the environment of prior disposal or release of
chemicals or petroleum substances by the group or other parties. Such contingencies may exist for various sites including refineries, chemical
plants, oil fields, service stations, terminals and waste disposal sites. In addition, the group may have obligations relating to prior asset sales or
closed facilities. The ultimate requirement for remediation and its cost are inherently difficult to estimate. However, the estimated cost of known
environmental obligations has been provided in these accounts in accordance with the group’s accounting policies. While the amounts of future
costs could be significant and could be material to the group’s results of operations in the period in which they are recognized, BP does not expect
these costs to have a material effect on the group’s financial position or liquidity.
The group generally restricts its purchase of insurance to situations where this is required for legal or contractual reasons. This is because
external insurance is not considered an economic means of financing losses for the group. Losses will therefore be borne as they arise rather than
being spread over time through insurance premiums with attendant transaction costs. The position is reviewed periodically.
49 Capital commitments
Authorized future capital expenditure for property, plant and equipment by group companies for which contracts had been placed at 31 December
2005 amounted to $7,596 million (2004 $6,765 million and 2003 $6,420 million). Capital commitments of equity-accounted entities amounted to
$733 million (2004 $2,056 million and 2003 $1,175 million).