BP 2007 Annual Report Download - page 153

BP ANNUAL REPORT AND ACCOUNTS 2007 151
37 Provisions
$ million
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Litigation
Decommissioning Environmental and other Total
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At 1 January 2007 8,365 2,127 3,152 13,644
Exchange adjustments 168 19 11 198
New or increased provisions 1,163 373 1,376 2,912
Write-back of unused provisions – (151) (196) (347)
Unwinding of discount 195 44 44 283
Utilization (297) (305) (899) (1,501)
Deletions (93) – (1) (94)
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At 31 December 2007 9,501 2,107 3,487 15,095
Of which – expected to be incurred within 1 year 447 431 1,317 2,195
– expected to be incurred in more than 1 year 9,054 1,676 2,170 12,900
$ million
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Litigation
Decommissioning Environmental and other Total
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At 1 January 2006 6,450 2,311 2,295 11,056
Exchange adjustments 13 31 44 88
New or increased provisions 2,142 423 2,111 4,676
Write-back of unused provisions – (355) (270) (625)
Unwinding of discount 153 45 47 245
Utilization (179) (324) (1,068) (1,571)
Deletions (214) (4) (7) (225)
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At 31 December 2006 8,365 2,127 3,152 13,644
Of which – expected to be incurred within 1 year 324 444 1,164 1,932
– expected to be incurred in more than 1 year 8,041 1,683 1,988 11,712
The group makes full provision for the future cost of decommissioning oil and natural gas production facilities and related pipelines on a discounted
basis on the installation of those facilities. The provision for the costs of decommissioning these production facilities and pipelines at the end of their
economic lives has been estimated using existing technology, at current prices and discounted using a real discount rate of 2.0% (2006 2.0%). These
costs are generally expected to be incurred over the next 30 years. While the provision is based on the best estimate of future costs and the
economic lives of the facilities and pipelines, there is uncertainty regarding both the amount and timing of incurring these costs.
Provisions for environmental remediation are made when a clean-up is probable and the amount is reliably determinable. Generally, this coincides
with commitment to a formal plan of action or, if earlier, on divestment or closure of inactive sites. The provision for environmental liabilities has been
estimated using existing technology, at current prices and discounted using a real discount rate of 2.0% (2006 2.0%). The majority of these costs are
expected to be incurred over the next 10 years. The extent and cost of future remediation programmes are inherently difficult to estimate. They
depend on the scale of any possible contamination, the timing and extent of corrective actions, and also the group’s share of the liability.
Included within the litigation and other category at 31 December 2007 are provisions for litigation of $1,737 million (2006 $1,474 million) for deferred
employee compensation of $761 million (2006 $760 million) and provisions for expected rental shortfalls on surplus properties of $320 million (2006
$320 million). New or increased provisions made for 2007 included an amount of $500 million (2006 $925 million) in respect of the Texas City incident,
of which, disbursements to claimants in 2007 were $314 million (2006 $863 million) and the provision at 31 December 2007 was $456 million (2006
$270 million).
To the extent that these liabilities are not expected to be settled within the next three years, the provisions are discounted using either a nominal
discount rate of 4.5% (2006 4.5%) or a real discount rate of 2.0% (2006 2.0%), as appropriate.