BP 2008 Annual Report Download - page 159

BP Annual Report and Accounts 2008
Notes on financial statements
37. Provisions
$ million
Litigation
Decommissioning Environmental and other Total
At 1 January 2008 9,501 2,107 3,487 15,095
Exchange adjustments (1,208) (45) (107) (1,360)
New or increased provisions 327 270 2,059 2,656
Write-back of unused provisions – (107) (513) (620)
Unwinding of discount 202 43 42 287
Utilization (402) (512) (1,424) (2,338)
Deletions (2) (65) – (67)
At 31 December 2008 8,418 1,691 3,544 13,653
Of which – expected to be incurred within 1 year 322 418 805 1,545
– expected to be incurred in more than 1 year 8,096 1,273 2,739 12,108
$ million
Litigation
Decommissioning Environmental and other Total
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)
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
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 or long-term assumptions, depending on the expected timing of the
activity, and discounted using a real discount rate of 2.0% (2007 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. Where BP has entered into a contract for the execution of decommissioning activity, these
amounts are generally reported within accruals or other payables.
Provisions for environmental remediation are made when a clean-up is probable and the amount of the obligation can be reliably estimated.
Generally, this coincides with commitment to a formal plan of action or, if earlier, on divestment or on 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% (2007 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 2008 are provisions for litigation of $1,446 million (2007 $1,737 million), for
deferred employee compensation of $792 million (2007 $761 million) and for expected rental shortfalls on surplus properties of $251 million (2007
$320 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 2.5% (2007 4.5%) or a real discount rate of 2.0% (2007 2.0%), as appropriate. No additional provisions were made during
2008 in respect of the Texas City incident (in 2007 the provision was increased by $500 million). Disbursements to claimants in 2008 were $410 million
(2007 $314 million) and the provision at 31 December 2008 was $46 million (2007 $456 million).
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