BP 2009 Annual Report Download - page 162

BP Annual Report and Accounts 2009
Notes on financial statements
34. Provisions
160
$ million
Decommissioning Environmental Litigation Other Total
At 1 January 2009 8,418 1,691 1,446 2,098 13,653
Exchange adjustments 398 15 22 29 464
New or increased provisions 169 588 302 1,256 2,315
Write-back of unused provisions – (259) (99) (228) (586)
Unwinding of discount 184 32 15 16 247
Change in discount rate 324 18 (35) 8 315
Utilization (383) (308) (574) (361) (1,626)
Deletions (90) (58) (1) (3) (152)
At 31 December 2009 9,020 1,719 1,076 2,815 14,630
Of which – expected to be incurred within 1 year 287 368 433 572 1,660
– expected to be incurred in more than 1 year 8,733 1,351 643 2,243 12,970
$ million
Decommissioning Environmental Litigation Other Total
At 1 January 2008 9,501 2,107 1,737 1,750 15,095
Exchange adjustments (1,208) (45) (1) (106) (1,360)
New or increased provisions 327 270 886 1,173 2,656
Write-back of unused provisions – (107) (383) (130) (620)
Unwinding of discount 202 43 22 20 287
Utilization (402) (512) (815) (609) (2,338)
Deletions (2) (65) – – (67)
At 31 December 2008 8,418 1,691 1,446 2,098 13,653
Of which – expected to be incurred within 1 year 322 418 521 284 1,545
– expected to be incurred in more than 1 year 8,096 1,273 925 1,814 12,108
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 1.75% (2008 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 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 1.75% (2008
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.
The litigation category includes provisions for matters related to, for example, commercial disputes, product liability, and allegations of
exposures of third parties to toxic substances. Included within the other category at 31 December 2009 are provisions for deferred employee
compensation of $789 million (2008 $792 million) and for expected rental shortfalls on surplus properties of $246 million (2008 $251 million). These
provisions are discounted using either a nominal discount rate of 4.0% (2008 2.5%) or a real discount rate of 1.75% (2008 2.0%), as appropriate.