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Annual Report
and Form 20-F
2010
bp.com/annualreport
What’s inside?
5 Business review
6 Chairman’s letter
8 Board of directors
10 Group chief executive’s letter
12 Progress in 2010
14 Group overview
34 Gulf of Mexico oil spill
40 Exploration and Production
55 Refining and Marketing
61 Other businesses and corporate
63 Liquidity and capital resources
68 Corporate responsibility
76 Research and technology
78 Regulation of the group’s business
81 Certain definitions
83 Directors and senior management
84 Directors and senior management
87 Directors’ interests
89 Corporate governance
90 Board performance report
105 Corporate governance practices
106 Code of ethics
106 Controls and procedures
107 Principal accountants’ fees and services
108 Memorandum and Articles of Association
111 Directors’ remuneration report
112 Part 1 Summary
114 Part 2 Executive directors’ remuneration
120 Part 3 Non-executive directors’ remuneration
123 Additional information for
shareholders
124 Critical accounting policies
127 Property, plants and equipment
127 Share ownership
128 Major shareholders and related party transactions
129 Dividends
130 Legal proceedings
133 Relationships with suppliers and contractors
134 Share prices and listings
135 Material contracts
135 Exchange controls
135 Taxation
137 Documents on display
137 Purchases of equity securities by the issuer
and affiliated purchasers
138 Fees and charges payable by a holder of ADSs
138 Fees and payments made by the Depositary
to the issuer
139 Called-up share capital
139 Administration
139 Annual general meeting
140 Exhibits
141 Financial statements
142 Consolidated financial statements of the BP group
150 Notes on financial statements
228 Supplementary information on oil and natural gas
(unaudited)
PC1 Parent company financial statements of BP p.l.c.

Table of contents

  • Page 1
    ...Chairman's letter Board of directors Group chief executive's letter Progress in 2010 Group overview Gulf of Mexico oil spill Exploration and Production Refining and Marketing Other businesses and corporate Liquidity and capital resources Corporate responsibility Research and technology Regulation of...

  • Page 2

  • Page 3
    ... number and Address of Company Contact Person) Securities registered or to be registered pursuant to Section 12(b) of the Act Title of each class Name of each exchange on which registered Ordinary Shares of 25c each New York Stock Exchange* Floating Rate Guaranteed Notes due 2011 New York Stock...

  • Page 4
    ... the Listing Standards for Audit Committees n/a Purchases of Equity Securities by the Issuer and Affiliated Purchasers 137 Change in Registrant's Certifying Accountant None Corporate governance 105 Financial Statements n/a Financial Statements 144-227, 228-248 Exhibits 140 BP Annual Report...

  • Page 5
    ...the BP group. Control is the power to govern the financial and operating policies of an entity so as to obtain the benefits from its activities. Cent or c One-hundredth of the US dollar. London Stock Exchange or LSE London Stock Exchange plc. The company BP p.l.c. LPG Liquefied petroleum gas...

  • Page 6
    ... equity capital sf BP p.l.c., bsth direct and indirect. As BP shares, in the fsrm sf ADSs, are listed sn the New Ysrk Stsck Exchange (NYSE), an Annual Repsrt sn Fsrm 20-F is filed with the US Securities and Exchange Csmmissisn (SEC). Cautionary statement BP Annual Report and Form 20-F 2010 csntains...

  • Page 7
    ... of directors B 63 Liquidity and capital resources 68 Corporate responsibility 76 Research and technology 78 Regulation of the group's business 81 Certain definitions Business review 10 Group chief executive's letter 12 Progress in 2010 14 Group overview 34 Gulf of Mexico oil spill...

  • Page 8
    ... pay all legitimate claims for compensation. For the long term, we have committed $500 million to a 10-year independent research programme that will examine the environmental impact of the oil spilled and dispersants used. BP will continue to help restore the environment and economy of the Gulf...

  • Page 9
    ... 12 months, BP is a changed company. As a board we have much to do, and we are working with the executive team to ensure successful implementation of a refocused strategy built on the pillars of safety, trust and value creation. Foremost is the need to ensure the right checks and balances are in...

  • Page 10
    ... Dr Byron Grote Chief pinancial Officer Bob Dudley Group Chief Executive Douglas Flint Non-Executive Director George David Non-Executive Director Cynthia Carroll Non-Executive Director Paul Anderson Non-Executive Director Frank Bowman Non-Executive Director 8 BP Annual Report and porm 20-p 2010

  • Page 11
    BP Annual Report and Form 20-F 2010 9

  • Page 12
    ...grants during 2010, which included behavioural health programmes. We set up the $20-billion Deepwater Horizon Oil Spill Trust to meet individual, business, government, local and state claims, and natural resource damages. We provided $500 million for the Gulf of Mexico Research Initiative, which...

  • Page 13
    ... even more active approach to buying, developing and selling upstream assets, with a focus on maximizing returns rather than building volume. And we are divesting roughly half of our US refining capacity, so we can focus downstream investments on refining positions and marketing businesses where we...

  • Page 14
    ... the Gulf of Mexi)o oil spill and the response effort due to our relu)tan)e to report data that has su)h a high degree of un)ertainty. We aim to manage our GHG emissions through a fo)us on operational energy effi)ien)y and redu)tions in flaring and venting. a See BP Sustainability Review 2010 for...

  • Page 15
    ...quisitions and a strategi) fo)us on in)reasing resour)es from fields we )urrently operate. Dividends paid per ordinary share This measure shows the total dividend per share paid to ordinary shareholders in the year. In June 2010 the BP board reviewed its dividend poli)y in light of the Gulf of Mexi...

  • Page 16
    Business review Group overview Our organization BP is one of the world's leading international oil and gas companies.a We operate or market our products in more than 80 countries, providing our customers with fuel for transportation, energy for heat and light, retail services and ...

  • Page 17
    ... integrated fuels value chains. Business review Where we operate BP's worldwide headquarters is in London. The UK is a centre for trading, legal, finance and other business functions as well as three of BP's major global research and technology groups. We have well-established operations in Europe...

  • Page 18
    ...Hub gas price (First of Month Index) Global indicator refining margin (GIM)b 150 120 90 60 30 2004 2005 2006 2007 2008 2009 2010 Source: Platts/BP. Crude oil prices Dated Brent for the year averaged $79.50 per barrel, about 29% above 2009's average of $61.67 per barrel. Prices traded...

  • Page 19
    ... UK National Balancing Point increased by 38% to an average of 42.45 pence per therm for 2010. Yet plentiful global LNG supply kept spot gas prices below oil-indexed contract levels for most of the year, causing competition with contract pipeline supplies and marginal European gas production. UK...

  • Page 20
    ... 12 10 8 6 4 2 1990 2000 2010 2020 2030 Renewables* Hydro Nuclear Coal Gas Oil 18 16 14 12 10 8 6 4 2 1990 2000 2010 2020 2030 Source: BP Energy Outlook 2030 *Includes biofuels. Long-term outlook Over the long term, global demand for primary energy is expected to continue to grow, but less...

  • Page 21
    ... cents per share. The board believes this is an affordable and sustainable level which will allow the company to meet its commitments while continuing to invest in the business for growth and value. Delivering the right high-quality portfolio As part of the response to the Gulf of Mexico incident...

  • Page 22
    ... group - we will continue to develop group leadership and senior management teams, and focus recruitment on individuals with strong operational and technical expertise. Focus on exploration and high-quality earnings Through our strategy we aim to deliver value growth for shareholders by investing...

  • Page 23
    ...b Operating and financial performance Our results in 2010 were greatly impacted by the charge recorded for the Gulf of Mexico oil spill incident. Steps were taken to strengthen the balance sheet, including a programme of asset disposals, with very good progress made. Cash and cash equivalents at...

  • Page 24
    Business review Oil and natural gas production and net proved reservesa 2010 2009 2008 2007 2006 Crude oil production for subsidiaries (thousand barrels per day) Crude oil production for equity-accounted entities (thousand barrels per day) Natural gas production for ...

  • Page 25
    ... review Selected financial informationa 2010 2009 $ million except per share amounts 2008 2007 2006* Income statement data Sales and other operating revenues from continuing operationsb Replacement cost profit (loss) before interest and taxc By business Exploration and Production...

  • Page 26
    ...-operating items and fair value accounting effects can be found on pages 25-26. See Gulf of Mexico oil spill on page 34 and in Financial statements - Note 2 on page 158 for further information on the impact of the Gulf of Mexico oil spill on BP's financial results. See Exploration and Production...

  • Page 27
    ...Coast fuels value chain. Finance costs relate to the Gulf of Mexico oil spill. See Financial statements - Note 2 on page 158 for further details. c T ax is calculated by applying discrete quarterly effective tax rates (excluding the impact of the Gulf of Mexico oil spill) on group profit or loss...

  • Page 28
    ... quarterly effective tax rates (excluding the impact of the Gulf of Mexico oil spill) on group profit or loss, to the fair value accounting effects as they arise each quarter. Reconciliation of non-GAAP information 2010 2009 $ million 2008 Exploration and Production Replacement cost profit...

  • Page 29
    ...the Gulf of Mexico oil spill has damaged BP's reputation, which may have a long-term impact on the group's ability to access new opportunities, both in the US and elsewhere. Adverse public, political and industry sentiment towards BP , and towards oil and gas drilling activities generally, could...

  • Page 30
    ...liquidity and cash flows. For example, BP has borne and will continue to bear the entire burden of its share of any property damage, well control, pollution clean-up and third-party liability expenses arising out of the Gulf of Mexico oil spill incident. 28 BP Annual Report and Form 20-F 2010

  • Page 31
    ... expected to continue to have, a material adverse impact on the group's business. Under the OPA 90 BP Exploration & Production Inc. is one of the parties financially responsible for the clean-up of the Gulf of Mexico oil spill and for certain economic damages as provided for in OPA 90, as well as...

  • Page 32
    ... shortfalls, BP implemented a group-wide operating management system (OMS). The embedding of OMS continues and following the Gulf of Mexico oil spill an enhanced S&OR function is being 30 BP Annual Report and Form 20-F 2010 established, reporting directly to the group chief executive. There...

  • Page 33
    ...significant operational incident, and the group could be required to reduce planned capital expenditures and/or increase asset disposals in order to provide additional liquidity, as the group did following the Gulf of Mexico oil spill. Business review BP Annual Report and Form 20-F 2010 31

  • Page 34
    .... Our systems of control The board is responsible for the direction and oversight of BP. The board has set an overall goal for BP , which is to maximize long-term shareholder value through the allocation of its resources to activities in the oil, natural gas, petrochemicals and energy businesses...

  • Page 35
    ... ('Sanctioned Countries'). These activities continue to be insignificant to the group's financial condition and results of operations. In the first half of 2010, new sanctions against Iran and against companies that make investments that enhance Iran's ability to develop petroleum resources or...

  • Page 36
    ... of first quarter in 2011), were completed on 8 January with the recovery of the buoy and anchor system for the free-standing riser. The group income statement for the year ended 31 December 2010 includes a pre-tax charge of $40.9 billion in relation to the Gulf of Mexico oil spill. See Financial...

  • Page 37
    ... of oil by activating the various components of the BOP continued until 5 May, while plans and tools for potential containment options were being developed in parallel. From 5 May BP attempted to contain the flow of oil using a number of different strategies. Firstly, one of the three leak points...

  • Page 38
    ... increasing regional collaboration to enhance the ecological and economic health of the Gulf of Mexico), we have established the Gulf of Mexico Research Initiative (GRI) providing $500 million to study and monitor the spill's potential long-term impacts on the environment and local public health...

  • Page 39
    ... learned from the Gulf of Mexico incident. • Establish BP's in-house expertise in the areas of subsea BOPs and BOP control systems through the creation of a central expert team, including a defined segment engineering technical authority role to provide independent assurance of the integrity...

  • Page 40
    ... entity; safeguarding the environment by increasing support for environmental science and regulatory review related to Outer Continental Shelf oil and gas activities; strengthening spill response planning and capacity; advancing wellcontainment capabilities by increasing government expertise and...

  • Page 41
    ... information, see Risk factors on pages 27-32. Business review BP's long-term commitment to the Gulf of Mexico region The Gulf of Mexico incident has had a profound impact on the people and economy of the Gulf coast as well as the offshore energy industry and BP. From the beginning, BP has worked...

  • Page 42
    ..., South America and Africa, as well as gas marketing and trading activities, primarily in Canada, Europe and the US. Upstream activities involve oil and natural gas exploration and field development and production. Our exploration programme is currently focused on Egypt, the deepwater Gulf of...

  • Page 43
    ... focus on personal and process safety including operational integrity, health and all aspects of compliance. In 2010, excluding the impact of the Gulf of Mexico oil spill, further information on which can be found on page 34, Exploration and Production had one workforce fatality. BP Annual...

  • Page 44
    ...higher earnings from equity-accounted entities, mainly TNK-BP, partly offset by lower production, a significantly lower contribution from gas marketing and trading and higher production taxes. Total capital expenditure including acquisitions and asset exchanges in 2010 was $17.8 billion (2009 $14...

  • Page 45
    ...exploration success that results in development of commercial discoveries. Reliance will continue to be the operator under the production-sharing contracts. Completion of the transactions is subject to Indian regulatory approvals and other customary conditions. Business review BP Annual Report...

  • Page 46
    ... financial effect of these intended transactions. The following discussion reviews operations in our Exploration and Production business by continent and country, and lists associated significant events that occurred in 2010. Where relevant, BP's percentage working interest in oil and gas assets...

  • Page 47
    ...the new facility scheduled for early 2012. North America United States Our activities within the US take place in three main areas: deepwater Gulf of Mexico, Lower 48 states and Alaska. Deepwater Gulf of Mexico For further information on the impact of the Gulf of Mexico oil spill and BP's response...

  • Page 48
    Business review South America Trinidad & Tobago BP holds exploration and production licences covering 904,000 acres offshore of the east coast. Facilities include 13 offshore platforms and one onshore processing facility. Production comprises oil, gas and NGLs. • On 21 April 2010, BP ...

  • Page 49
    ...50%), is an integrated oil company operating in Russia and Ukraine. BP's investment in TNK-BP is reported in the Exploration and Production segment. The TNK-BP group's major assets are held in OAO TNK-BP Holding. Other assets include the BP-branded retail sites in the Moscow region and interests...

  • Page 50
    ...-term development of hydrocarbon resources in the block, and the commissioning of early well test facilities. Iraq Following a successful bid with PetroChina to run the Rumaila oil field in June 2009, the technical service contract (TSC) became effective on 17 December 2009. BP holds a 38% share...

  • Page 51
    ... LNG becoming more liquid. The supply and trading function supported the group through a period of uncertainty in the credit markets concerning BP's financial position during the Gulf of Mexico oil spill. See footnote a on page 48. Business review BP Annual Report and Form 20-F 2010 49

  • Page 52
    ...in relation to our oil and gas operations. Average sales price per unit of production Europe UK Rest of Europe North America US South America Africa Asia Russia Rest of Asia $ per unit of productiona Australasia Total group average...

  • Page 53
    ... estimates and the related financial impacts are reported in a timely manner. • Capital allocation processes, whereby delegated authority is exercised to commit to capital projects that are consistent with the delivery of the group's business plan. A formal review process exists to ensure...

  • Page 54
    ..., as well as changes in oil and gas prices, changes in operating and development costs and the continued availability of additional development capital. All the group's proved reserves held in subsidiaries and equity-accounted entities are estimated by the group's petroleum engineers. Our...

  • Page 55
    Business review www.bp.com/downloads/oilandgasproduction BP's net production by major field for 2010, 2009 and 2008. Liquids thousand barrels per day Subsidiaries Field or area 2090 BP net share of productiona 2009 2008 UKb ETAPc Foinavend Other Various Total UK Norwayb Total Rest of Europe ...

  • Page 56
    Business review Natural gas million cubic feet per day BP net share of productiona Field or area 2010 2009 2008 Subsidiaries UKb Total UK b Norway Total Rest of Europe Total Europe Lower 48 onshoreb Total Lower 48 onshore Gulf of Mexico deepwaterb ...

  • Page 57
    ... cost profit for 2009 with that of 2012, after adjusting for non-operating items, fair value accounting effects and the impact of changes in the refining margin environment, foreign exchange impacts and price-lag effects for crude and product purchases. BP Annual Report and Form 20-F 2010 55

  • Page 58
    ... average severity of the process safety-related LOPC events has reduced relative to 2009. 56 BP Annual Report and Form 20-F 2010 Sale of crude oil through spot and term contracts Marketing, spot and term sales of refined products Other sales and operating revenues 44,290 209...

  • Page 59
    ... our West Coast FVC. Business review The following table summarizes the BP group's interests in refineries and average daily crude distillation capacities at 31 December 2010. Refinery Fuels value chain Group interestb % thousand barrels per day Crude distillation capacitiesa Total BP...

  • Page 60
    ... of OPEC crude supply availability, refining and storage spare capacity. The supply and trading function supported the group through a period of uncertainty in the credit markets concerning BP's financial position following the Gulf of Mexico oil spill. 58 BP Annual Report and Form 20-F 2010

  • Page 61
    ... positions in order to deliver value to its customers and outperform its competitors. In 2010, the IBs accounted for just under a quarter of the segment's operating capital employeda and just over half of the replacement cost profit. Marketing sales in the international businesses include sales...

  • Page 62
    .... The LPG business sells bulk, bottled, automotive and wholesale LPG products in 10 countries, with annual sales in excess of 50 thousand barrels per day. During the past few years, we have introduced new 60 BP Annual Report and Form 20-F 2010 consumer offers in established markets, developed...

  • Page 63
    ...of 2008 were a weaker margin environment for Shipping and our BP Solar business and adverse foreign exchange effects. Key statistics 2010 2009 $ million 2008 Business review Sales and other operating revenuesa Replacement cost profit (loss) before interest and taxb Capital expenditure...

  • Page 64
    ...BP Solar will maintain its US presence in sales and marketing, research and technology, project development, and key business support activities. In support of our manufacturing restructuring, we have signed a number of strategic cell supply agreements with suppliers, including JA Solar Holdings...

  • Page 65
    ...international financial markets and supports the financing of BP's projects around the world. Treasury trades foreign exchange and interest rate products in the financial markets, hedging group exposures and generating incremental value through optimizing and managing cash flows. For information...

  • Page 66
    ... of BP. During 2010 and 2009, the company did not repurchase any of its own shares. Financing the group's activities A summary of financing activities during 2010 following the Gulf of Mexico oil spill is included on page 63. The group's principal commodity, oil, is priced internationally in...

  • Page 67
    ... the balance sheet. b he amounts are undiscounted. Environmental liabilities include those relating to the Gulf of Mexico oil spill, including liabilities for spill response costs. T c R epresents the expected future contributions to funded pension plans and payments by the group for unfunded...

  • Page 68
    ... Mexico oil spill. Excluding the impacts of the Gulf of Mexico oil spill, profit before taxation increased by $10,986 million and a decrease in working capital requirements contributed $842 million. This higher profit before tax did not result in an equivalent net increase in operating cash flow...

  • Page 69
    ... for oil and gas markets, oil and gas prices, refining margins, production, demand for petrochemicals products, effective tax rate, operating and capital expenditure, timing and proceeds of divestments, contractual commitments, balance of cash inflows and outflows, net debt ratio, and dividend...

  • Page 70
    ...group's OMS. While the business line continues to be accountable for operational delivery, S&OR holds the authority to intervene in safety and operational risk aspects of BP's technical and operational activities. Governance processes The board's safety, ethics and environment assurance committee...

  • Page 71
    ... in the third quarter of 2011. See Subsequent actions to date on page 68 for information about our immediate activities to further strengthen our oil spill prevention, containment and response capability. Process safety management Process safety involves applying good design principles, along...

  • Page 72
    ... incident response, process safety and personal safety performance continued to be a major focus for executive management. The Fourth Report stated that, during the year, group-level activities continued to focus on the development and enhancement of competency and capability programs, effective...

  • Page 73
    ... defining safety requirements in contracts. As a result of the Gulf of Mexico accident, which involved multiple contracting partners, we are reviewing how best to provide consistent and effective contractor oversight. This process began in late 2010 and will be focusing on the way we work with...

  • Page 74
    ... well as the MWCC. In addition to the MWCC, we work with all of the other seven major international spill response organizations in the world. See Gulf of Mexico oil spill on pages 34-39 for further information on BP's response to the incident. Gulf of Mexico - environmental impact and long-term...

  • Page 75
    ...which include increasing our capability to manage emerging water risks and engaging with external organizations to develop sustainable water management practices. Business review $ million 2010 2009 2008 Environmental expenditure relating to the Gulf of Mexico oil spill Spill response...

  • Page 76
    ...and Production, integrated through a Strategy and Integration function. The group people committee, chaired by the group chief executive continues to take overall responsibility for policy decisions relating to employees. In 2010, this included senior-level talent reviews and succession planning...

  • Page 77
    ...the law. Business review Social and community issues We strive to make our impact on society and communities a positive one by running our operations responsibly and by investing in communities in ways that benefit both local populations and BP. Managing our impact We believe each BP project has...

  • Page 78
    ... microbial biodegradation of the oil spill in the Gulf of Mexico. • BP is a founding member of the UK's Energy Technologies Institute (ETI) - a public / private partnership established in 2008 to accelerate low-carbon technology development. As at 31 December 2010, the ETI had commissioned...

  • Page 79
    ... centre in Johannesburg, South Africa. Both represent the first investments of their type in those countries for an international oil company and underpin BP's commitment to these important markets. • O ur proprietary processing technologies and operational experience continue to reduce the...

  • Page 80
    ... acquisition, production rates, royalties, environmental, health and safety protection, fuel specifications and transportation, trading, pricing, anti-trust, export, taxes and foreign exchange. The terms and conditions of the leases, licences and contracts under which our oil and gas interests...

  • Page 81
    ... of our products. Business review US and EU regulations Approximately 62% of our fixed assets are located in the US and the EU. US and EU environment, health and safety regulations significantly affect BP's exploration and production, refining, marketing, transportation and shipping operations...

  • Page 82
    ... on page 132. Various environmental groups and the EPA have challenged certain aspects of the operating permit issued by the Indiana Department of Environmental Management (IDEM) for our upgrades to the Whiting refinery. In response to these challenges, the IDEM has reviewed the permits and...

  • Page 83
    ... of the group excluding the impact of oil price changes on the replacement of inventories, and to make comparisons of operating performance between reporting periods, BP's management believes it is helpful to disclose this information. Business review BP Annual Report and Form 20-F 2010 81

  • Page 84
    ...Non-GAAP information on fair value accounting effects BP uses derivative instruments to manage the economic exposure relating to inventories above normal operating requirements of crude oil, natural gas and petroleum products as well as certain contracts to supply physical volumes at future dates...

  • Page 85
    Directors and senior management 84 Directors and senior management 87 Directors' interests Directors and senior management BP Annual Report and Form 20-F 2010 83

  • Page 86
    ... H Schuster has been appointed as executive vice president, human resources, in succession to Mrs S Bott with effect from 1 March 2011. David Jackson (58) was appointed company secretary in 2003. A solicitor, he is a director of BP Pension Trustees Limited. 84 BP Annual Report and Form 20-F 2010

  • Page 87
    ... appointed group finance director of HSBC Holdings plc and in 2009 his role was broadened to chief financial officer, executive director, risk and regulation. He was appointed chairman of HSBC with effect from 3 December 2010. He was chairman of the Financial Reporting Council's review of the...

  • Page 88
    ...BP's North America Gas business. In 2007, he became group vice president, Exploration and Production and a member of the exploration and production operating committee. In 2008, he became group head of safety and operations and in October 2010 he was appointed executive vice president of safety...

  • Page 89
    ... 2008 and then, in 2009, he became managing director of BP's North Sea business. In October 2010, he was appointed executive vice president, developments. H L McKay Lamar McKay (52) was appointed chairman and president of BP America, Inc. in 2009. He joined Amoco Production Company as a petroleum...

  • Page 90
    88 BP Annual Report and Form 20-F 2010

  • Page 91
    Corporate governance 90 Board performance report 105 Corporate governance practices 106 Code of ethics 106 Controls and procedures 107 Principal accountants' fees and services 108 Memorandum and Articles of Association Corporate governance BP Annual Report and Form 20-F 2010 89

  • Page 92
    ...regular review and we consider their effectiveness as part of the annual board evaluation. Board activities in 2010 Over the year, the board met 25 times as we responded both to events in the Gulf of Mexico and subsequently in the financial markets, meeting at least weekly as the crisis developed...

  • Page 93
    ... Gulf of Mexico led the board to undertake a review of strategy. Led by the group chief executive and his team, the board attempted to address the key challenge of how to regain shareholder value and address core issues, including: • Simplification (how to focus the company's operations across...

  • Page 94
    ... meeting GPC Group people committee Owners/shareholders BP Board Governance Principles BP goal Governance process Delegation model Executive limitations Board Monitoring, Information and Assurance Ernst & Young Internal audit Finance function Strategy/group risks/annual plan Safety & operational...

  • Page 95
    ... review of capital projects and their performance against investment criteria. BP's system of internal control Elements include: Board and executive governance of the group • Board governance principles, including executive limitations • Board committees • Executive committees • Group plan...

  • Page 96
    ... normally plans to hold one of its meetings at the company's offices in Washington and at least one meeting at or near one of the company's operational locations (enabling the opportunity for board site visits). In 2010, the board held one meeting in Washington but due to the increased number...

  • Page 97
    ... year in response to the outcome of the 2009 review included the scheduling of more informal sessions outside board meetings to maximize the utility of the time available for the board and an active planning of committee and board succession to ensure appropriate cross membership between related...

  • Page 98
    ... strategy. The company maintains a programme of engagement with a range of shareholders on issues relating to the group. Presentations given by the group to the investment community are available to download from the 'Investors' section of our website. We held our annual meeting with our largest...

  • Page 99
    ... its regular meetings at BP's UK trading operations and combined this with a visit to the trading floors which provided the opportunity to meet and put questions to employees. Members of the committee also visited the Gulf of Mexico. Corporate governance BP Annual Report and Form 20-F 2010 97

  • Page 100
    ... well as impairment reviews, a review of the delivery of major projects and the risk management and investment strategy relating to pensions and retirement benefits. During the year the chief financial officer reported on the work of the group financial risk committee - this is an executive-level...

  • Page 101
    .... The committee receives regular reports from the safety and operational risk function, including the quarterly reports prepared for executive management on the group's HSE performance and operational integrity. In 2010, excluding meeting time specifically addressing the Gulf of Mexico incident...

  • Page 102
    ... topics During the year, the committee examined the company's crisis response and continuity management plans. It also reviewed the risk identification and company's proposed mitigations relating to hydrocarbon product quality. Developments in the measurement of greenhouse gas emissions were...

  • Page 103
    ... separate business organization was set up to manage the group's long-term response to the incident - the Gulf Coast Restoration Organization (GCRO). The board subsequently created the Gulf of Mexico committee in recognition of the scale of the long-term response and to oversee the activities of...

  • Page 104
    ... 2 April 2010) Members who left during the year: Sir Ian Prosser (retired 15 April 2010) Committee role and structure The committee determines on behalf of the board the terms of engagement and remuneration of the group chief executive, the chairman and executive directors and to report on those...

  • Page 105
    ... chief executive. • Reviewing the structure and effectiveness of the business organization of BP. • Reviewing the systems for senior executive development and determining the succession plan for the group chief executive, executive directors and other senior members of executive management...

  • Page 106
    ...upon the retirement of Sir Ian Prosser from the board at the 2010 Annual General Meeting. Following the accident in the Gulf of Mexico, the committee kept under review the ability of BP's business organization to respond to the challenges that arose while ensuring there was continued focus on the...

  • Page 107
    ... US, BP ADSs are listed on the New York Stock Exchange (NYSE). The significant differences between BP's corporate governance practices as a UK company and those required by NYSE listing standards for US companies are listed as follows: Independence BP has adopted a robust set of board governance...

  • Page 108
    ... Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including the company's group chief executive and chief financial officer, as...

  • Page 109
    ...2010. Changes in internal control over financial reporting The material impact of the Gulf of Mexico oil spill on the financial results of the company presented challenges for the company's internal control over financial reporting. As discussed in the Business Review section, response operations...

  • Page 110
    ... by the remuneration committee. This committee is made up of non-executive directors only. There is no requirement of share ownership for a director's qualification. Dividend rights; other rights to share in company profits; capital calls If recommended by the directors of BP , BP shareholders may...

  • Page 111
    ... its orderly conduct and safety of those attending. Limitations on voting and shareholding There are no limitations imposed by English law or the company's Memorandum or Articles of Association on the right of non-residents or foreign persons to hold or vote the company's ordinary shares or BP...

  • Page 112
    110 BP Annual Report and Form 20-F 2010

  • Page 113
    Directors' remuneration report 112 Part 1 Summary 114 Part 2 Executive directors' remuneration 120 Part 3 Non-executive directors' remuneration Directors' remuneration report BP Annual Report and Form 20-F 2010 111

  • Page 114
    ... 10 years on the board, I would like to thank the shareholders both for their challenge and their support as the company has navigated through difficult, as well as successful, times. Summary of remuneration of executive directors in 2010 (information subject to audit) Annual remuneration Long-term...

  • Page 115
    ... • Final salary scheme appropriate to home country of executive. Directors' remuneration report Historical TSR performance Value of hypothetical £100 holding FTSE 100 BP 250 Remuneration of non-executive directors in 2010a 2009 £ thousand 2010 200 150 100 50 05 06 07 08...

  • Page 116
    ... of total remuneration is long term and varies with performance, with the largest elements share based, further aligning interests with shareholders. The committee reviews the pay policy and levels for executives below board, as well as pay and conditions of employees throughout the group. These...

  • Page 117
    ... agenda that has evolved in response to last year's events. This focuses on value creation, reinforcing safety and risk management, and rebuilding trust. Vesting of shares will be based 50% on BP's total shareholder return (TSR) compared to the other oil majors, reflecting the central importance...

  • Page 118
    ... paid from corporate assets. Their pension accrual for 2010, shown in the table below, takes into account the total amount that could be payable under relevant plans. Other benefits Executive directors are eligible to participate in regular employee benefit plans and in all-employee share saving...

  • Page 119
    ...Awarded 2010 At 31 Dec 2010 Number of ordinary shares vestedb Market price of each share Vesting at vesting date £ 2009-2011 2010-2012 I C Conn 2007-2009 2008-2010 2008-2011d 2008-2013d 2009-2011 2010-2012 Dr B E Grotec 2007-2009 2008-2010 2009-2011 2010-2012 Directors Seaving the board in 2010...

  • Page 120
    ...to thd board. Any dxtdrnal appointmdnt must not conflict with a dirdctor's dutids and commitmdnts to BP . During thd ydar, thd fdds rdcdivdd by dxdcutivd dirdctors for dxtdrnal appointmdnts wdrd as follows: Executive director Appointdd company Additional position hdld at appointdd company Total fdds...

  • Page 121
    ...). They have no personal financial interest, other than as shareholders, in the committee's decisions. The committee met six times in the period under review. The committee is accountable to shareholders through its annual report on executive directors' remuneration. It will consider the outcome...

  • Page 122
    ...best practice standards for non-executive directors' remuneration. • Remuneration should be in the form of cash fees, payable monthly. • Non-executive directors should not receive share options from the company. • Non-executive directors are encouraged to establish a holding in BP shares...

  • Page 123
    ... the terms of the plan, the board exercised its discretion over this award and the shares vested on 21 May 2010 (when the BP ADS market price was $43.86) without payment by him. With the retirement of Erroll Davis, Jr, no former Amoco non-executives now serve on the BP p.l.c. board. Past directors...

  • Page 124
    122 BP Annual Report and Form 20-F 2010

  • Page 125
    ... purchasers 138 Fees and charges payable by a holder of ADSs 138 Fees and payments made by the Depositary to the issuer 139 Called-up share capital 139 Administration 139 Annual general meeting 140 Exhibits Additional information for shareholders BP Annual Report and Form 20-F 2010 123

  • Page 126
    ... matters such as future commodity prices, the effects of inflation on operating expenses, discount rates, production profiles and the outlook for global or regional market supply-and-demand conditions for crude oil, natural gas and refined products. 124 BP Annual Report and Form 20-F 2010

  • Page 127
    ... using management's best estimate of future oil and natural gas prices and reserves volumes. Prices for oil and natural gas used for future cash flow calculations are based on market prices for the first five years and the group's long-term planning assumptions thereafter. As at 31 December 2010...

  • Page 128
    ... such claims would be successful or what penalties or fines would be assessed. Contingent assets relating to the Gulf of Mexico oil spill BP is the operator of the Macondo well and holds a 65% working interest, with the remaining 35% interest held by two co-owners, Anadarko Petroleum Corporation...

  • Page 129
    ... balance sheet, and pension and other post-retirement benefit expense for the following year. The pension and other post-retirement benefit assumptions at December 2010, 2009 and 2008 are provided in Financial statements - Note 38 on page 202. The assumed rate of investment return, discount rate...

  • Page 130
    ...liabilities of the group. 128 BP Annual Report and Form 20-F 2010 261,526,262 2011-2016 $6.09-$11.92 More details on share options appear in Financial statements - Note 41 on page 214. Major shareholders and related party transactions Register of members holding BP ordinary shares as at 31...

  • Page 131
    ...of the company; and Legal & General Group Plc holds 3.72% of the voting rights of the issued share capital of the company. The company has been notified that JPMorgan Chase Bank, as depositary for American depositary shares (ADSs) holds interests through its nominee, Guaranty Nominees Limited, in...

  • Page 132
    Additional information for shareholders A dividend reinvestment plan (DRIP) was in place for the fourth-quarter dividend paid in March 2010, allowing holders of BP ordinary shares to elect to reinvest the net cash dividend in shares purchased on the London Stock Exchange. Following shareholder ...

  • Page 133
    ... BP Products North America Inc. (BP Products). The DPA required BP America's and certain of its affiliates' continued co-operation with the US government's investigation and prosecution of the trades in question, as well as other trading matters that may arise. The DPA had a term of three years...

  • Page 134
    ...BP Products' probation based on alleged violations of the Court's conditions of probation. The alleged violations of probation relate to the alleged failure to comply with the 2005 Agreement. The OSHA process safety management citations issued in October 2009 were not resolved by the August 2010...

  • Page 135
    .... Within this overall policy, individual operating companies are responsible for agreeing terms and conditions for their business transactions and ensuring that suppliers are aware of the terms of payment. Additional information for shareholders BP Annual Report and Form 20-F 2010 133

  • Page 136
    ... Germany. Trading of BP's shares on the LSE is primarily through the use of the Stock Exchange Electronic Trading Service (SETS), introduced in 1997 for the largest companies in terms of market capitalization whose primary listing is the LSE. Under SETS, buy and sell orders at specific prices may...

  • Page 137
    ... company's operations. There are no limitations, either under the laws of the UK or under the company's Articles of Association, restricting the right of non-resident or foreign owners to hold or vote BP ordinary or preference shares in the company. BP Annual Report and Form 20-F 2010 135

  • Page 138
    ...treated as ordinary income or loss and will not be eligible for the 15% tax rate on qualified dividend income. The gain or loss generally will be income or loss from sources within the US for foreign tax credit limitation purposes. Distributions in excess of the company's earnings and profits, as...

  • Page 139
    ...6.25 6.82 6.32 7.20 7.18 7.86 7.60 a No shares were repurchased pursuant to a publicly announced plan. Transactions represent the purchase of ordinary shares by ESOP trusts to satisfy future requirements of employee share schemes. BP Annual Report and Form 20-F 2010 137

  • Page 140
    ...of BP Direct Access Plan operated by JPMorgan Chase. B roker reimbursements are fees payable to Broadridge for the distribution of hard copy material to ADR beneficial holders in the Depositary Trust Company. Corporate materials include information related to shareholders' meetings and related...

  • Page 141
    ..., dividend payments, the scrip dividend programme or to change the way you receive your company documents (such as the BP Annual Report and Form 20-F, BP Summary Review and Notice of BP Annual General Meeting) please contact the BP Registrar or ADS Depositary. UK - Registrar's Office The BP...

  • Page 142
    ... year ended 31 December 2009. * * Incorporated by reference to the Company's Report on Form 6-K filed on 24 September 2010 (File No. 001-06262). # F urnished only. †Included only in the annual report filed in the Securities and Exchange Commission EDGAR system. The total amount of long...

  • Page 143
    ...up share capital PC11 8 Capital and reserves PC11 9 Cash flow PC12 10 Contingent liabilities PC12 11 Share-based payments PC13 12 Auditor's remuneration PC15 13 Directors' remuneration PC15 14 Post balance sheet events PC16 Financial statements BP Annual Report and Form 20-F 2010...

  • Page 144
    ... and management. Information on the Gulf of Mexico oil spill and BP's response is included on pages 34 to 39 and elsewhere in this report, including Corporate responsibility on pages 68 to 76. The group has considerable financial resources, and the directors believe that the group is well placed...

  • Page 145
    ... 2008 Combined Code specified for our review; and • certain elements of the report to shareholders by the Board on directors' remuneration. Other matter We have reported separately on the parent company financial statements of BP p.l.c. for the year ended 31 December 2010 and on the information...

  • Page 146
    ... Public Accounting Firm on the Annual Report on Form 20-F The Board of Directors and Shareholders of BP p.l.c. We have audited the accompanying group balance sheets of BP p.l.c. as of 31 December 2010 and 2009, and the related group income statement, group cash flow statement, group statement...

  • Page 147
    ...the standards of the Public Company Accounting Oversight Board (United States), the group balance sheets of BP p.l.c. as of 31 December 2010 and 2009, and the related group income statement, group cash flow statement, group statement of comprehensive income and group statement of changes in equity...

  • Page 148
    Consolidated financial statements of the BP group Group income statement For the year ended 31 December Note 2010 2009 $ million 2008 Sales and other operating revenues Earnings from jointly controlled entities - after interest and tax Earnings from associates - after interest and tax...

  • Page 149
    ... sale of businesses and fixed assets Actuarial loss relating to pensions and other post-retirement benefits Available-for-sale investments marked to market Available-for-sale investments - recycled to the income statement Cash flow hedges marked to market Cash flow...

  • Page 150
    Consolidated financial statements of the BP group Group balance sheet At 31 December Note 2010 $ million 2009 Non-current assets Property, plant and equipment Goodwill Intangible assets Investments in jointly controlled entities Investments in associates ...

  • Page 151
    Consolidated financial statements of the BP group Group cash flow statement For the year ended 31 December Note 2010 2009 $ million 2008 Operating activities Profit (loss) before taxation Adjustments to reconcile profit (loss) before taxation to net cash provided by operating ...

  • Page 152
    ... board of directors. BP p.l.c. is a public limited company incorporated and domiciled in England and Wales. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB...

  • Page 153
    ... financial statements, the assets and liabilities of non-US dollar functional currency subsidiaries, jointly controlled entities and associates, including related goodwill, are translated into US dollars at the rate of exchange ruling at the balance sheet date. The results and cash flows...

  • Page 154
    ...use, the estimated future cash flows are adjusted for the risks specific to the asset group and are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money. An assessment is made at each reporting date as to whether there...

  • Page 155
    ... to bid prices at the close of business on the balance sheet date. Where there is no active market, fair value is determined using valuation techniques. Where fair value cannot be reliably measured, assets are carried at cost. Financial assets at fair value through profit or loss Derivatives...

  • Page 156
    ... group becomes a party to them, including at the date of a business combination. Embedded derivatives are measured at fair value at each balance sheet date. Any gains or losses arising from changes in fair value are taken directly to the income statement. 154 BP Annual Report and Form 20-F 2010

  • Page 157
    ..., no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the company (market conditions). Non-vesting conditions, such as the condition that employees contribute to a savings-related plan, are taken into account in the grant-date fair value, and...

  • Page 158
    ... balance sheet comprises the total for each plan of the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds), less the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based on market price...

  • Page 159
    ...The new standard has not yet been adopted by the EU. There are no other standards and interpretations in issue but not yet adopted that the directors anticipate will have a material effect on the reported income or net assets of the group. Financial statements BP Annual Report and Form 20-F 2010...

  • Page 160
    ... and environmental rehabilitation funds'. Key aspects of the accounting for the oil spill are summarized below. The financial impacts of the Gulf of Mexico oil spill on the income statement, balance sheet and cash flow statement of the group are shown in the table below. Amounts related to...

  • Page 161
    ... year. There is no change in operatorship or the marketing of the production from the assets and there is no effect on the other partners' interests in the assets. For financial reporting purposes Verano is a consolidated entity of BP and there is no impact on the consolidated financial statements...

  • Page 162
    ...for this amount. Other items Provisions at 31 December 2010 also include amounts in relation to offshore and onshore oil spill response, BP's commitment to a 10-year research programme in the Gulf of Mexico, estimated penalties for liability under Clean Water Act Section 311 and legal fees where we...

  • Page 163
    Notes on financial statements 2. Significant event - Gulf of Mexico oil spill continued Impact upon the group income statement and cash flow statement The group income statement for 2010 includes a pre-tax charge of $40,935 million in relation to the Gulf of Mexico oil spill. This comprises costs ...

  • Page 164
    ... were in the Exploration and Production segment and Other businesses and corporate and the most significant was the acquisition of Whiting Clean Energy, a cogeneration power plant. Fair value adjustments were made to the acquired assets and liabilities. 162 BP Annual Report and Form 20-F 2010

  • Page 165
    ... to United Energy Group Limited for $775 million in cash. These assets, and associated liabilities, have been classified as held for sale in the group balance sheet at 31 December 2010. The sale is expected to be completed in the first half of 2011, subject to closing conditions and government and...

  • Page 166
    ... the Gulf of Mexico oil spill, the group announced plans to deliver up to $30 billion of disposal proceeds by the end of 2011. Prior to this, in the normal course of business, the group has sold interests in exploration and production properties, service stations and pipeline interests as well as...

  • Page 167
    ...assets that are quoted investments, the fair value is determined by reference to bid prices at the close of business at the balance sheet date. Any cumulative loss previously recognized in other comprehensive income is transferred to the income statement. Financial statements BP Annual Report...

  • Page 168
    ... BP's deepwater exploration and development capabilities with Reliance's project management and operations expertise. The 23 oil and gas blocks together cover approximately 270,000 square kilometres, and Reliance will continue to be the operator under the production-sharing contracts. BP will pay...

  • Page 169
    ... which BP is engaged. In 2010, BP had two reportable segments: Exploration and Production and Refining and Marketing. BP's activities in low-carbon energy are managed through our Alternative Energy business, which is reported in Other businesses and corporate. The group is managed on an integrated...

  • Page 170
    ... corporate Gulf of Mexico oil spill response Consolidation adjustment and eliminations $ million 2010 By business Total group Segment revenues Sales and other operating revenues Less: sales between businesses Third party sales and other operating revenues Equity-accounted earnings...

  • Page 171
    ... corporate Consolidation adjustment and eliminations By business $ million 2009 Total group Segment revenues Sales and other operating revenues Less: sales between businesses Third party sales and other operating revenues Equity-accounted earnings Interest revenues...

  • Page 172
    ...corporate Consolidation adjustment and eliminations By business $ million 2008 Total group Segment revenues Sales and other operating revenues Less: sales between businesses Third party sales and other operating revenues Equity-accounted earnings Interest revenues...

  • Page 173
    ... 2008 Total Revenues Third party sales and other operating revenuesa Results Replacement cost profit before interest and taxation Non-current assets Other non-current assetsb c Other investments Loans Other receivables Derivative financial instruments Defined benefit pension plan...

  • Page 174
    ...Total interest and other income related to financial instruments amounted to $148 million (2009 $116 million and 2008 $232 million). 9. Production and similar taxes 2010 2009 $ million 2008...the UK-based international activities of Refining and Marketing. 172 BP Annual Report and Form 20-F 2010

  • Page 175
    ... (2009 11% and 13%). The business segment plans, which are approved on an annual basis by senior management, are the primary source of information for the determination of value in use. They contain forecasts for oil and natural gas production, refinery throughputs, sales volumes for various types...

  • Page 176
    ...-term price of gas would cause the headroom in the UK, US or Rest of World to be reduced to zero. Estimated production volumes are based on detailed data for the fields and take into account development plans for the fields agreed by management as part of the long-term planning process. In 2010...

  • Page 177
    ... 2010 2009 2008 Currency exchange losses charged to incomea 218 193 156 a Ex cludes exchange gains and losses arising on financial instruments measured at fair value through profit or loss. 14. Research and development $ million 2010 2009 2008...

  • Page 178
    ...following financial information represents the amounts included within the group totals relating to activity associated with the exploration for and evaluation of oil and natural gas resources. All such activity is recorded within the Exploration and Production segment. 2010 2009 $ million 2008...

  • Page 179
    ... of discount on other payables relating to the Gulf of Mexico oil spill was $73 million. See Note 2 for further information on the financial impacts of the Gulf of Mexico oil spill. a 19. Taxation Tax on profit 2010 2009 $ million 2008 Current tax Charge for the year Adjustment...

  • Page 180
    ...2010 Income statement 2009 2008 $ million Balance sheet 2010 2009 Deferred tax liability Depreciation Pension plan surpluses Other taxable temporary differences Deferred tax asset Pension plan and other post-retirement benefit plan deficits Decommissioning, environmental...

  • Page 181
    ... in relation to the Gulf of Mexico oil spill, US inventory holding gains (classified as other taxable temporary differences) and pension plan and other post-retirement benefit plan deficits. In 2010 there are no material temporary differences associated with investments in subsidiaries and equity...

  • Page 182
    ... under employee share plans was 18,796,497,760. Between 31 December 2010 and 18 February 2011, the latest practicable date before the completion of these financial statements, there was a net increase of 2,303,313 in the number of ordinary shares outstanding as a result of share issues in relation...

  • Page 183
    ... and office equipment Oil depots, storage tanks and service stations $ million Land and land improvements Oil and gas properties Transportation Buildings Total Cost At 1 January 2010 Exchange adjustments Additions Acquisitions Transfers Reclassified as assets held for sale...

  • Page 184
    Notes on financial statements 23. Goodwill 2010 $ million 2009 Cost At 1 January Exchange adjustments Acquisitions Reclassified as assets held for sale Deletions At 31 December Impairment losses At 1 January Impairment losses for the year At 31 December Net book amount at...

  • Page 185
    ... entities of the BP group at 31 December 2010 are shown in Note 46. Summarized financial information for the group's share of jointly controlled entities is shown below. 2010a 2009 TNK-BP Other $ million 2008 Total Sales and other operating revenues Profit before interest and...

  • Page 186
    ... The principal associate in 2010 and 2009 is TNK-BP . Summarized financial information for the group's share of associates is set out below. TNK-BP Other 2010a Total TNK-BP Other 2009 Total $ million 2008 Sales and other operating revenues Profit before interest and taxation Finance...

  • Page 187
    ... and strategies and material commitments. In addition, the integrated supply and trading function undertakes derivative activity for risk management purposes under a separate control framework as described more fully below. Financial statements BP Annual Report and Form 20-F 2010 185

  • Page 188
    ... the group is exposed to include oil, natural gas and power prices that could adversely affect the value of the group's financial assets, liabilities or expected future cash flows. The group enters into derivatives in a well-established entrepreneurial trading operation. In addition, the group has...

  • Page 189
    ... changes in general economic activity that may accompany such an increase in interest rates. (iv) Equity price risk The group holds equity investments, typically made for strategic purposes, that are classified as non-current available-for-sale financial assets and are measured initially at fair...

  • Page 190
    ... function dynamically manages bank deposit limits to ensure cash is well-diversified and to avoid concentration risks. At 31 December 2010, over 80% of the cash and cash equivalents balance was deposited with financial institutions rated A+ or higher. Trade and other receivables of the group...

  • Page 191
    ... months of the balance sheet date. The amounts at the end of 2010 totalled $379 million, down from $2,895 million at the end of 2009. The reduction largely reflects the initial failure to re-market the bonds following the Gulf of Mexico oil spill, as well as active management by BP to withdraw or...

  • Page 192
    ... date or coupon rate. These investments are classified as available-for-sale financial assets and as such are recorded at fair value with the gain or loss arising as a result of changes in fair value recorded directly in equity. Accumulated fair value changes are recycled to the income statement...

  • Page 193
    ... within level 1 of the fair value hierarchy. Cash and cash equivalents at 31 December 2010 includes $1,089 million (2009 $1,095 million) that is restricted. This relates principally to amounts required to cover initial margins on trading exchanges. See Note 27 for further information. 32...

  • Page 194
    ...2010 Fair value liability Fair value asset $ million 2009 Fair value liability Derivatives held for trading Currency derivatives Oil price derivatives Natural gas price derivatives Power price derivatives Other derivatives Embedded derivative commodity price contracts Cash...

  • Page 195
    ... for trading purposes. Derivative assets held for trading have the following fair values and maturities. Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years $ million 2010 Total Currency derivatives Oil price derivatives Natural gas price derivatives Power price...

  • Page 196
    Notes on financial statements 34. Derivative financial instruments continued The following table shows the changes in the day-one profits and losses deferred on the balance sheet. Oil price 2010 Natural gas price Oil price $ million 2009 Natural gas price Fair value of contracts not ...

  • Page 197
    ...on certain contracts that are for normal procurement or sales activity for the group but that are required to be fair valued under accounting standards. Also included within sales and other operating revenues are gains and losses on inventory held for trading purposes. The total amount relating to...

  • Page 198
    ... 27 outlines the group's approach to interest rate risk management. Hedges of net investments in foreign operations The group held currency swap contracts as a hedge of a long-term investment in a UK subsidiary that expired in 2009. The loss on the hedge recognized in equity in 2008 was $38 million...

  • Page 199
    ... Industrial Revenue/Municipal bonds and at 31 December 2010 either held or had retired the bonds. All of the outstanding bonds associated with long-term gas supply contracts, amounting to $1,527 million were held by BP with the liability now recorded within other payables on the balance sheet and...

  • Page 200
    ..., discounted cash flow analyses based on the group's current incremental borrowing rates for similar types and maturities of borrowing. $ million 2010 Fair value Carrying amount Fair value 2009 Carrying amount Short-term borrowings Long-term borrowings Net obligations under finance leases Total...

  • Page 201
    ... Decommissioning Environmental Spill response Litigation and claims Clean Water Act penalties Other $ million Total At 1 January 2010 Exchange adjustments Acquisitions New or increased provisions Write-back of unused provisions Unwinding of discount Change in discount rate Utilization...

  • Page 202
    ... relating to the Gulf of Mexico oil spill, included in the table above, are separately presented below: Environmental Litigation and Spill response claims Clean Water Act penalties $ million Total At 1 January 2010 New or increased provisions Unwinding of discount Change in discount rate...

  • Page 203
    ... be imposed and the volume of oil spilled. A charge for potential Clean Water Act Section 311 penalties was first included in BP's second-quarter 2010 interim financial statements. At the time that charge was taken, the latest estimate from the intra-agency Flow Rate Technical Group created by the...

  • Page 204
    ... of service. The plans are funded to a limited extent. The obligation and cost of providing pensions and other post-retirement benefits is assessed annually using the projected unit credit method. The date of the most recent actuarial review was 31 December 2010. The group's principal plans are...

  • Page 205
    ... long-term view, and the size of the resulting equity risk premium over government bond yields is reviewed each year for reasonableness. Our assumption for return on bonds reflects the portfolio mix of government fixed-interest, index-linked and corporate bonds. Financial statements BP Annual...

  • Page 206
    ... amounts classified as equities include investments in companies listed on stock exchanges as well as unlisted investments. The market value of unlisted investments at 31 December 2010 was $3,348 million (2009 $2,956 million and 2008 $2,819 million). The market value of pension assets at the end...

  • Page 207
    ... on financial statements 38. Pensions and other post-retirement benefits continued The assumed rate of investment return, discount rate, inflation, US healthcare cost trend rate and the mortality assumptions all have a significant effect on the amounts reported. A one-percentage point change in...

  • Page 208
    ...financial statements 38. Pensions and other post-retirement benefits continued UK pension plans US other postUS retirement pension benefit plans plans $ million 2010 Other plans Total Analysis of the amount charged to profit (loss) before interest and taxation Current service...

  • Page 209
    ...) Financial statements a The costs of managing the plan's investments are treated as being part of the investment return, the costs of administering our pension plan benefits are generally included in current service cost and the costs of administering our other post-retirement benefit plans...

  • Page 210
    ... the group balance sheet. 2010 2009 2008 2007 $ million 2006 costs of administering our other post-retirement benefit plans are included in the benefit obligation. History of surplus (deficit) and of experience gains and losses Benefit obligation at 31 December Fair value of plan assets at...

  • Page 211
    ... dividends and a premium equal to the higher of (i) 10% of the capital paid up on the preference shares and (ii) the excess of the average market price of such shares on the London Stock Exchange during the previous six months over par value. Treasury shares 2010 2009 2008 Shares Nominal...

  • Page 212
    ...) Actuarial loss relating to pensions and other post-retirement benefits Available-for-sale investments (including recycling) Cash flow hedges (including recycling) Profit for the year Total comprehensive income Dividends Share-based paymentsa Changes in associates' equity Transactions involving...

  • Page 213
    ... on financial statements $ million Foreign currency translation reserve Availablefor-sale investments Sharebased payment reserve Profit and loss account BP shareholders' equity Own shares Treasury shares Cash flow hedges Minority interest Total equity (214 88 - (126) Own shares...

  • Page 214
    ... to profit in respect of employee share-based payment plans where the scheme has not yet been settled by means of an award of shares to an individual. Profit and loss account The balance held on this reserve is the accumulated retained profits of the group. 212 BP Annual Report and Form 20-F 2010

  • Page 215
    ...-retirement benefits Available-for-sale investments (including recycling) Cash flow hedges (including recycling) Other comprehensive income (4,362) (8,430) (468) (1,166) (14,426) 100 2,602 50 194 2,946 (4,262) (5,828) (418) (972) (11,480) Financial statements BP Annual Report and Form 20-F 2010...

  • Page 216
    ... Directors' Incentive Plan (EDIP) - share element An equity-settled incentive plan for executive directors with a three-year performance period. For share plan performance periods 2008-2010 the award of shares is determined by comparing BP's total shareholder return (TSR) against the other oil...

  • Page 217
    Notes on financial statements 41. Share-based payments continued BP ShareMatch Plans These are matching share plans under which BP matches employees' own contributions of shares up to a predetermined limit. The plans are run in the UK and in more than 60 other countries. The UK plan is run on a ...

  • Page 218
    Notes on financial statements 41. Share-based payments continued Shares granted in 2010 CPP EPP EDIPTSR EDIP- BSC RSP DAB PSP Number of equity instruments granted (million) Weighted average fair value Fair value measurement basis 1.3 $19.81 ...

  • Page 219
    ... managers, salary and benefits earned during the year, plus cash bonuses awarded for the year. Deferred annual bonus awards, to be settled in shares, are included in share-based payments. Short-term employee benefits includes compensation for loss of office of $3 million (2009 $6 million and 2008...

  • Page 220
    ... may arise in future in relation to the incident. Contingent assets relating to the Gulf of Mexico oil spill BP is the operator of the Macondo well and holds a 65% working interest, with the remaining 35% interest held by two co-owners, Anadarko Petroleum Corporation (APC) and MOEX Offshore 2007...

  • Page 221
    ... financial effect. In the normal course of the group's business, legal proceedings are pending or may be brought against BP group entities arising out of current and past operations, including matters related to commercial disputes, product liability, antitrust, premises-liability claims, general...

  • Page 222
    ... BP Company North America BP Corporation North America BP Exploration and Production BP Exploration (Alaska) BP Products North America BP West Coast Products Standard Oil Co. Verano Collateral Holdings BP Capital Markets America 220 BP Annual Report and Form 20-F 2010...

  • Page 223
    .... South Caucasus Pipeline Co. Russia TNK-BP 37 24 30 26 50 England & Wales England & Wales Cayman Islands Cayman Islands British Virgin Islands Crude oil production Crude oil production Pipelines Pipelines Integrated oil operations Financial statements BP Annual Report and...

  • Page 224
    ...financial statements of each subsidiary issuer of public debt securities. Investments include the investments in subsidiaries recorded under the equity method for the purposes of the condensed consolidating financial information. Equity income of subsidiaries is the group's share of profit related...

  • Page 225
    ... 2009 BP group Sales and other operating revenues Earnings from jointly controlled entities - after interest and tax Earnings from associates - after interest and tax Equity-accounted income of subsidiaries - after interest and tax Interest and other revenues Gains on sale of businesses...

  • Page 226
    ... of businesses and fixed assets Exploration expense Distribution and administration expenses Fair value loss on embedded derivatives Profit before interest and taxation Finance costs Net finance (income) expense relating to pensions and other post-retirement benefits Profit...

  • Page 227
    ... financial statements 47. Condensed consolidating information on certain US subsidiaries continued Balance sheet At 31 December Issuer BP Exploration (Alaska) Inc. Guarantor Eliminations Other and subsidiaries reclassifications $ million 2010 BP p.l.c. BP group Non-current assets...

  • Page 228
    ... Deferred tax liabilities Provisions Defined benefit pension plan and other post-retirement benefit plan deficits Total liabilities Net assets Equity BP shareholders' equity Minority interest Total equity 7,366 - 321 - - - 4,424 12,111...

  • Page 229
    ...US subsidiaries continued Cash flow statement For the year ended 31 December Issuer BP Exploration (Alaska) Inc. Guarantor Eliminations Other and subsidiaries reclassifications $ million 2010 BP p.l.c. BP group Net cash provided by operating activities Net cash used in investing...

  • Page 230
    ...new well; and (ii) Through inctalled extraction equipment and infractructure operational at the time of the recervec ectimate if the extraction ic by meanc not involving a well. For detailc on BP'c proved recervec and production compliance and governance proceccec, cee pagec 51 to 52. 228 BP Annual...

  • Page 231
    ...and natural gas (unaudited) continued Oil and natural gas exploration and production activities Europe North America Rest of Europe Rest of North America South America Africa Asia Australasia $ million 2010 Total UK US Russia Rest of Asia Subsidiariesa Capitalized costs at...

  • Page 232
    ...) continued Oil and natural gas exploration and production activities continued Europe North America Rest of Europe Rest of North America South America Africa Asia Australasia $ million 2010 Total UK US Russia Rest of Asia Equity-accounted entities (BP share)a Capitalized...

  • Page 233
    ... gas exploration and production activities continued Europe UK Rest of Europe North America US South America Africa Asia Russia Rest of Asia Australasia million 2009 Total Rest of North America Subsidiariesa Capitalized...

  • Page 234
    ... production activities continued Europe UK Rest of Europe North America US South America Africa Asia Russia Rest of Asia Australasia million 2009 Total Rest of North America Equity-accounted entities (BP share)a Capitalized...

  • Page 235
    ... gas exploration and production activities continued Europe UK Rest of Europe North America US South America Africa Asia Russia Rest of Asia Australasia million 2008 Total Rest of North America Subsidiariesa Capitalized...

  • Page 236
    ... sale at 31 December 2010. Amounts by region are: 2 million barrels in US; 6 million barrels in South America; and 7 million barrels in Rest of Asia. k Includes 35 million barrels of crude oil sold relating to production from assets held for sale at 31 December 2010. a 234 BP Annual Report...

  • Page 237
    ... of equity-accounted entities as held for sale. i Includes 133 billion cubic feet of gas (excluding gas consumed in operations) relating to production from assets held for sale at 31 December 2010. Amounts by region are: 23 billion cubic feet in US; 27 billion cubic feet in South America; and...

  • Page 238
    ... on oil and natural gas (unaudited) Supplementary information on oil and natural gas (unaudited) continued Movements in estimated net proved reserves continued million barrels Bitumena Rest of North America 2010 Total Equity-accounted entities (BP share) At 1 January 2010 Developed...

  • Page 239
    ... barrels of oil equivalent in South America; and 21 million barrels of oil equivalent in Rest of Asia. m Includes 59 million barrels of oil equivalent (excluding gas consumed in operations) relating to production from assets held for sale at 31 December 2010. a BP Annual Report and Form...

  • Page 240
    ... on oil and natural gas (unaudited) continued Movements in estimated net proved reserves continued million barrels Crude oila Europe UK Rest of Europe North America USe South America Africa Asia Russia Rest of Asia Australasia 2009 Total...

  • Page 241
    ... Europe UK Rest of Europe North America US South America Africa Asia Russia Rest of Asia Australasia 2009 Total Rest of North America Subsidiaries At 1 January 2009 Developed Undeveloped Changes attributable...

  • Page 242
    ... of oil equivalent Total hydrocarbonsa Europe UK Rest of Europe North America e US South America Africa Asia Russia Rest of Asia Australasia 2009 Total Rest of North America Subsidiaries At 1 January 2009 Developed Undeveloped...

  • Page 243
    ... on oil and natural gas (unaudited) continued Movements in estimated net proved reserves continued million barrels Crude oila Europe UK Rest of Europe North America e US South America Africa Asia Russia Rest of Asia Australasia 2008 Total...

  • Page 244
    ... on oil and natural gas (unaudited) continued Movements in estimated net proved reserves continued billion cubic feet Natural gasa Europe UK Rest of Europe North America US South America Africa Asia Russia Rest of Asia Australasia 2008 Total...

  • Page 245
    ...barrels of oil equivalent Total hydrocarbonsa Europe UK Rest of Europe North America e US South America Africa Asia Russia Rest of Asia Australasia 2008 Total Rest of North America Subsidiaries At 1 January 2008 Developed...

  • Page 246
    ...of change in the standardized measure of discounted future net cash flows: Subsidiaries Equity-accounted entities (BP share) $ million Total subsidiaries and equity-accounted entities Sales and transfers of oil and gas produced, net of production costs Development costs for the current year as...

  • Page 247
    ...cash flows in Africa because proved reserves are received as a result of contractual arrangements, with no associated costs. i T otal change in the standardized measure during the year includes the effect of exchange rate movements. a Financial statements BP Annual Report and Form 20-F 2010...

  • Page 248
    ... cash flows and changes therein relating to proved oil and gas reserves continued $ million Europe UK Rest of Europe North America US South America Africa Asia Russia Rest of Asia Australasia 2008 Total Rest of North America...

  • Page 249
    ...UK Rest of Europe North America US South America Africa Asia Russia Rest of Asia Australasia Total Rest of North America Financial statements Number of productive wells at 31 December 2010 Oil wellsa - gross - net Gas...

  • Page 250
    ... production activities in progress The following table shows the number of exploratory and development oil and natural gas wells in the process of being drilled by the group and its equityaccounted entities as of 31 December 2010. Suspended development wells and long-term suspended exploratory wells...

  • Page 251
    ...that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. BP p.l.c. (Registrant) /s/D.J. JACKSON D.J. Jackson Company Secretary Dated 2 March 2011 Financial statements BP Annual Report and Form...

  • Page 252
    250 BP Annual Report and Form 20-F 2010

  • Page 253
    Parent company financial statements of BP p.l.c. StatementCofCdirectors'CresponsibilitiesCinCrespectCofCtheCparentCcompanyC financialCstatements...'sCauditorsCareCawareCofCthatCinformation. Financial statements TheCparentCcompanyCfinancialCstatementsCofCBPCp.l.c.ConCpagesCPC1C...

  • Page 254
    ...'s report to the members of BP p.l.c. We have audited the parent company financial statements of BP p.l.c. for the year ended 31 December 2010 which comprise the company balance sheet, the company cash flow statement, the company statement of total recognized gains and losses and the related notes...

  • Page 255
    Parent company financial statements of BP p.l.c. Company balance sheet At 31 December Note 2010 $ million 2009 Fixed assets Investments Subsidiary undertakings Associated undertakings Total fixed assets Current assets Debtors - amounts falling due: Within one year After ...

  • Page 256
    Parent company financial statements of BP p.l.c. Company cash flow statement For the year ended 31 December Note 2010 2009 $ million 2008 Net cash (outflow) inflow from operating activities Servicing of finance and returns on investments Interest received Interest paid Dividends received Net cash ...

  • Page 257
    ... the balance sheet comprises the total for each plan of the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds), less the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based on market price...

  • Page 258
    ... $ million 2010 2009 2008 Tax included in the statement of total recognized gains and losses Deferred tax Origination and reversal of timing differences in the current year This comprises: Actuarial (loss) gain relating to pensions and other post-retirement benefits Deferred tax...

  • Page 259
    ... company financial statements of BP p.l.c. 3. Fixed assets - investments continued The more important subsidiary undertakings of the company at 31 December 2010 and the percentage holding of ordinary share capital (to the nearest whole number) are set out below. The principal country of operation...

  • Page 260
    ... the pension liabilities at that date and the pension cost for 2011. % Financial assumptions 2010 2009 2008 Expected long-term rate of return Discount rate for plan liabilities Rate of increase in salaries Rate of increase for pensions in payment Rate of increase in deferred pensions Inflation...

  • Page 261
    ...C 2010C 2009C $Cmillion 2008 AnalysisCofCtheCamountCchargedCtoCoperatingCprofit CurrentCserviceCcostaC C C ...losses)CarisingConCtheCplanCliabilitiesC C C C ActuarialC(loss... C 2010C 2009 MovementsCinCbenefitCobligationCduringCtheCyearC BenefitCobligationCatC1CJanuaryC ...Financial statements...

  • Page 262
    ...the BP Pension Fund in 2011 is expected to be $404 million. $ million 2010 2009 2008 2007 2006 History of surplus and of experience gains and losses Benefit obligation at 31 December Fair value of plan assets at 31 December Surplus Experience gains (losses) on plan liabilities...

  • Page 263
    ...market price of such shares on the London Stock Exchange during the previous six months over par value. Repurchase of ordinary share capital The company did not purchase any ordinary shares in 2010 (2009 no ordinary shares were purchased and 2008 269,757,188 ordinary shares were purchased for total...

  • Page 264
    ... profit to net cash (outflow) inflow from operating activities 2010 2009 2008 Operating profit Net operating charge for pensions and other post-retirement benefits, less contributions Dividends, interest and other income Share-based payments (Increase...

  • Page 265
    ... Directors' Incentive Plan (EDIP) - share element An equity-settled incentive plan for executive directors with a three-year performance period. For share plan performance periods 2008-2010 the award of shares is determined by comparing BP's total shareholder return (TSR) against the other oil...

  • Page 266
    ... company financial statements of BP p.l.c. 11. Share-based payments continued BP ShareMatch Plans These are matching share plans under which BP matches employees' own contributions of shares up to a predetermined limit. The plans are run in the UK and in more than 60 other countries. The UK plan...

  • Page 267
    ...financial statements of BP p.l.c. 11. Share-based payments continued The group uses a valuation model to determine the fair value of options granted. The model uses the implied volatility of ordinary share price for the quarter within which the grant date of the relevant plan falls. The fair value...

  • Page 268
    ...financial statements of BP p.l.c. 14. Post balance sheet events On 14 January 2011, BP entered into a share swap agreement with Rosneft Oil Company whereby BP will receive approximately 9.5% of Rosneft's shares in exchange for BP issuing new ordinary shares to Rosneft, resulting in Rosneft holding...

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  • Page 271
    ... our financial and operating performance in BP Summary Review 2010 in print or online. www.bp.com/summaryreview Sustainability Review Read the summary BP Sustainability Review 2010 in print or read more online from late March 2011. www.bp.com/sustainability You can order BP's printed publications...

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