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Notesonnancialstatements
Financial statements
11.Impairmentreviewofgoodwill
$million
Goodwillat31December 2010 2009
ExplorationandProduction 4,450 4,297
ReningandMarketing 4,074 4,245
Otherbusinessesandcorporate 74 78
8,598 8,620
Goodwillacquiredthroughbusinesscombinationshasbeenallocatedtogroupsofcash-generatingunitsthatareexpectedtobenetfromthesynergiesof
theacquisition.ForExplorationandProduction,goodwillhasbeenallocatedtoeachgeographicregion,thatisUK,USandRestofWorld,andforRening
andMarketing,goodwillhasbeenallocatedtotheRhinefuelsvaluechain(FVC),LubricantsandOther.
Inassessingwhethergoodwillhasbeenimpaired,thecarryingamountofthecash-generatingunit(includinggoodwill)iscomparedwiththe
recoverableamountofthecash-generatingunit.Therecoverableamountisthehigheroffairvaluelesscoststosellandvalueinuse.Intheabsenceofany
informationaboutthefairvalueofacash-generatingunit,therecoverableamountisdeemedtobethevalueinuse.
Thegroupcalculatesthevalueinuseusingadiscountedcashowmodel.Thefuturecashowsareadjustedforrisksspecictothecash-generatingunit
andarediscountedusingapre-taxdiscountrate.Thediscountrateisderivedfromthegroup’spost-taxweightedaveragecostofcapitalandisadjusted
whereapplicabletotakeintoaccountanyspecicrisksrelatingtothecountrywherethecash-generatingunitislocated.Theratetobeappliedtoeach
countryisreassessedeachyear.Discountratesof12%and14%havebeenusedforgoodwillimpairmentcalculationsperformedin2010(200911%
and13%).
Thebusinesssegmentplans,whichareapprovedonanannualbasisbyseniormanagement,aretheprimarysourceofinformationforthe
determinationofvalueinuse.Theycontainforecastsforoilandnaturalgasproduction,renerythroughputs,salesvolumesforvarioustypesofrened
products(e.g.gasolineandlubricants),revenues,costsandcapitalexpenditure.Asaninitialstepinthepreparationoftheseplans,variousenvironmental
assumptions,suchasoilprices,naturalgasprices,reningmargins,renedproductmarginsandcostinationrates,aresetbyseniormanagement.These
environmentalassumptionstakeaccountofexistingprices,globalsupply-demandequilibriumforoilandnaturalgas,othermacroeconomicfactorsand
historicaltrendsandvariability.
Exploration and Production
$million
2010 2009
Rest of Restof
UK US World Total UK US World Total
Goodwill 341 3,479 630 4,450 341 3,441 515 4,297
Excessofrecoverableamountovercarryingamount 7,556 18,968 41,714 n/a 7,721 15,528 n/a n/a
Thevalueinuseisbasedonthecashowsexpectedtobegeneratedbytheprojectedoilornaturalgasproductionprolesuptotheexpecteddatesof
cessationofproductionofeachproducingeld.Astheproductionproleandrelatedcashowscanbeestimatedfromthecompany’spastexperience,
managementbelievesthatthecashowsgeneratedovertheestimatedlifeofeldistheappropriatebasisuponwhichtoassessgoodwillandindividual
assetsforimpairment.Thedateofcessationofproductiondependsontheinteractionofanumberofvariables,suchastherecoverablequantitiesof
hydrocarbons,theproductionproleofthehydrocarbons,thecostofthedevelopmentoftheinfrastructurenecessarytorecoverthehydrocarbons,the
productioncosts,thecontractualdurationoftheproductionconcessionandthesellingpriceofthehydrocarbonsproduced.Aseachproducingeldhas
specicreservoircharacteristicsandeconomiccircumstances,thecashowsoftheeldsarecomputedusingappropriateindividualeconomicmodels
andkeyassumptionsagreedbyBP’smanagementforthepurpose.Capitalexpenditureandoperatingcostsfortherstfouryearsandexpected
hydrocarbonproductionprolesupto2020arederivedfromthebusinesssegmentplan.Estimatedproductionquantitiesandcashowsuptothedateof
cessationofproductiononaeld-by-eldbasisaredevelopedtobeconsistentwiththis.Theproductionprolesusedareconsistentwiththeresource
volumesapprovedaspartofBP’scentrally-controlledprocessfortheestimationofprovedreservesandtotalresources.
Consistentwithprioryears,the2010reviewforimpairmentwascarriedoutduringthefourthquarter.
ThetableaboveshowsthecarryingamountofthegoodwillallocatedtoeachoftheregionsoftheExplorationandProductionsegmentandthe
excessoftherecoverableamountoverthecarryingamount(theheadroom)inthecash-generatingunitstowhichthegoodwillhasbeenallocated.
Consistentwithpriorperiods,midstreamandintangibleoilandgasassetswereexcludedfromtheheadroomcalculation.
For2010,theBrentoilpriceassumptionwasanaverage$85perbarrelin2011,$88perbarrelin2012,$89perbarrelin2013,$89perbarrelin
2014,$90perbarrelin2015and$75perbarrelin2016andbeyond.TheHenryHubnaturalgaspriceassumptionwasanaverageof$4.25/mmBtuin2011,
$4.96/mmBtuin2012,$5.29/mmBtuin2013,$5.49/mmBtuin2014,$5.67/mmBtuin2015and$6.50/mmBtuin2016andbeyond.Thepricesfortherst
veyearswerederivedfromforwardpricecurvesinthefourthquarter.Pricesin2016andbeyondweredeterminedusinglong-termviewsofglobalsupply
anddemand,buildinguponpastexperienceoftheindustryandconsistentwithexternalsources.Thesepriceswereadjustedtoarriveatappropriate
consistentpriceassumptionsfordifferentqualitiesofoilandgas.
In2009,aspermittedbyIAS36,thedetailedcalculationsofrecoverableamountperformedin2008fortheUSandtheUK,andthecalculations
performedin2005fortheRestofWorld,wereusedforthe2009impairmenttestasthecriteriaofIAS36wereconsideredtobesatised:theheadroom
wassubstantialin2008(fortheUSandtheUK)and2005(fortheRestofWorld);therehadbeennosignicantchangeintheassetsandliabilities;andthe
likelihoodthattherecoverableamountwouldbelessthanthecarryingamountatthetimeofthetestwasremote.For2008,theBrentoilassumption
wasanaverage$49perbarrelin2009,$59perbarrelin2010,$65perbarrelin2011,$68perbarrelin2012,$70perbarrelin2013and$75perbarrelin
2014andbeyond.TheHenryHubnaturalgaspriceassumptionwasanaverageof$6.16/mmBtuin2009,$7.15/mmBtuin2010,$7.34/mmBtuin2011,
$7.62/mmBtuin2012,$7.60/mmBtuin2013and$7.50/mmBtuin2014andbeyond.Thepricesfortherstveyearswerederivedfromforwardprice
curvesattheyear-end.Pricesin2014andbeyondweredeterminedusinglong-termviewsofglobalsupplyanddemand,buildinguponpastexperienceof
theindustryandconsistentwithexternalsources.Thesepriceswereadjustedtoarriveatappropriateconsistentpriceassumptionsfordifferentqualitiesof
oilandgas.
BPAnnualReportandForm20-F2010 173