BP 2010 Annual Report Download - page 202

Notesonnancialstatements
37.Provisionscontinued
Provisions relating to the Gulf of Mexico oil spill
TheGulfofMexicooilspillisdescribedonpages34to39andinNote2.ProvisionsrelatingtotheGulfofMexicooilspill,includedinthetableabove,are
separatelypresentedbelow:
 $million
Litigation and Clean Water
Environmental Spill response claims Act penalties Total
At1January2010    – – – – –
Neworincreasedprovisions    929 10,883 14,939 3,510 30,261
Unwindingofdiscount    4 – – – 4
Changeindiscountrate    5 – – – 5
Utilization     (129) (9,840) (3,966) – (13,935)
At31December2010    809 1,043 10,973 3,510 16,335
Ofwhich–current    314 982 6,642 – 7,938
  –non-current    495 61 4,331 3,510 8,397
Ofwhich–payablefromthetrustfund    382 – 9,162 – 9,544
 
AsdescribedinNote2,BPhasrecordedprovisionsat31December2010relatingtotheGulfofMexicooilspillincludingamountsinrelationto
environmentalexpenditure,spillresponsecosts,litigationandclaims,andCleanWaterActpenalties,eachofwhichisdescribedbelow.
Environmental
TheamountscommittedbyBPfora10-yearresearchprogrammetostudytheimpactoftheincidentonthemarineandshorelineenvironmentofthe
GulfofMexicohavebeenprovidedfor.BP’scommitmentistoprovide$500millionoffunding,andtheremainingcommitment,onadiscountedbasis,of
$427millionwasincludedinprovisionsat31December2010.Thisamountisexpectedtobespentevenlyoverthe10-yearperiod.
AsaresponsiblepartyundertheOPA90,BPfacesclaimsbytheUnitedStates,aswellasbyState,tribal,andforeigntrustees,ifany,fornatural
resourcedamages(“NaturalResourceDamagesclaims”).Thesedamagesinclude,amongstotherthings,thereasonablecostsofassessingtheinjuryto
naturalresourcesaswellassomeemergencyrestorationprojectswhichareexpectedtooccuroverthenexttwoyears.BPhasbeenincurringnatural
resourcedamageassessmentcostsandaprovisionhasbeenmadefortheestimatedcostsoftheassessmentphase.Theassessmentcoversalargearea
ofpotentialimpactandwilltakesometimetocompleteinordertodetermineboththeseverityanddurationoftheimpactoftheoilspill.Theprocessof
interpretingthelargevolumeofdatacollectedisexpectedtotakeatleastseveralmonthsand,inordertodeterminepotentialinjuriestocertainanimal
populations,datawillneedtobecollectedoveroneormorereproductivecycles.Thisexpectedassessmentspendisbaseduponpastexperienceaswell
asidentiedprojects.Aprovisionof$382millionhasbeenestablishedfortheseitems.Untilthesize,locationanddurationoftheimpactisassessed,itis
notpossibletoestimatereliablyeithertheamountsortimingoftheremainingNaturalResourceDamagesclaims,thereforenoamountshavebeen
providedfortheseitemsandtheyaredisclosedasacontingentliability.SeeNote44forfurtherinformation.
Spillresponse
Theremainingprovisionforspillresponseincludestheestimatedfuturecostsofbothsubseaoperationsaswellassurfaceandshorelinework.
Thesubsearesponseprovisionisbasedontheremainingactivitiesexpectedtobeundertakenandhasbeencalculatedusingdailyratesofcosts
incurredtodate.Thisincludestherigcoststocompletethepluggingandabandonmentofthesecondreliefwell,whichisinprogressandisexpectedto
completeinearlyMarch2011,andtherecoveryofthesubseainfrastructureusedaspartofthevariouscontainmentsystems.Themajorityofthevessels
involvedintheresponsehavenowbeendecontaminated.Theprovisionincludesthecostsofdecontaminatingtheremaining25vessels,whichisexpected
tobecompletebytheendofApril2011.
Theprovisionforsurfaceandshorelineresponseisbasedonthedailycostscurrentlybeingincurredwhichareunderpinnedbyheadcount,
equipmentandthenumberofvesselsonhire.Attheendoftheyear,therewereapproximately360vesselsonhireandthenumberofpersonnelinvolved
inresponseactivitieswasapproximately6,200.BPandtheUSCoastGuardareworkingcloselywithstateandlocalofcialstocleanGulfCoastbeaches
beforethe2011springandsummertourismseasonsandthisisthebasisonwhichtheprovisionat31December2010hasbeencalculated.Theprovision
alsoincludesanestimateoffuturefederalresponsecostsandongoingmonitoringthatwillberequireduntiltheendofthesecondquarterof2012.
Litigationandclaims
Individual and Business Claims, and State and Local Claims under the Oil Pollution Act of 1990 (OPA 90) and claims for personal injury
BPfacesclaimsunderOPA90byindividualsandbusinessesforremovalcosts,damagetorealorpersonalproperty,lostprotsorimpairmentofearning
capacity,lossofsubsistenceuseofnaturalresourcesandforpersonalinjury(“IndividualandBusinessClaims”)andbystateandlocalgovernmententities
forremovalcosts,physicaldamagetorealorpersonalproperty,lossofgovernmentrevenueandincreasedpublicservicescosts(“StateandLocalClaims”).
TheestimatedfuturecostofsettlingIndividualandBusinessClaims,StateandLocalClaimsunderOPA90andclaimsforpersonalinjuries,both
reportedandunreported,hasbeenprovidedfor.Claimsadministrationcostshavealsobeenprovidedfor.
BPbelievesthatthehistoryofclaimsreceivedtodate,andsettlementsmade,providessufcientdatatoenablethecompanytouseanapproach
basedonacombinationofactuarialmethodsandmanagementjudgementstoestimateIBNR(IncurredButNotReported)claimstodetermineareliable
bestestimateofBP’sexposureforclaimsnotyetreportedinrelationtoIndividualandBusinessclaims,andStateandLocalclaimsunderOPA90.The
amountprovidedfortheseclaimshasbeendeterminedinaccordancewithIFRSandrepresentsBP’scurrentbestestimateoftheexpenditurerequiredto
settleitsobligationsatthebalancesheetdate.Themeasurementofthisprovisionissubjecttosignicantuncertainty.Actualcostscouldultimatelybe
signicantlyhigherorlowerthanthoserecordedastheclaimsandsettlementprocessprogresses.
Inestimatingtheamountoftheprovision,BPhasdeterminedarangeofpossibleoutcomesforIndividualandBusinessClaims,andStateandLocal
Claims.ThesedeterminationsarebasedonBP’sclaimspaymentexperience,theapplicationofinsuranceindustrybenchmarkdata,theuseofa
combinationofactuarialandstatisticalmethodsandmanagementjudgementswhereappropriate.Themethodsselectedareconsistentwiththoseusedby
theinsuranceindustrytoestimatearangeoftotalexpendituresforbothreportedandunreportedclaims.Thesemethodshavebeenadoptedonthebasis
that,atthisstageofdevelopment,theapplicationofinsuranceindustrystandardtechniquesfortheestimationofultimatelossesisanappropriate
approachforthecostsarisingfromtheDeepwaterHorizonoilspill.
200BPAnnualReportandForm20-F2010