BP 2010 Annual Report Download - page 31


Businessreview
Business review
Compliance and control risks
Regulatory – the oil industry in general, and in particular the US
industry following the Gulf of Mexico oil spill, may face increased
regulation that could increase the cost of regulatory compliance
and limit our access to new exploration properties.
TheGulfofMexicooilspillislikelytoresultinmorestringentregulationof
oilandgasactivitiesintheUSandelsewhere,particularlyrelatingto
environmental,healthandsafetycontrolsandoversightofdrilling
operations,aswellasaccesstonewdrillingareas.Regulatoryorlegislative
actionmayimpacttheindustryasawholeandcouldbedirected
specicallytowardsBP.Forexample,intheUS,legislationiscurrently
beingconsideredthatmayimpactBP’sexistingcontractswiththeUS
GovernmentorlimititsabilitytoenterintonewcontractswiththeUS
Government.TheUSGovernmentimposedamoratoriumoncertain
offshoredrillingactivities,whichwassubsequentlyliftedinOctober2010;
however,theimplicationsofthemoratoriumforhowquicklytheindustry
willreturntodrillingremainsuncertain.Similaractionsmaybetakenby
governmentselsewhereintheworld.Newregulationsandlegislation,as
wellasevolvingpractices,couldincreasethecostofcomplianceandmay
requirechangestoourdrillingoperations,exploration,developmentand
decommissioningplans,andcouldimpactourabilitytocapitalizeonour
assetsandlimitouraccesstonewexplorationpropertiesoroperatorships,
particularlyinthedeepwaterGulfofMexico.Inaddition,increasesintaxes,
royaltiesandotheramountspayabletogovernmentsorgovernmental
agencies,orrestrictionsonavailabilityoftaxrelief,couldalsobeimposed
asaresponsetotheIncident.
Inaddition,theoilindustryissubjecttoregulationandintervention
bygovernmentsthroughouttheworldinsuchmattersastheawardof
explorationandproductioninterests,theimpositionofspecicdrilling
obligations,environmental,healthandsafetycontrols,controlsoverthe
developmentanddecommissioningofaeld(includingrestrictionson
production)and,possibly,nationalization,expropriation,cancellationor
non-renewalofcontractrights.Webuy,sellandtradeoilandgasproducts
incertainregulatedcommoditymarkets.Failuretorespondtochangesin
tradingregulationscouldresultinregulatoryactionanddamagetoour
reputation.Theoilindustryisalsosubjecttothepaymentofroyaltiesand
taxation,whichtendtobehighcomparedwiththosepayableinrespectof
othercommercialactivities,andoperatesincertaintaxjurisdictionsthat
haveadegreeofuncertaintyrelatingtotheinterpretationof,andchanges
to,taxlaw.Asaresultofnewlawsandregulationsorotherfactors,we
couldberequiredtocurtailorceasecertainoperations,orwecouldincur
additionalcosts.
Formoreinformationonenvironmentalregulation,seepages78-81.
Ethical misconduct and non-compliance – ethical misconduct or
breaches of applicable laws by our employees could be damaging
to our reputation and shareholder value.
Ourcodeofconduct,whichappliestoallemployees,denesour
commitmenttointegrity,compliancewithallapplicablelegalrequirements,
highethicalstandardsandthebehavioursandactionsweexpectofour
businessesandpeoplewhereverweoperate.Incidentsofethical
misconductornon-compliancewithapplicablelawsandregulations,
includingnon-compliancewithanti-bribery,anti-corruptionandother
applicablelawscouldbedamagingtoourreputationandshareholdervalue.
Multipleeventsofnon-compliancecouldcallintoquestiontheintegrityof
ouroperations.Forexample,inourtradingbusinesses,thereistheriskthat
adeterminedindividualcouldoperateasa‘roguetrader’,actingoutside
BP’sdelegations,controlsorcodeofconductinpursuitofpersonal
objectivesthatcouldbetothedetrimentofBPanditsshareholders.
Forcertainlegalproceedingsinvolvingthegroup,seeLegal
proceedingsonpages130-133.Forfurtherinformationontherisks
involvedinBP’stradingactivities,seeOperationalrisks–Treasuryand
tradingactivitiesonpage31.
Liabilities and provisions – BP’s potential liabilities resulting from
pending and future claims, lawsuits and enforcement actions
relating to the Gulf of Mexico oil spill, together with the potential
cost and burdens of implementing remedies sought in the various
proceedings, cannot be fully estimated at this time but they have
had, and are 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
nancially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anynatural
resourcedamagesassociatedwiththespillandcertaincostsincurredby
federalandstatetrusteesengagedinajointassessmentofsuchnatural
resourcedamages.
BPandcertainofitssubsidiarieshavealsobeennamedas
defendantsinnumerouslawsuitsintheUSarisingoutoftheIncident,
includingactionsforpersonalinjuryandwrongfuldeath,purportedclass
actionsforcommercialoreconomicinjury,actionsforbreachofcontract,
violationsofstatutes,propertyandotherenvironmentaldamage,securities
lawclaimsandvariousotherclaims.SeeLegalproceedingsonpage130.
BPissubjecttoanumberofinvestigationsrelatedtotheIncident
bynumerousfederalandStateagencies.SeeLegalproceedingson
page130.Thetypesofenforcementactionpursuedandthenatureofthe
remediessoughtwilldependonthediscretionoftheprosecutorsand
regulatoryauthoritiesandtheirassessmentofBP’sculpabilityfollowing
theirinvestigations.Suchenforcementactionscouldincludecriminal
proceedingsagainstBPand/oremployeesofthegroup.Inadditiontones
andpenalties,suchenforcementactionscouldresultinthesuspensionof
operatinglicencesanddebarmentfromgovernmentcontracts.Debarment
ofBPExploration&ProductionInc.wouldpreventitfrombiddingonor
enteringintonewfederalcontractsorotherfederaltransactions,andfrom
obtainingnewordersorextensionstoexistingfederalcontracts,including
federalprocurementcontractsorleases.Dependentonthecircumstances,
debarmentorsuspensionmayalsobesoughtagainstafliatedentitiesof
BPExploration&ProductionInc.
AlthoughBPbelievesthatcostsarisingoutofthespillare
recoverablefromitspartnersandotherpartiesresponsibleunderOPA90,
suchrecoveryisnotcertainandBPhasrecognizedallofthecostsincurred
initsnancialstatements(seeFinancialstatements–Note2onpage158,
Note37onpage199andNote44onpage218,under‘Contingentassets
relatingtotheGulfofMexicooilspill’).
Anyndingofgrossnegligenceforpurposesofpenaltiessought
againstthegroupundertheCleanWaterActwouldalsohaveamaterial
adverseimpactonthegroup’sreputation,wouldaffectourabilitytorecover
costsrelatingtotheIncidentfromourpartnersandotherparties
responsibleunderOPA90andcouldaffectthenesandpenaltiespayable
bythegroupwithrespecttotheIncidentunderenforcementactions
outsidetheCleanWaterActcontext.
TheGulfofMexicooilspillhasdamagedBP’sreputation.This,
combinedwithotherrecenteventsintheUS(includingthe2005explosion
attheTexasCityreneryandthe2006pipelineleaksinAlaska),mayleadto
anincreaseinthenumberofcitationsand/orthelevelofnesimposedin
relationtotheGulfofMexicooilspillandanyfutureallegedbreachesof
safetyorenvironmentalregulations.
ClaimsbyindividualsandbusinessesunderOPA90areadjudicated
bytheGulfCoastClaimsFacility(GCCF)headedbyKennethFeinberg,who
wasjointlyappointedbyBPandtheUSAdministration.On18February
2011,theGCCFannounceditsnalrulesgoverningpaymentoptions,
eligibilityandsubstantiationcriteria,andnalpaymentmethodology.The
impactoftheserules,orothereventsrelatedtotheadjudicationofclaims,
onfuturepaymentsbytheGCCFisuncertain.Paymentscouldultimately
besignicantlyhigherorlowerthantheamountwehaveestimatedfor
individualandbusinessclaimsunderOPA90includedintheprovisionBP
recognizedforlitigationandclaims.(SeeFinancialstatements–Note37on
page199underLitigationandclaims.)
BPAnnualReportandForm20-F2010 29