BP 2010 Annual Report Download - page 32

Businessreview
Changes in external factors could affect our results of operations
and the adequacy of our provisions.
Weremainexposedtochangesintheexternalenvironment,suchasnew
lawsandregulations(whetherimposedbyinternationaltreatyorbynational
orlocalgovernmentsinthejurisdictionsinwhichweoperate),changesin
taxorroyaltyregimes,pricecontrols,governmentactionstocancelor
renegotiatecontracts,marketvolatilityorotherfactors.Suchfactorscould
reduceourprotabilityfromoperationsincertainjurisdictions,limitour
opportunitiesfornewaccess,requireustodivestorwrite-downcertain
assetsoraffecttheadequacyofourprovisionsforpensions,tax,
environmentalandlegalliabilities.Potentialchangestopensionornancial
marketregulationcouldalsoimpactfundingrequirementsofthegroup.
Reporting – failure to accurately report our data could lead to
regulatory action, legal liability and reputational damage.
Externalreportingofnancialandnon-nancialdataisreliantonthe
integrityofsystemsandpeople.Failuretoreportdataaccuratelyandin
compliancewithexternalstandardscouldresultinregulatoryaction,legal
liabilityanddamagetoourreputation.
Safety and operational risks
Therisksinherentinouroperationsincludeanumberofhazardsthat,
althoughmanymayhavealowprobabilityofoccurrence,canhave
extremelyseriousconsequencesiftheydooccur,suchastheGulfof
Mexicoincident.Theoccurrenceofanysuchriskscouldhaveaconsequent
materialadverseimpactonthegroup’sbusiness,competitiveposition,
cashows,resultsofoperations,nancialposition,prospects,liquidity,
shareholderreturnsand/orimplementationofthegroup’sstrategicgoals.
Process safety, personal safety and environmental risks – the
nature of our operations exposes us to a wide range of signicant
health, safety, security and environmental risks, the occurrence of
which could result in regulatory action, legal liability and increased
costs and damage to our reputation.
Thenatureofthegroup’soperationsexposesustoawiderangeof
signicanthealth,safety,securityandenvironmentalrisks.Thescopeof
theserisksisinuencedbythegeographicrange,operationaldiversityand
technicalcomplexityofouractivities.Inaddition,inmanyofourmajor
projectsandoperations,riskallocationandmanagementissharedwith
thirdparties,suchascontractors,sub-contractors,jointventurepartners
andassociates.See‘Jointventuresandothercontractualarrangements
–BPmaynothavefulloperationalcontrolandmayhaveexposureto
counterpartycreditriskanddisruptionstoouroperationsduetothenature
ofsomeofitsbusinessrelationships’onpage32.
Therearerisksoftechnicalintegrityfailureaswellasriskofnatural
disastersandotheradverseconditionsinmanyoftheareasinwhichwe
operate,whichcouldleadtolossofcontainmentofhydrocarbonsand
otherhazardousmaterial,aswellastheriskofres,explosionsor
otherincidents.
Inaddition,inabilitytoprovidesafeenvironmentsforourworkforce
andthepubliccouldleadtoinjuriesorlossoflifeandcouldresultin
regulatoryaction,legalliabilityanddamagetoourreputation.
Ouroperationsareoftenconductedindifcultorenvironmentally
sensitivelocations,inwhichtheconsequencesofaspill,explosion,reor
otherincidentcouldbegreaterthaninotherlocations.Theseoperationsare
subjecttovariousenvironmentallaws,regulationsandpermitsandthe
consequencesoffailuretocomplywiththeserequirementscaninclude
remediationobligations,penalties,lossofoperatingpermitsandother
sanctions.Accordingly,inherentinouroperationsistheriskthatifwefailto
abidebyenvironmentalandsafetyandprotectionstandards,suchfailure
couldleadtodamagetotheenvironmentandcouldresultinregulatory
action,legalliability,materialcostsanddamagetoourreputationorlicence
tooperate.
Tohelpaddresshealth,safety,security,environmentaland
operationsrisks,andtoprovideaconsistentframeworkwithinwhichthe
groupcananalyzetheperformanceofitsactivitiesandidentifyand
remediate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
established,reportingdirectlytothegroupchiefexecutive.Therecanbeno
assurancethatOMSwilladequatelyidentifyallprocesssafety,personal
safetyandenvironmentalriskorprovidethecorrectmitigations,orthatall
operationswillbeincompliancewithOMSatalltimes.
Security – hostile activities against our staff and activities could
cause harm to people and disrupt our operations.
Securitythreatsrequirecontinuousoversightandcontrol.Actsofterrorism,
piracy,sabotageandsimilaractivitiesdirectedagainstouroperationsand
ofces,pipelines,transportationorcomputersystemscouldcauseharmto
peopleandcouldseverelydisruptbusinessandoperations.Ourbusiness
activitiescouldalsobeseverelydisruptedbycivilstrifeandpoliticalunrest
inareaswhereweoperate.
Product quality – failure to meet product quality standards could
lead to harm to people and the environment and loss of customers.
Supplyingcustomerswithon-specicationproductsiscriticalto
maintainingourlicencetooperateandourreputationinthemarketplace.
Failuretomeetproductqualitystandardsthroughoutthevaluechaincould
leadtoharmtopeopleandtheenvironmentandlossofcustomers.
Drilling and production – these activities require high levels of
investment and are subject to natural hazards and other
uncertainties. Activities in challenging environments heighten
many of the drilling and production risks including those of
integrity failures, which could lead to curtailment, delay or
cancellation of drilling operations, or inadequate returns from
exploration expenditure.
Explorationandproductionrequirehighlevelsofinvestmentandare
subjecttonaturalhazardsandotheruncertainties,includingthoserelating
tothephysicalcharacteristicsofanoilornaturalgaseld.Ourexploration
andproductionactivitiesareoftenconductedinextremelychallenging
environments,whichheightentherisksoftechnicalintegrityfailureand
naturaldisastersdiscussedabove.Thecostofdrilling,completingor
operatingwellsisoftenuncertain.Wemayberequiredtocurtail,delayor
canceldrillingoperationsbecauseofavarietyoffactors,including
unexpecteddrillingconditions,pressureorirregularitiesingeological
formations,equipmentfailuresoraccidents,adverseweatherconditions
andcompliancewithgovernmentalrequirements.Inaddition,exploration
expendituremaynotyieldadequatereturns,forexampleinthecaseof
unproductivewellsordiscoveriesthatproveuneconomictodevelop.
TheGulfofMexicoincidentillustratestheriskswefaceinourdrillingand
productionactivities.

Transportation – all modes of transportation of hydrocarbons
involve inherent and signicant risks.
Allmodesoftransportationofhydrocarbonsinvolveinherentrisks.An
explosionorreorlossofcontainmentofhydrocarbonsorotherhazardous
materialcouldoccurduringtransportationbyroad,rail,seaorpipeline.
Thisisasignicantriskduetothepotentialimpactofareleaseonthe
environmentandpeopleandgiventhehighvolumesinvolved.
Major project delivery – our group plan depends upon successful
delivery of major projects, and failure to deliver major projects
successfully could adversely affect our nancial performance.
Successfulexecutionofourgroupplandependscriticallyonimplementing
theactivitiestodeliverthemajorprojectsovertheplanperiod.Poor
deliveryofanymajorprojectthatunderpinsproductionorproduction
growth,includingmaintenanceturnaroundprogrammes,and/oramajor
programmedesignedtoenhanceshareholdervaluecouldadverselyaffect
ournancialperformance.Successfulprojectdeliveryrequires,among
otherthings,adequateengineeringandothercapabilitiesandtherefore
successfulrecruitmentanddevelopmentofstaffiscentraltoourplans.
See‘Peopleandcapability–successfulrecruitmentanddevelopment
ofstaffiscentraltoourplans’onpage31.
30BPAnnualReportandForm20-F2010