BP 2011 Annual Report Download - page 64

62 BP Annual Report and Form 20-F 2011
Business review
Reporting – failure to accurately report our data could lead to
regulatory action, legal liability and reputational damage.
External reporting of financial and non-financial 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 oil spill. The occurrence of any such risks could have a consequent
material adverse impact on the group’s business, competitive position,
cash flows, results of operations, financial 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 significant 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
significant health, safety, security and environmental risks. The scope of
these risks is influenced 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 and strategic
objectives due to the nature of some of its business relationships’ on
page 63.
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 fires, 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 difficult or environmentally
sensitive locations, in which the consequences of a spill, explosion,
fire or other incident could be greater than in other locations. These
operations are subject to various environmental and safety 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, damage to our reputation or denial of our licence to operate.
To help address health, safety, security, environmental and
operations risks, and to provide a consistent framework within which
the group can analyse the performance of its activities and identify
and remediate shortfalls, BP has introduced a group-wide operating
management system (OMS). Work on the application of OMS in individual
operating businesses continues and following the Gulf of Mexico oil spill
an enhanced safety and operational risk (S&OR) function was 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 conformance 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, cyber-attacks and similar activities directed against our
operations and offices, 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-specification 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 field. 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 oil spill illustrates the risks we face in our drilling and
production activities.
Transportation – all modes of transportation of hydrocarbons involve
inherent and significant risks.
All modes of transportation of hydrocarbons involve inherent risks. An
explosion or fire or loss of containment of hydrocarbons or other hazardous
material could occur during transportation by road, rail, sea or pipeline. This
is a significant risk due to the potential impact of a release on people and
the environment and given the high volumes potentially 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 financial 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 financial 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 63.
Digital infrastructure is an important part of maintaining our
operations, and a breach of our digital security could result in serious
damage to business operations, personal injury, damage to assets,
harm to the environment, breaches of regulations, litigation, legal
liabilities and reparation costs.
The reliability and security of our digital infrastructure are critical to
maintaining the availability of our business applications, including the
reliable operation of technology in our various business operations and
the collection and processing of financial and operational data, as well as
the confidentiality of certain third-party information. A breach of our digital
security, either due to intentional actions or due to negligence, could cause
serious damage to business operations and, in some circumstances, could
result in injury to people, damage to assets, harm to the environment,
breaches of regulations, litigation, legal liabilities and reparation costs.