BP 2011 Annual Report Download - page 81

Business review: BP in more depth
BP Annual Report and Form 20-F 2011 79
Business review
grants, which were supplemented by a further $3.3 million from other
contributors, were awarded for projects designed to:
• Improve sea turtle hatchling success across 56 miles of priority Florida
beaches.
• Increase the capacity of marine mammal and sea turtle treatment
facilities.
• Restore a combined 3.5 miles of oyster reefs, which in turn protect
sensitive coastal habitat.
• Reduce the incidence of sea turtles being caught in the course of
recreational and commercial fishing.
Commitment to long-term oil spill research
In 2010, BP committed $500 million over 10 years to fund independent
scientific research through the Gulf of Mexico Research Initiative (GoMRI).
The research will improve knowledge of the Gulf ecosystem and help the
industry and others to better understand and mitigate the impact of oil
spills in the region and elsewhere.
In June 2011, the GoMRI Research Board awarded 17 grants
totalling $1.5 million to support scientists as they continue time-sensitive
data collection. In August 2011, the Research Board awarded a total of
$112.5 million over three years to eight consortia comprised of over 70
research institutions. All eight consortia are led by Gulf Coast institutions.
Research recipients will use the grants to investigate the fate of oil
released by the spill, and for the development of new tools and technology
for responding to future spills and improving mitigation and restoration.
In December 2011, the GoMRI Research Board also issued a
request for proposals (RFP) for approximately $7.5 million per year for three
years, in smaller grants to individual or small teams of researchers.
Rebuilding trust through effective communications
During 2011, we worked to engage, inform and communicate with a wide
range of stakeholders throughout the region. We supported community
events and we shared information on a variety of issues and concerns with
individuals, community organizations, business leaders, elected officials,
non-governmental organizations and the news media.
Financial update
Profit before tax for the group includes a pre-tax credit of $3.8 billion
and finance costs of $0.1 billion in relation to the Gulf of Mexico oil spill.
The pre-tax credit reflects $5.5 billion in relation to settlements reached
with MOEX, Weatherford, Anadarko and Cameron, partially offset by
further costs associated with the ongoing spill response, adjustments to
provisions, and an increase in the amount provided for legal fees, as well as
functional expenses of BP’s Gulf Coast Restoration Organization (GCRO).
Provisions were established during 2010 for the environmental
expenditure, spill response costs, litigation and claims, and Clean Water
Act (CWA) penalties. Most of the costs incurred in 2011 were covered
by these existing provisions. Pre-tax charges were recorded in 2011
of $0.4 billion for the functional expenses of the GCRO, $1.1 billion for
increases in the amounts provided, primarily related to spill response costs
and legal fees, a $0.1 billion finance charge for unwinding of discount on
provisions, and $0.1 billion for spill response costs charged directly to the
income statement. These charges partially offset the $5.5 billion credit for
settlements reached during the year.
As at 31 December 2011, the cumulative charges for provisions to
be paid from the Trust and the associated reimbursement asset recognized
amounted to $16.6 billion. This represented an increase of
$4.0 billion in the provisioned amounts during 2011, primarily for the
$2.1-billion expected impact of the proposed settlement announced on
3 March 2012 with the Plaintiffs’ Steering Committee in MDL 2179, the
$1-billion commitment to NRD early restoration and new provisions for
personal injury and death claims and Vessel of Opportunity programme
claims. A further $3.4 billion could be provided in subsequent periods for
items covered by the Trust, with no net impact on the income statement.
BP has provided for all potential liabilities that can be estimated
reliably at this time, including fines and penalties under the CWA. The
total amounts that will ultimately be paid by BP in relation to all obligations
relating to the incident are subject to significant uncertainty.
BP considers that it is not possible to estimate reliably any obligation in
relation to NRD claims under OPA 90 (other than the estimated costs of
the assessment phase and the costs relating to emergency restoration
and the $1 billion agreement for early restoration), any amounts in relation
to fines and penalties except for those relating to the CWA and litigation
arising from alleged violations of OPA 90. These items are therefore
contingent liabilities.
BP holds a 100% interest in the Macondo well, with the lease
interests previously held by MOEX and Anadarko now assigned to BP as
part of the settlement agreements. MOEX paid BP $1.1 billion in cash and
Anadarko paid BP $4 billion in cash to settle all outstanding claims between
the companies related to the incident and to the prospect.
For details regarding the impacts and uncertainties relating to the
Gulf of Mexico oil spill refer to Financial statements – Note 2 on page 190,
Note 36 on page 231 and Note 43 on page 249. See also Risk factors on
page 59 and Proceedings and investigations relating to the Gulf of Mexico
oil spill on pages 160-164.
Legal proceedings and investigations
See Legal proceedings on pages 160-164 for a full discussion of legal
proceedings and investigations relating to the incident.