BP 2013 Annual Report Download - page 145

2. Significant event – Gulf of Mexico oil spill – continued
$ million
Cumulative since the incident
Environmental
Spill
response
Litigation
and claims
Clean Water
Act Total
Increase in provision – items not covered by the trust fund 544 11,456 8,529 3,510 24,039
– items covered by the trust fund 2,353 56 18,102 – 20,511
Derecognition of provision for items that cannot be reliably estimateda– – (1,173) – (1,173)
Reclassification of amounts between categories of provision 47 (47) – – –
Unwinding of discount 12 – 6 – 18
Change in discount rate 17 – – – 17
Reclassified to other payables – items covered by the trust fund – – (84) – (84)
– items not covered by the trust fund – – (4,199) – (4,199)
Utilization – paid by BP (237) (11,367) (3,773) – (15,377)
– paid by the trust fund (1,146) (9) (13,251) – (14,406)
At 31 December 2013 1,590 89 4,157 3,510 9,346
aRelates to items covered by the trust fund.
Environmental
The environmental provision includes $320 million for BP’s commitment to fund the Gulf of Mexico Research Initiative, which is a 10-year research
programme to study the impact of the incident on the marine and shoreline environment of the Gulf of Mexico. In addition, BP faces claims under the Oil
Pollution Act of 1990 (OPA 90) for natural resource damages. These damages include, among other things, the reasonable costs of assessing the injury to
natural resources. During 2011, BP entered a framework agreement with natural resource trustees for the United States and five Gulf-coast states, providing
for up to $1 billion to be spent on early restoration projects to address natural resource injuries resulting from the oil spill, to be funded from the $20-billion
trust fund. In 2012, work began on the initial set of early restoration projects identified under this framework. At 31 December 2013 the amount provided for
natural resource damage assessment costs and early restoration projects was $1,224 million. 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 other than the assessment and early
restoration costs noted above, therefore no additional amounts have been provided for these items and they are disclosed as a contingent liability.
Spill response
The spill response provision relates primarily to ongoing shoreline operational activity.
Litigation and claims
The litigation and claims provision includes amounts that can be estimated reliably for the future cost of settling claims by individuals and businesses
for damage to real or personal property, lost profits or impairment of earning capacity and loss of subsistence use of natural resources (‘Individual and
Business Claims’), and claims by state and local government entities for removal costs, damage to real or personal property, loss of government
revenue and increased public services costs (‘State and Local Claims’), under OPA 90 and other legislation, except as described under Contingent
liabilities below. Claims administration costs and legal costs have also been provided for. The timing of payment of litigation and claims provisions
classified as non-current is dependent on on-going legal activity and is therefore uncertain.
BP has provided for its best estimate of the cost associated with the PSC settlement agreements with the exception of the cost of business economic
loss claims. As part of its monitoring of payments made by the DHCSSP, BP identified multiple business economic loss claim determinations that
appeared to result from an interpretation of the EPD Settlement Agreement by the claims administrator that BP believes was incorrect.
Between March 2013 and March 2014, there were various rulings from both the federal District Court in New Orleans (the District Court) and a panel
of the US Court of Appeals for the Fifth Circuit (the business economic loss panel) on matters relating to the interpretation of the EPD Settlement
Agreement, in particular on the issue of matching revenue and expenses as well as causation requirements of the EPD Settlement Agreement.
As reported in BP Annual Report and Form 20-F 2012, the estimated cost of the PSC settlement for Individual and Business Claims was $7.7 billion at
31 December 2012. This estimate increased during the year to $9.6 billion to reflect all claims processed by the DHCSSP for which eligibility notices
had been issued and increases in claims administration costs. As a result of the District Court’s preliminary injunction issued on 18 October 2013 that,
amongst other things, required the claims administrator to temporarily suspend payments of business economic loss claims other than those claims
supported by sufficiently matched accrual-basis accounting or any other business economic loss claim for which the claims administrator determines
that the matching of revenue and expenses is not an issue, the provision for $0.4 billion of claims for which eligibility notices had been issued but had
not yet been paid was derecognized as BP considered and continues to consider that no reliable estimate can be made for these claims. At
31 December 2013, the total costs of the PSC settlement that BP considers can be reliably estimated is therefore $9.2 billion.
On 5 December 2013, the District Court amended its earlier preliminary injunction and temporarily suspended the issuance of final determination
notices and payments of business economic loss claims, until the business economic loss issues have been resolved. On 24 December 2013, the
District Court ruled on the issues in relation to the matching of revenue and expenses and causation that were remanded to it by the business
economic loss panel. Regarding matching, the District Court reversed its earlier decision and ruled that the claims administrator, in administering
business economic loss claims, must match revenue with the variable expenses incurred by claimants in conducting their business, even where the
revenues and expenses were recorded at different times. The District Court assigned to the claims administrator the development of more detailed
matching requirements. On 12 February 2014, the claims administrator issued a draft policy addressing the matching of revenue and expenses for
business economic loss claims. The parties have made written submissions on the draft policy and the claims administrator will issue a final policy to
which BP and the PSC have the right to object and seek review by the District Court. Regarding causation, the District Court ruled that the EPD
Settlement Agreement contained no causation requirement beyond the revenue and related tests set out in an exhibit to that agreement. BP appealed
the District Court’s ruling on causation to the business economic loss panel and moved for a permanent injunction that would prevent the claims
administrator from making awards to claimants whose alleged injuries are not traceable to the spill. On 3 March 2014, the business economic loss
panel affirmed the District Court’s ruling on causation and denied BP’s motion for a permanent injunction. BP is considering its appeal options,
including a potential petition that all the active judges of the Fifth Circuit review the 3 March decision. Under the terms of the business economic loss
panel’s ruling, the injunction temporarily suspending issuance of final determination notices and payments of business economic loss claims will be
lifted when the matter is transferred back to the District Court; the timing of this would be affected by the status of any such petition by BP.
Financial statements
BP Annual Report and Form 20-F 2013 141