BP 2013 Annual Report Download - page 44

BP Annual Report and Form 20-F 201340
continues to work with the EPA in preparing an administrative agreement
to resolve these suspension and debarment issues.
For further information on these matters, see Risk factors on page 51 and
Legal proceedings on page 257.
Financial update
The group income statement for 2013 includes a pre-tax charge of $469
million in relation to the Gulf of Mexico oil spill. The charge for the year
reflects adjustments to provisions and the ongoing costs of the Gulf Coast
Restoration Organization. As at 31 December 2013, the total cumulative
charges recognized to date amount to $42.7 billion. BP has provided for
spill response costs, environmental expenditure, litigation and claims and
Clean Water Act penalties that can be measured reliably. At 31 December
2013, provisions related to the Gulf of Mexico oil spill amounted to
$9.3 billion (2012 $15.2 billion).
The cumulative income statement charge does not include amounts for
obligations that BP considers are not possible, at this time, to measure
reliably. Nothing is currently provided for natural resource damages,
except for $1 billion for early restoration projects and no provision has
been made for amounts arising from MDL 2185 (securities class action).
In addition, management believes that no reliable estimate can be made
of any business economic loss claims not yet received, processed and
paid. This is because of the significant uncertainties which exist currently,
as noted in the Plaintiffs’ Steering Committee section above (see also
Financial statements – Note 2). The additional amounts payable for these
and other items (such as state and local claims) could be considerable.
The total amounts that will ultimately be paid by BP in relation to all the
obligations relating to the accident and oil spill are subject to significant
uncertainty. The ultimate exposure and cost to BP will be dependent on
many factors, including any new information or future developments.
These could have a material impact on our consolidated financial condition,
results of operations and cash flows. The risks associated with the
accident and oil spill could also heighten the impact of the other risks to
which the group is exposed.
For details regarding the impacts and uncertainties relating to the Gulf of
Mexico oil spill, see Risk factors on page 51 and Financial statements –
Note 2.
Deepwater Horizon Oil Spill Trust update
BP, in agreement with the US government, set up the $20-billion
Deepwater Horizon Oil Spill Trust (the Trust) to provide confidence that
funds would be available to satisfy individual and business claims, final
judgments in litigation and litigation settlements, state and local response
costs and claims, and natural resource damages and related costs. The
Trust was fully funded by the end of 2012.
Payments made out of the Trust during 2013 totalled $3.1 billion for
individual and business claims, medical settlement programme payments,
natural resource damage assessment and early restoration, state and local
government claims, costs of the court supervised settlement progamme
and other resolved items. As at 31 December 2013, the aggregate cash
balances in the Trust and the associated qualified settlement funds
amounted to $6.7 billion, including $1.2 billion remaining in the seafood
compensation fund, which is yet to be distributed, and $0.9 billion held for
natural resource damage early restoration projects.
As at 31 December 2013, the cumulative charges to the Trust amounted to
$19.3 billion. Thus, a further $0.7 billion could be charged in subsequent
periods for items covered by the Trust with no net impact on the income
statement. Additional liabilities in excess of this amount would be
expensed to the income statement. See Legal proceedings on page 257
and Financial statements – Note 2 for more information.
1
23 1. Litigation and claims
and certain related costs 16.9
2. Environmental 2.4
3. Headroom 0.7
Amounts payable from the Trust fund ($ billion)
Clean Water Act penalties
BP has recognized a provision of $3.5 billion for the estimated civil
penalties for strict liability under the Clean Water Act, which are based on a
specified range per barrel of oil released. The penalty rate per barrel used
to calculate this provision is based upon BP’s conclusion, among other
things, that it did not act with gross negligence or engage in wilful
misconduct.
If BP is found to have been grossly negligent, the penalty is likely to be
significantly higher than the amount currently provided. See further details
under Multi-district litigation proceedings in New Orleans above and in
Financial statements – Note 2.