BP 2013 Annual Report Download - page 58

BP Annual Report and Form 20-F 201354
As a result of the SEC settlement, as of 5 February 2013 and for a period of
three years thereafter, we are no longer qualified as a ‘well known
seasoned issuer’ (WKSI) as defined in Rule 405 of the Securities Act of
1933, as amended (Securities Act), and therefore will not be able to take
advantage of the benefits available to a WKSI, including engaging in
delayed or continuous offerings of securities using an automatic shelf
registration statement. In addition, as of the SEC settlement date of
10 December 2012 and for a period of five years thereafter, we are no
longer able to utilize certain registration exemptions provided by the
Securities Act in connection with certain securities offerings. We also may
be denied certain trading authorizations under the rules of the US
Commodities Futures Trading Commission, which may prevent us in the
future from entering certain routine swap transactions for an indefinite
period of time.
Regulatory – BP, and the oil industry in general, face increased regulation
in the US and elsewhere that could increase the cost of regulatory
compliance, affect the adequacy of our provisions and limit our access to
new exploration properties.
The oil industry in general is subject to regulation and intervention by
governments throughout the world in such matters as the award of
exploration and production interests, the imposition of specific drilling
obligations, environmental, health and safety controls, controls over the
development and decommissioning of a field (including restrictions on
production) and, possibly, nationalization, expropriation, cancellation or
non-renewal of contract rights. The oil industry is also subject to the
payment of royalties and taxation, which tend to be high compared with
those payable in respect of other commercial activities, and operates in
certain tax jurisdictions that have a degree of uncertainty relating to the
interpretation of, and changes to, tax law. We remain exposed to changes
in the regulatory and legislative 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, the imposition of trade or other sanctions,
government actions to cancel or renegotiate contracts or other factors.
Governments are facing greater pressure on public finances, which may
increase their motivation to intervene in the fiscal and regulatory
frameworks of the oil and gas industry and we remain exposed to
increases in amounts payable to governments or government agencies.
Such factors could reduce our profitability from operations in certain
jurisdictions, limit our opportunities for new access, require us to divest or
write-down certain assets or curtail or cease certain operations, or affect
the adequacy of our provisions for pensions, tax, environmental and legal
liabilities. Potential changes to pension or financial market regulation could
also impact funding requirements of the group.
Due to the Incident and remedial provisions contained in or that may result
from the DoJ and SEC settlements and other past events in the US, it is
likely that there will be additional oversight and more stringent regulation of
BP’s oil and gas activities in the US and elsewhere, particularly relating to
environmental, health and safety controls and oversight of drilling
operations, as well as access to new drilling areas. BP may be subjected to
a higher number of citations and/or level of fines imposed in relation to any
alleged breaches of safety or environmental regulations. New regulations
and legislation, the terms of BP’s settlements with US government
authorities and future settlements or litigation outcomes related to the
Incident, and/or evolving practices could increase the cost of compliance,
require changes to our drilling operations, exploration, development and
decommissioning plans, impact our ability to capitalize on our assets and
limit our access to new exploration properties or operatorships, particularly
in the deepwater Gulf of Mexico.
We buy, sell and trade oil and gas products in certain regulated commodity
markets. Failure to respond to changes in or to comply with trading
regulations could result in regulatory action and damage to our reputation.
See page 254 for more information on environmental regulation.
Ethical misconduct and non-compliance – ethical misconduct or
breaches of applicable laws by our businesses or our employees could be
damaging to our reputation and shareholder value.
Incidents of ethical misconduct, non-compliance with the
recommendations of the ethics monitor appointed under the terms of the
DoJ settlement or non-compliance with applicable laws and regulations,
including anti-bribery, anti-corruption and anti-manipulation laws and trade
or other sanctions, could be damaging to our reputation and shareholder
value and could subject us to litigation and regulatory action or penalties
under the terms of the DoJ settlement or otherwise. Multiple events of
non-compliance could call into question the integrity of our operations.
For example, in our trading functions, there is the risk that a determined
individual could operate as a ‘rogue trader’, acting outside BP’s
delegations, controls or code of conduct and in contravention of our values
in pursuit of personal objectives that could be to the detriment of BP and
its shareholders.
For certain legal proceedings involving the group, see Legal proceedings
on page 257. For further information on the risks involved in BP’s trading
activities, see Treasury and trading activities below.
Liabilities and provisions – BP’s potential liabilities resulting from
pending and future claims, lawsuits, settlements and enforcement actions
relating to the Incident, together with the potential cost and burdens of
implementing remedies sought in the various proceedings, have had and
are expected to continue to have a material adverse impact on the group’s
business.
Under the Oil Pollution Act of 1990 (OPA 90), BP Exploration & Production
Inc. and BP Corporation North America are among the parties financially
responsible for the clean-up of the Incident and for certain economic
damages as provided for in OPA 90, as well as certain natural resource
damages associated with the spill and certain costs determined by federal
and state trustees engaged in a joint assessment of such natural resource
damages. BP and certain of its subsidiaries have also been named as
defendants in numerous lawsuits in the US arising out of the Incident,
including actions for personal injury and wrongful death, purported class
actions for commercial or economic injury, actions for breach of contract,
violations of statutes, property and other environmental damage, securities
law claims and various other claims, and additional lawsuits or private
claims arising out of the Incident may be brought in the future.
While significant charges have been recognized in the income statement
since the Incident occurred in 2010, the provisions recognized represent
only the current best estimates of expenditures required to settle certain
present obligations that can be reasonably estimated at the end of the
reporting period, and there are future expenditures for which it is not
possible to measure our obligations reliably. BP’s total potential liabilities
resulting from pending and future claims, lawsuits, settlements and
enforcement actions relating to the Incident (including as a result of any
potential determination of BP’s negligence or gross negligence), together
with the potential cost and burdens of implementing remedies sought in
the various proceedings, cannot be fully estimated at this time and are
subject to significant uncertainty but they have had, and are expected to
continue to have, a material adverse impact on the group’s business.
See Financial statements – Note 2 and Legal proceedings on page 257.
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.
As of the date of the SEC settlement, 10 December 2012, and for a period
of three years thereafter, we are unable to rely on the safe harbor
provisions regarding forward-looking statements provided by the
regulations issued under the Securities Act, and the Securities Exchange
Act of 1934, as amended. Our inability to rely on these safe harbor
provisions may expose us to future litigation and liabilities in connection
with forward-looking statements in our public disclosures.