BP 2007 Annual Report Download - page 145

BP ANNUAL REPORT AND ACCOUNTS 2007 143
34 Derivative financial instruments
An outline of the group’s financial risks and the objectives and policies pursued in relation to those risks is set out in Note 28.
IAS 39 prescribes strict criteria for hedge accounting, whether as a cash flow or fair value hedge or a hedge of a net investment in a foreign
operation, and requires that any derivative that does not meet these criteria should be classified as held for trading and fair valued, with gains and
losses recognized in profit or loss.
In the normal course of business the group enters into derivative financial instruments (derivatives) to manage its normal business exposures in
relation to commodity prices, foreign currency exchange rates and interest rates, including management of the balance between floating rate and fixed
rate debt, consistent with risk management policies and objectives. Additionally, the group has a well-established entrepreneurial trading operation that
is undertaken in conjunction with these activities using a similar range of contracts.
The fair values of derivative financial instruments at 31 December are set out below.
$ million
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2007 2006
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Fair Fair Fair Fair
value value value value
asset liability asset liability
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Derivatives held for trading
Currency derivatives 147 (317) 137 (32)
Oil price derivatives 3,214 (3,432) 2,664 (2,368)
Natural gas price derivatives 4,388 (4,022) 6,558 (5,703)
Power price derivatives 1,121 (1,140) 3,232 (3,190)
Other derivatives 30 – 113 –
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8,900 (8,911) 12,704 (11,293)
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Embedded derivatives
Natural gas and LNG contracts 255 (2,340) 107 (2,171)
Interest rate contracts – (33) –(26
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255 (2,373) 107 (2,197)
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Cash flow hedges 348 (97) 219 (33)
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Fair value hedges
Currency forwards, futures and swaps 430 (9) 228 (13)
Interest rate swaps 89 (17) 33 (91)
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519 (26) 261 (104)
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Hedges of net investments in foreign operations 40 – 107 –
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10,062 (11,407) 13,398 (13,627)
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Of which – current 6,321 (6,405) 10,373 (9,424)
–non-current 3,741 (5,002) 3,025 (4,203)
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