BP Annual Report and Form 20-F 2011 - Company Reporting

Business reviewtransportation and storage. The project is a joint venture between BP(40%) and Masdar (60%).ShippingWe transport our products across oceans, around coastlines and alongwaterways, using a combination of BP-operated, time-chartered andspot-chartered vessels. All vessels conducting BP activities are subject toour health, safety, security and environmental requirements. The primarypurpose of our shipping and chartering activities is the transportation ofour hydrocarbon products. In addition, we may use surplus capacity totransport third-party products.International fleetAt the end of 2011, we had 53 international vessels (37 medium-sizecrude and product carriers, three very large crude carriers, one North Seashuttle tanker, eight LNG carriers and four LPG carriers). All these ships aredouble-hulled. Of the eight LNG carriers, BP manages one on behalf of ajoint venture in which it is a participant.Regional and specialist vesselsIn Alaska, we retain a fleet of four double-hulled vessels. Outside the US,we had 14 specialist vessels (two double-hulled lubricants oil barges and12 offshore support vessels).Time-charter vesselsAt the end of 2011 BP had 93 hydrocarbon-carrying vessels above 600deadweight tonnes on time-charter, all of which are double-hulled. All thesevessels participate in BP’s time-charter assurance programme.AluminiumDuring 2011, we terminated our interest in this business with the disposalof our wholly-owned subsidiary, ARCO Aluminum Inc., to a consortium ofJapanese companies for cash consideration of $680 million.TreasuryTreasury manages the financing of the group centrally, ensuring liquiditysufficient to meet group requirements and manages key financial risksincluding interest rate, foreign exchange, pension and financial institutioncredit risk. From locations in the UK, the US and the Asia-Pacific region,Treasury provides the interface between BP and the international financialmarkets and supports the financing of BP’s projects around the world.Treasury trades foreign exchange and interest rate products in thefinancial markets, hedging group exposures and generating incrementalvalue through optimizing and managing cash flows. Trading activitiesare underpinned by the compliance, control, and risk managementinfrastructure common to all BP trading activities. For further information,see Financial statements – Note 26 on page 217.InsuranceThe group generally restricts its purchase of insurance to situations wherethis is required for legal or contractual reasons. Losses are borne as theyarise, rather than being spread over time through insurance premiums withattendant transaction costs. This approach was reviewed following theDeepwater Horizon oil spill but the group concluded that it will continuewith its current approach of not generally purchasing insurance cover.Spot-charter vesselsBP spot-charters vessels, typically for single voyages. These vessels arealways vetted for safety assurance prior to each use.Other vesselsBP uses various craft such as tugs, crew boats and seismic vessels insupport of the group’s business. We also use sub-600 deadweight tonnebarges to carry hydrocarbons on inland waterways.Maritime security issuesAt a strategic level, BP avoids known areas of pirate attack or armedrobbery; where this is not possible for trading reasons and we considerit safe to do so, we will continue to trade vessels through these areas,subject to the adoption of heightened security measures.2011 has seen continuing pirate activity in the Gulf of Aden, IndianOcean (up to approximately 200 miles west of the Indian coast) and theArabian Sea. Activity has further extended into the north Arabian Sea(approximately 200 miles south of Pakistan) and the southern Red Sea.Despite an increasing level of piracy activity the number of vessels actuallyattacked and/or hijacked has remained roughly the same as in 2010, andthe percentage success rate of the pirates has reduced. This is as a resultof stronger naval intervention off the Somali coast, heightened awarenessof the threat, and protective measures adopted by transiting ships.At present, we follow available military and government agencyadvice and are participating in protective group transits through the Gulfof Aden Internationally Recommended Transit Corridor. BP uses theprotective measures recommended in the international shipping industryguide BMP 4 – Best Management Practices for Protection against SomaliaBased Piracy, jointly published by industry bodies, including Oil CompaniesInternational Marine Forum and supported by military operations in theregion.We continue to monitor other areas where piracy is known to occure.g. West Africa and the South China Sea.102 BP Annual Report and Form 20-F 2011