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

Business reviewby individuals, corporations and governmental entities. The ultimate costsfor these claims cannot be determined at this time. We also expect theindustry in general, and BP in particular, to become subject to greaterregulation and increased operating costs in the Gulf of Mexico in thefuture. For further disclosures relating to the consequences of the 2010Deepwater Horizon oil spill, see Legal proceedings on page 160.On 31 March 2009, the United States filed a complaint seeking civilpenalties and damages relating to oil leaks from oil transit lines operated byBP Exploration (Alaska) Inc. (BPXA) at the Prudhoe Bay unit on the NorthSlope of Alaska. (See Legal proceedings on page 165.) The complaint alsoinvolved claims related to asbestos handling, allegations of non-complianceat multiple facilities for failure to comply with EPA’s spill prevention planregulations, and for non-compliance with US Department of Transportationorders and regulations. The parties settled the dispute and on 13 July 2011the Court entered a Consent Agreement in which BPXA agreed to pay a$25-million penalty and to perform certain injunctive measures over thenext three years with respect to pipeline inspection and maintenance.Various environmental groups and the EPA have challengedcertain aspects of the air permits issued by the Indiana Department ofEnvironmental Management (IDEM) for upgrades to the Whiting refinery.In response to these challenges, the IDEM has reviewed the permits andresponded formally to the EPA. BP is in discussions with EPA, the IDEMand certain environmental groups over these and other CAA issues relatingto the Whiting refinery. BP has also been in settlement discussions withEPA to resolve alleged CAA violations at the Toledo, Carson and CherryPoint refineries.European UnionBP’s operations in the EU are subject to a number of current and proposedregulatory requirements that affect or could affect our operations andprofitability. These include:• The EU Climate and Energy Package and the Emissions Trading Scheme(ETS) Directive (see Greenhouse gas regulation on page 109).• The EU Industrial Emissions Directive (IED) (revising and replacing theIntegrated Pollution Prevention and Control Directive (IPPC) and severalother industrial directives including the Large Combustion Plant Directive(LCPD)) are in the process of transposition by the EU Member States.The IED provides the framework for setting permits for major industrialsites. Relative to IPPC and LCPD, the IED imposes tighter emissionstandards for some large combustion plants and is more prescriptiveregarding the setting of emission of limit values based on use of BestAvailable Techniques (BAT) in permits for other discharges to air andwater. The emission limit values are informed by the Sector specific andcross-Sector BAT Reference documents (BREFs) which are reviewedperiodically. The outcome of the review of several BREFs key to ourmajor sites is expected in 2012/2013. The IED transposition and outputfrom the BREF revisions may result in requirements for further emissionreductions at our EU sites.• The European Commission Thematic Strategy on Air Pollution and therelated work on revisions to the Gothenburg Protocol and NationalEmissions Ceiling Directive (NECD) will establish national ceilings foremissions of a variety of air pollutants in order to achieve EU-wide healthand environmental improvement targets. This may result in requirementsfor further emission reductions at our EU sites.• The EU Regulation on ozone depleting substances (ODS), whichimplements the Montreal Protocol (Protocol) on ODS was most recentlyrevised in 2009. It requires BP to reduce the use of ODS and phaseout use of certain ODS substances. BP continues to replace ODS inrefrigerants and/or equipment, in the EU and elsewhere, in accordancewith the Protocol and related legislation. Methyl bromide (an ODS) isa minor by-product in the production of purified terephthalic acid inour petrochemicals operations. The progressive phase-out of methylbromide uses may result in future pressure to reduce our emissions ofmethyl bromide.• The EU Fuels Quality Directive affects our production and marketing oftransport fuels. Revisions adopted in 2009 mandate reductions in thelife cycle GHG emissions per unit of energy as described in Greenhousegas regulation above, and tighter environmental fuel quality standardsfor petrol and diesel (for example see Greenhouse gas regulation onpage 109).• The EU Registration, Evaluation and Authorization of Chemicals (REACH)Regulation requires registration of chemical substances, manufacturedin, or imported into, the EU in quantities greater than 1 tonne per annumper legal entity, together with the submission of relevant hazard andrisk data. REACH affects our refining, petrochemicals, exploration andproduction, biofuels, lubricants and other manufacturing or trading/importoperations.• Having completed registration of all the substances that we wererequired to submit by the regulatory deadline of 1 December 2010,we are now preparing registration dossiers for those substances(manufactured or imported in amounts in the range 100-1,000 tonnesper annum/legal entity) that are due to be submitted before 1 June2013. Substances registered in 2010 are subject to evaluation and/or authorization/restriction procedures by the authorities and this mayimpact activities, product sales and their profitability.• In addition, Europe has adopted the UN Global Harmonization Systemfor hazard classification and labelling of chemicals and products throughthe Classification Labelling and Packaging (CLP) Regulation. Thisrequires us to assess the hazards of all of our chemicals and productsagainst new criteria and will, over time, result in significant changes towarning labels and material safety data sheets. All our European MaterialSafety Data Sheets will need to be updated to include both REACHand CLP information. We have completed updates for all chemicalssubstances we manufacture and market in the EU by the compliancedeadline of 3 January 2011, and have implemented a process tomaintain compliance in our European operations. We have also notifiedthe European Chemicals Agency of hazard classifications for ourmanufactured and imported chemicals, for inclusion in a publicly availableinventory of hazardous chemicals. CLP will also apply to mixtures(e.g. lubricants) by 2015. Activities covered by both CLP and REACHare subject to possible enforcement activity by national regulatoryauthorities.• In the UK, significant health and safety legislation affecting BP includesthe Health and Safety at Work Act and regulations and the Control ofMajor Accident Hazards Regulations.The EU Commission has proposed the adoption of a regulation on safetyof offshore oil and gas prospection, exploration and production activities.The proposed regulation aims to introduce harmonized regulation of thepotential environmental, health and safety impacts of the offshore oil andgas industry throughout EU waters. Although it is at an early stage in thelegislative process, as published the proposal is not entirely aligned withthe regime operating in the UK and could also, if adopted, have the effectof extending liability for clean-up and compensation of environmentaldamage to marine waters.Environmental maritime regulationsBP’s shipping operations are subject to extensive national and internationalregulations governing liability, operations, training, spill prevention andinsurance. These include:• In US waters, OPA 90 imposes liability and spill prevention and planningrequirements governing, among others, tankers, barges and offshorefacilities. It also mandates a levy on imported and domestically producedoil to fund the oil spill response. Some states, including Alaska,Washington, Oregon and California, impose additional liability for oilspills.• Outside US territorial waters, BP Shipping tankers are subject tointernational liability, spill response and preparedness regulationsunder the UN’s International Maritime Organization, including theInternational Convention on Civil Liability for Oil Pollution, the MARPOL,the International Convention on Oil Pollution, Preparedness, Responseand Co-operation and the International Convention on Civil Liabilityfor Bunker Oil Pollution Damage. In April 2010, a new protocol, the108 BP Annual Report and Form 20-F 2011