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

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Additional information for shareholdersliquidity, shareholder returns and/or implementation of its strategic agenda,particularly in the US. These potential liabilities may continue to have amaterial adverse effect on the group’s results and financial condition. SeeFinancial statements – Note 2 on pages 190-194 for information regardingthe financial impact of the Incident.Investigations and reports relating to the Deepwater Horizon oil spillBP is subject to a number of investigations related to the Incident bynumerous agencies of the US government. The related published reportsare available on the websites of the agencies and commissions referred tobelow.On 11 January 2011, the National Commission on the BPDeepwater Horizon Oil Spill and Offshore Drilling (National Commission),established by President Obama, published its report on the causes of theIncident and its recommendations for policy and regulatory changes foroffshore drilling. On 17 February 2011, the National Commission’s ChiefCounsel published a separate report on his investigation that providesadditional information regarding the causes of the Incident.In a report dated 20 March 2011, with an Addendum dated30 April 2011, the Joint Investigation Team (JIT) for the Marine Board ofInvestigation established by the US Coast Guard and Bureau of OceanEnergy Management (BOEMRE) issued the Final Report of the ForensicExamination of the Deepwater Horizon Blowout Preventer (BOP) preparedby Det Norske Veritas (BOP Report). The BOP Report concludes thatthe position of the drill pipe against the blind shear rams prevented theBOP from functioning as intended. Subsequently, BP helped to sponsoradditional BOP testing conducted by Det Norske Veritas under courtauspices, which concluded on 21 June 2011. BP continues to review theBOP Report and is in the process of evaluating the data obtained from theadditional testing.On 22 April 2011, the US Coast Guard issued its report (MaritimeReport) focused upon the maritime aspects of the Incident. The MaritimeReport criticizes Transocean’s maintenance operations and safety culture,while also criticizing the Republic of the Marshall Islands – the flag stateresponsible for certifying Transocean’s Deepwater Horizon vessel.The US Chemical Safety and Hazard Investigation Board (CSB)is also conducting an investigation of the Incident that is focused on theexplosions and fire, and not the resulting oil spill or response efforts. TheCSB is expected to issue a single investigation report in 2012 that willseek to identify the alleged root cause(s) of the Incident, and recommendimprovements to BP and industry practices and to regulatory programmesto prevent recurrence and mitigate potential consequences.Also, at the request of the Department of the Interior, the NationalAcademy of Engineering/National Research Council established aCommittee (Committee) to examine the performance of the technologiesand practices involved in the probable causes of the Incident and to identifyand recommend technologies, practices, standards and other measures toavoid similar future events. On 17 November 2010, the Committee publiclyreleased its interim report setting forth the Committee’s preliminaryfindings and observations on various actions and decisions including welldesign, cementing operations, well monitoring, and well control actions.The interim report also considers management, oversight, and regulation ofoffshore operations. On 14 December 2011, the Committee published itsfinal report, including findings and recommendations. A second, unrelatedNational Academies Committee will be looking at the methodologiesavailable for assessing spill impacts on ecosystem services in the Gulf ofMexico, with a final report expected in late 2012 or early 2013, and a thirdNational Academies Committee will be studying methods for assessing theeffectiveness of safety and environmental management systems (SEMS)established by offshore oil and gas operators.On 10 March 2011, the Flow Rate Technical Group (FRTG),Department of the Interior, issued its final report titled “Assessmentof Flow Rate Estimates for the Deepwater Horizon/Macondo Well OilSpill.” The report provides a summary of the strengths and limitations ofthe different methods used by the US government to estimate the flowrate and a range of estimates from 13,000 b/d to over 100,000 b/d. Thereport concludes that the most accurate estimate was 53,000 b/d justprior to shut in, with an uncertainty on that value of ±10% based on FRTGcollective experience and judgement, and, based on modelling, the flow onday one of the Incident was 62,000 b/d.On 18 March 2011, the US Coast Guard ISPR team released its finalreport capturing lessons learned from the Incident as well as makingrecommendations on how to improve future oil spill response and recoveryefforts.Additionally, since April 2010, BP representatives have testifiedmultiple times before the US Congress regarding the Incident. BP hasprovided documents and written information in response to requests fromMembers, committees and subcommittees of the US Congress.Other legal proceedingsThe US Federal Energy Regulatory Commission (FERC) and the USCommodity Futures Trading Commission (CFTC) are currently investigatingseveral BP entities regarding trading in the next-day natural gas market atHouston Ship Channel during September, October and November 2008.The FERC Office of Enforcement staff notified BP on 12 November 2010of their preliminary conclusions relating to alleged market manipulation inviolation of 18 C.F.R. Sec. 1c.1. On 30 November 2010, CFTC Enforcementstaff also provided BP with a notice of intent to recommend chargesbased on the same conduct alleging that BP engaged in attempted marketmanipulation in violation of Section 6(c), 6(d), and 9(a)(2) of the CommodityExchange Act. On 23 December 2010, BP submitted responses to theFERC and CFTC November 2010 notices providing a detailed responsethat it did not engage in any inappropriate or unlawful activity. On 28 July2011, the FERC staff issued a Notice of Alleged Violations stating that ithad preliminarily determined that several BP entities fraudulently tradedphysical natural gas in the Houston Ship Channel and Katy marketsand trading points to increase the value of their financial swing spreadpositions. Other investigations into BP’s trading activities continue to beconducted from time to time.On 23 March 2005, an explosion and fire occurred in theisomerization unit of BP Products North America’s (BP Products) TexasCity refinery as the unit was coming out of planned maintenance. Fifteenworkers died in the incident and many others were injured. BP Productshas resolved all civil injury claims arising from the March 2005 incident.In March 2007, the US Chemical Safety and Hazard InvestigationBoard (CSB) issued a report on the incident. The report containedrecommendations to the Texas City refinery and to the board of directorsof BP. In May 2007, BP responded to the CSB’s recommendations. BP andthe CSB will continue to discuss BP’s responses with the objective of theCSB’s agreeing to close out its recommendations.On 25 October 2007, the DoJ announced that it had enteredinto a criminal plea agreement with BP Products related to the March2005 explosion and fire. On 4 February 2008, BP Products pleadedguilty, pursuant to the plea agreement, to one felony violation of the riskmanagement planning regulations promulgated under the US Clean AirAct (CAA) and on 12 March 2009, the court accepted the plea agreement.In connection with the plea agreement, BP Products paid a $50-millioncriminal fine and was sentenced to three years’ probation which is setto expire on 12 March 2012. Compliance with a 2005 US OccupationalSafety and Health Administration (OSHA) settlement agreement (2005Agreement) and a 2006 agreed order entered into by BP Products withthe Texas Commission on Environmental Quality (TCEQ) are conditions ofprobation.The Texas Office of Attorney General, on behalf of the TexasCommission on Environmental Quality (TCEQ), has filed a petition againstBP Products asserting certain air emissions and reporting violations at theTexas City refinery from 2005 to 2010. BP Products settled this lawsuit byan Agreed Final Judgment entered by the court on 20 December 2011.The Texas Attorney General filed a separate petition against BPProducts asserting emissions violations relating to a 6 April 2010 flaringevent. This lawsuit was also settled by the Agreed Final Judgmentmentioned in the preceding paragraph. This emissions event is also thesubject of a number of civil suits by many area workers and residentsalleging personal injury and property damages and seeking substantialdamages. In addition, this emissions event is the subject of a federalgovernmental investigation.In September 2009, BP Products filed a petition to clarify specificrequired actions and deadlines under the 2005 Agreement with OSHA.That agreement resolved citations issued in connection with the March2005 Texas City refinery explosion. OSHA denied BP Products’ petition.164 BP Annual Report and Form 20-F 2011
Additional information for shareholdersIn October 2009 OSHA issued citations to the Texas City refinery seekinga total of $87.4 million in civil penalties for alleged violations of the 2005Agreement and alleged process safety management violations.A settlement agreement between BP Products and OSHA inAugust 2010 (2010 Agreement) resolved the petition filed by BP Productsin September 2009 and the alleged violations of the 2005 Agreement.BP Products has paid a penalty of $50.6 million in that matter andagreed to perform certain abatement actions. Compliance with the 2010Agreement (which is set to expire on 12 March 2012) is also a condition ofprobation due to the linkage between this 2010 Agreement and the 2005Agreement.On 6 May 2010, certain persons qualifying under the US CrimeVictims’ Rights Act as victims in relation to the Texas City plea agreementrequested that the federal court revoke BP Products’ probation basedon alleged violations of the Court’s conditions of probation. The allegedviolations of probation relate to the alleged failure to comply with the 2005Agreement.The OSHA process safety management citations issued in October2009 were not resolved by the August 2010 settlement agreement.The proposed penalties in that matter are $30.7 million. The matter iscurrently before the OSH Review Commission which has assigned anAdministrative Law Judge for purposes of mediation. These citations donot allege violations of the 2005 Agreement.A shareholder derivative action was filed against several currentand former BP officers and directors based on alleged violations of the USClean Air Act (CAA) and Occupational Safety and Health Administration(OSHA) regulations at the Texas City refinery subsequent to the March2005 explosion and fire. An investigation by a special committee ofBP’s board into the shareholder allegations has been completed and thecommittee has recommended that the allegations do not warrant actionby BP against the officers and directors. BP filed a motion to dismiss theshareholder derivative action and a plea to the jurisdiction. On 16 June2011, the court granted BP’s plea to the jurisdiction and dismissed theaction in its entirety. The shareholder has appealed the dismissal and theappeal is pending.In March and August 2006, oil leaked from oil transit pipelinesoperated by BP Exploration (Alaska) Inc. (BPXA) at the Prudhoe Bay uniton the North Slope of Alaska. Several legal proceedings resulted fromthese events. On 29 November 2007, BPXA entered into a criminal pleaagreement with the DoJ relating to these leaks. BPXA’s guilty plea, to amisdemeanour violation of the US Water Pollution Control Act, includeda term of three years’ probation. On 29 November 2009, a spill ofapproximately 360 barrels of crude oil and produced water was discoveredbeneath a line running from a well pad to the Lisburne Processing Centerin Prudhoe Bay, Alaska. On 17 November 2010, the US Probation Officerfiled a petition in federal district court to revoke BPXA’s probation basedon allegations that the Lisburne event was a criminal violation of stateand federal law and therefore BPXA was in violation of its probationobligations. BPXA contested the petition at an evidentiary hearing thatwas completed on 7 December 2011 in U.S. District Court in Anchorage,Alaska. On 27 December 2011, the Court issued a decision and orderfinding that BPXA did not violate the terms of its probation, dismissing thegovernment’s petition and terminating BPXA’s probation.On 12 May 2008, a BP p.l.c. shareholder filed a consolidatedcomplaint alleging violations of federal securities law on behalf of a putativeclass of BP p.l.c. shareholders against BP p.l.c., BPXA, BP America, andfour officers of the companies, based on alleged misrepresentationsconcerning the integrity of the Prudhoe Bay pipeline before its shutdownon 6 August 2006. On 8 February 2010, the Ninth Circuit Court of Appealsaccepted BP’s appeal from a decision of the lower court granting in partand denying in part BP’s motion to dismiss the lawsuit. On 29 June2011, the Ninth Circuit ruled in BP’s favour that the filing of a trust relatedagreement with the SEC containing contractual obligations on the part ofBP was not a misrepresentation which violated federal securities laws. TheBP p.l.c. shareholder has filed an amended complaint, in response to whichBP filed a new motion to dismiss, which is pending. On 31 March 2009,the United States filed a complaint seeking civil penalties and damagesrelating to the events at Prudhoe Bay. The complaint also involved claimsrelated to asbestos handling, allegations of non-compliance at multiplefacilities for failure to comply with EPA’s spill prevention plan regulations,and for non-compliance with US Department of Transportation orders andregulations. The parties settled the dispute and on 13 July 2011 the Courtentered a Consent Agreement in which BPXA agreed to pay a $25-millionpenalty and to perform certain injunctive measures over the next threeyears with respect to pipeline inspection and maintenance. On 31 March2009, the State of Alaska filed a complaint seeking civil penalties anddamages relating to these events. The complaint alleges that the tworeleases and BPXA’s corrosion management practices violated variousstatutory, contractual and common law duties to the State, resultingin penalty liability, damages for lost royalties and taxes, and liability forpunitive damages. In December 2011, the State of Alaska and BPXAentered into a Dispute Resolution Agreement concerning this matter thatwill result in arbitration of the amount of the State’s lost royalty income andpayment by BPXA of the additional amount of $10 million on account ofother claims in the complaint.Approximately 200 lawsuits were filed in state and federal courtsin Alaska seeking compensatory and punitive damages arising out of theExxon Valdez oil spill in Prince William Sound in March 1989. Most ofthose suits named Exxon (now ExxonMobil), Alyeska Pipeline ServiceCompany (Alyeska), which operates the oil terminal at Valdez, and theother oil companies that own Alyeska. Alyeska initially responded tothe spill until the response was taken over by Exxon. BP owns a 46.9%interest (reduced during 2001 from 50% by a sale of 3.1% to Phillips)in Alyeska through a subsidiary of BP America Inc. and briefly indirectlyowned a further 20% interest in Alyeska following BP’s combination withAtlantic Richfield. Alyeska and its owners have settled all the claims againstthem under these lawsuits. Exxon has indicated that it may file a claim forcontribution against Alyeska for a portion of the costs and damages that ithas incurred. If any claims are asserted by Exxon that affect Alyeska and itsowners, BP will defend the claims vigorously.Since 1987, Atlantic Richfield Company (Atlantic Richfield), asubsidiary of BP, has been named as a co-defendant in numerous lawsuitsbrought in the US alleging injury to persons and property caused by leadpigment in paint. The majority of the lawsuits have been abandoned ordismissed against Atlantic Richfield. Atlantic Richfield is named in theselawsuits as alleged successor to International Smelting and Refiningand another company that manufactured lead pigment during the period1920-1946. Plaintiffs include individuals and governmental entities.Several of the lawsuits purport to be class actions. The lawsuits seekvarious remedies including compensation to lead-poisoned children, costto find and remove lead paint from buildings, medical monitoring andscreening programmes, public warning and education of lead hazards,reimbursement of government healthcare costs and special education forlead-poisoned citizens and punitive damages. No lawsuit against AtlanticRichfield has been settled nor has Atlantic Richfield been subject to a finaladverse judgment in any proceeding. The amounts claimed and, if suchsuits were successful, the costs of implementing the remedies sought inthe various cases could be substantial. While it is not possible to predictthe outcome of these legal actions, Atlantic Richfield believes that it hasvalid defences. It intends to defend such actions vigorously and believesthat the incurrence of liability is remote. Consequently, BP believes thatthe impact of these lawsuits on the group’s results, financial position orliquidity will not be material.On 8 March 2010, OSHA issued citations to BP’s Toledo refineryalleging violations of the Process Safety Management Standard, withpenalties of approximately $3 million. These citations resulted from aninspection conducted pursuant to OSHA’s Petroleum Refinery ProcessSafety Management National Emphasis Program. BP Products hascontested the citations, and the matter is currently scheduled for trialbefore the OSH Review Commission in June 2012.In April 2009, Kenneth Abbott, as relator, filed a US False ClaimsAct lawsuit against BP, alleging that BP violated federal regulations, andmade false statements in connection with its compliance with thoseregulations, by failing to have necessary documentation for the Atlantissubsea and other systems. BP is the operator and 56% interest ownerof the Atlantis unit in production in the Gulf of Mexico. That complaintwas unsealed in May 2010 and served on BP in June 2010. Abbott seeksdamages measured by the value, net of royalties, of all past and futureproduction from the Atlantis platform, trebled, plus penalties. In September2010, Kenneth Abbott and Food & Water Watch filed an amendedAdditional information for shareholdersBP Annual Report and Form 20-F 2011 165
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Cover imagePhotograph of DeepseaSta
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Cross reference to Form 20-FPageIte
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Miscellaneous termsIn this document
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6 BP Annual Report and Form 20-F 20
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Chairman’s letterCarl-Henric Svan
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During the year, the remuneration c
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Business review: Group overviewBP A
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SafetyDuring the year, we reorganiz
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In Refining and Marketing, our worl
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Crude oil and gas prices,and refini
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In detailFor more information, seeR
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Our market: Longer-term outlookThe
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BP’s distinctive capabilities and
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Technology will continue to play a
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In detailFor more information,see C
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In detailFind out more online.bp.co
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BP Annual Report and Form 20-F 2011
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Below BP has asignificant presencei
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What you can measure6 Active portfo
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Business review: Group overview2012
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Our risk management systemOur enhan
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Our current strategic priorities ar
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Our performance2011 was a year of f
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Left BP employeesat work in Prudhoe
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We continued to sell non-core asset
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Reported recordableinjury frequency
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Business reviewBP in more depth56 F
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Business reviewBP’s vice presiden
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Business reviewbalance of participa
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Business reviewThe group expects it
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Business reviewpart of a larger por
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Supplementary information on oil an
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SignaturesThe registrant hereby cer
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Parent company financial statements
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