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

Notes on financial statementshttp://www.bp.com/downloads/gom2. Significant event – Gulf of Mexico oil spillAs a consequence of the Gulf of Mexico oil spill, as described on pages 76 to 79, BP continues to incur costs and has also recognized liabilities for futurecosts. Liabilities of uncertain timing or amount and contingent liabilities have been accounted for and/or disclosed in accordance with IAS 37 ‘Provisions,contingent liabilities and contingent assets’. These are discussed in further detail in Note 36 for provisions and Note 43 for contingent liabilities. BP’s rightsand obligations in relation to the $20-billion trust fund which was established in 2010 are accounted for in accordance with IFRIC 5 ‘Rights to interestsarising from decommissioning, restoration and environmental rehabilitation funds’. Key aspects of the accounting for the oil spill are summarized below.The financial impacts of the Gulf of Mexico oil spill on the income statement, balance sheet and cash flow statement of the group are shown inthe table below. Amounts related to the trust fund are separately identified.$ million2011 2010TotalOf which:amount relatedto the trustfundTotalOf which:amount relatedto the trustfundIncome statementProduction and manufacturing expenses (3,800) (3,995) 40,858 7,261Profit (loss) before interest and taxation 3,800 3,995 (40,858) (7,261)Finance costs 58 52 77 73Profit (loss) before taxation 3,742 3,943 (40,935) (7,334)Less: Taxation (1,387) – 12,894 –Profit (loss) for the period 2,355 3,943 (28,041) (7,334)Balance sheetCurrent assetsTrade and other receivables 8,487 8,233 5,943 5,943Current liabilitiesTrade and other payables (5,425) (4,872) (6,587) (5,002)Provisions (9,437) – (7,938) –Net current liabilities (6,375) 3,361 (8,582) 941Non-current assetsOther receivables 1,642 1,642 3,601 3,601Non-current liabilitiesOther payables – – (9,899) (9,899)Provisions (5,896) – (8,397) –Deferred tax 7,775 – 11,255 –Net non-current liabilities 3,521 1,642 (3,440) (6,298)Net assets (2,854) 5,003 (12,022) (5,357)Cash flow statementProfit (loss) before taxation 3,742 3,943 (40,935) (7,334)Finance costs 58 52 77 73Net charge for provisions, less payments 2,699 – 19,354 –(Increase) decrease in other current and non-current assets (4,292) (4,038) (12,567) (12,567)Increase (decrease) in other current and non-current liabilities (11,113) (10,097) 16,413 14,828Pre-tax cash flows (8,906) (10,140) (17,658) (5,000)Adjusting event after the reporting period: Settlement with the Plaintiffs’ Steering Committee, subject to final written agreement and courtapprovals, to resolve economic loss and medical claimsSubsequent to BP releasing its preliminary announcement of the fourth quarter 2011 results on 7 February 2012, BP announced on 3 March 2012 that ithad reached a proposed settlement with the Plaintiffs’ Steering Committee (PSC), subject to final written agreement and court approvals, to resolve thesubstantial majority of legitimate economic loss and medical claims stemming from the Deepwater Horizon accident and oil spill. The PSC acts on behalfof individual and business plaintiffs in the Multi-District Litigation proceedings pending in New Orleans (MDL 2179). Under the proposed settlement, classmembers would release and dismiss their claims against BP. The proposed settlement is not an admission of liability by BP. The proposed settlement isan adjusting event after the reporting period and therefore has been reflected in the financial statements for 2011 included in this report.The proposed settlement has not resulted in any increase in the $37.2 billion net pre-tax charge previously recorded in the financial statements.BP estimates that the cost of the proposed settlement, which covers Individual and Business Claims and associated costs that are expected to be paidfrom the $20-billion trust fund, would be approximately $7.8 billion. This represents an increase of $2.1 billion in the provision compared to the amountreflected in the fourth quarter 2011 preliminary results announcement, with no net impact to either the income statement or cash flow statement, sinceit is expected to be payable from the trust fund – see below for information on accounting for the trust fund. The increase in provision of $2.1 billion hasbeen recognized along with a corresponding increase of $2.1 billion in the reimbursement asset. The amount that can further be provided with no netimpact to the income statement is therefore reduced from approximately $5.5 billion to approximately $3.4 billion. While this is BP’s reliable best estimateof the cost of the proposed settlement, it is possible that the actual cost could be higher or lower than this estimate depending on the outcomes ofthe court-supervised claims processes. It is not possible at this time to determine whether the $20-billion trust fund will be sufficient to cover the totalamounts payable under the proposed settlement and other claims covered by the trust fund.The proposed settlement is comprised of two separate agreements; one to resolve economic loss claims and another to resolve medicalclaims. Each proposed agreement provides that the class members would be compensated for their claims on a claims-made basis according to agreedcompensation protocols in separate court-supervised claims processes. The proposed settlement contains a commitment of $2.3 billion in respect of theGulf seafood industry.190 BP Annual Report and Form 20-F 2011