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 spill continuedThe proposed economic loss settlement provides for a transition from the Gulf Coast Claims Facility (GCCF). A court-supervised transitional claimsprocess for economic loss claims will be in operation while the infrastructure for the new settlement claims process is put in place. During this transitionalperiod, the processing of claims that have been submitted to the GCCF will continue, and new claimants may submit their claims.Costs of the proposed settlement will be paid either from the $20-billion Trust or, should the Trust not be sufficient, directly by BP. At this time BPexpects all claims to be paid from the Trust.The proposed settlement does not include claims against BP made by the United States Department of Justice or other federal agencies (includingunder the Clean Water Act and for Natural Resource Damages under the Oil Pollution Act) or by the states and local governments. The proposedsettlement also excludes certain other claims against BP, such as securities and shareholder claims pending in MDL 2185, and claims based solely on thedeepwater drilling moratorium and/or the related permitting process.The proposed settlement also provides that, to the extent permitted by law, BP will assign to the PSC certain of its claims, rights and recoveriesagainst Transocean and Halliburton for damages with protections such that Transocean and Halliburton cannot pass those damages through to BP.The proposed settlement is subject to reaching definitive and fully documented agreements within 45 days of 2 March 2012. If those agreementsare not reached, either party has the right to terminate the proposed settlement. Once there are definitive and fully documented agreements, BP andthe PSC would then seek the court’s preliminary approval of the settlement. Under US federal law, there is an established procedure for determining thefairness, reasonableness and adequacy of class action settlements. Pursuant to this procedure and subject to the court granting preliminary approval ofboth agreements, there would be an extensive outreach programme to the public to explain the settlement agreements, class members’ rights, includingthe right to ‘opt out’ of the classes, and the process of making claims. The court would then conduct fairness hearings at which class members andvarious other parties would have an opportunity to be heard and present evidence. The court would then decide whether or not to approve each proposedsettlement agreement.For further details of the proposed settlement see Legal proceedings on pages 160 to 164.Trust fundIn 2010, BP established the Deepwater Horizon Oil Spill Trust (the Trust) to be funded in the amount of $20 billion (the trust fund) over the period tothe fourth quarter of 2013, which is available to satisfy legitimate individual and business claims administered by the Gulf Coast Claims Facility (GCCF),state and local government claims resolved by BP, final judgments and settlements, state and local response costs, and natural resource damages andrelated costs. In 2010, BP contributed $5 billion to the fund, and further regular contributions totalling $5 billion were made in 2011. During 2011, BP alsocontributed the cash settlements received from MOEX, Weatherford and Anadarko, amounting in total to $5.1 billion. A further cash settlement fromCameron was received in January 2012 and was also contributed to the trust fund. As a result of these accelerated contributions, it is now expected thatthe $20-billion commitment will have been paid in full by the end of 2012. The income statement charge for 2010 included $20 billion in relation to thetrust fund, adjusted to take account of the time value of money. Fines, penalties and claims administration costs are not covered by the trust fund. Theestablishment of the trust fund does not represent a cap or floor on BP’s liabilities and BP does not admit to a liability of this amount.Under the terms of the Trust agreement, BP has no right to access the funds once they have been contributed to the trust fund and BPhas no decision-making role in connection with the payment by the trust fund of individual and business claims resolved by the GCCF and the newcourt‐supervised claims processes referred to below. BP will receive funds from the trust fund only upon its expiration, if there are any funds remainingat that point. Any amount remaining in the trust fund when the trustees determine that all claims have been settled would be returned to BP. However,it is not possible to reliably estimate the number or total amount of the claims that will be settled from the trust fund, and therefore it is not possible toreliably measure the fair value of BP’s residual interest in it. The carrying amount of BP’s residual interest is, consequently, nil. BP has the authority underthe Trust agreement to present certain resolved claims, including natural resource damages claims and state and local response claims, to the Trust forpayment, by providing the trustees with all the required documents establishing that such claims are valid under the Trust agreement. However, any suchpayments can only be made on the authority of the Trustee and any funds distributed are paid directly to the claimants, not to BP. BP will not settle anysuch items directly or receive reimbursement from the trust fund for such items.The proposed settlement with the PSC announced on 3 March 2012 provides for a transition from the GCCF. A court-supervised transitional claimsprocess for economic loss claims will be in operation while the infrastructure for the new settlement claims process is put in place. During this transitionalperiod, the processing of claims that have been submitted to the GCCF will continue, and new claimants may submit their claims. BP has agreed not towait for final approval of the economic loss settlement before claims are paid. The economic loss claims process will continue under court supervisionbefore final approval of the settlement, first under the transitional claims process, and then through the settlement claims process established by theproposed economic loss settlement.The Trust will remain in place, unaffected by the proposed settlement and the transition from the GCCF to the new court-supervised claims processes.BP’s obligation to make contributions to the trust fund was recognized in full in 2010, amounting to $20 billion on an undiscounted basis as itis committed to making these contributions. On initial recognition the discounted amount recognized was $19,580 million. After BP’s contributionsof $15,140 million to the trust fund during 2010 and 2011, and adjustments for discounting, the remaining liability as at 31 December 2011 was$4,872 million. This liability is recorded within current other payables on the balance sheet, and is expected to be paid in full before the end of 2012.The table below shows movements in the funding obligation during the period to 31 December 2011.$ million2011 2010At 1 January 14,901 –Trust fund liability initially recognized – discounted – 19,580Unwinding of discount 52 73Change in discounting 43 240Contributions (10,140) (5,000)Other 16 8At 31 December 4,872 14,901Of which – current 4,872 5,002– non-current – 9,899Financial statementsAn asset has been recognized representing BP’s right to receive reimbursement from the trust fund. This is the portion of the estimated futureexpenditure provided for that will be settled by payments from the trust fund. We use the term ’reimbursement asset‘ to describe this asset. BP will notactually receive any reimbursements from the trust fund, instead payments will be made directly to claimants from the trust fund, and BP will be releasedfrom its corresponding obligation.BP Annual Report and Form 20-F 2011 191