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 total amount in the income statement is analysed in the table below. Costs charged directly to the income statement in 2010 in relation to spillresponse, environmental and litigation and claims are those that arose prior to recording a provision at the end of the second quarter of that year.$ million2011 2010Trust fund liability – discounted – 19,580Change in discounting relating to trust fund liability 43 240Recognition of reimbursement asset (4,038) (12,567)Other – 8Total (credit) charge relating to the trust fund (3,995) 7,261Spill response – amount provided 586 10,883– costs charged directly to the income statement 85 2,745Total charge relating to spill response 671 13,628Environmental – amount provided 1,167 929– change in discount rate relating to provisions 17 5– costs charged directly to the income statement – 70Total charge relating to environmental 1,184 1,004Litigation and claims – amount provided 3,430 14,939– costs charged directly to the income statement – 184Total charge relating to litigation and claims 3,430 15,123Clean Water Act penalties – amount provided – 3,510Other costs charged directly to the income statement 427 332Settlements credited to the income statement (5,517) –(Profit) loss before interest and taxation (3,800) 40,858Finance costs 58 77(Profit) loss before taxation (3,742) 40,935The total amounts that will ultimately be paid by BP in relation to all obligations relating to the incident are subject to significant uncertainty as describedabove under Provisions and contingencies.Pre-tax cash flows amounted to $8,906 million (2010 $17,658 million) and the impact on net cash provided by operating activities, on a post-taxbasis, amounted to $6,813 million (2010 $16,019 million).3. Business combinationsBusiness combinations in 2011BP undertook a number of business combinations in 2011. Total consideration paid in cash amounted to $11.3 billion, offset by cash acquired of$0.4 billion. In addition, the fair value of contingent consideration payable amounted to $0.1 billion.On 30 August 2011, BP acquired from Reliance Industries Limited (Reliance) a 30% interest in 21 oil and gas production-sharing agreements(PSAs) operated by Reliance in India for $7,026 million. This includes the producing KG D6 block.In addition, on 17 November 2011, the companies formed a 50:50 joint venture for the sourcing and marketing of gas in India.This transaction provides BP with access to an emerging market with growth in energy demand; it builds BP’s business in natural gas and itrepresents an important partnership with a leading national energy business.The transaction has been accounted for as a business combination using the acquisition method. Measurement period adjustments to theacquisition-date fair values of the identifiable assets and liabilities acquired, and contingent consideration payable, were recognized between the date ofacquisition and 31 December 2011. These adjustments reflected new information obtained, including further understanding of the acquired assets andpotential development options, and amounted to an overall decrease of $785 million in the net fair value of the identifiable assets and liabilities acquired,an increase of $854 million in the goodwill arising on acquisition and the recognition of $69 million of contingent consideration.Goodwill of $2,523 million arose on acquisition, attributed to market access and other benefits arising from the business combination. It iscurrently uncertain as to whether goodwill recognized for accounting purposes will be deductible for income tax purposes in India, as jurisprudence inthis area is currently evolving.The provisional fair values of the identifiable assets and liabilities acquired, as at the date of acquisition, are as shown in the table below.$ millionAssetsProperty, plant and equipment 1,860Intangible assets 2,970Inventories 55Prepayments 5LiabilitiesTrade and other payables (145)Provisions (242)4,503Goodwill arising on acquisition 2,523Total consideration 7,026The consideration for the transaction included $6,957 million in cash. In addition, contingent consideration of up to $1,800 million, dependent uponexploration success in certain of the interests resulting in the development of commercial discoveries, was agreed. The fair value of contingentconsideration recognized as at the acquisition date amounted to $69 million.194 BP Annual Report and Form 20-F 2011