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

Notes on financial statements3. Business combinations continuedThe acquisition-date fair values of the assets and liabilities acquired and the fair value of contingent consideration to be paid are provisional. As we gainfurther understanding of the acquired properties and development options, these fair values may be further adjusted to reflect information which may beobtained in respect of the acquired assets and liabilities.An analysis of the cash flows relating to the acquisition is provided below.$ millionTransaction costs of the acquisition (included in cash flows from operating activities) 13Cash consideration paid (included in cash flows from investing activities) 6,957Total net cash outflow for the acquisition 6,970Transaction costs of $13 million have been charged within production and manufacturing expenses in the group income statement.From the date of acquisition to 31 December 2011, the acquired activities contributed revenues of $268 million and profit of $49 million to thegroup. If the business combination had taken place on 1 January 2011, it is estimated that the acquired activities would have contributed revenues of$884 million and profit of $219 million to the group.In addition to the Reliance transaction described above, BP undertook a number of other business combinations in 2011. These included thecompletion of the final part of the transaction with Devon Energy (Devon), the acquisition of Devon’s equity stake in a number of assets in Brazil forconsideration of $3.6 billion (see below). Additionally, BP’s Alternative Energy business acquired Companhia Nacional de Açúcar e Álcool (CNAA) in Brazilfor consideration of $0.7 billion and increased its share in the Brazilian biofuels company, Tropical BioEnergia S.A., to 100% by acquiring the remaining50% for consideration of $71 million. There were a number of other individually insignificant business combinations.Business combinations in 2010BP undertook a number of business combinations in 2010 for a total consideration of $3.6 billion, of which $3 billion comprised cash consideration. Themost significant acquisition was a transaction in the Exploration and Production segment with Devon, undertaken in a number of stages during 2010 and2011. This transaction strengthens BP’s position in the Gulf of Mexico, enhances interests in Azerbaijan and facilitates the development of Canadian assets.On 27 April 2010, BP acquired 100% of Devon’s Gulf of Mexico deepwater properties for $1.8 billion. This included a number of explorationproperties, Devon’s interest in the major Paleogene discovery Kaskida (giving BP a 100% interest in the project), four producing assets and one nonproducingasset. As part of the transaction, BP sold to Devon a 50% stake in its Kirby oil sands interests in Alberta, Canada for $500 million and Devoncommitted to fund an additional $150 million of capital costs on BP’s behalf by issuing a promissory note to BP. In addition, the companies formed a 50:50joint venture, operated by Devon, to pursue the development of the interest. On 16 August 2010, the group acquired Devon’s 3.29% (after pre-emptionexercised by some of the partners) interest in the BP-operated Azeri-Chirag-Gunashli (ACG) development in the Azerbaijan sector of the Caspian Sea for$1.1 billion, increasing BP’s interest to 37.43%.The business combination was accounted for using the acquisition method. Goodwill of $332 million was recognized on the 2010 part of theDevon transaction. As part of the Devon transaction, the gain on the disposal of the group’s 50% interest in the Kirby oil sands in Alberta, Canadaamounted to $633 million.The final part of the Devon transaction, the acquisition of 100% of Devon’s equity stake in a number of entities holding all of Devon’s assets inBrazil for consideration of $3.6 billion, completed in May 2011. The acquisition-date fair values are provisional. Goodwill of $966 million was recognized in2011 for this part of the transaction.In addition to the Devon transaction, BP undertook a number of other minor business combinations in 2010, the most significant of which was theacquisition by BP’s Alternative Energy business of Verenium Corporation’s lignocellulosic biofuels business, for consideration of $98 million.Business combinations in 2009BP did not undertake any significant business combinations in 2009.Financial statementsBP Annual Report and Form 20-F 2011 195