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

Notes on financial statements33. Derivative financial instruments continuedDerivatives held for tradingThe group maintains active trading positions in a variety of derivatives. The contracts may be entered into for risk management purposes, to satisfy supplyrequirements or for entrepreneurial trading. Certain contracts are classified as held for trading, regardless of their original business objective, and arerecognized at fair value with changes in fair value recognized in the income statement. Trading activities are undertaken by using a range of contract typesin combination to create incremental gains by arbitraging prices between markets, locations and time periods. The net of these exposures is monitoredusing market value-at-risk techniques as described in Note 26.The following tables show further information on the fair value of derivatives and other financial instruments held for trading purposes.Derivative assets held for trading have the following fair values and maturities.http://www.bp.com/downloads/dfiLess than1 year 1-2 years 2-3 years 3-4 years 4-5 years$ million2011Over5 years TotalCurrency derivatives 194 18 5 – – – 217Oil price derivatives 573 135 77 25 10 3 823Natural gas price derivatives 2,493 1,160 597 346 207 502 5,305Power price derivatives 498 160 101 54 30 – 8433,758 1,473 780 425 247 505 7,188Less than1 year 1-2 years 2-3 years 3-4 years 4-5 years$ million2010Over5 years TotalCurrency derivatives 124 41 18 11 – – 194Oil price derivatives 797 128 82 64 21 7 1,099Natural gas price derivatives 2,591 1,100 652 375 231 401 5,350Power price derivatives 389 125 35 11 1 – 5613,901 1,394 787 461 253 408 7,204Derivative liabilities held for trading have the following fair values and maturities.Less than1 year 1-2 years 2-3 years 3-4 years 4-5 years$ million2011Over5 years TotalCurrency derivatives (168) (49) – – – – (217)Oil price derivatives (483) (37) (7) (4) (3) (2) (536)Natural gas price derivatives (1,696) (876) (347) (197) (102) (385) (3,603)Power price derivatives (328) (176) (89) (46) (24) – (663)(2,675) (1,138) (443) (247) (129) (387) (5,019)Less than1 year 1-2 years 2-3 years 3-4 years 4-5 years$ million2010Over5 years TotalCurrency derivatives (228) (6) (46) – – – (280)Oil price derivatives (794) (76) (6) (1) – – (877)Natural gas price derivatives (2,174) (741) (484) (161) (114) (277) (3,951)Power price derivatives (287) (103) (32) (9) (1) – (432)(3,483) (926) (568) (171) (115) (277) (5,540)If at inception of a contract the valuation cannot be supported by observable market data, any gain or loss determined by the valuation methodology is notrecognized in the income statement but is deferred on the balance sheet and is commonly known as ‘day-one profit or loss’. This deferred gain or lossis recognized in the income statement over the life of the contract until substantially all of the remaining contract term can be valued using observablemarket data at which point any remaining deferred gain or loss is recognized in the income statement. Changes in valuation from this initial valuation arerecognized immediately through the income statement.Financial statementsBP Annual Report and Form 20-F 2011 225