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

Notes on financial statements42. Remuneration of directors and senior management continuedSenior management, in addition to executive and non-executive directors, includes other senior managers who are members of the executivemanagement team.Short-term employee benefitsIn addition to fees paid to the non-executive chairman and non-executive directors, these amounts comprise, for executive directors and senior managers,salary and benefits earned during the year, plus cash bonuses awarded for the year. Deferred annual bonus awards, to be settled in shares, are included inshare-based payments. Short-term employee benefits includes compensation for loss of office of $9 million (2010 $3 million and 2009 $6 million).Post-retirement benefitsThe amounts represent the estimated cost to the group of providing defined benefit pensions and other post-retirement benefits to senior managementin respect of the current year of service measured in accordance with IAS 19 ‘Employee Benefits’.Share-based paymentsThis is the cost to the group of senior management’s participation in share-based payment plans, as measured by the fair value of options and sharesgranted accounted for in accordance with IFRS 2 ‘Share-based Payments’. The main plans in which senior management have participated are the EDIP,DAB and RSP. For details of these plans refer to Note 40.43. Contingent liabilitiesContingent liabilities relating to the Gulf of Mexico oil spillAs a consequence of the Gulf of Mexico oil spill, as described on pages 76 to 79, BP has incurred costs during the year and recognized provisions forcertain future costs. Further information is provided in Note 2 and Note 36.BP has provided for its best estimate of amounts expected to be paid from the $20-billion trust fund. This includes certain amounts expected tobe paid pursuant to the Oil Pollution Act of 1990 (OPA 90) as well as the increased estimate of the cost of individual and business claims as a result of theproposed settlement with the PSC announced on 3 March 2012 as described in Note 2 and Note 36. It is not possible, at this time, to measure reliablyany other items that will be paid from the trust fund, namely any obligation in relation to Natural Resource Damages claims other than the emergencyand early restoration costs as described in Note 36, and claims asserted in civil litigation including any further litigation through potential opt-outs from theproposed settlement agreement, nor is it practicable to estimate their magnitude or possible timing of payment.Natural resource damages resulting from the oil spill are currently being assessed (see Note 36 for further information). BP and the federaland state trustees are collecting extensive data in order to assess the extent of damage to wildlife, shoreline, near shore and deepwater habitats,and recreational uses, among other things. Because the affected areas and their uses vary by seasons, we are continuing our work to complete a fullassessment of the natural resource damages. In addition, as and when early restoration projects are undertaken, these projects could mitigate the totaldamages resulting from the incident. Accordingly, until the size, location and duration of the impact have been fully determined and the effects of earlyrestoration projects are fully assessed, or other actions such as potential future settlement discussions occur, it is not possible to obtain a range ofoutcomes or to estimate reliably either the amounts (other than the amounts previously provided for emergency and early restoration projects) or timingof the remaining Natural Resource Damages claims.BP is named as a defendant in approximately 600 civil lawsuits brought by individuals, corporations and governmental entities in US federal andstate courts resulting from the Gulf of Mexico oil spill. Additional lawsuits are likely to be brought. The lawsuits assert, among others, claims for personalinjury in connection with the incident itself and the response to it, and wrongful death, commercial or economic injury, securities and shareholder claims,breach of contract and violations of statutes. The lawsuits, many of which purport to be class actions, seek various remedies including compensation toinjured workers and families of deceased workers, recovery for commercial losses and property damage, claims for environmental damage, remediationcosts, injunctive relief, treble damages and punitive damages. Most of these lawsuits have been consolidated into one of two multi-district litigation(MDL) proceedings. On 3 March 2012, BP announced that it had reached a proposed settlement with the Plaintiffs’ Steering Committee (PSC), subjectto final written agreement and court approvals, to resolve the substantial majority of legitimate economic loss and medical claims stemming from theDeepwater Horizon accident and oil spill. The PSC acts on behalf of individual and business plaintiffs in the MDL 2179 and the estimated cost of theproposed settlement has been reflected in the financial statements. While BP announced that it had reached a proposed settlement with the PSC, a trialof liability issues in the MDL 2179 is, at this time, still expected to go ahead. Damage issues will be scheduled for trial thereafter. Until further fact andexpert disclosures occur, court rulings clarify the issues in dispute, liability and damage trial activity nears, or other actions such as possible settlementsoccur, it is not possible given these uncertainties to arrive at a range of outcomes or a reliable estimate of the liability other than the estimated cost of theproposed settlement with the PSC. See Legal proceedings on pages 160 to 164 for further information.Therefore, with the exception of the estimated costs of the proposed settlement agreement with the PSC, no amounts have been provided forthese items as of 31 December 2011. Although these items, which will be paid through the trust fund, have not been provided for at this time, BP‘s fullobligation under the $20-billion trust fund has been expensed in the income statement, taking account of the time value of money. The aggregate ofamounts paid and provided for items to be settled from the trust fund currently falls within the amount committed by BP to the trust fund.For those items not covered by the trust fund it is not possible to measure reliably any obligation in relation to other litigation or potential fines andpenalties except, subject to certain assumptions detailed in Note 36, for those relating to the Clean Water Act. There are a number of federal and stateenvironmental and other provisions of law, other than the Clean Water Act, under which one or more governmental agencies could seek civil fines andpenalties from BP. For example, a complaint filed by the United States sought to reserve the ability to seek penalties and other relief under a numberof other laws. Given the large number of claims that may be asserted, it is not possible at this time to determine whether and to what extent any suchclaims would be successful or what penalties or fines would be assessed. Therefore no amounts have been provided for these items.Under the settlement agreements with Anadarko and MOEX, BP has agreed to indemnify Anadarko and MOEX for certain claims arising fromthe accident (excluding civil, criminal or administrative fines and penalties, claims for punitive damages, and certain other claims). Under the settlementagreement entered into with M-I L.L.C. (M-I) (see Legal proceedings on pages 160 to 164), BP agreed to indemnify M-I for certain claims resulting fromthe accident. M-I was contracted by BP to provide specialized drilling mud and mud engineering services for the Macondo well. It is therefore possiblethat BP may face claims under these indemnities, but it is not currently possible to reliably measure any obligation in relation to such claims and thereforeno amount has been provided as at 31 December 2011.Financial statementsBP Annual Report and Form 20-F 2011 249