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

Our management of riskAbove BP’s Cooper Riverpetrochemicals plant inSouth Carolina operatestwo PTA units. PTA isused in the production ofplastic bottles.Below Working with FalexCorporation, Air BP hasdeveloped a faster andmore reliable way to testaviation lubricants.During 2011, functions, strategic performance units, divisions and segmentswithin BP were requested to prepare RMRs using the new, common approach.This helped provide an overall data set of the key risks identified, an assessmentof their potential impact and likelihood on a consistent basis, information on howthey are being managed and any actions planned or in progress to improve themanagement of risk. Based on these RMRs, together with additional executiveoverview, a single group RMR has been prepared. Those risks identified on thegroup RMR as requiring particular group-level oversight in the coming year havebeen allocated to specific board and executive committees for oversight andmonitoring. These are discussed below. Also see Risk factors on pages 59-63for a description of the material risks we face in our business.Risk management can also be a foundation for creating value. Thewillingness to take and appropriately manage certain risk is fundamental to thesuccess of any commercial enterprise. For example, in our upstream businesswe consciously place significant amounts of capital at risk in exploring for newhydrocarbon resources. Where this exploration is successful, we would generallyexpect it to lead to future increases in our proved reserves and future cash flows.However, exploration expenditure may not yield adequate returns, for example inthe case of unproductive wells or discoveries that prove uneconomic to develop.Safety and operational risk functionWe have redefined and strengthened the scope and accountabilities of thegroup function for safety and operational risk (S&OR), creating a new teamindependent of business line management to drive safe, compliant and reliableoperations in BP. The S&OR function, which continues to build towards itsfull staffing complement, includes S&OR teams which have been formed towork alongside line management but are independent of them. In pursuit ofsafe, compliant and reliable operations, S&OR personnel can assist, challengeand escalate or intervene as necessary to promote and assure the operatingbusinesses’ systematic and disciplined application of global standards on safetyand operational risk. The function helps provide assurance as to whether lineoperations are carried out in accordance with the group’s operating managementsystem, and seeks to facilitate more comprehensive and assured S&OR riskaction plans for operational units, more incisive interventions on emerging risksituations, and improved investigations and learning from significant incidents.How we seek to manage our risksThe following is a summary of how we seek to manage the risks we haveidentified as having a high priority in 2012. There can be no guarantee that ourrisk management activities will mitigate or prevent these, or other, risks fromoccurring.Strategic risksIn response to risks associated with the general macroeconomic outlook andchanges in prices and markets, we monitor early warnings from our treasuryteam and customer-facing businesses. To manage our liquidity, financial capacityand financial exposure risks, we apply our financial framework (see Liquidityand capital resources on page 103) and we conduct liquidity stress testing andscenario-planning interventions.44 BP Annual Report and Form 20-F 2011