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

Business reviewOperating and capital expenditure on the prevention, control, abatementor elimination of air, water and solid waste pollution is often not incurredas a separately identifiable transaction. Instead, it forms part of a largertransaction that includes, for example, normal maintenance expenditure.The figures for environmental operating and capital expenditure in the tableare therefore estimates, based on the definitions and guidelines of theAmerican Petroleum Institute.Environmental operating expenditure of $704 million in 2011 was ata similar level to 2009 and 2010.Similar levels of operating and capital expenditures are expected inthe foreseeable future. 2011 capital expenditure was lower than in 2010due to the completion of various capital projects in our US refineries.In addition to operating and capital expenditures, we also createprovisions for future environmental remediation. Expenditure against suchprovisions normally occurs in subsequent periods and is not included inenvironmental operating expenditure reported for such periods.Provisions for environmental remediation are made when a cleanupis probable and the amount of the obligation can be reliably estimated.Generally, this coincides with the commitment to a formal plan of action or,if earlier, on divestment or on closure of inactive sites.The extent and cost of future environmental restoration,remediation and abatement programmes are inherently difficult toestimate. They often depend on the extent of contamination, andthe associated impact and timing of the corrective actions required,technological feasibility and BP’s share of liability. Though the costs offuture programmes could be significant and may be material to the resultsof operations in the period in which they are recognized, it is not expectedthat such costs will be material to the group’s overall results of operationsor financial position.Additions to our environmental remediation provision increased in2011 largely due to changes in scope reassessments of the remediationplans of a number of our US retail sites. The charge for environmentalremediation provisions in 2011 included $12 million in respect of provisionsfor new sites (2010 $54 million and 2009 $6 million).In addition, we make provisions on installation of our oil- andgas-producing assets and related pipelines to meet the cost of eventualdecommissioning. On installation of an oil or natural gas production facilitya provision is established that represents the discounted value of theexpected future cost of decommissioning the asset.The level of increase in the decommissioning provision varies withthe number of new fields coming onstream in a particular year and theoutcome of the periodic reviews. There was a significant increase in 2010,driven by activity in the Gulf of Mexico and this trend has continued in2011 as a result of changes in estimation and detailed reviews of expectedfuture costs; the majority of the increase related to our sites in Trinidad, theGulf of Mexico and the North Sea.On 15 October 2010, the Bureau of Ocean Energy Management,Regulation and Enforcement (BOEMRE) issued Notice to Lessees(NTL) 2010-G05, which requires that idle infrastructure on activeleases is decommissioned earlier than previously was required andestablishes guidelines to determine the future utility of idle infrastructureon active leases. As a consequence, the timing and methodologyof well abandonment have changed, reflected in an increase to thedecommissioning provision.Additionally, we undertake periodic reviews of existing provisions.These reviews take account of revised cost assumptions, changes indecommissioning requirements and any technological developments.Provisions for environmental remediation and decommissioningare usually set up on a discounted basis, as required by IAS 37 ‘Provisions,Contingent Liabilities and Contingent Assets’.Further details of decommissioning and environmental provisionsappear in Financial statements – Note 36 on page 231.Respecting human rightsBP supports the Universal Declaration of Human Rights, which lays out therights to which all human beings are entitled. We have also supported recentmulti-stakeholder efforts to establish clear, universally-applicable guidelineson the responsibilities of businesses in relation to human rights issues.We are a signatory to two voluntary agreements with implications forspecific aspects of human rights: the UN Global Compact, which helpsbusinesses align their operations and strategies with 10 principles,including some that are related to human rights, and the VoluntaryPrinciples on Security and Human Rights, which define good practice forsecurity operations in extractive industry companies. We have contributedto the work of oil and gas industry organization IPIECA’s human rights taskforce, which works on human rights issues and develops good practiceguidance for companies in our industry.In 2011 the UN Human Rights Council unanimously endorsed theGuiding Principles on Business and Human Rights. These outline specificresponsibilities for businesses in relation to human rights. We participatedin discussions on the development of the Guiding Principles, and in 2011we completed a comparison between our current policies and practicesand the expectations in the Guiding Principles, to help us identify whatwork will be needed to achieve alignment with the principles.BP’s code of conduct makes it clear that certain provisions, suchas BP’s stance on the rights and dignity of communities, relate directlyto human rights. See page 31 for further information about our code ofconduct.Revenue transparency and business ethicsAs a member of the Extractive Industries Transparency Initiative (EITI), wework with governments, non-governmental organizations and internationalagencies to improve transparency in this area. In several countries that arein the process of becoming EITI compliant, BP is supporting the process;for example, BP is an active member of the Trinidad & Tobago EITI steeringcommittee. In countries that have achieved EITI compliance, includingAzerbaijan and Norway, BP submits an annual report on payments to theirgovernments.We have taken part in consultations in relation to new or proposedrevenue transparency reporting requirements in the US and Europe forcompanies in the extractive industries. BP will fully comply with theappropriate mandatory regulations when they come into effect.We are working to respond effectively to the standards flowingfrom the UK Bribery Act as well as other anti-corruption legislation suchas the Foreign Corrupt Practices Act in the US. Bribery and corruption areserious risks in the oil and gas industry. Our code of conduct requires thatour employees or others working on behalf of BP do not engage in briberyor corruption in any form in both the public and private sectors.In 2011, we issued a group-wide anti-bribery and corruptionstandard, which applies to all BP employees and contractors. The standardrequires annual bribery and corruption risk assessments; due diligenceon all parties with whom BP does business; appropriate anti-bribery andcorruption clauses in contracts and the training of personnel in anti-briberyand corruption measures.Socio-economic developmentWe believe each BP project has the potential to benefit local communitiesby creating jobs, generating tax revenues and providing opportunities forlocal suppliers. Our presence in a location also has the potential to bringindirect economic benefits.We run a range of programmes to build the skills of businessesin places where we work and to develop the local supply chain. Theserange from financing to sharing global standards and practice in areas suchas health and safety. The programmes can benefit local companies byempowering them to reach the standards needed to supply BP and otherclients. At the same time BP benefits from the local sourcing of goods andservices.BP’s social investments – the contributions we make to social andcommunity programmes in locations where we operate – aim to supportdevelopment programmes that we believe will seek to create a meaningfuland sustainable impact – one that is relevant to local needs, aligned withBP’s business and undertaken in partnership with local organizations.The programmes we support fall into three broad categories:building business skills and developing enterprise, supporting educationand other community needs and sharing technical expertise with localgovernments. In some developing economies we also support communityinfrastructure programmes that help people improve their access to basic72 BP Annual Report and Form 20-F 2011