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

Business reviewCompleting the responseThroughout 2011, BP, working under the direction of the US Coast Guard’sFederal On-Scene Coordinator (FOSC), and collaboratively with individualfederal and state entities, continued to complete the Deepwater Horizonoperational response activities as described below.Source control and site remediationDuring the first half of 2011, BP completed the decommissioning of allsource control equipment including all vessels used in the response. Wealso completed plugging and abandonment (P&A) of the second relief welland conducted a seabed survey. BP conducted a further site survey ofthe Macondo wellhead and the two relief wells during the third quarter of2011. Following these surveys it was determined that no further activity isnecessary at the well site.During the year we continued our efforts to recover and recyclewaste material in order to minimize impacts. We also continued orcompleted the site remediation of multiple locations that were used duringthe response.Residual clean-up in the Gulf of MexicoSince the beginning of the Deepwater Horizon response multi-partyShoreline Clean-up Assessment Technique (SCAT) teams havecontinuously and systematically surveyed the shoreline to assess oilingconditions and develop shoreline treatment recommendations (STRs),which are implemented at the direction of the FOSC. Over 110,000 milesof aerial reconnaissance flights were conducted across the 11,000 miles ofGulf Coast shoreline. From this surveillance information, the SCAT teamsidentified more than 4,300 miles for further, ground-based survey. Of theGulf Coast shoreline, 635 miles required some measure of mechanical ormanual cleaning.During 2011, mechanical or manual cleaning of the majority ofthe segments was completed. Patrolling and maintenance activitieswere initiated and will continue until the shoreline segments meet theapplicable clean-up standards for the FOSC to determine that operationalremoval activity is complete. In November 2011, the FOSC also approvedthe Shoreline Clean-up Completion plan. This plan describes the processwhereby the various shoreline segments included in the area of responseoperations can be surveyed, verified as meeting the applicable clean-upstandards, and moved out of operational activity. It is expected that themajority of the 4,300 miles of the Gulf Coast shoreline within the area ofresponse will be deemed operationally complete within 2012.Environmentally sensitive areas were often hand cleaned. In someareas cleaning was paused at the direction of, or in consultation with,wildlife scientists, to minimize interference with migration patterns orbreeding cycles.The Coast Guard has indicated that if oil is discovered in a segmentthat has been deemed operationally complete, the Coast Guard will followlong-standing response protocols established under the law and contactwhoever it believes is the responsible party or parties.Response efforts guided by scienceAt the direction of the FOSC, scientific studies were conducted to studythe status of oil and dispersants in the water and sediments of the Gulf.These studies are being used to guide continuing response activities in thenear shore environment and to better understand the potential impactsof residual oil. These results have been published in Operational ScientificAdvisory Team (OSAT) reports (OSAT-1 and OSAT-2 reports, and a toxicityaddendum) and Net Environmental Benefits Analysis reports (NEBAs).These reports confirmed the appropriateness of the steps taken toremove oil and mitigate the impact on the environment. The OSAT-2 reportdetermined that further efforts, beyond guidelines established by theFOSC to remove the residual oil from the shoreline, could potentially posea greater risk to the environment than allowing the residual oil to degradenaturally.To assess the potential impacts on fauna, the FOSC directed theOSAT scientists to conduct a comprehensive toxicity study. The report,which was an addendum to the OSAT-1 report, was issued on 8 July 2011.Of the approximately 3,500 toxicity tests conducted, 90% showed nostatistically significant effects on wildlife.At the request of the FOSC, several NEBA studies and specialized activitieswere carried out, including an effort to detect anchors that had beendeployed during the response to keep containment boom in place. Basedon the NEBA results, the NEBA team recommended that the FOSC letthe anchors remain in place to allow them to degrade through naturalprocesses.Economic restorationBP continued to support economic recovery in local communities through avariety of actions and programmes in 2011.Deepwater Horizon Trust activityBP has established the Deepwater Horizon Oil Spill Trust (the Trust) in theamount of $20 billion to be used in compensating individuals, businesses,government entities and others who have been impacted by the oil spill.The Trust provides funds to satisfy legitimate state and local governmentclaims resolved by BP, final judgments and settlements, legitimate stateand local response costs, natural resource damages and related costs,and legitimate individual and business claims administered by the GCCF,which has been managed by Kenneth Feinberg. The proposed economicloss settlement announced on 3 March 2012 with the Plaintiffs’ SteeringCommittee on MDL 2179 provides for a transition from the GCCF. A courtsupervisedtransitional claims process for economic loss claims will be inoperation while the infrastructure for the new settlement claims processis put in place. During this transitional period, the processing of claims thathave been submitted to the GCCF will continue and new claimants maysubmit their claims. The establishment of the Trust does not representa cap or floor on BP’s liabilities and BP does not admit to a liability ofthis amount.In 2011, $1 billion was voluntarily set aside in the Trust for NRDearly restoration projects. BP is working with federal and state trustees toselect appropriate projects that will enhance habitats, wildlife and accessfor recreational use.As at 31 December 2011, BP’s cumulative contributions to theTrust amounted to $15.1 billion since its inception, including our secondyearcommitment of $5 billion and a total of $5.1 billion cash settlementsreceived during 2011 from MOEX USA Corporation (MOEX), WeatherfordUS., L.P. (Weatherford), and Anadarko Petroleum Corporation (Anadarko).The remaining committed contributions as at 31 December 2011 totalling$4.9 billion are scheduled to be made by the end of 2012. In January2012, we contributed to the Trust the $250 million settlement receivedfrom Cameron International Corporation (Cameron). The Trust disbursed$3.7 billion in 2011 and the total paid out since its establishment amountedto $6.7 billion by the end of 2011.Claims paymentsAll payments that were made in 2011 for legitimate claims by individuals,businesses and government entities were paid from the Trust. During theyear, individuals and businesses received $3.1 billion in payments throughthe GCCF. More than 189,000 individual and business claimants acceptedfull and final settlements, while about 33,000 received interim payments.Since May 2010, more than $6.2 billion has been paid to individuals andbusinesses through the claims process, with the Trust paying $5.8 billion ofthis and BP paying the remainder prior to the establishment of the Trust.Government entities received more than $40 million in claimspayments during 2011. Nearly 60 loss-of-revenue claims have been paid togovernment entities since May 2010. By the end of 2011, BP had resolvedover 90% of government claims filed.During 2011, BP paid a total of $7.7 million to vessel owners whosevessels were involved in clean-up and protection activities as part of theVessels of Opportunity (VoO) programme. In an effort to ensure fairness,BP instructed the external adjusters to broaden the original compensationguidelines. Once the new guidelines were established, adjusters have andare continuing to re-examine property damage claims from about 1,200vessel owners, whose property-damage claims had previously been deniedor partially paid to ensure that property damages reported by claimantshave been adequately addressed.Business review: BP in more depthBP Annual Report and Form 20-F 2011 77