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

Business reviewgrants, which were supplemented by a further $3.3 million from othercontributors, were awarded for projects designed to:• Improve sea turtle hatchling success across 56 miles of priority Floridabeaches.• Increase the capacity of marine mammal and sea turtle treatmentfacilities.• Restore a combined 3.5 miles of oyster reefs, which in turn protectsensitive coastal habitat.• Reduce the incidence of sea turtles being caught in the course ofrecreational and commercial fishing.Commitment to long-term oil spill researchIn 2010, BP committed $500 million over 10 years to fund independentscientific research through the Gulf of Mexico Research Initiative (GoMRI).The research will improve knowledge of the Gulf ecosystem and help theindustry and others to better understand and mitigate the impact of oilspills in the region and elsewhere.In June 2011, the GoMRI Research Board awarded 17 grantstotalling $1.5 million to support scientists as they continue time-sensitivedata collection. In August 2011, the Research Board awarded a total of$112.5 million over three years to eight consortia comprised of over 70research institutions. All eight consortia are led by Gulf Coast institutions.Research recipients will use the grants to investigate the fate of oilreleased by the spill, and for the development of new tools and technologyfor responding to future spills and improving mitigation and restoration.In December 2011, the GoMRI Research Board also issued arequest for proposals (RFP) for approximately $7.5 million per year for threeyears, in smaller grants to individual or small teams of researchers.BP considers that it is not possible to estimate reliably any obligation inrelation to NRD claims under OPA 90 (other than the estimated costs ofthe assessment phase and the costs relating to emergency restorationand the $1 billion agreement for early restoration), any amounts in relationto fines and penalties except for those relating to the CWA and litigationarising from alleged violations of OPA 90. These items are thereforecontingent liabilities.BP holds a 100% interest in the Macondo well, with the leaseinterests previously held by MOEX and Anadarko now assigned to BP aspart of the settlement agreements. MOEX paid BP $1.1 billion in cash andAnadarko paid BP $4 billion in cash to settle all outstanding claims betweenthe companies related to the incident and to the prospect.For details regarding the impacts and uncertainties relating to theGulf of Mexico oil spill refer to Financial statements – Note 2 on page 190,Note 36 on page 231 and Note 43 on page 249. See also Risk factors onpage 59 and Proceedings and investigations relating to the Gulf of Mexicooil spill on pages 160-164.Legal proceedings and investigationsSee Legal proceedings on pages 160-164 for a full discussion of legalproceedings and investigations relating to the incident.Business review: BP in more depthRebuilding trust through effective communicationsDuring 2011, we worked to engage, inform and communicate with a widerange of stakeholders throughout the region. We supported communityevents and we shared information on a variety of issues and concerns withindividuals, community organizations, business leaders, elected officials,non-governmental organizations and the news media.Financial updateProfit before tax for the group includes a pre-tax credit of $3.8 billionand finance costs of $0.1 billion in relation to the Gulf of Mexico oil spill.The pre-tax credit reflects $5.5 billion in relation to settlements reachedwith MOEX, Weatherford, Anadarko and Cameron, partially offset byfurther costs associated with the ongoing spill response, adjustments toprovisions, and an increase in the amount provided for legal fees, as well asfunctional expenses of BP’s Gulf Coast Restoration Organization (GCRO).Provisions were established during 2010 for the environmentalexpenditure, spill response costs, litigation and claims, and Clean WaterAct (CWA) penalties. Most of the costs incurred in 2011 were coveredby these existing provisions. Pre-tax charges were recorded in 2011of $0.4 billion for the functional expenses of the GCRO, $1.1 billion forincreases in the amounts provided, primarily related to spill response costsand legal fees, a $0.1 billion finance charge for unwinding of discount onprovisions, and $0.1 billion for spill response costs charged directly to theincome statement. These charges partially offset the $5.5 billion credit forsettlements reached during the year.As at 31 December 2011, the cumulative charges for provisions tobe paid from the Trust and the associated reimbursement asset recognizedamounted to $16.6 billion. This represented an increase of$4.0 billion in the provisioned amounts during 2011, primarily for the$2.1-billion expected impact of the proposed settlement announced on3 March 2012 with the Plaintiffs’ Steering Committee in MDL 2179, the$1-billion commitment to NRD early restoration and new provisions forpersonal injury and death claims and Vessel of Opportunity programmeclaims. A further $3.4 billion could be provided in subsequent periods foritems covered by the Trust, with no net impact on the income statement.BP has provided for all potential liabilities that can be estimatedreliably at this time, including fines and penalties under the CWA. Thetotal amounts that will ultimately be paid by BP in relation to all obligationsrelating to the incident are subject to significant uncertainty.BP Annual Report and Form 20-F 2011 79