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

Business reviewBP’s vice president of segment reserves is the petroleum engineerprimarily responsible for overseeing the preparation of the reservesestimate. He has over 25 years of diversified industry experience withthe past eight spent managing the governance and compliance of BP’sreserves estimation. He is a past member of the Society of PetroleumEngineers Oil and Gas Reserves Committee, a sitting member of theAmerican Association of Petroleum Geologists Committee on ResourceEvaluation and vice chair of the bureau of the United Nations EconomicCommission for Europe Expert Group on Resource Classification.For the executive directors and senior management, no specificportion of compensation bonuses is directly related to proved reservestargets. Additions to proved reserves is one of several indicators bywhich the performance of the Exploration and Production segment isassessed by the remuneration committee for the purposes of determiningcompensation bonuses for the executive directors. Other indicators includea number of financial and operational measures.BP’s variable pay programme for the other senior managers in theExploration and Production segment is based on individual performancecontracts. Individual performance contracts are based on agreed itemsfrom the business performance plan, one of which, if chosen, could relateto proved reserves.ComplianceInternational Financial Reporting Standards (IFRSs) do not providespecific guidance on reserves disclosures. BP estimates proved reservesin accordance with SEC Rule 4-10 (a) of Regulation S-X and relevantCompliance and Disclosure Interpretations (C&DI) and Staff AccountingBulletins as issued by the SEC staff.By their nature, there is always some risk involved in the ultimatedevelopment and production of proved reserves, including, but notlimited to, final regulatory approval, the installation of new or additionalinfrastructure, as well as changes in oil and gas prices, changes inoperating and development costs and the continued availability of additionaldevelopment capital. All the group’s proved reserves held in subsidiariesand equity-accounted entities are estimated by the group’s petroleumengineers.Our proved reserves are associated with both concessions (taxand royalty arrangements) and agreements where the group is exposed tothe upstream risks and rewards of ownership, but where our entitlementto the hydrocarbons is calculated using a more complex formula, such asPSAs. In a concession, the consortium of which we are a part is entitled tothe proved reserves that can be produced over the licence period, whichmay be the life of the field. In a PSA, we are entitled to recover volumesthat equate to costs incurred to develop and produce the proved reservesand an agreed share of the remaining volumes or the economic equivalent.As part of our entitlement is driven by the monetary amount of costs tobe recovered, price fluctuations will have an impact on both productionvolumes and reserves.We disclose our share of proved reserves held in equity-accountedentities (jointly controlled entities and associates), although we do notcontrol these entities or the assets held by such entities.BP’s estimated net proved reserves as at 31 December 2011Seventy-five per cent of our total proved reserves of subsidiaries at31 December 2011 were held through unincorporated joint ventures (75%in 2010), and 33% of the proved reserves were held throughsuch unincorporated joint ventures where we were not the operator(31% in 2010).Estimated net proved reserves of liquids at 31 December 2011 a b cmillion barrelsDeveloped Undeveloped TotalUK 288 445 733Rest of Europe 69 230 299US 1,685 1,173 2,858 dRest of North America – – –South America 27 48 75 eAfrica 311 315 626Rest of Asia 177 279 456Australasia 59 47 106Subsidiaries 2,616 2,537 5,153Equity-accounted entities 3,201 2,211 5,412 fTotal 5,817 4,748 10,565Estimated net proved reserves of natural gas at 31 December 2011 a bbillion cubic feetDeveloped Undeveloped TotalUK 1,411 909 2,320Rest of Europe 43 450 493US 9,721 3,831 13,552Rest of North America 28 – 28South America 2,869 6,529 9,398 gAfrica 1,224 2,033 3,257Rest of Asia 1,034 364 1,398Australasia 3,570 2,365 5,935Subsidiaries 19,900 16,481 36,381Equity-accounted entities 3,367 1,911 5,278 hTotal 23,267 18,392 41,659Net proved reserves on an oil equivalent basismillion barrels of oil equivalentDeveloped Undeveloped TotalSubsidiaries 6,048 5,378 11,426Equity-accounted entities 3,781 2,541 6,322 iTotal 9,829 7,919 17,748a Proved reserves exclude royalties due to others, whether payable in cash or in kind, where theroyalty owner has a direct interest in the underlying production and the option and ability to makelifting and sales arrangements independently, and include minority interests in consolidatedoperations. We disclose our share of reserves held in jointly controlled entities and associates thatare accounted for by the equity method although we do not control these entities or the assetsheld by such entities.b The 2011 marker prices used were Brent $110.96/bbl (2010 $79.02/bbl and 2009 $59.91/bbl) andHenry Hub $4.12/mmBtu (2010 $4.37/mmBtu and 2009 $3.82/mmBtu).c Liquids include crude oil, condensate, natural gas liquids and bitumen.d Proved reserves in the Prudhoe Bay field in Alaska include an estimated 82 million barrels on whicha net profits royalty will be payable over the life of the field under the terms of the BP Prudhoe BayRoyalty Trust.e Includes 20 million barrels of crude oil in respect of the 30% minority interest in BP Trinidad andTobago LLC.f Includes 310 million barrels of crude oil in respect of the 7.37% minority interest in TNK-BP.g Includes 2,759 billion cubic feet of natural gas in respect of the 30% minority interest in BP Trinidadand Tobago LLC.h Includes 174 billion cubic feet of natural gas in respect of the 6.27% minority interest in TNK-BP.i Total proved reserves held as part of our equity interest in TNK-BP is 4,802mmboe comprising100 million barrels in Venezuela, 14mmboe in Vietnam and 4,688mmboe in Russia. In 2011 BPaligned its reporting with TNK-BP by moving to a life of field reporting basis. Reasonable certaintyof licence renewals is demonstrated by evidence of Russian subsoil law, track record of renewalswithin the industry and track record of success in obtaining renewals by TNK-BP. This has resultedin a 253mmboe increase in proved reserves.Business review: BP in more depthBP Annual Report and Form 20-F 2011 91