BP Annual Report and Form 20-F 2010

27. Financial instruments and financial risk factors continued
The movement in the valuation allowance for trade receivables is set out below.
Notes on financial statements
$ million
2010 2009
At 1 January 430 391
Exchange adjustments (9) 12
Charge for the year 150 157
Utilization (143) (130)
At 31 December 428 430
(c) Liquidity risk
Liquidity risk is the risk that suitable sources of funding for the group’s business activities may not be available. The group’s liquidity is managed centrally
with operating units forecasting their cash and currency requirements to the central treasury function. Unless restricted by local regulations, subsidiaries
pool their cash surpluses to treasury, which will then arrange to fund other subsidiaries’ requirements, or invest any net surplus in the market or arrange for
necessary external borrowings, while managing the group’s overall net currency positions.
Following the Gulf of Mexico oil spill, the group faced significant challenges in managing liquidity risk. The group was required to make substantial
cash payments in connection with the oil spill and also experienced increased requirements during the year to post letters of credit to collateralize a
number of environmental liabilities totalling $624 million and post further cash collateral under trading agreements totalling $728 million. Further informaton
is provided in Liquidity and capital resources on pages 63 to 67.
In managing its liquidity risk, the group has access to a wide range of funding at competitive rates through capital markets and banks. The group’s
treasury function centrally co-ordinates relationships with banks, borrowing requirements, foreign exchange requirements and cash management. The
group believes it has access to sufficient funding through its own current cash holdings and future cash generation including disposal proceeds, the
commercial paper markets, and by using undrawn committed borrowing facilities, to meet foreseeable liquidity requirements. At 31 December 2010, the
group had substantial amounts of undrawn borrowing facilities available, including committed facilities of $12,500 million (2009 $4,950 million), consisting
of $5,250 million of standby facilities (of which $400 million is available to draw and repay by mid-September 2011, $4,550 million until mid-October 2011,
and $300 million until mid-January 2013) and $7,250 million of 364-day facilities (of which $4,000 million can be drawn until late May 2011 and is repayable
up to 364 days from the date of drawing, $2,000 million drawn until the end of June 2011, $750 million drawn until early July 2011, and $500 million drawn
until late August 2011). These facilities are with a number of international banks and borrowings under them would be at pre-agreed rates.
The group has in place a European Debt Issuance Programme (DIP) under which the group may raise up to $20 billion of debt for maturities of one
month or longer. At 31 December 2010, the amount drawn down against the DIP was $12,272 million (2009 $11,403 million). In addition, the group has in
place an unlimited US Shelf Registration under which it may raise debt with maturities of one month or longer.
The group has long-term debt ratings of A2 (stable outlook) assigned by Moody’s and A (negative outlook) assigned by Standard & Poor’s, a
downgrading from Aa1 (stable outlook) and AA (stable outlook), respectively assigned prior to the Gulf of Mexico oil spill.
Since the credit rating downgrading, we have issued $6.2 billion of long-term debt early in the fourth quarter 2010, and issued short-term
commercial paper at competitive rates, as and when required. As an additional measure, we have increased and maintained the cash and cash equivalents
held by the group to $18.6 billion at the end of 2010, compared with $8.3 billion at the end of 2009.
The amounts shown for finance debt in the table below include expected interest payments on borrowings and the future minimum lease
payments with respect to finance leases.
Included within current finance debt are US Industrial Revenue/Municipal bonds where bondholders have the option to tender the bonds for
repayment at interest reset dates, and the next reset date falls within 12 months of the balance sheet date. The amounts at the end of 2010 totalled $379
million, down from $2,895 million at the end of 2009. The reduction largely reflects the initial failure to re-market the bonds following the Gulf of Mexico oil
spill, as well as active management by BP to withdraw or re-negotiate term-out of the bonds on reset dates to further remove the uncertainty of the
liquidity risk. Also included within current finance debt at the end of 2009 was an amount of $1,622 million for loans associated with long-term gas supply
contracts backed by gas pre-paid bonds with tender options at interest rate resets with BP as the liquidity provider. Following the Gulf of Mexico oil spill the
bonds failed re-marketing requiring BP to acquire and hold all of the bonds, with corresponding reduction to nil in the amount reflected in finance debt at
the end of 2010.
Current finance debt on the group balance sheet at 31 December 2010 includes $6,197 million (2009 nil) in respect of cash deposits received
for disposals expected to complete in 2011 which will be considered extinguished on completion of the transactions. This amount is excluded from the
table below.
The table also shows the timing of cash outflows relating to trade and other payables and accruals.
2010
$ million
2009
Trade and Trade and
other Finance other Finance
payables a
Accruals debt payables Accruals debt
Within one year 42,691 5,612 9,353 31,413 6,202 9,790
1 to 2 years 6,549 278 6,816 1,059 231 6,861
2 to 3 years 6,242 125 7,542 1,089 106 5,359
3 to 4 years 411 42 6,105 566 78 5,528
4 to 5 years 365 28 5,494 67 49 3,151
5 to 10 years 323 110 6,642 85 163 5,723
Over 10 years 25 54 724 46 76 1,150
56,606 6,249 42,676 34,325 6,905 37,562
a
Trade and other payables at 31 December 2010 includes the Gulf of Mexico oil spill trust fund liability which is payable as follows: $5,008 million within one year; $5,000 million payable in 1 to 2 years and
$5,000 million payable in 2 to 3 years.
BP Annual Report and Form 20-F 2010 189
Financial statements