British Petroleum

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1.We recognized a pre-tax charge of $40.9 billion in 2010 and a pre-tax credit of $3.7 billion in 2011 as a result of the Incident. The total amounts that will ultimately be paid by BP in relation to all obligations relating to the Incident are subject to significant uncertainty and the ultimate exposure and cost to BP will be dependent on many factors. Furthermore, the amount of claims that become payable by BP, the amount of fines ultimately levied on BP (including any potential determination of BP’s negligence or gross negligence), the outcome of litigation, the amount and timing of payments under any settlements, and any costs arising from any longer term environmental consequences of the oil spill, will also impact upon the ultimate cost for BP. Although the provision recognized is the current best estimate of expenditures required to settle certain present obligations at the end of the reporting period, there are future expenditures for which it is not possible to measure the obligation reliably. On page 71 there is the table for the environmental costs.

2.In addition to operating and capital expenditures, we also create provisions for future environmental remediation. Expenditure against such provisions normally occurs in subsequent periods and is not included in environmental operating expenditure reported for such periods. Provisions for environmental remediation are made when a cleanup is 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. 3.The provision for environmental liabilities is estimated based on current legal and constructive requirements, technology, price levels and expected plans for remediation. Actual costs and cash outflows can differ from estimates because of changes in laws and regulations, public expectations, prices, discovery and analysis of site conditions and changes in...
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