BP (BP)

Decommissioning costs

        The Group holds provisions for the future decommissioning of oil and natural gas production facilities and pipelines at the end of their economic lives. The largest asset removal obligations facing BP relate to the removal and disposal of oil and natural gas platforms and pipelines around the world. The estimated discounted costs of dismantling and removing these facilities are accrued on the installation of those facilities, reflecting our legal obligations at that time. Most of these removal events are many years in the future and the precise requirements that will have to be met when the removal event actually occurs are uncertain. Asset removal technologies and costs are constantly changing, as well as political, environmental, safety and public expectations. Consequently, the timing and amounts of future cash flows are subject to significant uncertainty.

110

        Decommissioning provisions associated with downstream and petrochemical facilities are generally not provided for as such potential obligations cannot be measured given their indeterminate settlement dates. The Group performs periodic reviews of its downstream and petrochemical long-lived assets for any changes in facts and circumstances that might require the recognition of a decommissioning provision.

        The timing and amount of future expenditures are reviewed annually, together with the interest rate to be used in discounting the cash flows. The interest rate used to determine the balance sheet obligation at the end of 2004 was 2.0%, 0.5% lower than at the end of 2003. The interest rate represents the real rate (i.e. adjusted for inflation) on long-dated government bonds.

Decommissioning costs

        The Group holds provisions for the future decommissioning of oil and natural gas production facilities and pipelines at the end of their economic lives. The largest asset removal obligations facing BP relate to the removal and disposal of oil and natural gas platforms and pipelines around the world. The estimated discounted costs of dismantling and removing these facilities are accrued on the installation of those facilities, reflecting our legal obligations at that time. Most of these removal events are many years in the future and the precise requirements that will have to be met when the removal event actually occurs are uncertain. Asset removal technologies and costs are constantly changing, as well as political, environmental, safety and public expectations. Consequently, the timing and amounts of future cash flows are subject to significant uncertainty.

104

        Decommissioning provisions associated with downstream and petrochemical facilities are generally not provided for as such potential obligations cannot be measured given their indeterminate settlement dates. The Group performs periodic reviews of its downstream and petrochemical long-lived assets for any changes in facts and circumstances that might require the recognition of a decommissioning provision.

        The timing and amount of future expenditures are reviewed annually, together with the interest rate to be used in discounting the cash flows. The interest rate used to determine the balance sheet obligation at the end of 2004 was 2.0%, 0.5% lower than at the end of 2003. The interest rate represents the real rate (i.e. adjusted for inflation) on long-dated government bonds.