BP (BP)

Impairment of fixed assets and goodwill

        BP assesses its fixed assets, including goodwill, for possible impairment if there are events or changes in circumstances that indicate that carrying values of the assets may not be recoverable. Such

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indicators include changes in the Group's business plans, changes in commodity prices leading to unprofitable performance and, for oil and gas properties, significant downward revisions of estimated proved reserve quantities. The assessment for impairment entails comparing the carrying value of the income-generating unit and associated goodwill with the recoverable amount of the asset, that is, the higher of net realizable value and value in use. Value in use is usually determined on the basis of discounted estimated future net cash flows.

        Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation and technology improvements on operating expenses, production profiles and the outlook for global or regional market supply-and-demand conditions for crude oil, natural gas, commodity chemicals and refined products.

        For oil and natural gas properties, the expected future cash flows are estimated based on the Group's plans to continue to produce and develop proved and associated risk-adjusted probable and possible reserves. Expected future cash flows from the sale or production of reserves are calculated based on the Group's best estimate of future oil and gas prices. Previously, these were a Brent Oil price of $20 per barrel and a Henry Hub gas price of $3.50 per mmbtu. Beginning in the fourth quarter of 2004, this has been modified. Prices used for future cash flow calculations are assumed to decline from existing levels in equal steps over the next three years to the long-term planning assumptions ($20/$3.50 for Brent and Henry Hub at December 31, 2004). These long-term planning assumptions are subject to periodic review and modification. In light of sustained high oil prices, the Group is in the course of reviewing these planning assumptions. The estimated future level of production is based on assumptions about future commodity prices, lifting and development costs, field decline rates, market demand and supply, economic regulatory climates and other factors.

        Charges for impairment are recognized in the Group's results from time to time as a result of, among other factors, adverse changes in the recoverable reserves from oil and natural gas fields, low plant utilization or reduced profitability. If there are low oil prices or natural gas prices or refining margins or chemicals margins over an extended period, the Group may need to recognize significant impairment charges.

Impairment of fixed assets and goodwill

        BP assesses its fixed assets, including goodwill, for possible impairment if there are events or changes in circumstances that indicate that carrying values of the assets may not be recoverable. Such

103

indicators include changes in the Group's business plans, changes in commodity prices leading to unprofitable performance and, for oil and gas properties, significant downward revisions of estimated proved reserve quantities. The assessment for impairment entails comparing the carrying value of the income-generating unit and associated goodwill with the recoverable amount of the asset, that is, the higher of net realizable value and value in use. Value in use is usually determined on the basis of discounted estimated future net cash flows.

        Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation and technology improvements on operating expenses, production profiles and the outlook for global or regional market supply-and-demand conditions for crude oil, natural gas, commodity chemicals and refined products.

        For oil and natural gas properties, the expected future cash flows are estimated based on the Group's plans to continue to produce and develop proved and associated risk-adjusted probable and possible reserves. Expected future cash flows from the sale or production of reserves are calculated based on the Group's best estimate of future oil and gas prices. Previously, these were a Brent Oil price of $20 per barrel and a Henry Hub gas price of $3.50 per mmbtu. Beginning in the fourth quarter of 2004, this has been modified. Prices used for future cash flow calculations are assumed to decline from existing levels in equal steps over the next three years to the long-term planning assumptions ($20/$3.50 for Brent and Henry Hub at December 31, 2004). These long-term planning assumptions are subject to periodic review and modification. In light of sustained high oil prices, the Group is in the course of reviewing these planning assumptions. The estimated future level of production is based on assumptions about future commodity prices, lifting and development costs, field decline rates, market demand and supply, economic regulatory climates and other factors.

        Charges for impairment are recognized in the Group's results from time to time as a result of, among other factors, adverse changes in the recoverable reserves from oil and natural gas fields, low plant utilization or reduced profitability. If there are low oil prices or natural gas prices or refining margins or chemicals margins over an extended period, the Group may need to recognize significant impairment charges.