BP (BP)

Note 32 — Other provisions

F - 56

        The Group makes full provision for the future cost of decommissioning oil and natural gas production facilities and related pipelines on a discounted basis on the installation of those facilities. At December 31, 2004, the provision for the costs of decommissioning these production facilities and pipelines at the end of their economic lives was $5,580 million (2003 $4,720 million). The provision has been estimated using existing technology, at current prices and discounted using a real discount rate of 2.0% (2003 2.5%). These costs are expected to be incurred over the next 30 years. While the provision is based on the best estimate of future costs and the economic lives of the facilities and pipelines, there is uncertainty regarding both the amount and timing of incurring these costs. The estimated aggregate costs used in assessing the provision were $8,247 million.

        Provisions for environmental remediation are made when a clean-up is probable and the amount reasonably determinable. Generally, this coincides with commitment to a formal plan of action or, if earlier, on divestment or closure of inactive sites. The provision for environmental liabilities at December 31, 2004 was $2,458 million (2003 $2,298 million). The provision has been estimated using existing technology, at current prices and discounted using a real discount rate of 2.0% (2003 2.5%). The majority of these costs are expected to be incurred over the next 10 years. The extent and cost of future remediation programmes are inherently difficult to estimate. They depend on the scale of any possible contamination, the timing and extent of corrective actions, and also the Group's share of liability. The estimated aggregate costs used in assessing the provision were $2,620 million.

        The Group also holds provisions for expected rental shortfalls on surplus properties, litigation and sundry other liabilities. To the extent that these liabilities are not expected to be settled within the next three years, the provisions are discounted using either a nominal discount rate of 4.5% (2003 4.5%) or a real discount rate of 2.0% (2003 2.5%), as appropriate.

Note 32 — Other provisions

F - 57

        The Group makes full provision for the future cost of decommissioning oil and natural gas production facilities and related pipelines on a discounted basis on the installation of those facilities. At December 31, 2004, the provision for the costs of decommissioning these production facilities and pipelines at the end of their economic lives was $5,580 million (2003 $4,720 million). The provision has been estimated using existing technology, at current prices and discounted using a real discount rate of 2.0% (2003 2.5%). These costs are expected to be incurred over the next 30 years. While the provision is based on the best estimate of future costs and the economic lives of the facilities and pipelines, there is uncertainty regarding both the amount and timing of incurring these costs. The estimated aggregate costs used in assessing the provision were $8,247 million.

        Provisions for environmental remediation are made when a clean-up is probable and the amount reasonably determinable. Generally, this coincides with commitment to a formal plan of action or, if earlier, on divestment or closure of inactive sites. The provision for environmental liabilities at December 31, 2004 was $2,458 million (2003 $2,298 million). The provision has been estimated using existing technology, at current prices and discounted using a real discount rate of 2.0% (2003 2.5%). The majority of these costs are expected to be incurred over the next 10 years. The extent and cost of future remediation programmes are inherently difficult to estimate. They depend on the scale of any possible contamination, the timing and extent of corrective actions, and also the Group's share of liability. The estimated aggregate costs used in assessing the provision were $2,620 million.

        The Group also holds provisions for expected rental shortfalls on surplus properties, litigation and sundry other liabilities. To the extent that these liabilities are not expected to be settled within the next three years, the provisions are discounted using either a nominal discount rate of 4.5% (2003 4.5%) or a real discount rate of 2.0% (2003 2.5%), as appropriate.