BP (BP)

Strategic Risks

Access and renewal: Successful execution of BP Group’s plan depends critically on implementing activities to renew and reposition BP Group’s portfolio. The challenges to renewal of BP Group’s upstream portfolio are growing due to increasing competition for access to opportunities globally. Lack of material positions in new markets and/or inability to complete disposals could result in an inability to grow or even maintain BP Group’s production.

Prices and markets: Oil, gas and product prices are subject to international supply and demand. Political developments and the outcome of meetings of OPEC can particularly affect world supply and oil prices. Previous oil price increases have resulted in increased fiscal take, cost inflation and more onerous terms for access to resources. As a result, increased oil prices may not improve margin performance. In addition to the adverse effect on revenues, margins and profitability from any fall in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to further reviews for impairment of BP Group’s oil and natural gas properties. Such reviews would reflect management’s view of long-term oil and natural gas prices and could result in a charge for impairment that could have a significant effect on BP Group’s results of operations in the period in which it occurs. Rapid material and/or sustained change in oil, gas and product prices can impact the validity of the assumptions on which strategic decisions are based and, as a result, the ensuing actions derived

2

Table of Contents

from those decisions may no longer be appropriate. A prolonged period of low oil prices may impact BP Group’s ability to maintain its long-term investment programme with a consequent effect on BP Group’s growth rate and may impact shareholder returns, including dividends and share buybacks, or share price.

Periods of global recession could impact the demand for BP Group’s products, the prices at which they can be sold and affect the viability of the markets in which BP Group operates.

Refining profitability can be volatile, with both periodic oversupply and supply tightness in various regional markets. Sectors of the chemicals industry are also subject to fluctuations in supply and demand within the petrochemicals market, with consequent effect on prices and profitability.

Climate change and carbon pricing: Compliance with changes in laws, regulations and obligations relating to climate change could result in substantial capital expenditure, reduced profitability from changes in operating costs and revenue generation and strategic growth opportunities being impacted.

Socio-political: BP Group has operations in countries where political, economic and social transition is taking place. Some countries have experienced political instability, changes to the regulatory environment, expropriation or nationalization of property, civil strife, strikes, acts of war and insurrections. Any of these conditions occurring could disrupt or terminate BP Group’s operations, causing BP Group’s development activities to be curtailed or terminated in these areas or BP Group’s production to decline and could cause us to incur additional costs. In particular, BP Group’s investments in Russia could be adversely affected by heightened political and economic environment risks.

BP Group sets itself high standards of corporate citizenship and aspires to contribute to a better quality of life through the products and services BP Group provides. If it is perceived that BP Group is not respecting or advancing the economic and social progress of the communities in which BP Group operates, its reputation and shareholder value could be damaged.

Competition: The oil, gas and petrochemicals industries are highly competitive. There is strong competition, both within the oil and gas industry and with other industries, in supplying the fuel needs of commerce, industry and the home. Competition puts pressure on product prices, affects oil products marketing and requires continuous management focus on reducing unit costs and improving efficiency. The implementation of group strategy requires continued technological advances and innovation including advances in exploration, production, refining, petrochemicals manufacturing technology and advances in technology related to energy usage. BP Group’s performance could be impeded if competitors developed or acquired intellectual property rights to technology that BP Group required or if BP Group’s innovation lagged the industry.

Investment efficiency: BP Group’s organic growth is dependent on creating a portfolio of quality options and investing in the best options. Ineffective investment selection could lead to loss of value and higher capital expenditure.

Reserves replacement: Successful execution of BP Group’s strategy depends critically on sustaining long-term reserves replacement. If upstream resources are not progressed to proved reserves in a timely and efficient manner, BP Group will be unable to sustain long-term replacement of reserves.

Liquidity, financial capacity and financial exposure: BP Group has established a financial framework to ensure that it is able to maintain an appropriate level of liquidity and financial capacity and to constrain the level of assessed capital at risk for the purposes of positions taken in financial instruments. Failure to operate within BP Group’s financial framework could lead to BP Group becoming financially distressed leading to a loss of shareholder value. Commercial credit risk is measured and controlled to determine BP Group’s total credit risk. Inability to determine adequately BP Group’s credit exposure could lead to financial loss. A credit crisis

3

Table of Contents

affecting banks and other sectors of the economy could impact the ability of counterparties to meet their financial obligations to BP Group. It could also affect BP Group’s ability to raise capital to fund growth.

Crude oil prices are generally set in US dollars, while sales of refined products may be in a variety of currencies. Fluctuations in exchange rates can therefore give rise to foreign exchange exposures, with a consequent impact on underlying costs and revenues.

Strategic Risks

SIZE="2">Access and renewal: Successful execution of BP Group’s plan depends critically on implementing activities to renew and reposition BP Group’s portfolio. The challenges to renewal of BP Group’s upstream portfolio
are growing due to increasing competition for access to opportunities globally. Lack of material positions in new markets and/or inability to complete disposals could result in an inability to grow or even maintain BP Group’s production.

Prices and markets: Oil, gas and product prices are subject to international supply and demand. Political developments and
the outcome of meetings of OPEC can particularly affect world supply and oil prices. Previous oil price increases have resulted in increased fiscal take, cost inflation and more onerous terms for access to resources. As a result, increased oil
prices may not improve margin performance. In addition to the adverse effect on revenues, margins and profitability from any fall in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to further reviews for
impairment of BP Group’s oil and natural gas properties. Such reviews would reflect management’s view of long-term oil and natural gas prices and could result in a charge for impairment that could have a significant effect on BP
Group’s results of operations in the period in which it occurs. Rapid material and/or sustained change in oil, gas and product prices can impact the validity of the assumptions on which strategic decisions are based and, as a result, the
ensuing actions derived

2

Table of Contents

from those decisions may no longer be appropriate. A prolonged period of low oil prices may impact BP Group’s ability to maintain its long-term
investment programme with a consequent effect on BP Group’s growth rate and may impact shareholder returns, including dividends and share buybacks, or share price.

FACE="Times New Roman" SIZE="2">Periods of global recession could impact the demand for BP Group’s products, the prices at which they can be sold and affect the viability of the markets in which BP Group operates.

Strategic risks

Access and renewal

Successful execution of our group plan depends critically on implementing activities to renew and reposition our portfolio. The challenges to renewal of our upstream portfolio are growing due to increasing competition for access to opportunities globally. Lack of material positions in new markets and/or inability to complete disposals could result in an inability to grow or even maintain our production.
 

Prices and markets

Oil, gas and product prices are subject to international supply and demand. Political developments and the outcome of meetings of OPEC can particularly affect world supply and oil prices. Previous oil price increases have resulted in increased fiscal take, cost inflation and more onerous terms for access to resources. As a result, increased oil prices may not improve margin performance. In addition to the adverse effect on revenues, margins and profitability from any fall in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to further reviews for impairment of the group's oil and natural gas properties. Such reviews would reflect management's view of long-term oil and natural gas prices and could result in a charge for impairment that could have a significant effect on the group's results of operations in the period in which it occurs. Rapid material and/or sustained change in oil, gas and product prices can impact the validity of the assumptions on which strategic decisions are based and, as a result, the ensuing actions derived from those decisions may no longer be appropriate. A prolonged period of low oil prices may impact our ability to maintain our long-term investment programme with a consequent effect on our growth rate and may impact shareholder returns, including dividends and share buybacks, or share price.
 

Periods of global recession could impact the demand for our products, the prices at which they can be sold and affect the viability of the markets in which we operate.
 

Refining profitability can be volatile, with both periodic oversupply and supply tightness in various regional markets. Sectors of the chemicals industry are also subject to fluctuations in supply and demand within the petrochemicals market, with a consequent effect on prices and profitability.
 

Climate change and carbon pricing

Compliance with changes in laws, regulations and obligations relating to climate change could result in substantial capital expenditure, reduced profitability from changes in operating costs, and revenue generation and strategic growth opportunities being impacted.
 

Socio-political

We have operations in countries where political, economic and social transition is taking place. Some countries have experienced political instability, changes to the regulatory environment, expropriation or nationalization of property, civil strife, strikes, acts of war and insurrections. Any of these conditions occurring could disrupt or terminate our operations, causing our development activities to be curtailed or terminated in these areas or our production to decline and could cause us to incur additional costs. In particular, our investments in Russia could be adversely affected by heightened political and economic environment risks.
 

We set ourselves high standards of corporate citizenship and aspire to contribute to a better quality of life through the products and services we provide. If it is perceived that we are not respecting or advancing the economic and social progress of the communities in which we operate, our reputation and shareholder value could be damaged.
 
 

Top of page 25

Principal risks and uncertainties (continued)

Competition

The oil, gas and petrochemicals industries are highly competitive. There is strong competition, both within the oil and gas industry and with other industries, in supplying the fuel needs of commerce, industry and the home. Competition puts pressure on product prices, affects oil products marketing and requires continuous management focus on reducing unit costs and improving efficiency. The implementation of group strategy requires continued technological advances and innovation including advances in exploration, production, refining, petrochemicals manufacturing technology and advances in technology related to energy usage. Our performance could be impeded if competitors developed or acquired intellectual property rights to technology that we required or if our innovation lagged the industry.
 

Investment efficiency

Our organic growth is dependent on creating a portfolio of quality options and investing in the best options. Ineffective investment selection could lead to loss of value and higher capital expenditure.
 

Reserves replacement

Successful execution of our group strategy depends critically on sustaining long-term reserves replacement. If upstream resources are not progressed to proved reserves in a timely and efficient manner, we will be unable to sustain long-term replacement of reserves. 
 

Liquidity, financial capacity and financial exposure

The group has established a financial framework to ensure that it is able to maintain an appropriate level of liquidity and financial capacity and to constrain the level of assessed capital at risk for the purposes of positions taken in financial instruments. Failure to operate within our financial framework could lead to the group becoming financially distressed leading to a loss of shareholder value. Commercial credit risk is measured and controlled to determine the group's total credit risk. Inability to determine adequately our credit exposure could lead to financial loss. A credit crisis affecting banks and other sectors of the economy could impact the ability of counterparties to meet their financial obligations to the group. It could also affect our ability to raise capital to fund growth.
 

Crude oil prices are generally set in US dollars, while sales of refined products may be in a variety of currencies. Fluctuations in exchange rates can therefore give rise to foreign exchange exposures, with a consequent impact on underlying costs and revenues.

For more information on financial instruments and financial risk factors see  BP Annual Report and Accounts 2008 - Note 28 on page 142 and Note 34 on page 150.
 

Access and renewal

Successful execution of our group plan
depends critically on implementing activities to renew and reposition our portfolio. The
challenges to renewal of our upstream portfolio are growing due to increasing competition
for access to opportunities globally. Lack of material positions in new markets and/or
inability to complete disposals could result in an inability to grow or even maintain our
production.

 

Prices and markets

Oil, gas and product prices are subject
to international supply and demand. Political developments and the outcome of meetings of
OPEC can particularly affect world supply and oil prices. Previous oil price increases have
resulted in increased fiscal take, cost inflation and more onerous terms for access to
resources. As a result, increased oil prices may not improve margin performance. In
addition to the adverse effect on revenues, margins and profitability from any fall in oil
and natural gas prices, a prolonged period of low prices or other indicators would lead to
further reviews for impairment of the group's oil and natural gas properties. Such reviews
would reflect management's view of long-term oil and natural gas prices and could result in
a charge for impairment that could have a significant effect on the group's results of
operations in the period in which it occurs. Rapid material and/or sustained change in oil,
gas and product prices can impact the validity of the assumptions on which strategic
decisions are based and, as a result, the ensuing actions derived from those decisions may
no longer be appropriate. A prolonged period of low oil prices may impact our ability to
maintain our long-term investment programme with a consequent effect on our growth rate and
may impact shareholder returns, including dividends and share buybacks, or share
price.

 

Periods of global recession could impact
the demand for our products, the prices at which they can be sold and affect the viability
of the markets in which we operate.

 

Refining profitability can be volatile,
with both periodic oversupply and supply tightness in various regional markets. Sectors of
the chemicals industry are also subject to fluctuations in supply and demand within the
petrochemicals market, with a consequent effect on prices and profitability.

 

Climate change and carbon
pricing

Compliance with changes in laws,
regulations and obligations relating to climate change could result in substantial capital
expenditure, reduced profitability from changes in operating costs, and revenue generation
and strategic growth opportunities being impacted.

 

Socio-political

We have operations in countries where
political, economic and social transition is taking place. Some countries have experienced
political instability, changes to the regulatory environment, expropriation or
nationalization of property, civil strife, strikes, acts of war and insurrections. Any of
these conditions occurring could disrupt or terminate our operations, causing our
development activities to be curtailed or terminated in these areas or our production to
decline and could cause us to incur additional costs. In particular, our investments
in Russia could be adversely affected by heightened political and economic
environment risks.

 

We set ourselves high standards of
corporate citizenship and aspire to contribute to a better quality of life through the
products and services we provide. If it is perceived that we are not respecting or
advancing the economic and social progress of the communities in which we operate, our
reputation and shareholder value could be damaged.

 

 

Top of page 25

Principal risks and uncertainties
(continued)

Competition

The oil, gas and petrochemicals
industries are highly competitive. There is strong competition, both within the oil and gas
industry and with other industries, in supplying the fuel needs of commerce, industry and
the home. Competition puts pressure on product prices, affects oil products marketing and
requires continuous management focus on reducing unit costs and improving efficiency. The
implementation of group strategy requires continued technological advances and innovation
including advances in exploration, production, refining, petrochemicals manufacturing
technology and advances in technology related to energy usage. Our performance could be
impeded if competitors developed or acquired intellectual property rights to technology
that we required or if our innovation lagged the industry.

 

Investment efficiency

Our organic growth is dependent on
creating a portfolio of quality options and investing in the best options. Ineffective
investment selection could lead to loss of value and higher capital expenditure.

 

Reserves replacement

Successful execution of our group
strategy depends critically on sustaining long-term reserves replacement. If upstream
resources are not progressed to proved reserves in a timely and efficient manner, we will
be unable to sustain long-term replacement of reserves. 

 

Liquidity, financial capacity and
financial exposure

The group has established a financial
framework to ensure that it is able to maintain an appropriate level of liquidity and
financial capacity and to constrain the level of assessed capital at risk for the purposes
of positions taken in financial instruments. Failure to operate within our financial
framework could lead to the group becoming financially distressed leading to a loss of
shareholder value. Commercial credit risk is measured and controlled to determine the
group's total credit risk. Inability to determine adequately our credit exposure could lead
to financial loss. A credit crisis affecting banks and other sectors of the economy could
impact the ability of counterparties to meet their financial obligations to the group. It
could also affect our ability to raise capital to fund growth.

 

Crude oil prices are generally set in US
dollars, while sales of refined products may be in a variety of currencies. Fluctuations in
exchange rates can therefore give rise to foreign exchange exposures, with a consequent
impact on underlying costs and revenues.

For more information on financial
instruments and financial risk factors see 
BP Annual Report and Accounts
2008 - Note 28 on page
142 and Note 34 on page 150.

 

Strategic Risks

Access and renewal: Successful execution of BP Group’s plan depends critically on implementing activities to renew and reposition BP Group’s portfolio. The challenges to renewal of BP Group’s upstream portfolio are growing due to increasing competition for access to opportunities globally. Lack of material positions in new markets and/or inability to complete disposals could result in an inability to grow or even maintain BP Group’s production.

Prices and markets: Oil, gas and product prices are subject to international supply and demand. Political developments and the outcome of meetings of OPEC can particularly affect world supply and oil prices. Previous oil price increases have resulted in increased fiscal take, cost inflation and more onerous terms for access to resources. As a result, increased oil prices may not improve margin performance. In addition to the adverse effect on revenues, margins and profitability from any fall in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to further reviews for impairment of BP Group’s oil and natural gas properties. Such reviews would reflect management’s view of long-term oil and natural gas prices and could result in a charge for impairment that could have a significant effect on BP Group’s results of operations in the period in which it occurs. Rapid material and/or sustained change in oil, gas and product prices can impact the validity of the assumptions on which strategic decisions are based and, as a result, the ensuing actions derived

2

Table of Contents

from those decisions may no longer be appropriate. A prolonged period of low oil prices may impact BP Group’s ability to maintain its long-term investment programme with a consequent effect on BP Group’s growth rate and may impact shareholder returns, including dividends and share buybacks, or share price.

Periods of global recession could impact the demand for BP Group’s products, the prices at which they can be sold and affect the viability of the markets in which BP Group operates.

Refining profitability can be volatile, with both periodic oversupply and supply tightness in various regional markets. Sectors of the chemicals industry are also subject to fluctuations in supply and demand within the petrochemicals market, with consequent effect on prices and profitability.

Climate change and carbon pricing: Compliance with changes in laws, regulations and obligations relating to climate change could result in substantial capital expenditure, reduced profitability from changes in operating costs and revenue generation and strategic growth opportunities being impacted.

Socio-political: BP Group has operations in countries where political, economic and social transition is taking place. Some countries have experienced political instability, changes to the regulatory environment, expropriation or nationalization of property, civil strife, strikes, acts of war and insurrections. Any of these conditions occurring could disrupt or terminate BP Group’s operations, causing BP Group’s development activities to be curtailed or terminated in these areas or BP Group’s production to decline and could cause us to incur additional costs. In particular, BP Group’s investments in Russia could be adversely affected by heightened political and economic environment risks.

BP Group sets itself high standards of corporate citizenship and aspires to contribute to a better quality of life through the products and services BP Group provides. If it is perceived that BP Group is not respecting or advancing the economic and social progress of the communities in which BP Group operates, its reputation and shareholder value could be damaged.

Competition: The oil, gas and petrochemicals industries are highly competitive. There is strong competition, both within the oil and gas industry and with other industries, in supplying the fuel needs of commerce, industry and the home. Competition puts pressure on product prices, affects oil products marketing and requires continuous management focus on reducing unit costs and improving efficiency. The implementation of group strategy requires continued technological advances and innovation including advances in exploration, production, refining, petrochemicals manufacturing technology and advances in technology related to energy usage. BP Group’s performance could be impeded if competitors developed or acquired intellectual property rights to technology that BP Group required or if BP Group’s innovation lagged the industry.

Investment efficiency: BP Group’s organic growth is dependent on creating a portfolio of quality options and investing in the best options. Ineffective investment selection could lead to loss of value and higher capital expenditure.

Reserves replacement: Successful execution of BP Group’s strategy depends critically on sustaining long-term reserves replacement. If upstream resources are not progressed to proved reserves in a timely and efficient manner, BP Group will be unable to sustain long-term replacement of reserves.

Liquidity, financial capacity and financial exposure: BP Group has established a financial framework to ensure that it is able to maintain an appropriate level of liquidity and financial capacity and to constrain the level of assessed capital at risk for the purposes of positions taken in financial instruments. Failure to operate within BP Group’s financial framework could lead to BP Group becoming financially distressed leading to a loss of shareholder value. Commercial credit risk is measured and controlled to determine BP Group’s total credit risk. Inability to determine adequately BP Group’s credit exposure could lead to financial loss. A credit crisis

3

Table of Contents

affecting banks and other sectors of the economy could impact the ability of counterparties to meet their financial obligations to BP Group. It could also affect BP Group’s ability to raise capital to fund growth.

Crude oil prices are generally set in US dollars, while sales of refined products may be in a variety of currencies. Fluctuations in exchange rates can therefore give rise to foreign exchange exposures, with a consequent impact on underlying costs and revenues.

Strategic Risks

SIZE="2">Access and renewal: Successful execution of BP Group’s plan depends critically on implementing activities to renew and reposition BP Group’s portfolio. The challenges to renewal of BP Group’s upstream portfolio
are growing due to increasing competition for access to opportunities globally. Lack of material positions in new markets and/or inability to complete disposals could result in an inability to grow or even maintain BP Group’s production.

Prices and markets: Oil, gas and product prices are subject to international supply and demand. Political developments and
the outcome of meetings of OPEC can particularly affect world supply and oil prices. Previous oil price increases have resulted in increased fiscal take, cost inflation and more onerous terms for access to resources. As a result, increased oil
prices may not improve margin performance. In addition to the adverse effect on revenues, margins and profitability from any fall in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to further reviews for
impairment of BP Group’s oil and natural gas properties. Such reviews would reflect management’s view of long-term oil and natural gas prices and could result in a charge for impairment that could have a significant effect on BP
Group’s results of operations in the period in which it occurs. Rapid material and/or sustained change in oil, gas and product prices can impact the validity of the assumptions on which strategic decisions are based and, as a result, the
ensuing actions derived

2

Table of Contents

from those decisions may no longer be appropriate. A prolonged period of low oil prices may impact BP Group’s ability to maintain its long-term
investment programme with a consequent effect on BP Group’s growth rate and may impact shareholder returns, including dividends and share buybacks, or share price.

FACE="Times New Roman" SIZE="2">Periods of global recession could impact the demand for BP Group’s products, the prices at which they can be sold and affect the viability of the markets in which BP Group operates.

Strategic Risks

Access and renewal: Successful execution of BP Group’s plan depends critically on implementing activities to renew and reposition BP Group’s portfolio. The challenges to renewal of BP Group’s upstream portfolio are growing due to increasing competition for access to opportunities globally. Lack of material positions in new markets and/or inability to complete disposals could result in an inability to grow or even maintain BP Group’s production.

Prices and markets: Oil, gas and product prices are subject to international supply and demand. Political developments and the outcome of meetings of OPEC can particularly affect world supply and oil prices. Previous oil price increases have resulted in increased fiscal take, cost inflation and more onerous terms for access to resources. As a result, increased oil prices may not improve margin performance. In addition to the adverse effect on revenues, margins and profitability from any fall in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to further reviews for impairment of BP Group’s oil and natural gas properties. Such reviews would reflect management’s view of long-term oil and natural gas prices and could result in a charge for impairment that could have a significant effect on BP Group’s results of operations in the period in which it occurs. Rapid material and/or sustained change in oil, gas and product prices can impact the validity of the assumptions on which strategic decisions are based and, as a result, the ensuing actions derived

2

Table of Contents

from those decisions may no longer be appropriate. A prolonged period of low oil prices may impact BP Group’s ability to maintain its long-term investment programme with a consequent effect on BP Group’s growth rate and may impact shareholder returns, including dividends and share buybacks, or share price.

Periods of global recession could impact the demand for BP Group’s products, the prices at which they can be sold and affect the viability of the markets in which BP Group operates.

Refining profitability can be volatile, with both periodic oversupply and supply tightness in various regional markets. Sectors of the chemicals industry are also subject to fluctuations in supply and demand within the petrochemicals market, with consequent effect on prices and profitability.

Climate change and carbon pricing: Compliance with changes in laws, regulations and obligations relating to climate change could result in substantial capital expenditure, reduced profitability from changes in operating costs and revenue generation and strategic growth opportunities being impacted.

Socio-political: BP Group has operations in countries where political, economic and social transition is taking place. Some countries have experienced political instability, changes to the regulatory environment, expropriation or nationalization of property, civil strife, strikes, acts of war and insurrections. Any of these conditions occurring could disrupt or terminate BP Group’s operations, causing BP Group’s development activities to be curtailed or terminated in these areas or BP Group’s production to decline and could cause us to incur additional costs. In particular, BP Group’s investments in Russia could be adversely affected by heightened political and economic environment risks.

BP Group sets itself high standards of corporate citizenship and aspires to contribute to a better quality of life through the products and services BP Group provides. If it is perceived that BP Group is not respecting or advancing the economic and social progress of the communities in which BP Group operates, its reputation and shareholder value could be damaged.

Competition: The oil, gas and petrochemicals industries are highly competitive. There is strong competition, both within the oil and gas industry and with other industries, in supplying the fuel needs of commerce, industry and the home. Competition puts pressure on product prices, affects oil products marketing and requires continuous management focus on reducing unit costs and improving efficiency. The implementation of group strategy requires continued technological advances and innovation including advances in exploration, production, refining, petrochemicals manufacturing technology and advances in technology related to energy usage. BP Group’s performance could be impeded if competitors developed or acquired intellectual property rights to technology that BP Group required or if BP Group’s innovation lagged the industry.

Investment efficiency: BP Group’s organic growth is dependent on creating a portfolio of quality options and investing in the best options. Ineffective investment selection could lead to loss of value and higher capital expenditure.

Reserves replacement: Successful execution of BP Group’s strategy depends critically on sustaining long-term reserves replacement. If upstream resources are not progressed to proved reserves in a timely and efficient manner, BP Group will be unable to sustain long-term replacement of reserves.

Liquidity, financial capacity and financial exposure: BP Group has established a financial framework to ensure that it is able to maintain an appropriate level of liquidity and financial capacity and to constrain the level of assessed capital at risk for the purposes of positions taken in financial instruments. Failure to operate within BP Group’s financial framework could lead to BP Group becoming financially distressed leading to a loss of shareholder value. Commercial credit risk is measured and controlled to determine BP Group’s total credit risk. Inability to determine adequately BP Group’s credit exposure could lead to financial loss. A credit crisis

3

Table of Contents

affecting banks and other sectors of the economy could impact the ability of counterparties to meet their financial obligations to BP Group. It could also affect BP Group’s ability to raise capital to fund growth.

Crude oil prices are generally set in US dollars, while sales of refined products may be in a variety of currencies. Fluctuations in exchange rates can therefore give rise to foreign exchange exposures, with a consequent impact on underlying costs and revenues.

Strategic Risks

SIZE="2">Access and renewal: Successful execution of BP Group’s plan depends critically on implementing activities to renew and reposition BP Group’s portfolio. The challenges to renewal of BP Group’s upstream portfolio
are growing due to increasing competition for access to opportunities globally. Lack of material positions in new markets and/or inability to complete disposals could result in an inability to grow or even maintain BP Group’s production.

Prices and markets: Oil, gas and product prices are subject to international supply and demand. Political developments and
the outcome of meetings of OPEC can particularly affect world supply and oil prices. Previous oil price increases have resulted in increased fiscal take, cost inflation and more onerous terms for access to resources. As a result, increased oil
prices may not improve margin performance. In addition to the adverse effect on revenues, margins and profitability from any fall in oil and natural gas prices, a prolonged period of low prices or other indicators would lead to further reviews for
impairment of BP Group’s oil and natural gas properties. Such reviews would reflect management’s view of long-term oil and natural gas prices and could result in a charge for impairment that could have a significant effect on BP
Group’s results of operations in the period in which it occurs. Rapid material and/or sustained change in oil, gas and product prices can impact the validity of the assumptions on which strategic decisions are based and, as a result, the
ensuing actions derived

2

Table of Contents

from those decisions may no longer be appropriate. A prolonged period of low oil prices may impact BP Group’s ability to maintain its long-term
investment programme with a consequent effect on BP Group’s growth rate and may impact shareholder returns, including dividends and share buybacks, or share price.

FACE="Times New Roman" SIZE="2">Periods of global recession could impact the demand for BP Group’s products, the prices at which they can be sold and affect the viability of the markets in which BP Group operates.