BP (BP)

United States Regional Review

        The following is a summary of significant US environmental issues and legislation affecting the Group.

        The Clean Air Act and its regulations require, among other things, new fuel specifications and sulphur reductions, enhanced monitoring of major sources of specified pollutants; stringent air emission limits and new operating permits for chemical plants, refineries, marine and distribution terminals; and risk management plans for storage of hazardous substances. This law affects BP facilities producing, refining, manufacturing and distributing oil and products as well as the fuels themselves. Federal and state controls on ozone, carbon monoxide, benzene, sulphur, MTBE, nitrogen dioxide, oxygenates and Reid Vapor Pressure impact BP's activities and products in the US. BP is continually adapting its business to these rules and has the know-how to produce quality and competitive products in compliance with their requirements. Beginning January 2006, all gasoline produced by BP will have to meet the Environmental Protection Agency's (EPA's) stringent low sulphur standards. Furthermore, by June 2006, at least 80% of the highway diesel fuel produced by BP will have to meet a sulphur cap of 15 parts per million (ppm) and by June 2007, all non-road diesel fuel production will have to meet a sulphur cap of 500 ppm and then 15 ppm by June 2012.

        In 2001, BP entered into a consent decree with the EPA and several states that settled alleged violations of various Clean Air Act requirements related largely to emissions of sulphur dioxide and nitrogen oxides at BP's refineries. Implementation of the decrees requirement's continues.

        In March 2003 and January 2005, the South Coast Air Quality Management District filed civil lawsuits against BP's Carson, California refinery, seeking penalties of approximately $600 million for various alleged air quality violations. In March 2005, BP, without admitting liability, agreed to settle all

75

outstanding claims for $25 million in cash penalties and approximately $6 million in past emissions fees. BP further agreed to provide $30 million over ten years in community benefit programmes and $20 million in new refinery projects aimed at reducing emissions. In addition, in 2004 (and early 2005), BP paid approximately $4 million in fines and penalties in the US, about half of which was paid in settlement of matters in Alaska and California.

        Throughout 2004, BP continued to comply with a plea agreement with the US Justice Department to develop, implement and maintain a nationwide environmental management system (EMS) consistent with the best environmental practices at Group facilities engaged in oil exploration, drilling and/or production in the US and its territories. BP fully implemented EMSs in Alaska and Lower 48 exploration and production performance units during 2003 and met the requirement to spend at least $15 million on the programme. The plea agreement and the associated period of organizational probation ended on January 31, 2005.

        The Clean Water Act is designed to protect and enhance the quality of US surface waters by regulating the discharge of wastewater and other discharges from both onshore and offshore operations. Facilities are required to obtain permits for most surface water discharges, install control equipment and implement operational controls and preventative measures, including spill prevention and control plans. Requirements under the Clean Water Act have become more stringent in recent years, including coverage of storm and surface water discharges at many more facilities and increased control of toxic discharges.

        More specifically, recently adopted and proposed water protection initiatives have the potential to affect BP operations over the next several years. These include total maximum daily load allocations to bring surface waters into compliance with water quality standards, water quality criteria for methylmercury, selenium and nutrients, whole effluent toxicity controls, requirements for cooling water intake structures, the revision or adoption of effluent limitations guidelines and spill prevention control and countermeasure planning requirements.

        The Oil Pollution Act of 1990 (OPA 90) significantly increased oil spill prevention requirements, spill response planning obligations and spill liability for tankers and barges transporting oil and for offshore facilities such as platforms and onshore terminals. To ensure adequate funding for response to oil spills and compensation for damages, when not fully covered by a responsible party, OPA 90 created a $1-billion fund which is funded by a tax on imported and domestic oil. OPA 90 also provides that all new tank vessels operating in US waters must have double hulls and existing tank vessels without double hulls must be phased out by 2015. In 2002, BP contracted with National Steel and Ship Building Company (NASSCO) for the construction of four double-hull tankers in San Diego, California. The first of these new vessels began service in 2004, demise chartered to and operated by Alaska Tanker Company (ATC). NASSCO is expected to deliver two more in 2005. The current ATC fleet consists of seven tankers: three with double bottoms and four with double hulls. By the end of 2006, all ATC vessels are expected to be double hulled.

        BP has a national spill response team, the BP Americas Response Team (BART), consisting of approximately 250 trained emergency responders at Group locations throughout North America. Supporting the BART are six Regional Response Incident Management Teams and five HAZMAT Strike Teams. Collectively, these teams are ready to assist in a response to a major incident.

        The Resource Conservation and Recovery Act (RCRA) regulates the storage, handling, treatment, transportation and disposal of hazardous and non-hazardous wastes. It also requires the investigation and remediation of certain locations at a facility where such wastes have been handled, released or disposed of. BP facilities generate and handle a number of wastes regulated by RCRA and have units that have been used for the storage, handling or disposal of RCRA wastes that are subject to investigation and corrective action.

76

        Under the Comprehensive Environmental Response, Compensation, and Liability Act (also known as CERCLA or Superfund), waste generators, site owners, facility operators and certain other parties are strictly liable for part or all of the cost of addressing sites contaminated by spills or waste disposal regardless of fault or the amount of waste sent to a site. Additionally, each state has laws similar to CERCLA.

        BP has been identified as a Potentially Responsible Party (PRP) under CERCLA and similar state statutes at approximately 800 sites. A PRP has joint and several liability for site remediation costs under some of these statutes and so BP may be required to assume, among other costs, the share attributed to insolvent, unidentified or other parties. BP has the most significant exposure for remediation costs at 64 of these sites. For the remaining sites, the number of PRPs can range up to 200 or more. BP expects its share of remediation costs at these sites to be small in comparison to the major sites. BP has estimated its potential exposure at all sites where it has been identified as a PRP and has established provisions accordingly. BP does not anticipate that its ultimate exposure at these sites individually, or in aggregate, will be significant except as reported for Atlantic Richfield Company in the matters below.

        The United States and the State of Montana seek to hold Atlantic Richfield Company liable for environmental remediation, related costs, and natural resource damages arising out of mining-related activities by Atlantic Richfield's predecessors in the upper Clark Fork River Basin ("the basin"). US EPA has estimated that the future cost of performing selected and proposed remedies in certain areas in the basin is approximately $350 million. In addition, EPA filed an action, entitled US vs. Atlantic Richfield Company, to recover past and future response costs that EPA incurred at the basin sites. In 2004, Atlantic Richfield agreed to pay $50 million plus interest to resolve EPA's claims for past costs at most sites in the basin, and the parties' consent decree settlement was approved by the court in January 2005. On a parallel track, a pending lawsuit by the state, entitled Montana vs. Atlantic Richfield Company, seeks to recover damages for alleged natural resources injuries in the basin. The United States also has claims for injury to natural resources on federal property. In 1999, Atlantic Richfield settled most of the State's claims for damages, as well as all natural resource damage claims asserted by a local Native American Tribe. The parties have not resolved the United States' claims, and they have not settled the State's claims for approximately $182.5 million in restoration damages at three sites in the basin. Atlantic Richfield Company has challenged certain government cost estimates and asserted defences and counterclaims to certain remaining claims. Past settlements among the parties may provide a framework for possible future settlement of the remaining claims in the basin.

        The Group is also subject to other claims for natural resource damages (NRD) under CERCLA, OPA, and various other federal and state laws. NRD claims have been asserted by government trustees against several refineries and other Group operations. This is a developing area of the law which could impact the cost of responding to environmental conditions at some sites in the future.

        In the US, many environmental cleanups are the result of strict groundwater protection standards at both the state and federal level. Contamination or the threat of contamination of current or potential drinking water resources can result in stringent cleanup requirements, but some states have addressed contamination of nonpotable water resources using similarly strict standards. BP has encouraged risk-based approaches to these issues and seeks to tailor remedies at its facilities to match the level of risk presented by the contamination.

        Other significant legislation includes the Toxic Substances Control Act which regulates the development, testing, import, export and introduction of new chemical products into commerce; the Occupational Safety and Health Act which imposes workplace safety and health, training and process standards to reduce the risks of chemical exposure and injury to employees; the Emergency Planning and Community Right-to-Know Act which requires emergency planning and spill notification as well as public disclosure of chemical usage and emissions. In addition, the US Department of Transportation through agencies such as the Office of Pipeline Safety and the Office of Hazardous Materials Safety

77

regulates in a comprehensive manner the transportation of the Company's products such as gasoline and chemicals to protect the health and safety of the public.

        BP is subject to the Marine Transportation Security Act and the Department of Transportation Hazardous Materials security compliance regulations in the United States. These regulations require many of our US businesses to conduct Security Vulnerability Assessments and prepare security mitigation plans which require the implementation of upgrades to security measures, the appointment and the submission of plans for approval and inspection.

        See also Item 8 — Financial Information — Consolidated Statements and Other Financial Information — Legal Proceedings on page 156.

United States Regional Review

        The following is a summary of significant US environmental issues and legislation affecting the Group.

        The Clean Air Act and its regulations require, among other things, new fuel specifications and sulphur reductions, enhanced monitoring of major sources of specified pollutants; stringent air emission limits and new operating permits for chemical plants, refineries, marine and distribution terminals; and risk management plans for storage of hazardous substances. This law affects BP facilities producing, refining, manufacturing and distributing oil and products as well as the fuels themselves. Federal and state controls on ozone, carbon monoxide, benzene, sulphur, MTBE, nitrogen dioxide, oxygenates and Reid Vapor Pressure impact BP's activities and products in the US. BP is continually adapting its business to these rules and has the know-how to produce quality and competitive products in compliance with their requirements. Beginning January 2006, all gasoline produced by BP will have to meet the Environmental Protection Agency's (EPA's) stringent low sulphur standards. Furthermore, by June 2006, at least 80% of the highway diesel fuel produced by BP will have to meet a sulphur cap of 15 parts per million (ppm) and by June 2007, all non-road diesel fuel production will have to meet a sulphur cap of 500 ppm and then 15 ppm by June 2012.

        In 2001, BP entered into a consent decree with the EPA and several states that settled alleged violations of various Clean Air Act requirements related largely to emissions of sulphur dioxide and nitrogen oxides at BP's refineries. Implementation of the decrees requirement's continues.

        In March 2003 and January 2005, the South Coast Air Quality Management District filed civil lawsuits against BP's Carson, California refinery, seeking penalties of approximately $600 million for various alleged air quality violations. In March 2005, BP, without admitting liability, agreed to settle all

69

outstanding claims for $25 million in cash penalties and approximately $6 million in past emissions fees. BP further agreed to provide $30 million over ten years in community benefit programmes and $20 million in new refinery projects aimed at reducing emissions. In addition, in 2004 (and early 2005), BP paid approximately $4 million in fines and penalties in the US, about half of which was paid in settlement of matters in Alaska and California.

        Throughout 2004, BP continued to comply with a plea agreement with the US Justice Department to develop, implement and maintain a nationwide environmental management system (EMS) consistent with the best environmental practices at Group facilities engaged in oil exploration, drilling and/or production in the US and its territories. BP fully implemented EMSs in Alaska and Lower 48 exploration and production performance units during 2003 and met the requirement to spend at least $15 million on the programme. The plea agreement and the associated period of organizational probation ended on January 31, 2005.

        The Clean Water Act is designed to protect and enhance the quality of US surface waters by regulating the discharge of wastewater and other discharges from both onshore and offshore operations. Facilities are required to obtain permits for most surface water discharges, install control equipment and implement operational controls and preventative measures, including spill prevention and control plans. Requirements under the Clean Water Act have become more stringent in recent years, including coverage of storm and surface water discharges at many more facilities and increased control of toxic discharges.

        More specifically, recently adopted and proposed water protection initiatives have the potential to affect BP operations over the next several years. These include total maximum daily load allocations to bring surface waters into compliance with water quality standards, water quality criteria for methylmercury, selenium and nutrients, whole effluent toxicity controls, requirements for cooling water intake structures, the revision or adoption of effluent limitations guidelines and spill prevention control and countermeasure planning requirements.

        The Oil Pollution Act of 1990 (OPA 90) significantly increased oil spill prevention requirements, spill response planning obligations and spill liability for tankers and barges transporting oil and for offshore facilities such as platforms and onshore terminals. To ensure adequate funding for response to oil spills and compensation for damages, when not fully covered by a responsible party, OPA 90 created a $1-billion fund which is funded by a tax on imported and domestic oil. OPA 90 also provides that all new tank vessels operating in US waters must have double hulls and existing tank vessels without double hulls must be phased out by 2015. In 2002, BP contracted with National Steel and Ship Building Company (NASSCO) for the construction of four double-hull tankers in San Diego, California. The first of these new vessels began service in 2004, demise chartered to and operated by Alaska Tanker Company (ATC). NASSCO is expected to deliver two more in 2005. The current ATC fleet consists of seven tankers: three with double bottoms and four with double hulls. By the end of 2006, all ATC vessels are expected to be double hulled.

        BP has a national spill response team, the BP Americas Response Team (BART), consisting of approximately 250 trained emergency responders at Group locations throughout North America. Supporting the BART are six Regional Response Incident Management Teams and five HAZMAT Strike Teams. Collectively, these teams are ready to assist in a response to a major incident.

        The Resource Conservation and Recovery Act (RCRA) regulates the storage, handling, treatment, transportation and disposal of hazardous and non-hazardous wastes. It also requires the investigation and remediation of certain locations at a facility where such wastes have been handled, released or disposed of. BP facilities generate and handle a number of wastes regulated by RCRA and have units that have been used for the storage, handling or disposal of RCRA wastes that are subject to investigation and corrective action.

70

        Under the Comprehensive Environmental Response, Compensation, and Liability Act (also known as CERCLA or Superfund), waste generators, site owners, facility operators and certain other parties are strictly liable for part or all of the cost of addressing sites contaminated by spills or waste disposal regardless of fault or the amount of waste sent to a site. Additionally, each state has laws similar to CERCLA.

        BP has been identified as a Potentially Responsible Party (PRP) under CERCLA and similar state statutes at approximately 800 sites. A PRP has joint and several liability for site remediation costs under some of these statutes and so BP may be required to assume, among other costs, the share attributed to insolvent, unidentified or other parties. BP has the most significant exposure for remediation costs at 64 of these sites. For the remaining sites, the number of PRPs can range up to 200 or more. BP expects its share of remediation costs at these sites to be small in comparison to the major sites. BP has estimated its potential exposure at all sites where it has been identified as a PRP and has established provisions accordingly. BP does not anticipate that its ultimate exposure at these sites individually, or in aggregate, will be significant except as reported for Atlantic Richfield Company in the matters below.

        The United States and the State of Montana seek to hold Atlantic Richfield Company liable for environmental remediation, related costs, and natural resource damages arising out of mining-related activities by Atlantic Richfield's predecessors in the upper Clark Fork River Basin ("the basin"). US EPA has estimated that the future cost of performing selected and proposed remedies in certain areas in the basin is approximately $350 million. In addition, EPA filed an action, entitled US vs. Atlantic Richfield Company, to recover past and future response costs that EPA incurred at the basin sites. In 2004, Atlantic Richfield agreed to pay $50 million plus interest to resolve EPA's claims for past costs at most sites in the basin, and the parties' consent decree settlement was approved by the court in January 2005. On a parallel track, a pending lawsuit by the state, entitled Montana vs. Atlantic Richfield Company, seeks to recover damages for alleged natural resources injuries in the basin. The United States also has claims for injury to natural resources on federal property. In 1999, Atlantic Richfield settled most of the State's claims for damages, as well as all natural resource damage claims asserted by a local Native American Tribe. The parties have not resolved the United States' claims, and they have not settled the State's claims for approximately $182.5 million in restoration damages at three sites in the basin. Atlantic Richfield Company has challenged certain government cost estimates and asserted defences and counterclaims to certain remaining claims. Past settlements among the parties may provide a framework for possible future settlement of the remaining claims in the basin.

        The Group is also subject to other claims for natural resource damages (NRD) under CERCLA, OPA, and various other federal and state laws. NRD claims have been asserted by government trustees against several refineries and other Group operations. This is a developing area of the law which could impact the cost of responding to environmental conditions at some sites in the future.

        In the US, many environmental cleanups are the result of strict groundwater protection standards at both the state and federal level. Contamination or the threat of contamination of current or potential drinking water resources can result in stringent cleanup requirements, but some states have addressed contamination of nonpotable water resources using similarly strict standards. BP has encouraged risk-based approaches to these issues and seeks to tailor remedies at its facilities to match the level of risk presented by the contamination.

        Other significant legislation includes the Toxic Substances Control Act which regulates the development, testing, import, export and introduction of new chemical products into commerce; the Occupational Safety and Health Act which imposes workplace safety and health, training and process standards to reduce the risks of chemical exposure and injury to employees; the Emergency Planning and Community Right-to-Know Act which requires emergency planning and spill notification as well as public disclosure of chemical usage and emissions. In addition, the US Department of Transportation through agencies such as the Office of Pipeline Safety and the Office of Hazardous Materials Safety

71

regulates in a comprehensive manner the transportation of the Company's products such as gasoline and chemicals to protect the health and safety of the public.

        BP is subject to the Marine Transportation Security Act and the Department of Transportation Hazardous Materials security compliance regulations in the United States. These regulations require many of our US businesses to conduct Security Vulnerability Assessments and prepare security mitigation plans which require the implementation of upgrades to security measures, the appointment and the submission of plans for approval and inspection.

        See also Item 8 — Financial Information — Consolidated Statements and Other Financial Information — Legal Proceedings on page 150.