BP (BP)

Employee Share Plans

(a)

The exercise prices for BP options granted during the year were £4.22/$7.73 (weighted average price) for Executive Directors' Incentive Plan (2,783,333 options); £4.38/$8.01 (weighted average price) for 71,750,436 options granted under the BP Share Option Plan; and £3.86/$7.06 (5,860,991 options) for savings-related and similar plans.

        BP offers most of its employees the opportunity to acquire a shareholding in the Company through savings-related and/or matching share plan arrangements. Such arrangements are now in place in more than 80 countries. BP also uses long-term performance plans (see Item 18 — Financial Statements Note 39 on page F-79) and the granting of share options as elements of remuneration for executive directors and senior employees.

        During 2004, share options were granted to the executive directors under the EDIP. For these options, the option exercise price was the market value (as determined in accordance with the plan rules) on the grant date. The options granted to executive directors reflect BP's performance in terms of total shareholder return, that is, share price increase with all dividends reinvested, relative to the FTSE Global 100 group of companies over the three years preceding the grant as well as the underlying health of the business and the competitive marketplace. Options have not been granted in any year unless the criteria for an award of shares under the share element of the EDIP (see Item 18 — Financial Statements Note 39 on page F-79) have been met. Options vest over three years (one-third each after one, two and three years respectively) and have a life of seven years after the grant.

        Share options were also granted in 2004 under the BP Share Option Plan to certain categories of employees. Subject to certain vesting requirements, the options are exercisable between the third and 10th anniversaries of the date of grant. There are no performance conditions attaching to the options granted during the year.

        Under the BP ShareSave Plan (a savings-related share option plan), employees save on a monthly basis over a three- or five-year period towards the purchase of shares at a price fixed when the option is granted. The option price is usually set at a 20% discount to the market price at the time of grant. The option must be exercised within six months of maturity of the savings contract; otherwise it lapses. The plan is run in the UK and a small number of other countries.

        Under the BP ShareMatch Plan, BP matches employees' own contributions of shares, up to a predetermined limit. The shares are then held in trust for a defined minimum period. The plan is run in the UK and in over 70 other countries.

        The Company sponsors a number of savings plans covering most US employees. Under these plans, most employees may contribute up to 100% of their salary subject to certain regulatory limits. Most employees are eligible for a dollar-for-dollar Company-matched contribution for the first 7% of eligible pay contributed on a before-tax or after-tax basis, or a combination of both. The precise arrangement may vary in certain business units. Plan participants may invest contributions in more than 200 investment options, including a fund comprised primarily of BP ADSs. The Company's contributions

153

generally vest over a period of three years (0% for years one and two and 100% after completion of three years). Company contributions to savings plans during the year were $138 million ($130 million).

        An Employee Share Ownership Plan (ESOP) was established in 1997 to acquire BP shares to satisfy future requirements of employee share plans. The Company provides funding to the ESOP. Until such time as the Company's own shares held by the ESOP trust vest unconditionally in employees, the amount paid for those shares is deducted in arriving at shareholders' interest (see Item 18 — Financial Statements Note 35 on page F-72). Other assets and liabilities of the ESOP are recognized as assets and liabilities of the Company. The ESOP has waived its rights to dividends.

        During 2004, the ESOP released 14,156,047 shares (16,892,853 shares) for the matching share plans. The cost of shares released for these plans has been charged in BP's accounts. At December 31, 2004, the ESOP held 2,682,860 shares (7,811,544 shares), which had a market value of $26 million ($63 million).

        Pursuant to the various BP Group share option schemes, the following options for Ordinary Shares of the Company were outstanding at June 28, 2005:

        Further details on share options appear in Item 18 — Financial Statements — Note 38 on page F-75.

154

ITEM 7 — MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

        At June 28, 2005, the Company has been notified that JPMorgan Chase Bank, as depositary for American Depositary Shares (ADSs), holds interests through its nominee, Guaranty Nominees Limited, in 7,004,020,650 ordinary shares (33.07% of the Company's ordinary share capital). Included in this total is part of the holding of the Kuwait Investment Office (KIO). Either directly or through nominees, the KIO holds interests in 715,040,000 ordinary shares (3.32% of the Company's ordinary share capital). The KIO does not have any different voting rights from the rights of other ordinary shareholders. At the same date, Barclays plc holds interests in 750,956,107 ordinary shares (3.52% of the Company's ordinary share capital) and Legal and General holds interests in 768,172,570 ordinary shares (3.57% of the Company's share capital).

        At the date of this report the Company has also been notified of the following interests in preference shares. Co-operative Insurance Society Limited holds interests in 1,475,538 8% 1st preference shares (20.40% of that class) and 1,789,796 9% 2nd preference shares (32.70% of that class). The National Farmers Mutual Insurance Society Ltd holds 945,000 8% 1st preference shares (13.07% of that class) and 987,000 2nd preference shares (18.03% of that class). Prudential plc holds interests in 528,150 8% 1st preference shares (7.30% of that class) and 644,450 9% 2nd preference shares (11.77% of that class). Royal & SunAlliance Insurance plc holds interests in 287,500 8% 1st preference shares (3.97% of that class) and 250,000 2nd preference shares (4.57% of that class). Ruffer Limited Liability Partnership holds interests in 750,000 9% preference shares (13.70% of that class).

RELATED PARTY TRANSACTIONS

        The Group had no material transactions with joint ventures and associated undertakings during the period commencing January 1, 2004 to the date of this filing. Transactions between the Group and its significant joint ventures and associated undertakings are summarized in Item 18 — Financial Statements — Note 42 on page F-82.

        In the ordinary course of its business the Group has transactions with various organizations with which certain of its directors are associated but, except as described in this report, no material transactions responsive to this item have been entered into in the period commencing January 1, 2004 to June 28, 2005.

ITEM 8 — FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Employee Share Plans

(a)

The exercise prices for BP options granted during the year were £4.22/$7.73 (weighted average price) for Executive Directors' Incentive Plan (2,783,333 options); £4.38/$8.01 (weighted average price) for 71,750,436 options granted under the BP Share Option Plan; and £3.86/$7.06 (5,860,991 options) for savings-related and similar plans.

        BP offers most of its employees the opportunity to acquire a shareholding in the Company through savings-related and/or matching share plan arrangements. Such arrangements are now in place in more than 80 countries. BP also uses long-term performance plans (see Item 18 — Financial Statements Note 39 on page F-80) and the granting of share options as elements of remuneration for executive directors and senior employees.

        During 2004, share options were granted to the executive directors under the EDIP. For these options, the option exercise price was the market value (as determined in accordance with the plan rules) on the grant date. The options granted to executive directors reflect BP's performance in terms of total shareholder return, that is, share price increase with all dividends reinvested, relative to the FTSE Global 100 group of companies over the three years preceding the grant as well as the underlying health of the business and the competitive marketplace. Options have not been granted in any year unless the criteria for an award of shares under the share element of the EDIP (see Item 18 — Financial Statements Note 39 on page F-80) have been met. Options vest over three years (one-third each after one, two and three years respectively) and have a life of seven years after the grant.

        Share options were also granted in 2004 under the BP Share Option Plan to certain categories of employees. Subject to certain vesting requirements, the options are exercisable between the third and 10th anniversaries of the date of grant. There are no performance conditions attaching to the options granted during the year.

        Under the BP ShareSave Plan (a savings-related share option plan), employees save on a monthly basis over a three- or five-year period towards the purchase of shares at a price fixed when the option is granted. The option price is usually set at a 20% discount to the market price at the time of grant. The option must be exercised within six months of maturity of the savings contract; otherwise it lapses. The plan is run in the UK and a small number of other countries.

        Under the BP ShareMatch Plan, BP matches employees' own contributions of shares, up to a predetermined limit. The shares are then held in trust for a defined minimum period. The plan is run in the UK and in over 70 other countries.

        The Company sponsors a number of savings plans covering most US employees. Under these plans, most employees may contribute up to 100% of their salary subject to certain regulatory limits. Most employees are eligible for a dollar-for-dollar Company-matched contribution for the first 7% of eligible pay contributed on a before-tax or after-tax basis, or a combination of both. The precise arrangement may vary in certain business units. Plan participants may invest contributions in more than 200 investment options, including a fund comprised primarily of BP ADSs. The Company's contributions

147

generally vest over a period of three years (0% for years one and two and 100% after completion of three years). Company contributions to savings plans during the year were $138 million ($130 million).

        An Employee Share Ownership Plan (ESOP) was established in 1997 to acquire BP shares to satisfy future requirements of employee share plans. The Company provides funding to the ESOP. Until such time as the Company's own shares held by the ESOP trust vest unconditionally in employees, the amount paid for those shares is deducted in arriving at shareholders' interest (see Item 18 — Financial Statements Note 35 on page F-73). Other assets and liabilities of the ESOP are recognized as assets and liabilities of the Company. The ESOP has waived its rights to dividends.

        During 2004, the ESOP released 14,156,047 shares (16,892,853 shares) for the matching share plans. The cost of shares released for these plans has been charged in BP's accounts. At December 31, 2004, the ESOP held 2,682,860 shares (7,811,544 shares), which had a market value of $26 million ($63 million).

        Pursuant to the various BP Group share option schemes, the following options for Ordinary Shares of the Company were outstanding at June 28, 2005:

        Further details on share options appear in Item 18 — Financial Statements — Note 38 on page F-76.

148

ITEM 7 — MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

        At June 28, 2005, the Company has been notified that JPMorgan Chase Bank, as depositary for American Depositary Shares (ADSs), holds interests through its nominee, Guaranty Nominees Limited, in 7,004,020,650 ordinary shares (33.07% of the Company's ordinary share capital). Included in this total is part of the holding of the Kuwait Investment Office (KIO). Either directly or through nominees, the KIO holds interests in 715,040,000 ordinary shares (3.32% of the Company's ordinary share capital). The KIO does not have any different voting rights from the rights of other ordinary shareholders. At the same date, Barclays plc holds interests in 750,956,107 ordinary shares (3.52% of the Company's ordinary share capital) and Legal and General holds interests in 768,172,570 ordinary shares (3.57% of the Company's share capital).

        At the date of this report the Company has also been notified of the following interests in preference shares. Co-operative Insurance Society Limited holds interests in 1,475,538 8% 1st preference shares (20.40% of that class) and 1,789,796 9% 2nd preference shares (32.70% of that class). The National Farmers Mutual Insurance Society Ltd holds 945,000 8% 1st preference shares (13.07% of that class) and 987,000 2nd preference shares (18.03% of that class). Prudential plc holds interests in 528,150 8% 1st preference shares (7.30% of that class) and 644,450 9% 2nd preference shares (11.77% of that class). Royal & SunAlliance Insurance plc holds interests in 287,500 8% 1st preference shares (3.97% of that class) and 250,000 2nd preference shares (4.57% of that class). Ruffer Limited Liability Partnership holds interests in 750,000 9% preference shares (13.70% of that class).

RELATED PARTY TRANSACTIONS

        The Group had no material transactions with joint ventures and associated undertakings during the period commencing January 1, 2004 to the date of this filing. Transactions between the Group and its significant joint ventures and associated undertakings are summarized in Item 18 — Financial Statements — Note 42 on page F-83.

        In the ordinary course of its business the Group has transactions with various organizations with which certain of its directors are associated but, except as described in this report, no material transactions responsive to this item have been entered into in the period commencing January 1, 2004 to June 28, 2005.

ITEM 8 — FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION