BP 20-F 2008
Documents found in this filing:
Securities registered or to be registered pursuant to Section 12(b) of the Act:
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Unless the context indicates otherwise, the following terms have the meanings shown below:
Proved developed reserves Proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and natural gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery are included as proved developed reserves only after testing by a pilot project or after the operation of an installed programme has confirmed through production response that increased recovery will be achieved.
Proved undeveloped reserves Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances are estimates for proved undeveloped reserves attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.
This information, insofar as it relates to 2007, has been extracted or derived from the audited financial statements of the BP group presented on pages 93-180. Note 1 to the Financial
statements includes details on the basis of preparation of these financial statements. The selected information should be read in conjunction with the audited financial statements and related Notes elsewhere herein.
operations, on sales to the continuing operations be eliminated on consolidation from the discontinued operations and attributed to the continuing operations and vice versa. This adjustment has two offsetting elements: the net margin on crude refined by Innovene, as substantially all crude for its refineries was supplied by BP and most of the refined products manufactured by Innovene were taken by BP; and the margin on sales of feedstock from BPs US refineries to Innovenes manufacturing plants. The profits attributable to individual segments are not affected by this adjustment. This representation does not indicate the profits earned by continuing or Innovene operations, as if they were standalone entities, for past periods or those likely to be earned in future periods.
Production and net proved oil and natural gas reserves
During 2007, 414 million
barrels of oil and natural gas, on an oil equivalent* basis (mmboe), were
added to BPs proved reserves for subsidiaries (excluding
purchases and sales). After allowing for production, which amounted to
937mmboe, BPs proved reserves for subsidiaries were 12,583mmboe
at 31 December 2007. These proved reserves are mainly located in the US
(46%), Rest of Americas (19%), Asia Pacific (10%), Africa
(8%) and the UK (8%).
We urge you to consider carefully the risks described below. If any of these
risks occur, our business, financial condition and results of operations
could suffer and the trading price and liquidity of our securities could
decline, in which case you could lose all or part of your investment.
Prices and markets
Climate change and carbon pricing
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, petrochemical 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.
Compliance and ethics risks
Ethical misconduct and non-compliance
Financial control risks
Liabilities and provisions
Drilling and production
and performance management
Major project delivery
period. Poor delivery of any major project that underpins production growth and/or a major programme designed to enhance shareholder value could adversely affect our financial performance.
systems, security and continuity
Business continuity and disaster recovery
In order to utilize the Safe
Harbor provisions of the United States Private Securities Litigation
Reform Act of 1995, BP is providing the following cautionary statement.
This document contains certain forward-looking statements with respect
to the financial condition, results of operations and businesses of BP
and certain of the plans and objectives of BP with respect to these items.
These statements may generally, but not always, be identified by the use
of words such as will, expects, is expected
to, should, may, objective, is
likely to, intends, believes, plans, we
see or similar expressions. In particular, among other statements,
(i) certain statements in Performance review (pages 6-55) with regard to
management aims and objectives, future capital expenditure, future hydrocarbon
production volume, date(s) or period(s) in which production is scheduled
or expected to come onstream or a project or action is scheduled or expected
to begin or be completed, capacity of planned plants or facilities and
impact of health, safety and environmental regulations; (ii) the statements
in Performance review (pages 6-44) with regard to planned expansion, investment
or other projects and future regulatory actions; and (iii) the statements
in Performance review (pages 45-55) with regard to the plans of the group,
cash flows, opportunities for material acquisitions, the cost of and provision
for future remediation programmes, liquidity and costs for providing pension
and other post-retirement benefits; and including under Liquidity
and capital resources with regard to future production, future refining
availability, future capital expenditure, sources of funding, future revenues
and financial performance, potential for cost efficiencies, level of free
cash flow allocated to share buybacks, shareholder distributions and share
buybacks, gearing, working capital and expected payments under contractual
and commercial commitments; are all forward-looking in nature.
Statements referring to BPs competitive position are based on the companys belief and, in some cases, rely on a range of sources, including investment analysts reports, independent market studies and BPs internal assessments of market share based on publicly available information about the financial results and performance of market participants.
of the group
BP sells small quantities of lubricants in Cuba through a 50/50 joint venture there. In Syria, small quantities of lubricants are sold through a distributor and BP obtains small volumes of crude oil supplies for sale to third parties in Europe. These sales and purchases are insignificant and BP does not provide other goods, technologies or services in these countries.
Our Exploration and Production segment includes upstream and midstream activities
in 29 countries, including the US, the UK, Angola, Azerbaijan, Canada, Egypt,
Russia, Trinidad & Tobago (Trinidad) and locations within Asia Pacific,
Latin America, North Africa and the Middle East. Upstream activities involve
oil and natural gas exploration and field development and production. Our exploration
programme is currently focused around the deepwater Gulf of Mexico, Algeria,
Angola, Azerbaijan, Egypt and Russia. Major development areas include the deepwater
Gulf of Mexico, Azerbaijan, Algeria, Angola, Egypt and Asia Pacific. During
2007, production came from 22 countries. The principal areas of production
are Russia, the US, Trinidad, the UK, Latin America, the Middle East, Asia
Pacific, Azerbaijan, Angola and Egypt.
Resegmentation in 2008
Reserves and production
In 2007, net additions to the groups proved reserves (excluding sales and purchases of reserves-in-place and equity-accounted entities) amounted to 414mmboe, principally through improved recovery from, and extensions to, existing fields and discoveries of new fields. Of the reserves additions through improved recovery from, and extensions to, existing fields and discoveries of new fields, 64% are associated with new projects and are proved undeveloped reserves additions. The remainder are in existing developments where they represent a mixture of proved developed and proved undeveloped reserves. The principal reserves additions were in the Norway (Skarv), the US (Liberty, Prudhoe Bay, Great White, Nakika, Thunder Horse), Trinidad (Immortelle, Manakin), Angola (Pazflor) and Canada (Noel).
The following tables show BPs estimated net proved reserves as at 31 December 2007.
The following tables show BPs production by major field for 2007, 2006 and 2005.
Liquefied natural gas
Our Refining and Marketing business is responsible for the supply and trading, refining, manufacturing, marketing and transportation of crude oil, petroleum and chemicals products to wholesale and retail customers. BP markets its products in more than 100 countries. We operate primarily in Europe and North America but also manufacture and market our products across Australasia and in parts of Asia, Africa and Central and South America.
The key components of sales and other operating revenues are explained in more detail below.
The Refining and Marketing segment includes Refining, Fuels Marketing, Lubricants and Aromatics & Acetyls. Our strategy is to continue our focused investment in key assets and market positions with an increased focus on process safety, integrity and reliability following the operational issues at the Texas City and Whiting refineries. We aim to improve the quality and capability of our manufacturing portfolio. During the past five years, this has been taking place through upgrades of existing conversion units at several of our facilities and investment in new clean fuels units at most of our refineries. In 2007, we completed a major upgrade to the olefin cracker at the Gelsenkirchen refinery in Germany and an upgrade of an existing diesel hydrotreater at the Rotterdam refinery in the Netherlands. During the next five years, we expect to upgrade further our refining portfolio through the construction of a new coker at the Castellón refinery, a planned and announced investment in the Whiting refinery to increase its ability to process Canadian heavy crude, upgrades to diesel and gasoline desulphurization capability at the Rotterdam refinery in the Netherlands, the installation of modern naphtha reforming
Texas City refinery
federal court, pursuant
to the plea agreement, to one felony violation of the risk management planning
regulations promulgated under the
Clean Air Act. At the plea hearing, the court advised that it would take the
matter under review and decide whether to accept or reject the plea. If the
court accepts the agreement, BP Products will pay a $50 million criminal fine and serve three years probation.
Separately, BP Products reached a civil settlement in principle with the EPA
and the DOJ related to issues identified in EPA inspections that followed the
March 2005 incident. BP expects the settlement to be finalized in 2008.
Civil tort actions
Report of the BP US Refineries Independent Safety Review Panel
Other regulatory actions
investigation in October 2007 and informed BP that no citations would be issued
The following table summarizes the BP groups interests in refineries and crude distillation capacities at 31 December 2007.
The following table outlines by region the volume of crude oil and feedstock processed by BP for its own account and for third parties. Corresponding BP refinery capacity utilization data is summarized.
At the Texas City refinery, the recommissioning work in the aftermath of Hurricane
Rita has involved the development of detailed plans to effect the repair, safety-upgrading
and safe restart of the process units. The refinery has restarted many process
units and the site is producing gasoline, diesel and chemicals products for
the US market. By the end of 2007, we had successfully recommissioned the three
desulphurization and upgrading units necessary to allow restart of the remaining
crude distillation capacity. The final sour crude unit is mechanically complete
and is expected to be fully operational during the first quarter of 2008. By
mid-2008 we expect most of the economic capability at the Texas City refinery
to have been restored.
The following table sets out marketing sales by major product group.
Marketing volumes were 3,806mb/d, slightly lower than last year, reflecting reduced
industry demand in Europe and supply disruptions caused by the outage at Whiting
including wholesalers and jobbers. It also supplies commercial customers within the road and rail transport sectors.
At 31 December 2007, BPs
worldwide network consisted of some 24,000 locations branded BP, Amoco, ARCO
and Aral, around the same as
in the previous year.
convenience retail strategy continues to focus on BPs advantaged
positions in major cities and growth markets and upgrading our retail offers,
while driving operational efficiencies through portfolio optimization including,
where appropriate, a transition to franchising. The convenience offer comprises
sales of convenience items to customers from advantaged locations in metropolitan
areas, while our fuels offer is deployed at locations in all our markets,
in many cases without the convenience offer. We execute our convenience
offer through a quality branded store format in each of our key markets.
Examples include the BP Connect offer in Europe, the UK partnership with
Marks & Spencer Simply Food at selected locations, the am/pm offer
in the US and the Aral offer in Germany. At 31 December 2007, our convenience
store network consisted of more than 960 BP Connect stores worldwide, and
around 1,000 am/pm stores in the US and 1,500 Aral stores in Germany.
Aromatics & Acetyls
The following table shows BPs Aromatics & Acetyls production capacity at 31 December 2007. This production capacity is based on the original design capacity of the plants plus expansions.
and specialist vessels
In 2007, the Gas, Power and Renewables segment included four main activities: marketing and trading of gas and power; marketing and trading of liquefied natural gas (LNG); production, marketing and trading of natural gas liquids (NGLs); and low-carbon power generation through our Alternative Energy business.
The changes in sales and other operating revenues are explained in more detail below:
BP seeks to maximize the value of its gas by targeting high-value customer
segments in selected markets and to optimize supply around our physical and
contractual rights to assets. Marketing and trading activities are focused
on the relatively open and deregulated natural gas and power markets of North
America, the UK and the most liquid trading locations in Rest of Europe. Some
long-term natural gas contracting activity is included within the Exploration
and Production segment because of the nature of the gas markets when the long-term
sales contracts were agreed.
in North America. Our NGLs activity is underpinned by our upstream resources
and serves third-party markets for chemicals and clean fuels as well as
supplying BPs refining
See Financial and operating performance Gas, Power and Renewables on page 49.
owned by BP and those contractually accessed through agreements with third parties such as pipelines and terminals.
Liquefied natural gas
River LNG. A final investment decision is expected in 2008 and could lead to
first LNG in 2012.
Natural gas liquids
We are developing a new silicon growth process named Mono2™, which significantly increases cell efficiency over traditional multicrystalline-based solar cells, making our first pilot shipment in 2007. Solar cells made with these wafers, in combination with other BP Solar advances in cell process technology, are expected to be able to produce between 5% and 8% more power than solar cells made with conventional processes. We are working with a number of research universities and institutes including the California Institute of Technology in the US where we are pursuing nanotube solar installations. This represents another step improvement in cost and efficiency. In Germany, we signed a co-operation agreement with the Institute of Crystal Growth (IKZ) in September 2006 to develop a technique to deposit silicon in very thin layers directly on glass instead of growing crystals. The programme has demonstrated this ability and work continues to improve the growth process and crystal structure. We are participating in a $40-million research and development programme (of which $20 million is provided by BP Solar) aimed at decreasing the cost of solar cells and increasing their efficiency. The programme is sponsored by the US Department of Energy.
Other businesses and corporate comprises Treasury (which includes all the groups cash, cash equivalents and associated interest income), the groups aluminium asset and corporate activities worldwide.
Research, technology and engineering
2005 (2005 includes $374 million in respect of continuing operations). See Financial statements note 14 on page 125. The 43% increase in 2007 compared with 2006 reflects increased investment in enhanced oil recovery, heavy oil, advanced refining, conversion, biosciences and renewables technology.
Berkeley and its partners
the University of Illinois, Urbana-Champaign and the Lawrence Berkeley National
Laboratory to join us in the previously-announced $500-million
research programme to explore how bioscience can be used to increase energy
production and reduce the impact of energy consumption on the environment.
This energy research laboratory is now operational. We also entered into research
agreements with two biotechnology
companies in the US to focus on next generation energy crops for biofuels and
to research microbial processes in subsurface hydrocarbons. We have formed
a research partnership with the Massachusetts Institute of Technology to complement
our internal technology capabilities in converting low-value carbon feedstocks
such as petcoke and coal to high-value products such as electricity, liquid
fuels and chemicals while minimizing CO2 emissions.
BPs exploration and production activities are conducted in many different
countries and are therefore subject to a broad range of legislation and regulations.
These cover virtually all aspects of exploration and production activities,
including matters such as licence acquisition, production rates, royalties,
pricing, environmental protection, export, taxes and foreign exchange. The
terms and conditions of the leases, licences and contracts under which these
oil and gas interests are held vary from country to country. These leases,
licences and contracts are generally granted by or entered into with a government
entity or state company and are sometimes entered into with private property
owners. These arrangements with governmental or state entities usually take
the form of licences or production-sharing agreements. Arrangements with private
property owners are usually in the form of leases.
other activities, including its interests in pipelines and its commodities
and trading activities, are also subject to a broad range of legislation
and regulations in various countries
in which it operates.
section reviews BPs 2007 performance with respect
to safety and the environment. An overview of our non-financial performance
appear in BP Sustainability Report 2007, expected to be published in May 2008.
Implementing Baker Panel recommendations
Knowledge and expertise
include measures on the competency of employees in roles critical to safety and on the development of appropriate operating procedures. We are working with the industry to develop indicators and this already includes progress to agree a metric covering loss of primary containment.
Progress at Texas City and our other US refineries
to focus on personal health and safety
Implementation of the OMS
executive operations programme targets group vice presidents and senior business
leaders with accountability for multiple operations or sites. Its purpose is
to deepen insight into manufacturing and operations activities and the consequences
of leadership decisions.
safety and environmental regulation
compliance with applicable
regulations. In addition, each individual in the group is required to comply
with BP health, safety and environmental policies as embedded in the BP code
of conduct. Our partners, suppliers and contractors are also encouraged to adopt
operations and the environment
stricter emissions limits
on large GHG sources and/or the introduction of a cap-and-trade programme on
CO2 and other GHG emissions.
oil spill regulations
and operators of the carrying
vessel, some states implemented statutes also imposing liability on the shippers
or owners of oil spilled from such vessels. Alaska, Washington, Oregon and California
are among these states. The exposure of BP to such liability is mitigated by
the vessels marine liability insurance, which has a maximum limit of $1
billion for each accident or occurrence. 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. BP contracted with National
Steel and Ship Building Company (NASSCO) for the construction of four double-hulled
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), which
transports BP Alaskan crude oil from Valdez. NASSCO delivered two more in 2005
and the fourth was delivered in 2006. At the end of 2007, the ATC fleet consisted
of five tankers, all double-hulled.
Clean Air Act and its regulations require, among other things, stringent air
emission limits and operating permits for chemicals plants, refineries, marine
and distribution terminals; stricter fuel specifications and sulphur reductions;
enhanced monitoring of major sources of specified pollutants; and risk management
plans for storage of hazardous substances. This law affects BP facilities producing,
storing, refining, manufacturing and distributing oil and products as well as
the fuels themselves. Federal and state controls on ozone, particulate matter,
carbon monoxide, benzene, sulphur, MTBE, nitrogen dioxide, oxygenates and Reid
Vapor Pressure affect BPs activities and products in the US. BP is continually
adapting its business to these rules, which are subject to recent change. Beginning
January 2006, all gasoline produced by BP was subject to the EPAs stringent
low-sulphur standards. Furthermore, by June 2006, at least 80% of the highway
diesel fuel produced each year by BP was required to meet a sulphur cap of 15
parts per million (ppm) and 100% with effect from January 2010. By June 2007,
all non-road diesel fuel production had to meet a sulphur cap of 500ppm and
15ppm by June 2012. With effect from January 2011, EPAs Mobile Source
Air Toxics regulations will require a refinery annual average benzene level
of 0.62 volume percentage on all gasoline.
at all sites where it has been identified as a PRP or is otherwise named 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.
European Union regional review
pose to human health and
the environment. Time limited authorizations may be granted for substances
of high concern. Crude oil and natural gas are exempt, while fuels will be
exempted from authorization but not registration. In BP, REACH will affect our refining, petrochemicals and other chemical manufacturing operations, with many other businesses, such as lubricants, also being impacted in their roles as an importer or
downstream user of chemicals. BPs updated broad estimate (there are still many unknowns) indicates that the cost impacts of REACH for BP, covering hundreds of registrations, are expected to be in the region of $60
million over the period 2008-2018, with about two-thirds in the period 2008-2010.
Additional costs, for example submissions for authorization for relevant substances
and the modification of safety data sheets, will have to be assessed further
as the regulation is
BP has freehold and leasehold interests in real estate in numerous countries, but no individual property is significant to the group as a whole. See Exploration and Production on page 13 for a description of the groups significant reserves and sources of crude oil and natural gas. Significant plans to construct, expand or improve specific facilities are described under each of the business headings within this section.
The significant subsidiaries of the group at 31 December 2007 and to the group percentage of ordinary share capital (to the nearest whole number) are set out in Financial statements Note 46 on page 167. See Financial statements Notes 26 and 27 on pages 134 and 135 respectively for information on significant jointly controlled entities and associates of the group.
Group operating results
Profit attributable to BP shareholders
attributable to BP shareholders for the year ended 31 December 2005 included
net gains of $1,429 million on the disposal of assets; and was after
net fair value losses of $2,047 million on embedded derivatives, a charge
of $1,200 million in respect of the March 2005 Texas City refinery incident,
a charge of $412 million in respect of new, and revisions to existing,
environmental and other provisions, an impairment charge of $359 million
and a charge of $134 million relating to the separation of the Olefins
and Derivatives business.
Capital expenditure and acquisitions
Capital expenditure and acquisitions in 2007, 2006 and 2005 amounted to $20,641
million, $17,231 million and $14,149 million respectively. Acquisitions
in 2007 included the remaining 31% of the Rotterdam (Nerefco) refinery from
Chevrons Netherlands manufacturing company. There were no significant
acquisitions in 2006 or 2005.
Finance costs and other finance income/expense
Exploration and Production