BP 6-K 2008
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
for the period ended 28 October,
London 28 October 2008
FOR IMMEDIATE RELEASE
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Analysis of replacement cost profit and reconciliation to profit for the period
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Non-operating items and fair value accounting effects
Fair value accounting effects(c)
Total of non-operating items and fair value accounting effects
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BP today announced a dividend of 14 cents per ordinary share to be paid in December. Holders of ordinary shares will receive 8.705 pence per share and holders of American Depository Receipts (ADRs) $0.84 per ADS. The dividend is payable on 8 December to shareholders on the register on 14 November. Participants in the Dividend Reinvestment Plan (DRIP) or the DRIP facility in the US Direct Access Plan will receive the dividend in the form of shares, also on 8 December.
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Net debt ratio – net debt: net debt + equity
Net debt and net debt ratio are non-GAAP measures. We believe that these measures provide useful information to investors. Net debt enables investors to see the economic effect of gross debt, related hedges and cash and cash equivalents in total. The net debt ratio enables investors to see how significant net debt is relative to equity from shareholders. Net debt has been redefined to include the fair value of associated derivative financial instruments that are used to hedge foreign exchange and interest rate risks relating to finance debt, for which hedge accounting is claimed. The derivatives are reported on the balance sheet within the headings ‘Derivative financial instruments’. Amounts for comparative periods are presented on a consistent basis. See Note 2(c) on page 24 for further information.
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The replacement cost profit before interest and tax for the third quarter and first nine months of 2008 was $12,709 million and $33,552 million respectively, increases of 102% and 70% over the same periods of 2007. The increases in both periods were primarily due to higher oil and gas realizations. Additionally, the results reflected a higher contribution from the gas marketing and trading business, but were impacted by higher production taxes and higher depreciation. Costs were higher, driven by sector-specific inflation, but this was substantially mitigated by reductions resulting from our focus on cost control. The results also included higher earnings from equity-accounted entities, primarily from TNK-BP. The third-quarter result benefited from gains from non-operating items (see below).
The net non-operating gain of $1,118
million in the third quarter primarily comprises fair value gains on embedded derivatives.
In the first nine months, the net non-operating charge was $1,234 million with the most
significant item being fair value losses on embedded derivatives partly offset by the
reversal of certain provisions and of a previous impairment charge. The corresponding
periods in 2007 contained net non-operating gains of $10 million and $1,145 million
respectively. Additionally, in the third quarter, fair value accounting effects had a
favourable impact of $97 million compared with an unfavourable impact of $36 million a year
ago. For the first nine months, the unfavourable effect was $535 million compared with an
unfavourable effect of $79 million a year ago.
Reported production for the first nine
months was 3,802mboe/d, slightly higher than the same period of the previous year. After
adjusting for the effect of entitlement changes in our PSAs, production for the first nine
months was around 6% higher than the same period of 2007.
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The replacement cost profit before
interest and tax for the third quarter and nine months was $1,972 million and $3,760
million respectively. The results in the equivalent periods of 2007 were $371 million and
$3,917 million respectively. The net impact of non-operating items, which is included in
the results, was nil in the quarter and was a gain of $510 million in the nine months. A
year ago, the results included a net non-operating charge of $344 million for the quarter
and a net non-operating gain of $194 million for the nine months. Fair value accounting
effects had favourable impacts of $636 million for the current quarter and $576 million for
the nine months. A year ago, the impacts were unfavourable by $93 million for the quarter
and $295 million for the nine months.
Refining throughputs for the quarter and nine months were 2,185mb/d and 2,197mb/d respectively, compared with 2,148mb/d and 2,169mb/d for the same periods last year, the increases being primarily driven by the recoveries at the Texas City and Whiting refineries, partially offset by the net loss of throughput from previous disposals and acquisitions. Solomon availability was 4.3 percentage points higher than a year ago. Relative to the second quarter of 2008, it was slightly lower, as a result of the disruption at the Texas City refinery in September caused by Hurricane Ike. Most of the refinery units were restarted within two weeks after the hurricane shutdown. In addition, we successfully started up the second residue hydrotreater train on 1 October and have completed mechanical work on ultraformer number 3. This unit is expected to start production during the fourth quarter, completing the restoration of the economic capability of Texas City refinery.
On 29 August 2008, BP announced an
agreement with Enbridge Inc. to develop a new delivery system to transport Canadian heavy
crude oil from Flanagan, Illinois, to Houston and Texas City, Texas. The system is expected
to be in service by late 2012 with an initial capacity of 250,000 barrels per day. The
joint investment of the phased capacity additions is expected to be in the range of $1-2
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Other businesses and corporate comprises the Alternative Energy business, Shipping, the group's aluminium asset, Treasury (which includes interest income on the group's cash and cash equivalents) and corporate activities worldwide.
The replacement cost profit before interest and tax for the third quarter was a loss of $16 million, compared with a loss of $511 million a year ago. This result reflects a higher contribution from the operating businesses and lower corporate costs. For the nine months, the replacement cost loss before interest and tax was $543 million in 2008 compared with a loss of $782 million a year ago.
The net non-operating charge was $128 million for the third quarter and $332 million for the nine months. The third-quarter result included a $30 million restructuring charge, a $76 million net charge in relation to new, and revisions to existing, environmental and other provisions and a net charge of $22 million for impairment and other provisions. The prior year included a net non-operating charge of $201 million in the third quarter and $175 million for the nine months.
On 15 September, Alternative Energy
announced BP’s first bioethanol production from its Brazilian biofuels joint venture,
Tropical BioEnergia, a significant milestone in the implementation of BP’s biofuels
strategy. Tropical BioEnergia farms sugar cane and refines it into fuel in a new 435
million litres per year (115 million US gallons per year) refinery. BP’s investment
in Tropical BioEnergia is the largest made by any international oil company into Brazil's
Also in August, BP started commercial operations at its Silver Star wind farm in Texas, a 60MW gross capacity installation in partnership with Clipper Windpower, Inc. and at Edom Hills, California, a 20MW wholly-owned wind farm. On 20 October, BP started commercial operations of phase 1 of the Sherbino wind farm in Texas. The first 150MW of the project, which has a potential capacity of 750MW, has been built through a 50:50 joint venture with Padoma Wind Power LLC, a wholly owned subsidiary of NRG Energy, Inc.
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Information on fair value accounting effects
BP uses derivative instruments to manage
the economic exposure relating to inventories above normal operating requirements of crude
oil, natural gas and petroleum products as well as certain contracts to supply physical
volumes at future dates. Under IFRS, these inventories and contracts are recorded at
historic cost and on an accruals basis, respectively. The related derivative instruments,
however, are required to be recorded at fair value with gains and losses recognized in
income because hedge accounting is either not permitted or not followed, principally due to
the impracticality of effectiveness testing requirements. Therefore, measurement
differences in relation to recognition of gains and losses occur. Gains and losses on these
inventories and contracts are not recognized until the commodity is sold in a subsequent
accounting period. Gains and losses on the related derivative commodity contracts are
recognized in the income statement from the time the derivative commodity contract is
entered into on a fair value basis using forward prices consistent with the contract
Cautionary Statement: The foregoing discussion contains forward-looking statements particularly those regarding capital expenditure, increased production, expected refinery turnaround activities and the continuing risk of slowing global economies, exacerbated by the global credit freeze, to our marketing and supply businesses. By their nature, forward-looking statements involve risk and uncertainty and actual results may differ from those expressed in such statements depending on a variety of factors including the following: the timing of bringing new fields onstream; industry product supply; demand and pricing; operational problems; general economic conditions (including inflation); political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations and quotas; exchange rate fluctuations; development and use of new technology; the success or otherwise of partnering; the actions of competitors; natural disasters and adverse weather conditions; changes in public expectations and other changes to business conditions; wars and acts of terrorism or sabotage; and other factors discussed in this announcement. For more information you should refer to our Annual Report and Accounts 2007 and our 2007 Annual Report on Form 20-F filed with the US Securities and Exchange Commission.
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Group income statement