BP (BP)

Other Activities

        We participate in power projects that support the marketing and sale of our natural gas and in cogeneration projects (i.e., power plants that produce more than one type of energy, typically power and steam) on certain BP refining and chemical manufacturing sites.

        During the year, a 776 MW gas-fired power generation facility and an associated LNG regasification facility at Bilbao, Spain (BP 25% share in each) were completed and commenced commercial operation. The construction of K Power's (BP 35%) 1,074 MW gas fired combined cycle power project at Gwangyang (Korea) has continued with start up on track for 2006. The 570 MW cogeneration plant (50:50 joint venture with Cinergy Solutions, Inc.) at Texas City, Texas commenced operations in early 2004. Texas City is BP's largest refining and petrochemicals complex. BP supplies natural gas to the Texas City plant and will use the excess generation capacity to support power marketing and trading activities. The construction of a 50 MW cogeneration plant near Southampton, UK (BP 100%) is now complete and commercial start-up took place in the first half of 2005.

        We also own and operate a 400 MW gas-fired power plant at Great Yarmouth in the UK (BP 100%).

        In alternative fuels, we are exploring market opportunities for hydrogen fuel cells through participation in various industry projects and organisations promoting fuel cells for transport and stationary power.

69

OTHER BUSINESSES AND CORPORATE

        Other businesses and corporate comprises Finance, the Group's coal asset (divested October 2003) the Group's aluminium asset, its investments in PetroChina and Sinopec (both divested in early 2004), interest income and costs relating to corporate activities worldwide.

        Finance coordinates the management of the Group's major financial assets and liabilities. From locations in the UK, Europe, the USA and the Asia Pacific region, it provides the link between BP and the international financial markets and makes available a range of financial services to the Group including supporting the financing of BP's projects around the world.

        Coal activity consisted of our 50% interest in PT Kaltim Prima Coal, an Indonesian company which operates an opencast coal mine at Sangatta in Kalimantan, Indonesia. On October 10, 2003 we completed the sale of this interest to PT Bumi Resources.

        Aluminium. Our aluminium business is a non-integrated producer and marketer of rolled aluminium products, headquartered in Louisville, Kentucky, USA. Production facilities are located in Logan County, Kentucky and are jointly owned with Alcan Aluminum. The primary activity of our aluminium business is the supply of aluminium coil to the beverage can business.

        Investments in China. During 2000, BP made two investments in China, one of the world's fastest growing economies. BP invested $416 million in the China Petroleum and Chemical Corporation (Sinopec) and $578 million in PetroChina in the initial public offerings of both companies, obtaining around 2% in each company. During 2004 we sold these investments for aggregate proceeds of $2,360 million.

        Research, technology and engineering activities are carried out by each of the major business segments on the basis of a distributed programme coordinated by the BP Technology Council. This body provides leadership for scientific, technical and engineering activities throughout the Group and in particular promotes cross-business initiatives and the transfer of best practice between businesses. In addition, a group of eminent industrialists and academics form the Technology Advisory Council, which advises senior management on the state of technology within the Group and helps identify current trends and future developments in technology.

        Research and development is carried out using a balance of internal and external resources. Involving third parties in the various steps of technology development and application enables a wider range of technology solutions to be considered and implemented, improving the productivity of research and development activities.

        The innovative application of technology and the rapid transfer of this knowledge through the Group make a key contribution to improving BP's business performance, particularly in the areas of the introduction of new products, safety, the environment, cost reduction and efficiency of business operations. We believe that, in addition to improving existing business performance, the use of innovative technology can create new possibilities for the organic growth of our energy- and petrochemical-related businesses.

70

        Across the Group, expenditure on research for 2004 was $439 million, compared with $349 million in 2003 and $373 million in 2002.

        Insurance. The Group generally restricts its purchase of insurance to situations where this is required for legal or contractual reasons. This is because external insurance is not considered an economic means of financing losses for the Group. Losses will therefore be borne as they arise, rather than being spread over time through insurance premia with attendant transaction costs. The position is reviewed from time to time.

71

REGULATION OF THE GROUP'S BUSINESS

        BP's 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 usually take the form of licences or production sharing agreements.

        Licences (or concessions) give the holder the right to explore for and exploit a commercial discovery. Under a licence, the holder bears the risk of exploration, development and production activities and provides the financing for these operations. In principle, the licence holder is entitled to all production minus any royalties that are payable in kind. A licence holder is generally required to pay production taxes or royalties, which may be in cash or in kind.

        Production sharing agreements entered into with a government entity or state company generally obligate BP to provide all the financing and bear the risk of exploration and production activities in exchange for a share of the production remaining after royalties, if any.

        In certain countries, separate licences are required for exploration and production activities and, in certain cases, production licences are limited to a portion of the area covered by the exploration licence. Both exploration and production licences are generally for a specified period of time (except for licences in the United States which remain in effect until production ceases). The term of BP's licences and the extent to which these licences may be renewed vary by area.

        In general, BP is required to pay income tax on income generated from production activities (whether under a licence or production sharing agreement). In addition, depending on the area, BP's production activities may be subject to a range of other taxes, levies and assessments, including special petroleum taxes and revenue taxes. The taxes imposed upon oil and gas production profits and activities may be substantially higher than those imposed on other activities, particularly in the UK, Norway, Angola and Trinidad.

        BP's other activities are also subject to a broad range of legislation and regulations in various countries in which it operates.

        Health, safety and environmental regulations are discussed in more detail in Environmental Protection in this Item on page 73.

72

ENVIRONMENTAL PROTECTION

Other Activities

        We participate in power projects that support the marketing and sale of our natural gas and in cogeneration projects (i.e., power plants that produce more than one type of energy, typically power and steam) on certain BP refining and chemical manufacturing sites.

        During the year, a 776 MW gas-fired power generation facility and an associated LNG regasification facility at Bilbao, Spain (BP 25% share in each) were completed and commenced commercial operation. The construction of K Power's (BP 35%) 1,074 MW gas fired combined cycle power project at Gwangyang (Korea) has continued with start up on track for 2006. The 570 MW cogeneration plant (50:50 joint venture with Cinergy Solutions, Inc.) at Texas City, Texas commenced operations in early 2004. Texas City is BP's largest refining and petrochemicals complex. BP supplies natural gas to the Texas City plant and will use the excess generation capacity to support power marketing and trading activities. The construction of a 50 MW cogeneration plant near Southampton, UK (BP 100%) is now complete and commercial start-up took place in the first half of 2005.

        We also own and operate a 400 MW gas-fired power plant at Great Yarmouth in the UK (BP 100%).

        In alternative fuels, we are exploring market opportunities for hydrogen fuel cells through participation in various industry projects and organisations promoting fuel cells for transport and stationary power.

63

OTHER BUSINESSES AND CORPORATE

        Other businesses and corporate comprises Finance, the Group's coal asset (divested October 2003) the Group's aluminium asset, its investments in PetroChina and Sinopec (both divested in early 2004), interest income and costs relating to corporate activities worldwide.

        Finance coordinates the management of the Group's major financial assets and liabilities. From locations in the UK, Europe, the USA and the Asia Pacific region, it provides the link between BP and the international financial markets and makes available a range of financial services to the Group including supporting the financing of BP's projects around the world.

        Coal activity consisted of our 50% interest in PT Kaltim Prima Coal, an Indonesian company which operates an opencast coal mine at Sangatta in Kalimantan, Indonesia. On October 10, 2003 we completed the sale of this interest to PT Bumi Resources.

        Aluminium. Our aluminium business is a non-integrated producer and marketer of rolled aluminium products, headquartered in Louisville, Kentucky, USA. Production facilities are located in Logan County, Kentucky and are jointly owned with Alcan Aluminum. The primary activity of our aluminium business is the supply of aluminium coil to the beverage can business.

        Investments in China. During 2000, BP made two investments in China, one of the world's fastest growing economies. BP invested $416 million in the China Petroleum and Chemical Corporation (Sinopec) and $578 million in PetroChina in the initial public offerings of both companies, obtaining around 2% in each company. During 2004 we sold these investments for aggregate proceeds of $2,360 million.

        Research, technology and engineering activities are carried out by each of the major business segments on the basis of a distributed programme coordinated by the BP Technology Council. This body provides leadership for scientific, technical and engineering activities throughout the Group and in particular promotes cross-business initiatives and the transfer of best practice between businesses. In addition, a group of eminent industrialists and academics form the Technology Advisory Council, which advises senior management on the state of technology within the Group and helps identify current trends and future developments in technology.

        Research and development is carried out using a balance of internal and external resources. Involving third parties in the various steps of technology development and application enables a wider range of technology solutions to be considered and implemented, improving the productivity of research and development activities.

        The innovative application of technology and the rapid transfer of this knowledge through the Group make a key contribution to improving BP's business performance, particularly in the areas of the introduction of new products, safety, the environment, cost reduction and efficiency of business operations. We believe that, in addition to improving existing business performance, the use of innovative technology can create new possibilities for the organic growth of our energy- and petrochemical-related businesses.

64

        Across the Group, expenditure on research for 2004 was $439 million, compared with $349 million in 2003 and $373 million in 2002.

        Insurance. The Group generally restricts its purchase of insurance to situations where this is required for legal or contractual reasons. This is because external insurance is not considered an economic means of financing losses for the Group. Losses will therefore be borne as they arise, rather than being spread over time through insurance premia with attendant transaction costs. The position is reviewed from time to time.

65

REGULATION OF THE GROUP'S BUSINESS

        BP's 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 usually take the form of licences or production sharing agreements.

        Licences (or concessions) give the holder the right to explore for and exploit a commercial discovery. Under a licence, the holder bears the risk of exploration, development and production activities and provides the financing for these operations. In principle, the licence holder is entitled to all production minus any royalties that are payable in kind. A licence holder is generally required to pay production taxes or royalties, which may be in cash or in kind.

        Production sharing agreements entered into with a government entity or state company generally obligate BP to provide all the financing and bear the risk of exploration and production activities in exchange for a share of the production remaining after royalties, if any.

        In certain countries, separate licences are required for exploration and production activities and, in certain cases, production licences are limited to a portion of the area covered by the exploration licence. Both exploration and production licences are generally for a specified period of time (except for licences in the United States which remain in effect until production ceases). The term of BP's licences and the extent to which these licences may be renewed vary by area.

        In general, BP is required to pay income tax on income generated from production activities (whether under a licence or production sharing agreement). In addition, depending on the area, BP's production activities may be subject to a range of other taxes, levies and assessments, including special petroleum taxes and revenue taxes. The taxes imposed upon oil and gas production profits and activities may be substantially higher than those imposed on other activities, particularly in the UK, Norway, Angola and Trinidad.

        BP's other activities are also subject to a broad range of legislation and regulations in various countries in which it operates.

        Health, safety and environmental regulations are discussed in more detail in Environmental Protection in this Item on page 67.

66

ENVIRONMENTAL PROTECTION