BP (BP)

REFINING AND MARKETING (concluded)

Operational issues at the Whiting refinery in the US have limited the site’s throughput and ability to make low- sulphur gasoline from sour crude oil.  Repairs are ongoing and we expect to resume sour crude processing in the fourth quarter of 2007 and to restore the refinery to its full flexibility and crude capacity in the first half of 2008.

Marketing sales were 3,808 mb/d for the quarter and 3,788 mb/d for the half year, slightly lower than the comparative periods in the previous year, mainly due to divestments and lower European heating oil demand as a result of milder weather.

On 26 June 2007, BP, Associated British Foods and DuPont announced investment of $400 million in the construction of a world-scale bioethanol plant with expected annual production capacity of some 420 million litres from wheat feedstock, to be commissioned in late 2009. On 29 June 2007, BP announced a joint venture with D1 Oils plc, a UK-based global producer of biodiesel, for the development of jatropha as a new energy crop.

REFINING AND MARKETING (concluded)

During the quarter, BP announced that it has entered the final planning stage of a $3 billion investment in Canadian heavy crude oil processing capability at its Whiting refinery located in northwest Indiana. The intention is to reconfigure the Whiting refinery so most of its feedstock can be heavy Canadian crude oil. Reconfiguring the refinery also has the potential to increase its production of motor fuels by around 15 percent, which is approximately 1.7 million additional gallons of gasoline and diesel per day. Construction is tentatively scheduled to begin in 2007 and be completed by 2011, pending regulatory approval.

In addition to the TET physical propane case referred to in BP’s Annual Report on Form 20-F/A for 2005, the Commodity Futures Trading Commission (CFTC) is currently investigating various aspects of BP's crude oil trading and storage activities in the US since 2003 and has made various formal and informal requests for information. BP has provided, and continues to provide, responsive data and other information to these requests. The CFTC is also conducting an investigation into BP’s trading of unleaded gasoline futures contracts in 2002. The CFTC Staff notified BP on November 21, 2006 that they intend to recommend to the CFTC that a civil enforcement action be brought against BP Corporation North America, Inc. alleging violations of Sections 6(c), 6(d) and 9(a)(2) of the Commodity Exchange Act in connection with its trading of unleaded gasoline futures contracts on October 31, 2002. BP has provided, and continues to provide, responsive documents and witness testimony. The U.S. Attorney for the Northern District of Illinois is also conducting an investigation into BP's gasoline trading.

Additionally, an independent review of the Group’s US trading compliance culture and its related systems has been undertaken by KPMG. The review’s findings and recommendations, and management’s response to them, will be made available to the appropriate regulators.

The US Chemicals Safety Board (CSB) investigation into the incident at the Texas City refinery remains ongoing. However, at a news conference on October 31, 2006, the CSB issued an update on the status of its 20-month investigation into the causes of the March 23, 2005 incident and it also issued recommendations to the American Petroleum Institute (API) calling on the API to amend its guidance related to atmospheric relief systems and to the Occupational Safety and Health Administration (OSHA) calling on OSHA to establish a national emphasis programme promoting the elimination of unsafe systems in favour of safer alternatives. The final report of the CSB is expected in March 2007.

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REFINING AND MARKETING (concluded)

During the quarter, BP announced that it has entered the final planning stage of a $3 billion investment in Canadian heavy crude oil processing capability at its Whiting refinery located in northwest Indiana. The intention is to reconfigure the Whiting refinery so most of its feedstock can be heavy Canadian crude oil. Reconfiguring the refinery also has the potential to increase its production of motor fuels by around 15 percent, which is approximately 1.7 million additional gallons of gasoline and diesel per day. Construction is tentatively scheduled to begin in 2007 and be completed by 2011, pending regulatory approval.

In addition to the TET physical propane case referred to in BP’s Annual Report on Form 20-F/A for 2005, the Commodity Futures Trading Commission (CFTC) is currently investigating various aspects of BP’s crude oil trading and storage activities in the US since 2003 and has made various formal and informal requests for information. BP has provided, and continues to provide, responsive data and other information to these requests. The CFTC is also conducting an investigation into BP’s trading of unleaded gasoline futures contracts in 2002. BP has provided responsive documents and witness testimony. The U.S. Attorney for the Northern District of Illinois is also conducting an investigation into BP’s gasoline trading. In addition, BP has initiated a review by independent external auditors of the compliance systems in its US trading business.

The US Chemicals Safety Board (CSB) investigation into the incident at the Texas City refinery remains ongoing. However, at a news conference on October 31, 2006, the CSB issued an update on the status of its 20-month investigation into the causes of the March 23, 2005 incident and it also issued recommendations to the American Petroleum Institute (API) calling on the API to amend its guidance related to atmospheric relief systems and to the Occupational Safety and Health Administration (OSHA) calling on OSHA to establish a national emphasis programme promoting the elimination of unsafe systems in favour of safer alternatives. The final report of the CSB is expected in March 2007.

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REFINING AND MARKETING (concluded)

Additionally, IFRS requires that inventory designated as held for trading is fair valued using period end spot prices whilst the related derivative instruments are valued using forward prices consistent with the contract maturity. Depending on market conditions, these forward prices can be either higher or lower than spot prices resulting in quarterly timing differences.

Supply disruptions in the USA and market uncertainty continued into the fourth quarter of 2005. The average refining Global Indicator Margin (GIM) fell sharply from the record levels of the third quarter but was higher than those of the equivalent quarter last year. Retail marketing margins recovered strongly from the third quarter and were above those of the equivalent quarter last year, although marketing margins in our other businesses were lower. The fourth quarter result also reflects the impact of lower refining availability compared to the equivalent quarter of 2004.

Refining throughputs for the quarter were 2,038 mb/d, lower than in the fourth quarter of 2004 due principally to the complete shut down of the Texas City refinery late in the third quarter. Marketing volumes were 3,833 mb/d in the fourth quarter, lower than those in the same quarter last year due to primarily to hurricane related supply disruptions in the USA.

Profit before interest and tax for the year ended December 31, 2005 was $6,942 million, including inventory holding gains of $2,537 million and net gains of $177 million principally on the divestment of a number of regional retail networks in the US, and is after a charge of $700 million in respect of fatality and personal injury compensation claims associated with the incident at the Texas City refinery on March 23, 2005, a charge of $140 million relating to new, and revisions to existing, environmental and other provisions, an impairment charge of $93 million and a charge of $33 million for the impairment of an equity-accounted entity. Profit before interest and tax for the year ended December 31, 2004 was $6,544 million, including inventory holding gains of $1,304 million, and is after net losses on disposal of $261 million (principally related to plant closures and exit from businesses, the disposal of our interest in the Singapore Refining Company Private Limited , the closure of the lubricants operation of the Coryton Refinery in the UK and the disposal of our European Speciality Intermediates Businesses), a charge of $206 million related to new, and revisions to existing, environmental and other provisions, a charge of $195 million for the impairment of the Petrochemicals facilities at Hull, UK and a charge of $32 million for restructuring, integration and rationalization.

The primary additional reasons for the increase in profit before interest and tax for the year ended December 31, 2005, compared with the year ended December 31, 2004 were improved refining margins contributing approximately $2,000 million, offset by lower retail marketing margins reducing profits by approximately $720 million, a reduction of around $870 million due to the shutdown of the Texas City refinery, along with other storm related supply disruptions to a number of our US based businesses, an adverse impact of around $400 million due to fair value accounting for derivatives (described on page 11) and a reduction of around $430 million due to rationalization and efficiency programme charges, mainly across our marketing activities in Europe

REFINING AND MARKETING (concluded)