BP (BP)

Shipping

        BP Shipping owns or operates an international fleet of crude oil and product tankers and LNG carriers transporting cargoes for the Group and for third parties. It also offers a wide range of marine-related services to Group customers.

        Excluding BP companies in the USA, at December 31, 2004 BP Shipping managed an international fleet of 34 oil tankers (comprising four very large crude carriers, 29 medium sized crude carriers and one North Sea shuttle tanker) and eight LNG ships with capacity of approximately 4.8 million cubic metres (comprising three trading globally, four for Abu Dhabi contracted gas and one for the Western Australia NWS Project). In addition, BP holds an interest in a further six NWS LNG carriers. BP also owned two UK coastal tankers.

        These ships are manned either by BP Maritime Services personnel or by third party manning contractors who operate to BP Shipping's standards and reporting requirements. All the chartering of ships is controlled by BP Shipping, and the ships are utilized to carry either BP cargoes or third party cargoes.

        BP Shipping is in the middle of a new building programme, which saw 12 leased ships delivered into service in 2004.

        BP companies in the USA had one large crude carrier, six medium crude carriers, and one product carrier totalling approximately 0.7 million dead weight tonnes (dwt) on long-term charter. BP owns four barges totalling 0.1 million dwt and took delivery of the first of four state-of-the-art double-hulled 1.3 million barrel Alaskan Class tankers from National Steel and Shipbuilding Company of San Diego, California during the year.

54

PETROCHEMICALS

        Our petrochemicals businesses produce chemicals and plastics through subsidiaries, joint ventures and associated undertakings. The petrochemicals businesses are also responsible for the supply, marketing and distribution of chemical products to bulk, wholesale and retail customers. BP has operations principally in the USA and Europe. We are increasing our activities in the Asia-Pacific region.

(a)

Excludes BP's share of joint venture turnover of $462 million in 2004, $434 million in 2003 and $511 million in 2002.

(b)

The Chemicals Indicator Margin (CIM) is a weighted average of externally based industry product margins. It is based on market data collected by Nexant in their quarterly market analyses, which we weight based on BP's product portfolio. While it does not cover our entire portfolio, it includes a broad range of products. Among the products and businesses covered in the CIM are the olefins and derivatives, the aromatics and derivatives, linear alpha-olefins (LAOs), acetic acid, vinyl acetate monomers and nitriles. Not included are fabrics and fibres, poly alpha-olefins (PAOs), anhydrides, speciality intermediates and the remaining parts of the solvents and acetyls businesses. CIM is an environmental trend indicator. Changes in CIM are indicative of market environment trends rather than representative of the actual margins achieved by BP in any particular period.

        We are now managing our portfolio in two distinct parts — Aromatics and Acetyles (A&A), comprising PTA, PX and acetic acid, and Olefins and Derivatives, (O&D) comprising principally ethylene and related co-products, polypropylene, HDPE and acrylonitrile. We intend to retain and grow the A&A businesses, which were transferred to the Refining and Marketing segment on January 1, 2005. The Petrochemical facilities of BP Refining and Petrochemicals (BPRP) at Gelsenkirchen and Munchmunster in Germany will also remain with BP and were transferred to the Refining and Marketing segment on January 1, 2005 along with the following other petrochemical products: Napthalene dicarboxylate (NDC), vinyl acetate monomer (VAM) and ethyl acetate.

        In April 2004, we announced our intention to set up a separate corporate entity for the O&D businesses. It is our intention to divest this O&D entity, possibly starting with an initial public offering in the second half of 2005, subject to market conditions and the receipt of necessary approvals. In November 2004, we announced our intention to include two European oil refineries in the new O&D entity. The refineries at Grangemouth, UK and Lavéra, France, are closely integrated with their neighbouring chemicals plants which take refinery products as feedstock. The following other petrochemical products are also included within the new O&D entity: linear low density polyethylene (LLDPE), low density polyethylene (LDPE), ethylene oxide, ethanol, LAO, PAO, polybutene and styrene monomer and polymer. The new O&D entity is called Innovene and was formed as a separate entity within the BP Group in April 2005. Innovene is being reported within Other Businesses and Corporate from January 1, 2005.

55

        Our core products are eventually used in the manufacture of a wide variety of consumer goods, including plastic drinks bottles, computer housings, adhesives, inks, rigid packaging, pipes, food packaging and automobile components. We compete through proprietary technology, leadership positions and value associated with the integration of Group hydrocarbons and sites. Our investment and divestment activities are aligned with this strategy.

        Significant investment activities during 2004:

—

In May, we signed a Heads of Agreement to build a 500 kilotonnes per annum (ktepa) acetic acid plant in Nanjing, Jiangsu province in China, through a 50/50 joint venture with Sinopec. In March 2005, a joint venture contract was signed with Sinopec to build this plant in Nanjing. Completion of the plant is expected in 2007.



—

In May, we signed a Letter of Intent to examine the viability of expanding production at the BP Zhuhai PTA plant from 350 ktepa to 1,200 ktepa. The plant, which is located at Zhuhai in the Pearl River Delta, is a joint venture between BP (85%) and Fu Hua Group (15%) and came on stream in September 2003.



—

BP increased its ownership in CAPCO, our PTA joint venture in Taiwan. BP acquired an incremental 2% interest in CAPCO to attain a total equity share of 61%.



—

In November, Solvay exercised its option to sell its interests in BP Solvay Polyethylene Europe and BP Solvay Polyethylene North America to BP. The BP Solvay ventures, established in 2001, comprise HDPE business interests and manufacturing sites in Europe and the USA with a total capacity of 2.6 million tonnes.



—

The Shanghai Ethylene Cracker Complex (SECCO), a petrochemical joint venture in Shanghai, China between BP, Sinopec Corporation and Sinopec Shanghai Petrochemical Company, (BP 50%), was declared mechanically complete in December 2004. Completion of start-up occured during the second quarter of 2005. SECCO is an integrated Olefins and Derivatives site with a naphtha fed ethylene cracker and a number of downstream derivative sites.



—

In November, BP and Nova Chemicals Corporation (Nova) announced that they had reached agreement in principle to combine their European interests in Styrene polymers to create one of the largest polystyrene and expandable polystyrene manufacturers and marketers in Europe. BP and Nova will each have a 50 per cent stake. BP's European interests in Styrene polymers includes plants operating at Marl in Germany, Wingles in France and Trelleborg in Sweden. In May 2005, binding agreements were signed. Operations are expected to commence in the third quarter of 2005.

        Capital expenditure and acquisitions in 2004 was $2,289 million compared with $775 million in 2003 and $823 million in 2002. Excluding acquisitions, capital expenditure was $934 million, $775 million and $810 million respectively. 2004 includes $1,355 million for the acquisition of Solvay's interests in BP Solvay Polyethylene Europe and BP Solvay Polyethylene North America.

        Significant divestment activities during 2004:

—

In February, we announced the closure of the last manufacturing plant at Baglan Bay, UK. Production of isopropanol ceased in March 2004.



—

In May, we completed the sale of our wholly owned specialty intermediate chemicals businesses including trimellitic anhydride (TMA), purified isophthalic acid (PIA) and maleic anhydride (MAN).



—

In October, we completed the sale of our Fabrics and Fibres Business.

56

—

In November, we announced a phased exit from two, old technology, acetic acid and acetone manufacturing operations at Hull, UK. One unit closed at the end of April 2005 and the other is scheduled to close in late 2006/early 2007. These closures will lead to a phased withdrawal from formic acid, proprionic acid and acetone businesses and a reduction in our European acetic acid production capacity.



—

In November, we announced the closure of a High Density Polyethylene manufacturing operation at Grangemouth, UK.



—

In December, we announced that we would close our LAO production facility in Pasadena, Texas, by the end of 2005. The Company will continue to produce LAOs at its other two facilities in Alberta, Canada and Feluy, Belgium. Closure of the Pasadena site will reduce BP's global linear alpha olefins capacity by 485 ktepa.

Shipping

        BP Shipping owns or operates an international fleet of crude oil and product tankers and LNG carriers transporting cargoes for the Group and for third parties. It also offers a wide range of marine-related services to Group customers.

        Excluding BP companies in the USA, at December 31, 2004 BP Shipping managed an international fleet of 34 oil tankers (comprising four very large crude carriers, 29 medium sized crude carriers and one North Sea shuttle tanker) and eight LNG ships with capacity of approximately 4.8 million cubic metres (comprising three trading globally, four for Abu Dhabi contracted gas and one for the Western Australia NWS Project). In addition, BP holds an interest in a further six NWS LNG carriers. BP also owned two UK coastal tankers.

        These ships are manned either by BP Maritime Services personnel or by third party manning contractors who operate to BP Shipping's standards and reporting requirements. All the chartering of ships is controlled by BP Shipping, and the ships are utilized to carry either BP cargoes or third party cargoes.

        BP Shipping is in the middle of a new building programme, which saw 12 leased ships delivered into service in 2004.

        BP companies in the USA had one large crude carrier, six medium crude carriers, and one product carrier totalling approximately 0.7 million dead weight tonnes (dwt) on long-term charter. BP owns four barges totalling 0.1 million dwt and took delivery of the first of four state-of-the-art double-hulled 1.3 million barrel Alaskan Class tankers from National Steel and Shipbuilding Company of San Diego, California during the year.

51

PETROCHEMICALS

        Our petrochemicals businesses produce chemicals and plastics through subsidiaries, joint ventures and associated undertakings. The petrochemicals businesses are also responsible for the supply, marketing and distribution of chemical products to bulk, wholesale and retail customers. BP has operations principally in the USA and Europe. We are increasing our activities in the Asia-Pacific region.

(a)

Excludes BP's share of joint venture turnover of $462 million in 2004, $434 million in 2003 and $511 million in 2002.

(b)

The Chemicals Indicator Margin (CIM) is a weighted average of externally based industry product margins. It is based on market data collected by Nexant in their quarterly market analyses, which we weight based on BP's product portfolio. While it does not cover our entire portfolio, it includes a broad range of products. Among the products and businesses covered in the CIM are the olefins and derivatives, the aromatics and derivatives, linear alpha-olefins (LAOs), acetic acid, vinyl acetate monomers and nitriles. Not included are fabrics and fibres, poly alpha-olefins (PAOs), anhydrides, speciality intermediates and the remaining parts of the solvents and acetyls businesses. CIM is an environmental trend indicator. Changes in CIM are indicative of market environment trends rather than representative of the actual margins achieved by BP in any particular period.

        We are now managing our portfolio in two distinct parts — Aromatics and Acetyles (A&A), comprising PTA, PX and acetic acid, and Olefins and Derivatives, (O&D) comprising principally ethylene and related co-products, polypropylene, HDPE and acrylonitrile. We intend to retain and grow the A&A businesses, which were transferred to the Refining and Marketing segment on January 1, 2005. The Petrochemical facilities of BP Refining and Petrochemicals (BPRP) at Gelsenkirchen and Munchmunster in Germany will also remain with BP and were transferred to the Refining and Marketing segment on January 1, 2005 along with the following other petrochemical products: Napthalene dicarboxylate (NDC), vinyl acetate monomer (VAM) and ethyl acetate.

        In April 2004, we announced our intention to set up a separate corporate entity for the O&D businesses. It is our intention to divest this O&D entity, possibly starting with an initial public offering in the second half of 2005, subject to market conditions and the receipt of necessary approvals. In November 2004, we announced our intention to include two European oil refineries in the new O&D entity. The refineries at Grangemouth, UK and Lavéra, France, are closely integrated with their neighbouring chemicals plants which take refinery products as feedstock. The following other petrochemical products are also included within the new O&D entity: linear low density polyethylene (LLDPE), low density polyethylene (LDPE), ethylene oxide, ethanol, LAO, PAO, polybutene and styrene monomer and polymer. The new O&D entity is called Innovene and was formed as a separate entity within the BP Group in April 2005. Innovene is being reported within Other Businesses and Corporate from January 1, 2005.

52

        Our core products are eventually used in the manufacture of a wide variety of consumer goods, including plastic drinks bottles, computer housings, adhesives, inks, rigid packaging, pipes, food packaging and automobile components. We compete through proprietary technology, leadership positions and value associated with the integration of Group hydrocarbons and sites. Our investment and divestment activities are aligned with this strategy.

        Significant investment activities during 2004:

—

In May, we signed a Heads of Agreement to build a 500 kilotonnes per annum (ktepa) acetic acid plant in Nanjing, Jiangsu province in China, through a 50/50 joint venture with Sinopec. In March 2005, a joint venture contract was signed with Sinopec to build this plant in Nanjing. Completion of the plant is expected in 2007.



—

In May, we signed a Letter of Intent to examine the viability of expanding production at the BP Zhuhai PTA plant from 350 ktepa to 1,200 ktepa. The plant, which is located at Zhuhai in the Pearl River Delta, is a joint venture between BP (85%) and Fu Hua Group (15%) and came on stream in September 2003.



—

BP increased its ownership in CAPCO, our PTA joint venture in Taiwan. BP acquired an incremental 2% interest in CAPCO to attain a total equity share of 61%.



—

In November, Solvay exercised its option to sell its interests in BP Solvay Polyethylene Europe and BP Solvay Polyethylene North America to BP. The BP Solvay ventures, established in 2001, comprise HDPE business interests and manufacturing sites in Europe and the USA with a total capacity of 2.6 million tonnes.



—

The Shanghai Ethylene Cracker Complex (SECCO), a petrochemical joint venture in Shanghai, China between BP, Sinopec Corporation and Sinopec Shanghai Petrochemical Company, (BP 50%), was declared mechanically complete in December 2004. Completion of start-up occured during the second quarter of 2005. SECCO is an integrated Olefins and Derivatives site with a naphtha fed ethylene cracker and a number of downstream derivative sites.



—

In November, BP and Nova Chemicals Corporation (Nova) announced that they had reached agreement in principle to combine their European interests in Styrene polymers to create one of the largest polystyrene and expandable polystyrene manufacturers and marketers in Europe. BP and Nova will each have a 50 per cent stake. BP's European interests in Styrene polymers includes plants operating at Marl in Germany, Wingles in France and Trelleborg in Sweden. In May 2005, binding agreements were signed. Operations are expected to commence in the third quarter of 2005.

        Capital expenditure and acquisitions in 2004 was $2,289 million compared with $775 million in 2003 and $823 million in 2002. Excluding acquisitions, capital expenditure was $934 million, $775 million and $810 million respectively. 2004 includes $1,355 million for the acquisition of Solvay's interests in BP Solvay Polyethylene Europe and BP Solvay Polyethylene North America.

        Significant divestment activities during 2004:

—

In February, we announced the closure of the last manufacturing plant at Baglan Bay, UK. Production of isopropanol ceased in March 2004.



—

In May, we completed the sale of our wholly owned specialty intermediate chemicals businesses including trimellitic anhydride (TMA), purified isophthalic acid (PIA) and maleic anhydride (MAN).



—

In October, we completed the sale of our Fabrics and Fibres Business.

53

—

In November, we announced a phased exit from two, old technology, acetic acid and acetone manufacturing operations at Hull, UK. One unit closed at the end of April 2005 and the other is scheduled to close in late 2006/early 2007. These closures will lead to a phased withdrawal from formic acid, proprionic acid and acetone businesses and a reduction in our European acetic acid production capacity.



—

In November, we announced the closure of a High Density Polyethylene manufacturing operation at Grangemouth, UK.



—

In December, we announced that we would close our LAO production facility in Pasadena, Texas, by the end of 2005. The Company will continue to produce LAOs at its other two facilities in Alberta, Canada and Feluy, Belgium. Closure of the Pasadena site will reduce BP's global linear alpha olefins capacity by 485 ktepa.