Annual Review 2007
Our key priorities
The Annual Review for the year ended 31 December 2007 includes the of BP as BP Annual Report and Accounts 2007. Shareholders may
summary ﬁnancial statement (on pages 1-5 and 8-32), which comprises obtain a copy of BP Annual Report and Accounts 2007 online or on
summaries of the Directors’ Report and the Directors’ Remuneration request, free of charge (see page 33).
Report and a summary of the information in the consolidated ﬁnancial Outside the summarized ﬁnancial statements, references within
statements. The summary ﬁnancial statement complies with the BP Annual Review 2007 to ‘proﬁts’, ‘result’ and ‘return on average
information required under the Companies (Summary Financial capital employed’ are to those measures on a replacement cost basis
Statement) Regulations 1995. It does not contain sufﬁcient information unless otherwise indicated. The table below reconciles proﬁt for the
to allow as full an understanding of the results and the state of affairs year to replacement cost proﬁt.
Reconciliation of profit for the year to replacement cost profit
For the year ended 31 December $ million
2007 2006 2005
Profit before interest and taxation from continuing operations 32,352 35,158 32,682
Finance costs and other finance income/expense (741) (516) (761)
Taxation (10,442) (12,331) (9,473)
Minority interest (324) (286) (291)
Profit for the year from continuing operations attributable to BP shareholders 20,845 22,025 22,157
Profit (loss) for the year from Innovene operations – (25) 184
Inventory holding (gains) losses (3,558) 253 (3,027)
Replacement cost profita 17,287 22,253 19,314
Replacement cost profit from continuing operations attributable to BP shareholders 17,287 22,278 19,513
Replacement cost profit (loss) from Innovene operations – (25) (199)
Replacement cost profit 17,287 22,253 19,314
Exploration and Production 26,927 29,647 25,485
Refining and Marketing 2,617 5,283 4,394
Gas, Power and Renewables 558 1,376 1,077
Other businesses and corporate (1,104) (947) (1,237)
Unrealized profit in inventory (204) 52 (208)
Net profit on transactions between continuing operations and Innovene operations – – 527
Replacement cost profit before interest and taxation 28,794 35,411 30,038
Finance costs and other finance income/expense (741) (516) (761)
Taxation (10,442) (12,331) (9,473)
Minority interest (324) (286) (291)
Replacement cost profit from continuing operations attributable to BP shareholders 17,287 22,278 19,513
Per ordinary share – cents
Profit for the year attributable to BP shareholders 108.76 109.84 105.74
Replacement cost profit 90.20 111.10 91.41
Dividends paid per ordinary share – cents 42.30 38.40 34.85
– pence 20.995 21.104 19.152
Dividends paid per American depositary share (ADS) – dollars 2.538 2.304 2.091
aReplacement cost profit reflects the current cost of supplies. The replacement cost profit for the year is determined by excluding from profit inventory holding gains and losses.
BP uses this measure to assist investors to assess BP’s performance from period to period.
BP p.l.c. is the parent company of the BP group of companies. Unless Cautionary statement
otherwise stated, the text does not distinguish between the activities and BP Annual Review 2007 contains certain forward-looking statements,
operations of the parent company and those of its subsidiaries. particularly those relating to operating and ﬁnancial momentum, capital
expenditure, strategy, investments, production and expected start-up of
The term ‘shareholder’ in this Annual Review means, unless the context projects, expected return to capacity of reﬁneries, expected gas recoveries,
otherwise requires, investors in the equity capital of BP p.l.c., both direct expected workforce requirements, growth in wind capacity and start-up of
and/or indirect. wind projects, carbon dioxide (CO2) production and emissions, expected
growth in solar cell production capacity, expected completion of global
BP Annual Report and Accounts 2007 and BP Annual Review 2007 may be compliance management framework, gearing, dividends and other distributions
downloaded from www.bp.com/annualreport. No material on the BP website, to shareholders, future performance and the application of technology. By their
other than the items identiﬁed as BP Annual Report and Accounts 2007 and nature, forward-looking statements involve risks and uncertainties because
BP Annual Review 2007, forms any part of those documents. they relate to events and depend on circumstances that will or may occur in
the future. Actual results may differ from those expressed in such statements
As BP shares, in the form of ADSs, are listed on the New York Stock Exchange depending on a variety of factors including the timing of bringing new ﬁelds on
(NYSE), an Annual Report on Form 20-F will be ﬁled with the US Securities and stream, future levels of industry product supply, demand and pricing, operational
Exchange Commission (SEC) in accordance with the US Securities Exchange problems, general economic conditions, political stability and economic growth
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BP discloses on its website at www.bp.com/NYSEcorporategovernancerules exchange rate ﬂuctuations, development and use of new technology, changes
signiﬁcant ways (if any) in which its corporate governance practices differ in public expectations and other changes in business conditions, the actions
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acts of terrorism or sabotage, and other factors discussed elsewhere in this
document and in BP Annual Report and Accounts 2007.
The registered ofﬁce of BP p.l.c. is 1 St James’s Square, London SW1Y 4PD, UK.
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Registered in England and Wales No. 102498. Stock exchange symbol ‘BP’.
2 Chairman’s letter
3 Group chief executive’s review
4 BP overview
6 Industry context
8 Our key priorities: safety, people and performance
10 Exploration and Production
14 Refining and Marketing
18 Gas, Power and Renewables
20 Financial performance
22 Safety, environmental and social performance
24 Summarized financial statements
29 Board of directors
30 Summary directors’ remuneration report
32 Annual general meeting and information
33 Reports and publications
While we do now have a strong list of projects coming
onstream, the challenge is to ensure that this progress is
maintained and strengthened. In doing so, we will continue
to work closely with governments and national oil companies
to our mutual benefit.
The new delineation of the business of the group between
upstream, downstream and alternative energy brings a welcome
emphasis on the key drivers of the business. I believe, too,
that our alternative energy business will provide the focus that
we need to have on technology, both for our existing business
and for the supply of low-carbon energy in the future.
Whatever the importance of short-term challenges, the
rise in the oil price and trends in the world economy require
the group to make big strategic choices for the medium and
Dear Shareholder 2007 was a year of change for BP, as long term. This involves identifying the right opportunities
the group responded to the powerful global forces shaping in a challenging marketplace for the group to grow in both
the world economy and took decisive action to rebuild the upstream and downstream. I regard this as a key part of
group’s reputation. the board’s work.
For many years, we were recognized as a leader in our We are maintaining our policy of returning cash to
industry. The tragic events of Texas City, the incidents in shareholders through dividends and buybacks although we
Alaska and the conduct of a small number of our traders are changing the relative proportion of each. Your board has
showed that we have failed in recent years to live up to confidence in greater cash flows from our strong asset base,
our own high standards and comply with the law. We have which has allowed the company to increase both investment
acknowledged this in the settlements we have reached in its future growth and the dividend component of our
with the US Department of Justice on these issues. I am distribution to shareholders.
determined that we will recover our leadership position. I am therefore pleased to confirm that we have increased
John Browne stood down as group chief executive and the quarterly dividend, to be paid in March, to 13.525 cents
as a director on 1 May 2007. The circumstances of John’s per share, compared with 10.325 cents per share last year.
resignation do not reflect the huge contribution he made For the year, the dividend showed an increase of 16%.
to the group during his 41-year career at BP. His vision helped In sterling terms, the quarterly dividend is 6.813 pence per
to transform BP and give it the scope and scale it has share, compared with 5.258 pence per share a year ago; for
today. We are indebted to him and I again wish to thank the year, the increase was 7%. During the year, $7.5 billion
John on behalf of the board for his great achievements of shares were repurchased for cancellation.
for the company. I am grateful to and wish to thank the executive team, the
I am very pleased to welcome Tony Hayward as group board and indeed all our employees for everything they have
chief executive. Tony was chosen unanimously by the board done during an eventful year. On behalf of the board, I would
after a thorough internal and external search. He has already also like to thank our shareholders for their support. We have
set about making his own mark on the group through his all learned some tough lessons in recent years and I am
dynamic leadership and his desire to reduce complexity. His confident that investors’ long-term faith in the company
clear focus has been on safety, people and performance. will be rewarded.
The significant contribution to the group of other executive
and non-executive directors is described on page 29 of this
Annual Review. We have also reviewed in depth the way
we, as a board, work and this is described on pages 74-80
of BP Annual Report and Accounts 2007.
While change was a feature of 2007, there is evidently Peter Sutherland
work still to do. In particular, during much of the year our Chairman
operational and financial performance has been below 22 February 2008
par, as a direct result of a number of our key assets both
upstream and downstream not being available when they
were needed and when they could have made a significant
financial contribution. I am glad to say that our upstream
projects are now coming onstream and our downstream
assets are returning to service.
BP ANNUAL REVIEW 2007 3
Group chief executive’s review
Dear Shareholder It is a great privilege to give my first review as
group chief executive of BP. 2007 was a year of major transition,
both for the group and for the oil and gas industry as a whole.
High and volatile prices are challenging assumptions across the
industry. The dated Brent crude oil price set a nominal record of
$96.02 per barrel (bbl) at year-end, driven by continued demand
growth and OPEC production cuts. Given ample supply, spot
natural gas prices in the US and Europe declined, with the Henry
Hub First of Month Index averaging $6.86 per million British
thermal units in 2007, compared with $7.24 the previous year.
Refining margins reached a record quarterly high of $16.66/bbl
in the second quarter due to low refinery availability in the US,
but fell back to more seasonal levels in the second half.
Safety, people and performance When I took over as group By the end of 2007, the Whiting refinery had recommenced
chief executive, the immediate task was to restore the integrity sour crude processing and available distillation capacity exceeded
and the efficiency of BP’s operations. I set out three priorities: 300,000 barrels per day. At Texas City, we successfully
safety, people and performance. There has been progress in recommissioned the three desulphurization and upgrading units
all three areas but there is more to do. necessary to allow restart of the remaining crude distillation
Running safe and reliable operations is our greatest capacity. The final sour crude unit is mechanically complete and,
responsibility. At the start of 2007, the panel, chaired by former by mid-2008, we expect most of the economic capability to have
US Secretary of State James A Baker, III, reported on the been restored. The Thunder Horse platform in the Gulf of Mexico
safety culture across our US refineries, following the tragic is on track to start production by the end of 2008.
accident at Texas City in 2005. We agreed to implement all With output now ramping up from these fields and refineries,
its recommendations and accepted the challenge to transform we anticipate that operational momentum will become financial
BP into a world leader in process safety. All parts of the group momentum in the second half of this year and into 2009.
are actively working to implement the panel’s recommendations
relevant to their business. BP’s forward agenda Last October, I outlined a forward agenda,
A new operating management system, designed to bring designed to make BP a simpler and more efficient organization,
greater consistency to our operations, is being introduced. We with a focus to improve behaviours throughout the business by
continue to implement cross-group programmes designed to embedding a high-performance culture.
enhance operations leadership competence at all levels of BP . The group’s long-term future is also being secured. We made
We are redoubling our efforts to make sure we have the significant discoveries in Azerbaijan and Egypt and secured
right people in the right places. Whether it be in our refineries, access to major new sources of oil and gas in Oman and Libya
exploring in the ultra deepwater of the Gulf of Mexico, pioneering and an attractive joint venture to access Canadian oil sands.
enhanced oil recovery techniques in Alaska or commencing In 2007, we again replaced more than 100% of our reported
operations at the largest wind facility in the US, we know it reserves. In Russia, our joint venture TNK-BP continued to
is our people who make the difference. perform strongly. Through our alternative energy business, we
When it comes to my third priority, our financial performance are investing in the low-carbon energy sources of the future.
is not good enough. Replacement cost profit in 2007 fell 22% Step by step, we are rebuilding the group’s momentum
to $17,287 million. Dividends payable in respect of 2007 and strengthening our capability. I have great confidence in the
increased by 16% to 45.50 cents per share. In sterling strength of our portfolio and our people; I would like to thank
terms the increase was 7%. them all for the way they have responded to the challenge. We
are all committed both to enhancing world energy security and
Restoring revenues and reducing complexity The unsatisfactory to meeting the challenge of climate change. Our task now is to
financial performance was primarily a result of two things: missing put BP back where it belongs – at the forefront of the industry.
revenues, principally from delayed projects and poor reliability in
some of our US refineries; and excessive complexity in the way
we manage the business, which has added to costs.
We are resolutely tackling both these issues. The fourth quarter
saw the build-up of operational momentum, with the start-up of
six new exploration and production projects, including Atlantis Tony Hayward
and King Subsea Pump in the Gulf of Mexico, Greater Plutonio Group Chief Executive
in Angola, and Mango and Cashima in Trinidad & Tobago. 22 February 2008
BP overview TOTAL NET PROVED RESERVES 2007
(million barrels of oil equivalent)
2007 was our 14th
consecutive year of
BP operates globally, 7,741 10,073
of more than 100%.
with business activities
and customers in more Natural gas
than 100 countries and
employees. We have REFINING CAPACITY 2007 b
BP is one of the major
(thousand barrels per day)
exploration and production refiners of gasoline and
interests in 29 countries. hydrocarbon products
Just under 40% of our in the US, Europe
fixed assets are located and Australia.
in the US and around 866
25% in Europe. Europe
Rest of World
TOTAL PRODUCTION 2007 ALTERNATIVE ENERGY BUSINESS
(thousand barrels of oil equivalent per day)c
370 MW d
In 2007, BP’s hydrocarbon production
wind capacity in 2007, with an
aim to grow that to more than
stretched across 22 countries, principally
Russia, the US, Trinidad & Tobago, the UK,
Latin America, the Middle East, Asia Paciﬁc,
Azerbaijan, Angola and Egypt. by the end of 2008.
Combined basis of subsidiaries and equity-accounted entities, on a basis consistent with general industry practice, excluding acquisitions and disposals.
Based on crude distillation capacity. Crude distillation capacity is gross rated capacity, which is deﬁned as the maximum achievable utilization of capacity
(24-hour assessment) based on standard feed.
BP ANNUAL REVIEW 2007 5
WHERE WE OPERATE
Exploration and Production operations
Refining and Marketing
Gas, Power and Renewables sites
BP’S MAIN BRANDS OPERATING CAPITAL EMPLOYED 2007 e
Every day, in locations around the world, we serve millions
of customers through a number of well-known brands.
UK Rest of Europe US Rest of World
Operating capital employed is total assets (excluding goodwill) less total liabilities, excluding ﬁnance debt and current and deferred taxation.
Industry context In 2007, energy was again a major topic of debate
and analysis among policy makers and the public,
with continued concern over energy security,
safety and climate change.
CRUDE OIL AND GAS PRICES a WORLD ENERGY CONSUMPTION b GLOBAL PROVED OIL RESERVES AT END 2006 b
($ per barrel of oil equivalent) (billion tonnes of oil equivalent) 11 (billion barrels)
20 3 742.7
1 North America
02 03 04 05 06 07 81 86 91 96 01 06 South and Central America
Dated Brent oil price Coal Hydroelectricity Europe and Eurasia
Henry Hub gas price (First of Month Index) Nuclear energy Natural gas Oil Middle East
Energy prices In 2007, the average Energy worldwide Continued above- Global reserves Global proved oil
crude oil price (dated Brent) rose by average global economic growth and natural gas reserves have been
11% to $72.39/bbl, a new record in supported increasing energy demand on a generally increasing trend since
money-of-the-day terms. Daily prices and oil consumption worldwide, despite 1980 and remain adequate to cover
began the year at $58.62/bbl and rose to higher prices. World primary energy expected consumption for decades
$96.02/bbl at year-end, owing to OPEC consumption increased by 2.4% in to come. Proved oil reserves continued
production cuts in early 2007, sustained 2006, just above the 10-year average. to exceed 1.2 trillion barrels at the
consumption growth and the resulting The impact of continued above-average end of 2006, equivalent to sustaining
drop in commercial inventories after economic growth was partially offset by current production levels for more
the summer. The average US natural gas high prices. Global oil consumption grew than 40 years. World proved natural
price (Henry Hub First of Month Index) by 0.7% in 2006, the weakest growth gas reserves exceeded 181 trillion cubic
fell by 5% in 2007, pressured by record since 2001. Coal continued to be the metres, equivalent to sustaining current
liquefied natural gas (LNG) imports in the world’s fastest-growing hydrocarbon production for more than 60 years.
summer, continued growth in domestic in 2006 at 4.5%.
production and record inventory levels.
Source: BP Statistical Review of World Energy June 2007.
Our key priorities:
safety, people and performance
BP ANNUAL REVIEW 2007 9
BP’s strategy for the future is robust. We have great positions
in many of the major hydrocarbon basins of the world. We
also have great market positions in the key economies and are
preparing for the future by building a new low-carbon energy
business. Executing our strategy is where we must improve.
In safety, we are signiﬁcantly lowering the risk proﬁle of our
operations. We are working hard to ensure that we have the
right people with the right skills in the right places. And we are
addressing performance by reducing organizational complexity,
improving operational consistency and changing individual
behaviours. On the front lines of our business, we are moving
this agenda forward.
Exploration and Production
First oil achieved
BP’s first operated asset in Angola – one
of our most important deepwater basins
– achieved first oil in October 2007. The
Greater Plutonio development consists of
five oil and gas fields discovered between
1999 and 2001 in water depths up to
1,450 metres. The start-up of this complex
of fields has significantly advanced our
development of innovative deepwater
technology, supporting our future ability
to access new resources worldwide.
Greater Plutonio is expected ultimately to
encompass 43 wells, linked to a floating
production, storage and offloading vessel
by a single-riser tower system that is the
longest of its kind in the world.
BP ANNUAL REVIEW 2007 11
EXPLORATION AND PRODUCTION
2007 was our 14th consecutive
year of delivering reported
reserves replacement of
more than 100%.
RESULTS ($ million)
The segment’s replacement cost profit embedded derivatives of $47 million
before interest and tax of $26,927 million (2006 $515 million). Capital expenditure
represented a decrease of 9% compared was $13.7 billion in 2007 and is expected
with 2006. This result benefited from to be around $15 billion in 2008. The 2008
higher liquids realizations and the amount excludes the impact of our joint
favourable effect of lagged tax reference venture to access Canadian oil sands.
prices in TNK-BP but was impacted by Reported production was 3,818mboe/d
lower gas realizations, lower reported in 2007. After adjusting for the impact
volumes, higher production taxes in Alaska of acquisitions, disposals and the impact
and higher costs reflecting the impacts of of lower entitlements in our production-
sector-specific inflation, increased integrity sharing agreements (PSAs), production
spend and higher depreciation charges. was flat compared with the previous
Additionally, the result was lower due year. During 2007, we extended our track
to the absence of disposal gains in 2006 record in achieving reported reserves
in equity-accounted entities. The result replacement of more than 100%, excluding
included lower net gains on sales of acquisitions and disposals, in spite of
assets of around $0.9 billion (2006 around significant PSA effects associated with
$2 billion) and lower fair value gains on high oil prices.
EXPLORATION AND PRODUCTION
Our strategy is to build production by:
• Focusing on ﬁnding the largest ﬁelds in the world’s most proliﬁc hydrocarbon basins.
• Building leadership positions in these areas.
• Managing the decline of existing producing assets and divesting assets when they
no longer compete in our portfolio.
BP employs a focused exploration strategy in areas with the potential for large oil and
natural gas fields as new profit centres. Within our portfolio of assets, we continue
to develop profit centres in which we have a distinctive position: Asia Pacific gas,
Azerbaijan, Algeria, Angola, Trinidad, deepwater Gulf of Mexico and Russia. We also
manage the decline of our established profit centres in Alaska, Egypt, Latin America,
the Middle East, North America gas and the North Sea, by applying technology to
enhance recovery from our producing fields.
TECHNOLOGY FRONTIER IN
THE DEPTHS OF THE GULF
The Atlantis platform in the
More gas deepwater Gulf of Mexico completed
commissioning in 2007. At technology’s
from coalbeds frontier, Atlantis employs the deepest
moored platform of its kind in the
world and a separate semi-submersible
BP aims to recover an extra 1.9 trillion cubic feet of natural
drilling and construction rig. The
gas from its coalbed methane asset in the San Juan basin, US. versatile modular design – with
A planned $2.4 billion multi-year investment began in 2007 to potential to add wells to increase
build up skills and technologies to capture the basin’s potential – recovery – owes its success to diverse
global technical talent and solutions.
including a ‘factory’ approach to drilling more than 700 new inﬁll
wells and tie-ins – while minimizing environmental impacts.
Refining and Marketing
During 2007, we focused
on restoring operations
at the Texas City and
Whiting reﬁneries and
IAIN CONN on investments in integrity
REFINING AND MARKETING management throughout
the reﬁning portfolio.
RESULTS ($ million)
Replacement cost profit before interest results compared with 2006. However, for
and tax was $2,617 million, compared the full year, the impact of the outages and
with $5,283 million in 2006. The result recommissioning costs at the Texas City
reflected net disposal gains of and Whiting refineries, cost inflation and
$1,151 million (2006 $884 million) and an lower results from supply optimization
impairment charge of $1,186 million (2006 more than offset increased refining and
$155 million). In 2007, we continued to marketing margins. Refinery throughputs
focus on restoring operations at the Texas were 2,127 thousand barrels per day
City refinery and on investments in integrity (mb/d), 71mb/d lower than 2006. This
management throughout the refining reflected the disposal of the Coryton
portfolio. We also focused on the repair and refinery in the UK and reduced throughputs
recommissioning of the Whiting refinery at Whiting, which more than offset the
following operational issues in March 2007. benefits of the ongoing recommissioning
In many parts of the refining portfolio and of the Texas City refinery and the
the other market-facing businesses, we acquisition of the remaining interests in the
delivered high reliability and improved Rotterdam refinery in the Netherlands.
BP ANNUAL REVIEW 2007 15
Texas City getting
back to business
Underpinned by investments in process
safety, safety culture and the environment,
the renewal of our Texas City refinery
continued in 2007. Eighteen million worker-
hours were dedicated to the site, resulting
in the successful recommissioning of
seven process units, increasing gasoline
yield and providing the foundation for an
expected return to operations of more than
400,000 barrels per day in 2008. In safety
efforts, we eliminated blow-down stacks,
commissioned new relief systems and
invested more than 287,000 hours in training.
A wet-gas scrubber was installed to reduce
emissions and comprehensive environmental
assessments were progressed to ensure
compliance. And, to ensure that our people
have capabilities that match our greatly
renewed facilities, we opened a new
62,000-square-foot employee services building
with training, medical and security facilities.
RE F I N I N G A N D MA R K E T ING
Refining and Marketing is BP’s product and service-led arm, focused on fuels,
lubricants and chemicals products. Our aims are to excel in the markets we
choose to be in and to be in those markets that allow us to serve the major
energy requirements of the world. By serving our customers and promoting
BP and its brands, we expect to be rewarded with sustainable competitive
returns and enduring growth. Our products represent quality, based on a
foundation of excellence in safe and reliable manufacturing operations.
STEADY PERFORMANCE IN
MARKETING BUSINESSES ($ billion)
Our marketing businesses improved
their performance again in 2007, reflected
in a continued increase in marketing and
Weaving new business in China In 2007, BP received one of the
Volkswagen Group’s ﬁve global
awards for ‘entrepreneurial
The world’s largest PTA (puriﬁed terephthalic acid) single-train performance’. The award recognizes
production unit – BP’s Zhuhai 2 unit in southern China – is now BP’s commitment to reliable supply
and innovation, as well as our
onstream. China is the world’s largest textile producer and position as one of Volkswagen’s
fastest-growing market for PTA, a key raw material in polyester top 100 suppliers.
ﬁbres. Zhuhai 2 uses BP’s latest proprietary technology and is
expected to have a signiﬁcantly lower energy consumption and
environmental footprint than any other PTA unit in the world.
BP ANNUAL REVIEW 2007 17
A little better means a lot
US customers and independent fuel marketers are increasingly
choosing BP since our Helios Power advertising campaign
started. The campaign renews BP’s commitment to make
things cleaner, friendlier and ‘a little better’ at service stations,
where filling your vehicle is often seen as an unpleasant chore.
BP brand awareness in the US increased by 11% from March
to June 2007 following the campaign’s launch, while customer
preference for BP increased by 3%.
Refining and Marketing has
manufacturing assets in selected
locations and markets its products
around those assets and in other
advantaged areas. We market our
products in more than 100 countries.
BP’s reﬁning availability
grew steadily during 2007,
reﬂecting our work to bring
production reliably back online
and to restore revenues.
REFINING AVAILABILITY 2007 (%)
Q2 83 The BP-operated Gelsenkirchen refinery joint venture in Germany has turned regulatory
Q1 82 compliance to its advantage. When new European environmental legislation called for
older furnaces to be upgraded, we invested $200 million to replace 17 old furnaces
with five new ones. Ethylene capacity has since increased by 10%, while fuel usage
and CO2 emissions are expected to decrease by 13% and atmospheric dust by 97%.
Gas, Power and Renewables
Supplied by nature,
harnessed by BP
BP’s ambitions to build an international
wind business moved forward significantly
in 2007 with the development of three
projects on two continents. The 300MW
Cedar Creek wind farm in Colorado uses
274 turbines to generate enough carbon-
free electricity to supply 90,000 average
American homes. This should soon be
followed by the 60MW Silver Star I wind
project in Texas, utilizing some of the
largest wind turbines built in the US.
In India, the start-up of BP’s first wind
project in Asia, the 40MW Dhule facility
in Maharashtra, is expected to avoid the
production of up to 70,000 tonnes of CO2
annually, compared with a conventional
coal-fired power plant.
BP ANNUAL REVIEW 2007 19
The segment’s replacement cost profit of $1.2 billion by accessing favourable
before interest and tax was $558 million, markets in North America and Egypt and
compared with $1,376 million in 2006. completing divestment of the Cochin
The result included disposal gains of pipeline in the US. The Guangdong LNG
$12 million (2006 $193 million), a net fair regasification and pipeline project in
value loss on embedded derivatives of south-east China installed its third storage
$47 million (2006 $88 million gain) and an tank in 2007, increasing its throughput to
impairment charge of $40 million (2006 7 million tonnes per year. In our alternative
$100 million). These factors contributed to energy business, we formed a joint
CHIEF EXECUTIVE, the lower result compared with 2006. The venture, Hydrogen Energy, to develop
GAS, POWER AND RENEWABLES result also reflected a lower contribution hydrogen power projects. Since 2005, wind
from the marketing and trading businesses, power generation capacity has increased
partially offset by improved natural gas from 32MW to more than 370MW while,
liquids (NGLs) performance. The NGLs since 2006, solar plant capacity has
business delivered a record gross margin increased from 200MW to 228MW.
Despite record NGLs gross margin, RESULTS ($ million)
the overall result reﬂects a lower 07 558
contribution from marketing and trading. 06 1,376
THE DRIVE FOR INTEGRITY
A major three-year programme to
inspect, assess and repair or replace
equipment is under way in BP’s North
American NGLs business. In just 90 pieces of
equipment inspected Completed three days
one gas plant, at Sunray, Texas, the 350,000 employee-hours ahead of schedule and
business underwent its largest ever worked overall
16 pieces replaced on budget
planned turnaround. Around 350,000 or repaired 186,000 hours dedicated
hours were worked and more than 90 Established a model for
to mechanical execution
One recorded injury future plant turnarounds
pieces of equipment inspected, with
only one recordable safety incident.
BP’s newest LNG carrier, BP accelerates its position
the British Emerald, is expected in the solar marketplace
of up to Already one of the leading players in
the solar industry, BP is accelerating
36,000 tonnes its growth plans. In 2007, we began an
expansion programme in the US, Spain
annually and India that is expected to more than
compared with other LNG carriers triple cell production capacity. Our aim
of similar size. is to offer customers solar electricity at
a cost equal to or less than conventional
Our conﬁdence in greater cash ﬂows
from BP’s strong asset base allows us
to increase investment in future growth
and increase the dividend component
BYRON GROTE of distributions to shareholders.
CHIEF FINANCIAL OFFICER
Results BP’s replacement cost profit was $17,287 million, impact of outages and recommissioning costs at the Texas City
compared with $22,253 million in 2006. Our profit after and Whiting refineries, reduced supply optimization benefits
inventory holding gains and losses was $20,845 million, and a lower contribution from the marketing and trading
compared with $22,000 million in 2006. Inventory holding business in the Gas, Power and Renewables segment.
gains and losses represent the difference between the cost Return on average capital employed on a replacement
of sales calculated using the average cost of supplies incurred cost basis was 16%, compared with 22% in 2006; based
during the period and the cost of sales calculated using the on profit after inventory holding gains and losses, it was
first-in first-out method. 19% (2006 22%).
Our profit figures included net gains on the sale of assets Finance costs were $1,110 million, compared with
of around $2 billion (2006 around $3 billion), net fair value $718 million in 2006. The increase primarily reflects a higher
losses on embedded derivatives of $7 million (2006 net average gross debt balance and lower capitalized interest than
gain of $608 million), impairment charges of $1,324 million in 2006 as capital construction projects concluded. Other
(2006 $121 million) and a further charge of $500 million finance income was $369 million, compared with $202 million
in respect of the March 2005 Texas City refinery incident in 2006, primarily due to a higher return on pension assets
(2006 $925 million). Additionally, the result included as the pension asset base increased, reflecting rising asset
restructuring costs of around $340 million associated market valuations.
with the simplification of BP’s organizational structure. Corporate tax expense was $10,442 million (2006
The primary additional factors reflected in profit for 2007, $12,331 million), representing an effective tax rate of 37%
compared with 2006, were higher liquids realizations, on replacement cost profit before tax of continuing operations
stronger refining and marketing margins and improved NGLs (2006 35%). The increase in the rate primarily reflects the
performance. However, these were more than offset by lower impact of inventory holding gains and losses that are
gas realizations, lower reported production volumes, higher eliminated in the replacement cost profit, while the tax
production taxes in Alaska, higher costs reflecting the impact charge remains unadjusted and includes the tax effect
of sector-specific inflation and higher integrity spend, the of these inventory gains and losses.
REPLACEMENT COST PROFIT RETURN ON AVERAGE CAPITAL EMPLOYED
PER ORDINARY SHARE (cents) ON A REPLACEMENT COST BASIS (%) CAPITAL EXPENDITURE ($ billion)
07 90.20 07 16 07 19.2
06 111.10 06 22 06 16.9
05 91.41 05 20 05 13.9
BP ANNUAL REVIEW 2007 21
Capital expenditure and acquisitions amounted to repurchase programme in 2000, we have repurchased
$20,641 million. This included $1.1 billion in respect of 4,659 million shares at a cost of $48.2 billion.
our acquisition of the remaining 31% of the Rotterdam Our dividend policy has been to grow the dividend per share
(Nerefco) refinery from Chevron’s Netherlands manufacturing progressively, guided by several considerations, including the
company. Capital expenditure and acquisitions amounted prevailing circumstances of the group, the future investment
to $17,231 million in 2006, which included $1 billion in patterns and sustainability of the group and the trading
respect of our investment in Rosneft (which was treated environment. We have also been committed to returning
as capital expenditure). There were no significant acquisitions. all free cash flows in excess of dividend needs to our
Net cash provided by operating activities for 2007 was shareholders. These broad principles remain, but changes
$24,709 million, compared with $28,172 million in 2006. in our business and the trading environment have given
In addition to lower profits, the decrease reflects lower us greater confidence in our future cash flows and have led
dividends from jointly controlled entities and associates and us to rebalance the uses of this cash.
higher working capital requirements, partially offset by lower We now hold a more positive view of the pricing
income tax payments. environment, especially for oil, and we expect our financial
Net cash used in investing activities was $14,837 million, performance will be boosted by growing revenues, increased
compared with $9,518 million in 2006. This reflects higher production and improved refining availability. We also see
capital expenditure and acquisitions and lower disposal significant potential for cost efficiencies and improved
proceeds compared with 2006. performance across all our businesses. Our reduced equity
Net debt, that is, debt less cash and cash equivalents, base, resulting from our share buyback programme, has made
was $27,483 million at 31 December 2007, compared with per-share dividend increases more affordable.
$21,420 million at 31 December 2006. In light of these factors, we have decided to increase
The ratio of net debt to net debt plus equity was 23% at organic capital expenditure (that is, capital expenditure
31 December 2007, compared with 20% at 31 December excluding acquisitions and assets exchanges) to support
2006. This ratio shows the proportion of debt and equity used growth and to rebalance our distributions between dividends
to finance our operations and can also be used to measure and share buybacks. We continue to believe that a gearing
borrowing capacity. Our financial framework includes a gearing band of 20-30% provides an efficient capital structure and the
band of 20-30%, which is intended to provide an efficient appropriate level of financial flexibility. Taken together, these
capital structure and an appropriate level of financial flexibility. factors have led us to increase the dividend by 25% for the
In addition to reported debt, BP uses conventional off- fourth quarter compared with the third quarter. As a result,
balance sheet sources of finance such as operating leases the level of free cash flow allocated to share buybacks
and borrowings of jointly controlled entities and associates. is likely to be lower. We will, however, continue to use
share buybacks as a mechanism to return excess cash to
Dividends and share repurchases The total dividend paid in shareholders when appropriate and subject to renewed
2007 was $8,106 million, compared with $7,686 million for authority at the April 2008 annual general meeting.
2006. The dividend paid per share was 42.30 cents, an increase BP intends to continue the operation of the Dividend
of 10% compared with 2006. In sterling terms, the dividend Reinvestment Plan (DRIP) for shareholders who wish to
remained flat due to the weakness of the dollar. We determine receive their dividend in the form of shares rather than cash.
the dividend in US dollars, the economic currency of BP. The BP Direct Access Plan for US and Canadian shareholders
During 2007, the company repurchased 663 million of also includes a dividend reinvestment feature.
its own shares for cancellation at a cost of $7.5 billion. The
repurchased shares had a nominal value of $166 million and The foregoing paragraphs contain forward-looking statements.
represented 3.4% of ordinary shares in issue, net of treasury Please refer to the cautionary statement on the inside
shares, at the end of 2006. Since the inception of the share front cover.
REPORTED RESERVES TOTAL SHAREHOLDER
REPLACEMENT RATIO a b (%) DIVIDENDS PAID PER SHARE DISTRIBUTION a ($ billion)
07 112 07 42.30 07 15.8
06 113 06 38.40 06 23.4
05 100 05 34.85 05 19.2
a Combined basis of subsidiaries and equity-accounted Cents a Through dividends and share buybacks.
entities, on a basis consistent with general industry Pence
practice, excluding acquisitions and disposals.
b 2007 and 2006 using SEC reserves; 2005 using
Safety, environmental and social performance
As a group, we aspire to be an industry leader in the three Across the US refining system, we have worked to address
dimensions of safety: personal safety, process safety and factors that contributed to the Texas City refinery incident,
the environment. including where facilities are sited, atmospheric relief systems,
operating procedures and operator training, as well as control
Personal safety In total, there were seven workforce of work systems and process safety culture and leadership.
fatalities in the course of BP’s operations during 2007, the The refineries have also engaged with employees on how
same number as 2006. We deeply regret the loss of these to improve process safety.
lives. These incidents re-emphasize the need for constant
vigilance in seeking to secure the safety of all members Implementing the six-point plan We set out our immediate
of our workforce. In 2007, our employee and contractor priorities for improving process safety management and
reported recordable injury frequency was 0.48 per 200,000 reducing risk at our operations worldwide through a six-point
hours worked, the same as that for 2006 (corrected from plan. Progress is reviewed each quarter by the executive-level
0.47 to 0.48), and below the industry average for 2006. group operations risk committee (GORC). We have taken the
following actions in relation to the six-point plan:
Process safety Throughout 2007, BP continued to progress the • We continued to apply a group practice on temporary
process safety enhancement programme initiated in response buildings in 2007. GORC tracks progress on removing
to the March 2005 incident at the Texas City refinery. We have relevant buildings identified as a result. A total of 17 blow-
made progress across the group on all the recommendations: down stacks (all those heavier-than-air light hydrocarbon
• Leadership We have consistently communicated that streams in refineries) have been removed from service. The
safe and reliable operations are our highest priority. Our one remaining blow-down stack is scheduled to be removed
safety and operations audit group was strengthened and from service during 2008.
completed 28 audits in 2007. • We have completed 50 major accident risk assessments.
• Management systems Implementation of our operating The assessments identify high-level risks that, if they occurred,
management system began at an initial group of sites, would have a major effect on people or the environment.
which included all five US refineries. • We are implementing group standards for integrity
• Knowledge and expertise We established an executive-level management and control of work on a locally risk-assessed
training programme, ran process safety workshops and and prioritized basis. We have spent $6 billion on integrity
launched an operations academy for site-based staff management during 2007, principally related to operating
to enhance process safety capability. Specialists have costs for maintenance and capital costs for plant improvement.
been deployed at our US refineries to accelerate priority • We have continued to improve the way in which we seek
improvement programmes. to ensure our operations maintain compliance with health
• Culture To reinforce the need for a stronger safety culture, and safety laws and regulations. A project to establish
we undertook in-house assessments of BP’s safety culture, a consistent compliance management framework was
supported by communication from leadership. completed in the US in 2007 and is expected to be
• Indicators Progress has been made in developing completed globally by the end of 2008.
leading and lagging indicators, building on metrics • Reviews have been undertaken, resulting in many actions
already reported to executive management. We are being closed out from past audits.
working with the industry to develop indicators and this • Senior HSE advisers have carried out a preliminary assessment
already includes progress to agree a metric covering loss of the operational experience of BP management teams
of primary containment. responsible for major production or manufacturing plant.
ENVIRONMENT – GREENHOUSE GAS
PERSONAL SAFETY – RIF a PROCESS SAFETY – OIL SPILLS a EMISSIONS a (million tonnes CO2 equivalent)
07 0.35 07 340 07 63.5
06 0.40 06 417b 06 64.4
05 0.41 05 541 05 78.0
Employees a Total
number of spills > 1 barrel = 159 litres
_ Group GHG
Contractors = 42 US gallons Innovene GHG
b Thereduction of reported spills in 2006 compared
a Recordable Injury Frequency (RIF): number of a Data
is reported on an equity-share basis.
with 2005 is principally due to divestments and to
reported work-related incidents that result in a disaggregation of two non-operated upstream TNK-BP emissions are not included.
fatality or injury (apart from minor first aid cases) operations from BP’s reporting.
per 200,000 hours worked.
b 2006 contractor data corrected from 0.54 to 0.55.
BP ANNUAL REVIEW 2007 23
Operational integrity As part of monitoring operational People and suppliers We had approximately 97,600 employees
integrity, we track the number of major incidents that occur at 31 December 2007, compared with approximately 97,000 at
during the year: oil spills of more than 100 barrels; significant the end of 2006.
property damage; or fatal accidents related to integrity In managing our people, we seek to attract, develop and
management failures. We also investigate any near-misses retain highly talented individuals in order to maintain our
(‘high potentials’) that could have resulted in a major incident. capability to deliver our strategy and plans.
Overall in 2007, the total number of high potentials went At the end of 2007, 16% of our top 624 leaders were
down; however, more integrity management-related high female and 19% came from countries other than the UK
potentials were reported in 2007 than in previous years and US. When we started tracking the composition of our
as a result of improved knowledge-sharing. group leadership in 2000, these percentages were 9%
The total number of oil spills of one barrel or more from all and 14% respectively.
our operations in 2007 decreased to 340 from 417 in 2006. The BP code of conduct, launched in 2005, is designed
Our international shipping fleet numbered 53 vessels at the to ensure that all employees comply with legal requirements
end of 2007, all of which are double-hulled. In addition to our and our own standards. The code defines what BP expects
own fleet, BP will continue to charter quality ships; all vessels of its people in key areas such as safety, workplace behaviour,
will continue to be vetted prior to each use in accordance with bribery and corruption and financial integrity. Our employee
the BP group ship vetting policy. concerns programme, OpenTalk, enables employees to
Since 2001, we have been focusing on measuring and seek guidance on the code as well as to report suspected
improving the carbon intensity of our operations. After six breaches of compliance or other concerns. The number of
years, we estimate that our operations have delivered some cases raised through OpenTalk was 975 in 2007, compared
7 million tonnes of greenhouse gas (GHG) emissions reductions. with 1,064 in 2006. In the US, former US district court
Our 2007 operational GHG emissions were 63.5 million tonnes judge Stanley Sporkin acts as an ombudsperson whom
(Mte) of CO2 equivalent on a direct equity basis, nearly 1Mte employees and contractors can contact confidentially to
lower than in 2006, when they were 64.4Mte. report any suspected breach of compliance, ethics or the
code of conduct, including safety concerns. The code also
Environmental management During 2007, we continued to outlines our policy not to make corporate political donations
use environmental systems to drive improvements in a wide anywhere in the world.
range of environmental issues. In 2007, the group practice
called the Environmental Requirements for New Projects Contribution to communities We also make direct contributions
was implemented following its approval in November 2006. to communities through community programmes. Our total
This practice is a full life cycle environmental assessment contribution in 2007 was $135.8 million. This includes $0.7 million
process. It requires all new projects to undertake screening to contributed by BP to UK charities. The growing focus of this is
determine the potential environmental sensitivities associated on education, the development of local enterprise and providing
with the proposed projects. The highest level of sensitivity access to energy in remote locations.
requires more rigorous specific environmental management In 2007, we spent $77.7 million promoting education, with
activities. By the end of 2007, more than 100 projects across investment in three broad areas: energy and the environment;
our business had implemented these requirements. business leadership skills; and basic education in developing
In 2007, BP took no new decisions to explore or develop World countries where we operate large projects.
Conservation Union (IUCN) category I-IV areas. We constantly
try to limit the environmental impact of our operations by using An overview of our non-financial performance will appear in
natural resources responsibly and reducing waste and emissions. BP Sustainability Report 2007 and at www.bp.com/sustainability.
PEOPLE ASSURANCE SURVEY –
EMPLOYEE SATISFACTION a (%) CONTRIBUTION TO COMMUNITIES ($ million)
06 66 07 135.8a
04 64 06 106.7
a Surveyis conducted at two-year intervals and a Including UK charities $0.7 million.
includes measures of employee satisfaction.
Group income statement
For the year ended 31 December $ million
Note 2007 2006 2005
Sales and other operating revenues 284,365 265,906 239,792
Earnings from jointly controlled entities – after interest and tax 3,135 3,553 3,083
Earnings from associates – after interest and tax 697 442 460
Interest and other revenues 754 701 613
Total revenues 288,951 270,602 243,948
Gains on sale of businesses and fixed assets 2,487 3,714 1,538
Total revenues and other income 291,438 274,316 245,486
Purchases 200,766 187,183 163,026
Production and manufacturing expenses 25,915 23,793 21,092
Production and similar taxes 4,013 3,621 3,010
Depreciation, depletion and amortization 10,579 9,128 8,771
Impairment and losses on sale of businesses and fixed assets 1,679 549 468
Exploration expense 756 1,045 684
Distribution and administration expenses 15,371 14,447 13,706
Fair value (gain) loss on embedded derivatives 7 (608) 2,047
Profit before interest and taxation from continuing operations 2 32,352 35,158 32,682
Finance costs 1,110 718 616
Other finance (income) expense (369) (202) 145
Profit before taxation from continuing operations 31,611 34,642 31,921
Taxation 10,442 12,331 9,473
Profit from continuing operations 21,169 22,311 22,448
Profit (loss) from Innovene operations – (25) 184
Profit for the year 21,169 22,286 22,632
BP shareholders 20,845 22,000 22,341
Minority interest 324 286 291
21,169 22,286 22,632
Earnings per share – cents
Profit for the year attributable to BP shareholders
Basic 4 108.76 109.84 105.74
Diluted 4 107.84 109.00 104.52
Profit from continuing operations attributable to BP shareholders
Basic 108.76 109.97 104.87
Diluted 107.84 109.12 103.66
Group statement of recognized income and expense
For the year ended 31 December $ million
2007 2006 2005
Currency translation differences 1,887 2,025 (2,502)
Exchange gain on translation of foreign operations transferred to gain or loss
on sale of businesses and fixed assets (147) – (315)
Actuarial gain relating to pensions and other post-retirement benefits 1,717 2,615 975
Available-for-sale investments 109 (134) 262
Cash flow hedges 41 314 (176)
Taxation (63) (934) (259)
Net income (expense) recognized directly in equity 3,544 3,886 (2,015)
Profit for the year 21,169 22,286 22,632
Total recognized income and expense for the year 24,713 26,172 20,617
BP shareholders 24,365 25,837 20,326
Minority interest 348 335 291
24,713 26,172 20,617
Effect of change in accounting policy – adoption of IAS 32 and IAS 39 on 1 January 2005
BP shareholders – – (243)
Minority interest – – –
– – (243)