1Q08 part 1 of 2
BP PLC
29 April 2008
BP p.l.c.
Group results
First quarter 2008
London 29 April 2008
FOR IMMEDIATE RELEASE
----------------------
First
First Fourth First quarter
quarter quarter quarter 2008 vs
2008 2007 2007 2007
=========================================
$ million
Profit for the period(a) 7,619 4,399 4,664
Inventory holding (gains) losses, net of tax(b) (1,031) (1,004) (220)
-----------------------------------------
Replacement cost profit(b) 6,588 3,395 4,444 48%
=========================================
- per ordinary share (pence) 17.63 8.75 11.76
- per ordinary share (cents) 34.90 17.90 22.93 52%
- per ADS (dollars) 2.09 1.07 1.38
=========================================
• BP's first-quarter replacement cost profit was $6,588 million, compared
with $4,444 million a year ago, an increase of 48%.
• Non-operating items and fair value accounting effects for the first
quarter had a net $4 million unfavourable impact compared to a net $36 million
favourable impact in the first quarter of 2007 - see further details on page 3.
Non-operating items for the first quarter included a pre-tax charge of $307
million for restructuring, integration and rationalization costs associated with
BP's forward agenda.
• Net cash provided by operating activities for the quarter was $10.9
billion compared with $8.0 billion a year ago.
• The effective tax rate on replacement cost profit(b) for the quarter
was 37%; the rate was 34% a year ago.
• Net debt at the end of the quarter was $23.8 billion. The ratio of net
debt to net debt plus equity was 19% compared with 20% a year ago. Net debt has
been redefined as described on page 5.
• Capital expenditure, excluding acquisitions and asset exchanges, was
$7.1 billion for the quarter. Total capital expenditure and acquisitions was
$9.0 billion. Capital expenditure excluding acquisitions and asset exchanges,
and excluding the accounting for our transaction with Husky, is expected to be
around $21-22 billion for the year. Disposal proceeds were $0.3 billion for the
quarter.
• The quarterly dividend, to be paid in June, is 13.525 cents per share
($0.8115 per ADS) compared with 10.325 cents per share a year ago, an increase
of 31%. In sterling terms, the quarterly dividend is 6.830 pence per share,
compared with 5.151 pence per share a year ago, an increase of 33%. During the
quarter, the company repurchased 91 million of its own shares for cancellation
at a cost of $1 billion.
(a)Profit attributable to BP shareholders.
(b)With effect from 1 January 2008, replacement cost profit excludes inventory
holding gains and losses net of tax. Comparative amounts have been amended to
the new basis. See page 2 for further details.
The commentaries above and following are based on replacement cost profit and
should be read in conjunction with the cautionary statement on page 11.
Analysis of replacement cost profit and reconciliation to profit
for the period
----------------------------------------------------------------
First Fourth First
quarter quarter quarter
2008 2007 2007
==================================
$ million
Exploration and Production 10,072 7,870 6,306
Refining and Marketing 1,249 (1,296) 804
Other businesses and corporate (213) (427) (98)
Consolidation adjustment (195) (267) 42
----------------------------------
RC profit before interest and tax(a) 10,913 5,880 7,054
----------------------------------
Finance costs and net finance income relating to
pensions and other post-retirement benefits (246) (242) (171)
Taxation on a replacement cost basis(b) (3,947) (2,138) (2,357)
Minority interest (132) (105) (82)
----------------------------------
Replacement cost profit attributable to BP shareholders(b) 6,588 3,395 4,444
==================================
Inventory holding gains (losses) 1,593 1,427 303
Taxation (charge) credit on inventory holding gains and losses(b) (562) (423) (83)
----------------------------------
Profit for the period attributable to BP shareholders 7,619 4,399 4,664
==================================
(a)Replacement cost profit reflects the current cost of supplies. The
replacement cost profit for the period is arrived at 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. Replacement cost profit is not a
recognized GAAP measure.
(b)Effective 1 January 2008, replacement cost profit excludes inventory holding
gains and losses and their associated tax effect. Previously, replacement cost
profit excluded inventory holding gains and losses while the tax charge remained
unadjusted and included the tax effect on inventory holding gains and losses.
Comparative amounts have been amended to the new basis and the impact of the
change is shown in the table below. There is no impact on profit for the period.
Fourth First
quarter quarter
2007 2007
====================
$ million
Replacement cost profit attributable to BP shareholders
-as previously reported 2,972 4,361
-tax effect on inventory holding gains and losses 423 83
--------------------
-as amended 3,395 4,444
====================
Non-operating items and fair value accounting effects
------------------------------------------------------
Non-operating items(a)
First Fourth First
quarter quarter quarter
2008 2007 2007
================================
$ million
Exploration and Production (376) (654) 757
Refining and Marketing 609 (1,146) (229)
Other businesses and corporate (81) (87) 34
--------------------------------
152 (1,887) 562
Taxation(b) (56) 715 (192)
--------------------------------
96 (1,172) 370
================================
Fair value accounting effects(c)
First Fourth First
quarter quarter quarter
$ million 2008 2007 2007
================================
Exploration and Production
Unrecognized gains (losses) brought forward from
previous period 107 234 155
Unrecognized (gains) losses carried forward (366) (107) (124)
--------------------------------
Favourable (unfavourable) impact relative to
management's measure of performance (259) 127 31
================================
Refining and Marketing(d)
Unrecognized gains (losses) brought forward from
previous period 429 367 72
Unrecognized (gains) losses carried forward (328) (429) (611)
--------------------------------
Favourable (unfavourable) impact relative to
management's measure of performance 101 (62) (539)
================================
(158) 65 (508)
Taxation(b) 58 (25) 174
--------------------------------
(100) 40 (334)
================================
Total of non-operating items and fair value accounting effects
First Fourth First
quarter quarter quarter
2008 2007 2007
================================
$ million
Exploration and Production (635) (527) 788
Refining and Marketing 710 (1,208) (768)
Other businesses and corporate (81) (87) 34
--------------------------------
(6) (1,822) 54
Taxation(b) 2 690 (18)
--------------------------------
(4) (1,132) 36
================================
(a)An analysis of non-operating items by type is provided on page 20 and a
geographical split is shown on pages 7, 9 and 10.
(b)Tax is calculated using the quarter's effective tax rate on replacement cost
profit. Amounts for comparative periods have been amended to reflect a
redefinition of the effective tax rate on replacement cost profit arising as a
result of the exclusion of tax effects on inventory holding gains and losses as
described on page 2.
(c)An explanation of fair value accounting effects is provided on page 11.
(d)Fair value accounting effects, in respect of the first quarter 2007 for the
Refining and Marketing segment, have been revised from those disclosed
previously. The revisions reflect changes in the basis for valuation of certain
forward supply contracts to be consistent with the method used for other forward
supply contracts when calculating management's internal measure of performance.
The changes to comparative figures are not material in relation to management's
internal measure of the Refining and Marketing segment's performance. The
changes have no impact on the results reported under IFRS.
Per share amounts
-----------------
First Fourth First
quarter quarter quarter
2008 2007 2007
====================================
Results for the period ($ million)
Profit(a) 7,619 4,399 4,664
Replacement cost profit 6,588 3,395 4,444
------------------------------------
Shares in issue at period end (thousand)(b) 18,877,537 18,922,786 19,290,540
- ADS equivalent (thousand)(b) 3,146,256 3,153,798 3,215,090
Average number of shares outstanding (thousand)(b) 18,875,611 18,979,138 19,384,508
- ADS equivalent (thousand)(b) 3,145,935 3,163,190 3,230,751
Shares repurchased in the period (thousand) 90,996 121,175 237,916
Per ordinary share (cents)
Profit for the period 40.36 23.15 24.06
RC profit for the period 34.90 17.90 22.93
Per ADS (cents)
Profit for the period 242.16 138.90 144.36
RC profit for the period 209.40 107.40 137.58
------------------------------------
(a)Profit attributable to BP shareholders.
(b)Excludes treasury shares.
Dividends
---------
Dividends Payable
BP today announced a dividend of 13.525 cents per ordinary share to be paid in
June. Holders of ordinary shares will receive 6.830 pence per share and holders
of American Depository Receipts (ADRs) $0.8115 per ADS. The dividend is payable
on 9 June to shareholders on the register on 16 May. Participants in the
Dividend Reinvestment Plan (DRIP) or the DRIP facility in the US Direct Access
Plan will receive the dividend in the form of shares, also on 9 June.
Dividends Paid
First Fourth First
quarter quarter quarter
2008 2007 2007
=================================
Dividends paid per ordinary share
cents 13.525 10.825 10.325
pence 6.813 5.308 5.258
Dividends paid per ADS (cents) 81.15 64.95 61.95
=================================
Net debt ratio - net debt: net debt + equity
---------------------------------------------
First Fourth First
quarter quarter quarter
2008 2007 2007
=================================
$ million
Gross debt 29,871 31,045 23,728
Less: fair value asset (liability) of hedges related to finance debt 1,234 666 328
---------------------------------
28,637 30,379 23,400
Cash and cash equivalents 4,820 3,562 1,956
---------------------------------
Net debt 23,817 26,817 21,444
=================================
Equity 99,704 94,652 85,749
Net debt ratio 19% 22% 20%
=================================
Net debt has been redefined to include the fair value of associated derivative
financial instruments that are used to hedge foreign exchange and interest rate
risks relating to finance debt, for which hedge accounting is claimed. The
derivatives are reported on the balance sheet within the headings 'Derivative
financial instruments'. Amounts for comparative periods are presented on a
consistent basis. See note 2(c) on page 24 for further information.
Exploration and Production
--------------------------
$ million First Fourth First
quarter quarter quarter
2008 2007 2007
=================================
Profit before interest and tax(a) 10,054 7,950 6,317
Inventory holding (gains) losses 18 (80) (11)
---------------------------------
Replacement cost profit before interest and tax 10,072 7,870 6,306
=================================
By region:
UK 923 725 1,122
Rest of Europe 276 266 727
US 3,085 2,240 1,731
Rest of World 5,788 4,639 2,726
---------------------------------
10,072 7,870 6,306
=================================
(a)Includes profit after interest and tax of equity-accounted entities.
The replacement cost profit before interest and tax for the first quarter was
$10,072 million, an increase of 60% over the first quarter of 2007. This result
benefited from higher oil and gas realizations and a higher contribution from
the gas marketing and trading and LNG businesses. This was partly offset by
higher costs, primarily reflecting the impacts of higher depreciation and
sector-specific inflation. The result also included higher income from
equity-accounted entities, primarily from TNK-BP due to higher prices. In
addition, BP's share of income from TNK-BP benefited from the effect of lagged
tax reference prices.
The result included a net non-operating charge of $376 million with the most
significant items being fair value losses on embedded derivatives partly offset
by the release of certain provisions. The corresponding quarter in 2007
contained a net non-operating gain of $757 million. In the first quarter, fair
value accounting effects had an unfavourable impact of $259 million compared
with a favourable impact of $31 million a year ago.
Reported production for the quarter was 3,913mboe/d and was flat compared with
the first quarter of 2007. After adjusting for the impact of lower entitlement
in our production-sharing agreements (PSAs), production was more than 5% higher
than the first quarter of 2007. This primarily reflects the ramp-up of
production following the start-up of major projects in 2007. As previously
indicated, if oil prices remain at $100 per barrel we expect 2008 reported
production to be broadly flat compared with 2007, with underlying production
growth being offset by PSA entitlement impacts. We expect the quarterly phasing
of underlying production during the year to reflect the normal seasonal effects
associated with turnaround activity in the second and third quarters.
During the quarter, we had first production from the Mondo field within the
Kizomba C development in Angola, where BP holds a 26.67% interest. Shortly after
the end of the quarter, production commenced at Deep Water Gunashli on schedule;
this completes the third and final phase of development of the
Azeri-Chirag-Gunashli field (BP 34.1% and operator) in the Azerbaijan sector of
the Caspian Sea. We had exploration success in Angola with the Portia
discovery, in Egypt with the Satis discovery and in the North Sea with a
discovery close to the Foinaven production facility.
On 31 March, we completed the deal with Husky Energy Inc. to create an
integrated North American oil sands business by means of two separate joint
ventures, one of which gives BP a 50% interest in Husky's Sunrise field in
Alberta, Canada. Capital expenditure of $2,848 million in respect of this
transaction is reflected in the first quarter of 2008.
Shortly after the end of the quarter, we announced the Kodiak discovery in the
deepwater Gulf of Mexico and, jointly with ConocoPhillips, announced that we
have combined resources to start Denali - The Alaska Gas Pipeline.
Exploration and Production
--------------------------
$ million First Fourth First
quarter quarter quarter
2008 2007 2007
=================================
Non-operating items
UK (694) (567) 152
Rest of Europe - (3) 533
US (8) 213 (7)
Rest of World 326 (297) 79
---------------------------------
(376) (654) 757
=================================
Fair value accounting effects(a)
UK 17 (11) 38
Rest of Europe - - -
US (142) 19 (6)
Rest of World (134) 119 (1)
---------------------------------
(259) 127 31
=================================
Exploration expense
UK 92 17 20
Rest of Europe - - -
US 72 61 77
Rest of World 129 123 59
---------------------------------
293 201 156
=================================
Production (net of royalties)(b)
Liquids (mb/d) (net of royalties)(c)
UK 191 199 236
Rest of Europe 44 50 59
US 554 523 526
Rest of World 1,664 1,697 1,625
---------------------------------
2,453 2,469 2,446
=================================
Natural gas (mmcf/d) (net of royalties)
UK 971 853 907
Rest of Europe 25 26 41
US 2,149 2,183 2,163
Rest of World 5,319 5,275 5,391
---------------------------------
8,464 8,337 8,502
=================================
Total hydrocarbons (mboe/d)(d)
UK 358 346 393
Rest of Europe 48 55 66
US 925 900 899
Rest of World 2,582 2,606 2,554
---------------------------------
3,913 3,907 3,912
=================================
Average realizations(e)
Total liquids ($/bbl) 90.92 82.72 53.43
Natural gas ($/mcf) 5.88 4.83 4.86
Total hydrocarbons ($/boe) 62.27 56.03 41.06
=================================
(a)These effects represent the favourable (unfavourable) impact relative to
management's measure of performance. Further information on fair value
accounting effects is provided on pages 3 and 11.
(b)Includes BP's share of production of equity-accounted entities.
(c)Crude oil and natural gas liquids.
(d)Natural gas is converted to oil equivalent at 5.8 billion cubic feet = 1
million barrels.
(e)Based on sales of consolidated subsidiaries only - this excludes
equity-accounted entities.
(f)Because of rounding, some totals may not agree exactly with the sum of their
component parts.
Refining and Marketing
------------------------
First Fourth First
quarter quarter quarter
2008 2007 2007
=================================
$ million
Profit (loss) before interest and tax(a) 2,840 67 1,095
Inventory holding (gains) losses (1,591) (1,363) (291)
---------------------------------
Replacement cost profit (loss) before interest and tax 1,249 (1,296) 804
=================================
By region:
UK 107 134 (42)
Rest of Europe 629 278 298
US 154 (1,805) 129
Rest of World 359 97 419
---------------------------------
1,249 (1,296) 804
=================================
(a)Includes profit after interest and tax of equity-accounted entities.
Refining and Marketing comprises Fuels Value Chains (FVC) and International
Businesses. The FVCs include refineries, supply, logistics and marketing and
trading activities. The International Businesses include lubricants, chemicals,
LPG, aviation and marine fuels.
The replacement cost profit before interest and tax for the first quarter was
$1,249 million compared with $804 million for the same period last year. The
quarter's result included a net non-operating gain of $609 million, primarily in
respect of the gain recognized on the contribution of the Toledo refinery into a
joint venture with Husky Energy Inc., as part of the integrated North American
oil sands deal completed on 31 March 2008. This compares with a net
non-operating charge of $229 million for the same period last year. In the first
quarter, fair value accounting effects had a favourable impact of $101 million.
A year ago, the impact was $539 million unfavourable.
Compared with the first quarter of 2007, our result reflected the adverse
impacts of a significantly lower US refining margin environment and higher
turnaround activities, primarily at the Carson refinery.
In the FVCs, we saw weaker US integrated margins, particularly on the West
Coast, which more than offset improved performance in other regions. The average
refining Global Indicator Margin (GIM) and BP's actual refining margin for the
first quarter were both significantly lower than those in the first quarter of
2007. Marketing margins were steady year on year, with slightly lower volumes
versus a year ago.
Refining availability continued to improve for the sixth successive quarter,
reaching 88.0% for the first quarter of 2008 compared with 81.6% in the first
quarter of 2007. During the quarter, we completed the largest turnaround in the
history of the Carson refinery, restored the Whiting refinery to its full clean
fuel capability of 360mb/d in March and successfully restarted the sour crude
distillation capacity at the Texas City refinery with most of its economic
capability on track to be restored by mid-2008.
Refining throughput for the quarter was 2,166mb/d compared with 2,232mb/d for
the same quarter last year. The lower throughput was mainly due to the
turnaround activities at Carson.
Our International Businesses made a significant contribution to the segment
result in both the first quarter and in the same period a year ago. We continued
to make progress on reducing complexity and costs in the lubricants and aviation
fuels businesses through portfolio simplification.
Operations at our new 900ktepa Zhuhai purified terephthalic acid (PTA) plant,
which was successfully commissioned in early 2008, continued to improve with the
production rate reaching over 90% in March.
On 17 March 2008, BP and Irving Oil entered into a memorandum of understanding
to work together on the next phase of engineering, design, and feasibility for
the proposed Eider Rock refinery in Saint John, New Brunswick, Canada. BP will
contribute $40 million as its share of funding for this stage of the study and
the two companies will also investigate the possibility of forming a joint
venture to build the refinery should they decide to proceed.
Refining margins have improved to date in the second quarter but still remain
significantly lower than the same quarter last year. The segment marketing
businesses are likely to continue to experience pressure from the effects of
higher product prices and a slowing of the OECD economies. We expect continued
improvement in BP's refining availability as the units at Texas City come
onstream progressively during the rest of the year.
Refining and Marketing
----------------------
First Fourth First
quarter quarter quarter
$ million 2008 2007 2007
=================================
Non-operating items
UK (49) (10) (163)
Rest of Europe (85) (56) (12)
US 774 (977) (58)
Rest of World (31) (103) 4
---------------------------------
609 (1,146) (229)
=================================
Fair value accounting effects(a)
UK (4) 1 (181)
Rest of Europe 36 5 (165)
US 95 (32) (165)
Rest of World (26) (36) (28)
---------------------------------
101 (62) (539)
=================================
Refinery throughputs (mb/d)
UK - - 148
Rest of Europe 775 689 640
US 1,076 996 1,152
Rest of World 315 313 292
---------------------------------
Total throughput 2,166 1,998 2,232
=================================
Refining availability (%)(b) 88.0 84.0 81.6
=================================
Oil sales volumes (mb/d)
Refined products
UK 321 328 335
Rest of Europe 1,244 1,330 1,246
US 1,455 1,455 1,564
Rest of World 692 680 624
---------------------------------
Total marketing sales 3,712 3,793 3,769
Trading/supply sales 2,047 1,696 2,026
---------------------------------
Total refined product sales 5,759 5,489 5,795
Crude oil 1,860 1,659 2,017
---------------------------------
Total oil sales 7,619 7,148 7,812
=================================
Global Indicator Refining Margin ($/bbl)(c)
NWE 4.79 4.84 4.16
USGC 6.21 6.82 10.14
Midwest 1.11 3.39 7.62
USWC 5.91 8.49 22.21
Singapore 4.76 5.80 4.84
BP Average 4.57 5.68 9.45
=================================
Chemicals production (kte)
UK 261 228 256
Rest of Europe 708 660 748
US 1,036 1,088 1,076
Rest of World 1,531 1,497 1,520
---------------------------------
Total production 3,536 3,473 3,600
=================================
(a)These effects represent the favourable (unfavourable) impact relative to
management's measure of performance. Further information on fair value
accounting effects is provided on pages 3 and 11.
(b)Refining availability is defined as the ratio of units which are available
for processing, regardless of whether they are actually being used, to total
capacity. Where there is planned maintenance, such capacity is not regarded as
being available.
(c)The Global Indicator Refining Margin (GIM) is the average of regional
indicator margins weighted for BP's crude refining capacity in each region. Each
regional indicator margin is based on a single representative crude with product
yields characteristic of the typical level of upgrading complexity. The regional
indicator margins may not be representative of the margins achieved by BP in any
period because of BP's particular refinery configurations and crude and product
slate.
Other businesses and corporate
------------------------------
First Fourth First
quarter quarter quarter
$ million 2008 2007 2007
=================================
Profit (loss) before interest and tax(a) (193) (443) (97)
Inventory holding (gains) losses (20) 16 (1)
---------------------------------
Replacement cost profit (loss) before interest and tax (213) (427) (98)
=================================
By region:
UK (119) (87) (26)
Rest of Europe - 5 21
US (152) (336) (133)
Rest of World 58 (9) 40
---------------------------------
(213) (427) (98)
=================================
Results include:
Non-operating items
UK (6) (28) -
Rest of Europe (13) (2) 28
US (49) (57) 6
Rest of World (13) - -
---------------------------------
(81) (87) 34
=================================
(a)Includes profit after interest and tax of equity-accounted entities.
Other businesses and corporate comprises the Alternative Energy business,
Shipping, the group's aluminium asset, Treasury (which includes interest income
on the group's cash and cash equivalents), and corporate activities worldwide.
The replacement cost profit before interest and tax for the first quarter was a
loss of $213 million, compared with a loss of $98 million a year ago.
The net non-operating charge for the first quarter was $81 million, including a
charge for restructuring costs and other provisions, partly offset by a net
disposal gain. This compares with a net non-operating gain of $34 million a year
ago.
Our estimates of 2008 charges for Other businesses and corporate, excluding
non-operating items, remain in line with the $1,500 million (+/- $200 million)
guidance provided in our 2008 strategy presentation.
At the start of the year, our Alternative Energy business broadened its scope to
include BP's biofuels business, carbon capture and storage (CCS), clean coal and
distributed energy, alongside the existing solar, wind, gas-fired power and
hydrogen energy activities. In January, we announced our intention to pursue
development options for a hydrogen power plant in Abu Dhabi with Abu Dhabi
Future Energy Company (Masdar), through our Hydrogen Energy joint venture with
Rio Tinto.
In addition, Alternative Energy and Dominion entered into a 50:50 joint venture
to develop a wind farm in Indiana with a nameplate capacity of 300MW and we
formed a 50:50 joint venture with NRG Energy, Inc. for the development and
operation of a commercial wind farm, intended to be located in Texas and with a
nameplate capacity of 150MW. Since the end of the quarter, we announced our
intention to take a 50% stake in Tropical BioEnergia SA, a joint venture
established by Brazilian companies Santelisa Vale and Maeda Group, which is
constructing an ethanol refinery in Brazil and also plans to build a second
refinery.
In 2008, Alternative Energy expects to achieve total solar cell sales of 170MW
and to install total gross capacity for wind generation of 1GW. We plan to
report changes to wind and solar capacity on a quarterly basis. Since the
beginning of 2007, additional solar manufacturing capacity has been added at our
Madrid plant and wind capacity has been added at Cedar Creek in Colorado, USA
and Dhule in India.
First Fourth First
quarter quarter quarter
2008 2007 2007
=================================
Total capacity as at period-end (megawatts)
Wind(a) 373 373 32
Solar(b) 228 228 201
=================================
(a)Wind capacity is the sum of the rated capacities of the assets/turbines that
have entered into commercial operation, including jointly controlled entities
(gross).
(b)Solar capacity is the theoretical cell production capacity per annum of
in-house manufacturing facilities, including jointly controlled entities
(gross).
Information on fair value accounting effects
--------------------------------------------
BP uses derivative instruments to manage the economic exposure relating to
inventories above normal operating requirements of crude oil, natural gas and
petroleum products as well as certain contracts to supply physical volumes at
future dates. Under IFRS, these inventories and contracts are recorded at
historic cost and on an accruals basis respectively. The related derivative
instruments, however, are required to be recorded at fair value with gains and
losses recognized in income because hedge accounting is either not permitted or
not followed, principally due to the impracticality of effectiveness testing
requirements. Therefore, measurement differences in relation to recognition of
gains and losses occur. Gains and losses on these inventories and contracts are
not recognized until the commodity is sold in a subsequent accounting period.
Gains and losses on the related derivative commodity contracts are recognized in
the income statement from the time the derivative commodity contract is entered
into on a fair value basis using forward prices consistent with the contract
maturity.
IFRS requires that inventory held for trading be recorded at its fair value
using period end spot prices whereas any related derivative commodity
instruments are required to be recorded at values based on 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
measurement differences.
BP enters into contracts for pipelines and storage capacity which, under IFRS,
are recorded on an accruals basis. These contracts are risk managed using a
variety of derivative instruments which are fair valued under IFRS. This results
in measurement differences in relation to recognition of gains and losses.
The way that BP manages the economic exposures described above, and measures
performance internally, differs from the way these activities are measured under
IFRS. BP calculates this difference by comparing the IFRS result with
management's internal measure of performance, under which the inventory and the
supply and capacity contracts in question are valued based on fair value using
relevant forward prices prevailing at the end of the period. We believe that
disclosing management's estimate of this difference provides useful information
for investors because it enables investors to see the economic effect of these
activities as a whole. The impacts of fair value accounting effects, relative to
management's internal measure of performance, are shown in the table on page 3.
Information for all quarters of 2005 - 2007 can be found at www.bp.com/FVAE.
Cautionary statement: The foregoing discussion contains forward-looking
statements particularly those regarding production, restoration of refinery
economic capability, refining margins, likely continuing pressures on marketing
businesses, improvements in refining availability, expected total solar cell
sales and installed total gross capacity for wind generation. By their nature,
forward-looking statements involve risk and uncertainty and actual results may
differ from those expressed in such statements depending on a variety of factors
including the following: the timing of bringing new fields onstream; industry
product supply; demand and pricing; operational problems; general economic
conditions; political stability and economic growth in relevant areas of the
world; changes in laws and governmental regulations; exchange rate fluctuations;
development and use of new technology; the success or otherwise of partnering;
the actions of competitors; natural disasters and adverse weather conditions;
changes in public expectations and other changes to business conditions; wars
and acts of terrorism or sabotage; and other factors discussed in this
Announcement. For more information you should refer to our Annual Report and
Accounts 2007 and our 2007 Annual Report on Form 20-F filed with the US
Securities and Exchange Commission.
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