2Q 2000 Results - Part 1
BP Amoco PLC
8 August 2000
PART 1
BP Amoco p.l.c.
Group Results
2nd Quarter and Half Year 2000
BP REPORTS RECORD PERFORMANCE
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Second First Second
Quarter Quarter Quarter First Half
1999 2000 2000 $ million 2000 1999
======================= =============
Replacement cost
1,226 2,677 2,866 profit before exceptional items 5,543 1,903
141 30 442 Special items* 472 225
- - 302 Acquisition amortization+ 302 -
----------------------- -------------
Pro forma result adjusted
1,367 2,707 3,610 for special items 6,317 2,128
----------------------- -------------
o BP's pro forma result, adjusted for special items, for the second
quarter was $3,610 million compared to $1,367 million a year ago, an
increase of 164%. For the half year the result was up by 197%.
o For the half year the combined cost structure of BP and ARCO was
$1 billion lower than a year ago, excluding the impact of divesting
ARCO's Alaskan and Cushing assets. This represents the achievement of
half the target of a $2 billion cost reduction year-on-year.
o Total hydrocarbon production increased by 5% and 1% for the quarter and
half year respectively.
o The company purchased for cancellation $976 million of its own shares
during the quarter.
o Burmah Castrol acquisition was completed in early July.
o Quarterly dividend 5 cents per share ($0.30 per ADS).
BP today reported its second quarter 2000 results. BP Group Chief Executive,
Sir John Browne, commented:
'Today is an excellent day for BP. These results represent the
cumulative impact of the progress we've made over the last few years -
growth in volume and, equally important, growth in total productivity
resulting from the way in which we work. The result is continued
progress against all our targets.'
The financial performance information above and elsewhere in the document is
provided in order to enable investors to evaluate better both the company's
historical performance and its performance against that of its competitors.
The pro forma result, adjusted for special items, has been derived from the
company's reported UK GAAP accounting information but is not in itself a
recognized UK or US GAAP measure.
* The special items refer to non-recurring charges and credits reported in
the quarter. The special items in the quarter comprise ARCO integration
costs, rationalization costs post the BP Amoco merger and an asset
writedown.
+ Depreciation and amortization relating to the fixed asset revaluation
adjustment and goodwill consequent upon the ARCO acquisition.
Operating Results
Second First Second
Quarter Quarter Quarter First Half
1999 2000 2000 2000 1999
======================= =============
Replacement cost
2,075 3,961 4,439 operating profit ($m) 8,400 3,321
----------------------- -------------
Replacement cost profit
1,226 2,677 2,866 before exceptional items ($m) 5,543 1,903
----------------------- -------------
Profit after exceptional items ($m)
1,063 2,553 2,886 Replacement cost 5,439 880
1,635 3,085 3,099 Historical cost 6,184 1,459
----------------------- -------------
Per ordinary share (cents)
Pro forma result
7.05 13.93 16.54 adjusted for special items 30.47 10.98
RC profit before
6.32 13.78 12.96 exceptional items 26.74 9.82
HC profit after
8.44 15.88 13.95 exceptional items 29.83 7.53
Per ADS (cents)
Pro forma result
42.30 83.58 99.24 adjusted for special items 182.82 65.88
RC profit before
37.92 82.68 77.76 exceptional items 160.44 58.92
HC profit after
50.64 95.28 83.70 exceptional items 178.98 45.18
----------------------- -------------
Dividends per ordinary share
5.00 5.00 5.00 cents 10.00 10.00
3.112 3.220 3.352 pence 6.572 6.181
30.0 30.0 30.0 Dividends per ADS (cents) 60.0 60.0
----------------------- -------------
EBITDA* (cents)
18.65 28.47 30.27 per ordinary share 58.74 26.09
111.90 170.82 181.62 per ADS 352.44 156.54
----------------------- -------------
Adjusted EBITDA+ (cents)
17.67 26.75 31.46 per ordinary share 58.21 31.13
106.02 160.50 188.76 per ADS 349.26 186.78
======================= =============
* Profit for the period before interest, tax, depreciation and amortization.
+ Replacement cost profit before exceptional items, adjusted for special
items, and before interest, tax, depreciation and amortization.
Income Adjusted for Special Items and Acquisition Amortization
Pro Forma Result Pro Forma Result
adjusted for ----- 2Q 2000 --------------- adjusted for
special items special items
------------------- ARCO
2Q 1Q 2Q Special Acq. Reported First Half
1999 2000 2000 Items* Amort. Earnings $ million 2000 1999
=========================================== =============
Exploration and
1,493 3,227 3,627 259 253 3,115 Production 6,854 2,329
38 52 26 - - 26 Gas and Power 78 106
Refining and
593 674 1,482 141 64 1,277 Marketing 2,156 956
257 259 370 50 - 320 Chemicals 629 474
Other businesses
(109) (211) (149) 150 - (299)and corporate (360) (233)
------------------------------------------- -------------
RC operating
2,272 4,001 5,356 600 317 4,439 profit 9,357 3,632
------------------------------------------- -------------
(328) (296) (403) - - (403)Interest expense (699) (632)
(552) (930)(1,306) (158) - (1,148)Taxation (2,236) (836)
(25) (68) (37) - (15) (22)MSI (105) (36)
=========================================== =============
RC profit before
1,367 2,707 3,610 442 302 2,866 exceptional items 6,317 2,128
------------------------------------------- -------------
Exceptional items
161 before tax
Taxation on
(141)exceptional items
-----
RC profit after
2,886 exceptional items
213 Stock holding gains (losses)
-----
3,099 HC profit
=====
* The special items refer to non-recurring charges and credits reported in
the quarter. The special items in the quarter comprise ARCO integration
costs, rationalization costs post the BP Amoco merger and an asset
writedown.
+ Depreciation and amortization relating to the fixed asset revaluation
adjustment and goodwill consequent upon the ARCO acquisition.
Quarterly Summary
Exploration and Production produced a record result, with strong growth in
gas volumes. Significant portfolio changes took place in the quarter with
the completion of the ARCO acquisition, the major part of the FTC mandated
disposals, the Altura disposal and agreements on Alaskan alignment. The
quarter saw further cost savings with significant synergies still to be
achieved this year.
Gas and Power's result reflected lower Ruhrgas income and the stronger
dollar, versus a year ago. Gas sales volumes increased by 51%.
Refining and Marketing achieved a record result with robust refining
margins, particularly in the USA; marketing margins came under pressure from
increased product prices; the quarter's result also benefited from
productivity gains. Product sales showed a strong increase over a year ago.
The Chemicals' result reflected stronger margins and lower costs.
Interest expense was $403 million compared with $296 million in the previous
quarter.
The pro forma effective tax rate on replacement cost profit, before
exceptional items, was 26% compared with 25% in the previous quarter.
Capital expenditure for the quarter, excluding $634 million for acquisitions
of interests in PetroChina and various new business ventures in Gas and
Power and e-commerce, was $2.4 billion, up 35% on a year ago. Upstream
production investment increased significantly, building on recent
exploration success.
Net debt at the end of the quarter was $13.3 billion. The pro forma ratio of
net debt to net debt plus equity was 19%.
Net cash inflow for the quarter was $7.3 billion, compared with an outflow
of $1.2 billion a year ago. The cash inflow reflects strong operating cash
flow, partly offset by higher tax and capital payments along with sales
proceeds from the FTC mandated ARCO asset sales.
The commentaries above and following are based on the pro forma replacement
cost operating results for the quarter, before exceptional items, adjusted
for special items. The results of ARCO have been included with effect from
14 April 2000, the day following the US Federal Trade Commission approval of
the transaction.
Operating Statistics
Second First Second
Quarter Quarter Quarter First Half
1999 2000 2000 2000 1999
======================= =============
Crude oil and natural gas
liquids production (mb/d)
(Net of Royalties)
565 581 519 UK 550 575
98 91 88 Rest of Europe 90 102
794 794 705 USA 749 804
592 515 585 Rest of World 550 592
----------------------- -------------
Total crude oil and
2,049 1,981 1,897 liquids production 1,939 2,073
----------------------- -------------
Natural gas production (mmcf/d)
1,132 1,746 1,630 UK 1,688 1,310
146 184 99 Rest of Europe 142 194
2,380 2,256 3,188 USA 2,760 2,406
2,286 2,123 2,777 Rest of World 2,412 2,097
----------------------- -------------
5,944 6,309 7,694 Total natural gas production 7,002 6,007
----------------------- -------------
Gas sales volumes (mmcf/d)
1,052 1,568 1,482 UK 1,525 1,320
142 188 148 Rest of Europe 168 195
4,178 4,786 6,239 USA 5,512 3,643
2,918 4,005 4,616 Rest of World 4,311 2,760
----------------------- -------------
8,290 10,547 12,485 Total gas sales production 11,516 7,918
----------------------- -------------
Oil sales volumes (mb/d)
Refined products
231 224 227 UK 225 236
785 766 781 Rest of Europe 774 785
1,597 1,472 2,027 USA 1,750 1,528
571 650 584 Rest of World 617 614
----------------------- -------------
3,184 3,112 3,619 Total marketing sales 3,366 3,163
1,928 1,621 2,071 Trading/supply sales 1,846 1,851
----------------------- -------------
5,112 4,733 5,690 Total refined product sales 5,212 5,014
4,175 6,496 6,271 Crude oil 6,383 4,062
----------------------- -------------
9,287 11,229 11,961 Total oil sales 11,595 9,076
----------------------- -------------
Chemicals production+ (kte)
941 867 658 UK 1,525 1,916
1,507 1,640 1,692 Rest of Europe 3,332 2,916
2,488 2,619 2,562 USA 5,181 4,787
579 577 577 Rest of World 1,154 1,039
----------------------- --------------
5,515 5,703 5,489 Total production 11,192 10,658
======================= ==============
+ Includes BP share of associated undertakings and other interests in
production.
Exploration and Production
The pro forma result, after adjusting for special items, for the second
quarter was a record $3,627 million. The special items comprised ARCO
integration costs. The quarter's result included $80 million from two weeks
of ARCO Alaskan operations, prior to the sale to Phillips Petroleum. The
adjusted result was up 143% compared with a year ago reflecting
significantly higher oil and gas prices and cost savings. The half year's
adjusted pro forma result also reflected the improved environment and cost
savings.
Hydrocarbon production was up, with increased gas production more than
offsetting lower liquids production, resulting from divestments and the
Alaskan alignment. Upstream production investment is significantly higher,
building on recent exploration success.
In April, BP and its partners finalized an agreement to align their Alaskan
interests and thereby optimize operations. In return for a reduction in its
share of liquids production, BP has achieved a significantly strengthened
gas position and immediate cost savings through its single operatorship.
During the quarter, the divestment of non-core properties continued. Most
significantly the disposal of the interest in Altura Energy was closed out.
After the quarter end the sale of certain ARCO UK Southern North Sea gas
assets was announced, subject to regulatory approvals.
At the end of May, BP announced that it had entered into agreement with
Vastar Resources Inc. which would enable it to acquire the publicly-held
minority stock holding. This will enable substantial cost synergies by
combining Vastar operations with those of BP. The transaction remains
subject to shareholder approval.
BP has announced three major discoveries. In May, offshore Trinidad, the
Manakin 1 exploration well (BP 70% and operator), including a portion which
lies in Venezuela, discovered some 2 trillion cubic feet of natural gas and
offshore Angola, (BP 50% and operator) BP announced its third discovery in
Block 18 at the Galio well. In July, a discovery was announced offshore
Kazakhstan at the Kashagan East 1 well (BP 9.5%) in the Caspian Sea.
2Q 1Q 2Q First Half
1999 2000 2000 $ million 2000 1999
================= =============
1,465 3,203 3,115 Replacement cost operating profit 6,318 2,215
28 24 259 Special items 283 114
- - 253 Acquisition amortization 253 -
----------------- -------------
Pro forma operating result
1,493 3,227 3,627 adjusted for special items 6,854 2,329
----------------- -------------
Results include:
124 131 168 Exploration expense 299 296
----------------- -------------
14.49 25.59 24.98 BP Average oil realizations* ($/bbl) 25.30 12.45
----------------- -------------
BP Average
1.82 2.12 2.51 natural gas realizations ($/mcf) 2.33 1.81
================= =============
* Crude oil and natural gas liquids.
Gas and Power
The pro forma result for the second quarter was $26 million compared with
$38 million a year ago and $52 million during the first quarter. Gas sales
volumes showed strong growth over a year ago. The result included lower
Ruhrgas income, a stronger dollar and increased business development costs.
The half year result reflected the same factors. Capital expenditure and
acquisitions are rising, with the ambitious growth agenda of the business.
In June, BP announced the approval of a major investment in a liquefied
natural gas (LNG) and power project in northern Spain. The Bahia de Bizkaia
project is an integrated energy project which comprises a combined cycle gas
turbine power plant, a regasification facility and a LNG import terminal. A
long term gas sales agreement was signed to supply and deliver gas in the
form of LNG to power plants in the Dominican Republic, beginning mid 2002.
Contracts were signed in July for the purchase of two LNG ships, with
options for further vessels. BP was one of three successful bidders for LNG
tanker discharging capacity at the Cove Point facility on the Eastern
seaboard of the USA.
In the quarter, BP purchased an 18.5% shareholding in GreenMountain.com, the
premier green and clean energy consumer marketer in the United States. In
early July, BP purchased, subject to regulatory approvals, IGI Resources, a
gas and power trading and transportation business in the Pacific Northwest,
USA.
2Q 1Q 2Q First Half
1999 2000 2000 $ million 2000 1999
================= =============
38 52 26 Replacement cost operating profit 78 106
- - - Special items - -
- - - Acquisition amortization - -
----------------- -------------
Pro forma operating result
38 52 26 adjusted for special items 78 106
----------------- -------------
0.95 1.01 1.07 Euro/US$ 1.04 0.92
================= =============
Refining and Marketing
The pro forma result, after adjusting for special items, for the second
quarter was $1,482 million, up by $889 million or 150% on the same period
last year. The special items comprised ARCO integration costs and
rationalization costs post the BP Amoco merger. The half year result was up
125% on a year ago. The main drivers of the improvement on the corresponding
quarter last year were higher refining margins, a continued reduction in
operating costs, with the overall cost reduction programme on track, and
ARCO income. Although weak at the start of the quarter, refining margins
improved over the period, particularly in the USA and, to a lesser extent,
in Europe. The strength was principally due to OPEC constraint on crude
output and gasoline tightness. In marketing, the effect of steadily rising
crude and product prices was to depress margins, with impacts in both the
retail sector and, to a lesser extent, in the commercial sector. Improved
operating performance also played a significant part in the quarter on
quarter improvement.
Product sales increased significantly versus a year ago, as did retail shop
revenues.
During the quarter there was further progress on our clean fuels
initiatives, with the launch on 21 June of low sulphur gasoline in the
Indianapolis metropolitan area in the United States. This is the fifth
metropolitan area in the United States where low sulphur gasoline has been
introduced. On 3 July the launch of BP Cleaner Unleaded in London took place
as part of the national roll-out of low sulphur gasoline in the UK.
Worldwide, 32 markets now sell cleaner fuels.
On 13 July BP announced that a definitive agreement to sell the Alliance
refinery, located in Belle Chasse, Louisiana, has been reached with Tosco
Corporation. In late July, it was announced that BP had agreed to sell the
Alliance Products Pipeline and Terminal System to Colonial Pipeline Company.
Both these transactions are subject to regulatory approval.
Refining and Marketing (continued)
2Q 1Q 2Q First Half
1999 2000 2000 $ million 2000 1999
================= =============
560 674 1,277 Replacement cost operating profit 1,951 906
33 - 141 Special items 141 50
- - 64 Acquisition amortization 64 -
----------------- -------------
Pro forma operating result
593 674 1,482 adjusted for special items 2,156 956
----------------- -------------
1.21 2.44 4.69 Global Indicator Refining Margin*($/bbl) 3.56 1.12
----------------- -------------
Refinery throughputs (mb/d)
285 281 265 UK 273 279
519 518 535 Rest of Europe 528 541
1,396 1,290 1,853 USA 1,573 1,336
383 349 368 Rest of World 360 383
----------------- -------------
2,583 2,438 3,021 Total throughput 2,734 2,539
================= =============
* The Global Indicator Refining Margin (GIM) is the average of seven
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.
Chemicals
Chemicals' result for the second quarter was $370 million after adjusting
for $50 million of special items, the major component of which was an asset
writedown. The quarter's adjusted result was $111 million higher than in the
first quarter, primarily on the strength of improved margins, in spite of
lower volumes. Results were well above the second quarter of 1999,
reflecting the benefits of better margins and lower costs, in spite of
higher business development expenditure. The half year result was up 33% on
a year ago.
Chemicals production was 5,490 ktes in the second quarter. This was a 4%
decrease from the first quarter due to scheduled maintenance shutdowns and
unplanned plant outages. Production was similar to a year ago.
Capital expenditure in the quarter was down slightly due to the phasing of
projects. The overall capital programme is geared for growth.
During the quarter, BP reached agreement in principle with Bayer to acquire
their 50% interest in the two companies' Erdoelchemie joint venture. Also,
we received the Chinese government's approval to increase the capacity of
our planned ethylene joint venture in Shanghai, and we joined with other
major chemical companies in agreeing to evaluate the creation of a new e-
commerce company which will develop and provide an on-line marketplace for a
broad range of chemical products. We also announced plans to divest our
Engineering Polymers and Carbon Fibres businesses.
2Q 1Q 2Q First Half
1999 2000 2000 $ million 2000 1999
================= =============
198 259 320 Replacement cost operating profit 579 404
59 - 50 Special items 50 70
- - - Acquisition amortization - -
----------------- -------------
Pro forma operating result
257 259 370 adjusted for special items 629 474
----------------- -------------
96 119 143 Chemicals Indicator Margin ($/te)* 128 108
================= =============
* The Chemicals Indicator Margin (CIM) is a weighted average of externally-
based product margins. It is based on market data collected by Chem
Systems in their quarterly market analyses, then weighted based on BP's
product portfolio. While it does not cover our entire portfolio, it
includes a broader range of products than our previous indicator. Among
the products and businesses covered in the CIM are the olefins and
derivatives, the aromatics and derivatives, linear alpha-olefins, acetic
acid, vinyl acetate monomer and nitriles. Not included are Fabrics and
Fibres, plastic fabrications, poly alpha-olefins, anhydrides, Engineering
Polymers and Carbon Fibres, speciality intermediates, and the remaining
parts of the solvents and acetyls businesses.
Other Businesses and Corporate
Other Businesses and Corporate comprises Finance, BP Solar, the group's coal
asset, interest income and costs relating to corporate activities worldwide.
BP Solar production and shipments in the quarter and half year showed
continuing growth, with the second quarter up 26% on a year ago. Capacity is
being expanded to meet further expected growth in sales. The special items
for the quarter comprised ARCO integration costs and rationalization costs
post the BP Amoco merger.
2Q 1Q 2Q First Half
1999 2000 2000 $ million 2000 1999
================= =============
(186) (227) (299) Replacement cost operating loss (526) (310)
77 16 150 Special items 166 77
- - - Acquisition amortization - -
----------------- -------------
Pro forma operating result
(109) (211) (149) adjusted for special items (360) (233)
================= =============
Exceptional Items
Exceptional items for the second quarter include the profit on sale of BP's
interest in Altura Energy and the loss on sale of certain Venezuelan
upstream interests.
2Q 1Q 2Q First Half
1999 2000 2000 $ million 2000 1999
================= =============
Profit (loss) on sale of fixed assets and
162 (157) 161 businesses and termination of operations 4 259
(348) - - Restructuring costs - (1,503)
23 33 (141) Taxation credit (charge) (108) 221
----------------- -------------
(163) (124) 20 Exceptional items after taxation (104) (1,023)
================= =============
2000 Dividends
BP today announced a second quarterly dividend for 2000 of 5 cents per
ordinary share. Holders of ordinary shares will receive 3.352 pence per
share and holders of American Depositary Receipts (ADRs) $0.30 per ADS
share. The dividend is payable on 11 September 2000 to shareholders on the
register on 18 August 2000. 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 11 September 2000. The third quarter
2000 results and dividend will be announced on 7 November.
Half Year Review
The Half Year Review will be published in the Financial Times on Friday, 11
August 2000.
Outlook
BP Group Chief Executive, Sir John Browne, concluded:
'Overall, the outlook in the near term remains broadly positive. Crude
prices continue to be firm but volatile despite recent OPEC production
increases. In the short term, low stocks, particularly in the US, are
likely to continue to support the market. Natural gas prices have been
very strong this year and it is probable that this trend will continue.
Refining margins are likely to remain healthy but volatile, supported by
low product stocks. The outlook for Chemicals is for continued volume
growth, but with pressure on margins due to increased supply.
'We have achieved a great deal in the last 18 months, integrating all
our operations and delivering ahead of schedule on the cost savings we
targeted. Now we can do more. The combination of BP, Amoco, ARCO,
Burmah Castrol and all the other elements of the new BP gives us the
chance to go beyond our previous targets, and to deliver higher levels
of total productivity. Our objective is double digit growth in earnings,
on constant assumptions which do not rely on exceptional prices or
margins. We believe we have the assets, the organization, the technology
and the human skills to deliver a strong and sustainable level of
performance. We have outlined these plans recently to investors and more
details are available on our website at bp.com. '
----------------------------------------------------------------------
The foregoing discussion, in particular the statements under 'Outlook',
focuses on certain trends and general market and economic conditions
and outlook on production levels or rates, prices, margins and currency
exchange rates and, as such, are forward-looking statements that
involve risk and uncertainty that could cause actual results and
developments to differ materially from those expressed or implied by
this discussion. By their nature, trends and outlook on production,
price, margin and currency exchange rates are difficult to forecast
with any precision, and there are a number of factors that could cause
actual results and developments to differ materially from those
expressed or implied by these forward-looking statements,including
levels of industry product supply, demand and pricing; currency
exchange rates; political stability and economic growth in relevant
areas of the world; the ability to successfully integrate after merger;
development and use of new technology and successful partnering; the
actions of competitors, natural disasters and other changes to business
conditions. Additional information, including information on factors
which may affect BP's business, is contained in BP's Annual
Report and Accounts for 1999 and in the Annual Report on Form 20-F
filed with the US Securities and Exchange Commission.
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