4Q07 Part 1 of 2
BP PLC
05 February 2008
BP p.l.c.
Group Results
Fourth Quarter and Full Year 2007
London 5 February 2008
FOR IMMEDIATE RELEASE
-----------------------
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 $ million 2007 2006 %
========================== =========================
2,880 4,406 4,399 Profit for the period* 20,845 22,000
1,015 (539) (1,427) Inventory holding (gains) losses (3,558) 253
-------------------------- -------------------------
3,895 3,867 2,972 Replacement cost profit 17,287 22,253 (22)
========================== =========================
10.37 9.94 7.66 - per ordinary share (pence) 45.10 60.38
20.08 20.34 15.69 - per ordinary share (cents) 90.20 111.10 (19)
1.21 1.22 0.94 - per ADS (dollars) 5.41 6.67
========================== =========================
• BP's fourth-quarter replacement cost profit was $2,972 million,
compared with $3,895 million a year ago, a decrease of 24%. For the full year,
replacement cost profit was $17,287 million compared with $22,253 million, down
22%.
• The fourth-quarter result included a net non-operating charge of $1,030
million, including pre-tax charges of $603 million for the impairment of US
Convenience Retail and $338 million for restructuring, integration and
rationalization costs associated with BP's Forward Agenda. This compares with a
net non-operating charge of $152 million in the fourth quarter of 2006. For the
full year, the net non-operating charge was $272 million compared with a net
non-operating gain of $1,062 million in 2006.
• Net cash provided by operating activities for the quarter and year was
$4.3 billion and $24.7 billion respectively compared with $5.0 billion and $28.2
billion a year ago.
• The effective tax rate on replacement cost profit from continuing
operations for the fourth quarter was 45% compared with 25% a year ago. For the
year, the rate was 37% compared with 35% a year ago. The increased rate in the
fourth quarter reflects the effect of inventory holding gains and losses, which
are eliminated in the replacement cost profit, while the tax charge remains
unadjusted and includes the tax effect on inventory holding gains and losses. If
this effect is excluded, the rate would have been 38% in the fourth quarter
compared to 31% a year ago.
• Net debt at the end of the quarter was $27.5 billion. The ratio of net
debt to net debt plus equity was 23% compared with 20% a year ago.
• Capital expenditure, excluding acquisitions and asset exchanges, was
$6.6 billion for the quarter and for the year was $19.2 billion. Total capital
expenditure and acquisitions was $6.6 billion for the quarter and $20.6 billion
for the year. The year included $1.1 billion in respect of the acquisition of
Chevron's Netherlands manufacturing company. Disposal proceeds were $0.4 billion
for the quarter and were $4.3 billion for the year.
• The quarterly dividend, to be paid in March, is 13.525 cents per share
($0.8115 per ADS) compared with 10.325 cents per share a year ago. For the year,
the dividend showed an increase of 16%. The dividend increase marks a shift in
the balance between dividends and share buybacks as a means of returning value
to shareholders. In sterling terms, the quarterly dividend is 6.813 pence per
share, compared with 5.258 pence per share a year ago; for the year the increase
was 7%. During the quarter, the company repurchased 121 million of its own
shares for cancellation at a cost of $1.5 billion. For the year, share
repurchases were 663 million at a cost of $7.5 billion.
• Information on fair value accounting effects in relation to Refining
and Marketing and Gas, Power and Renewables is set out on page 10.
* Profit attributable to BP shareholders.
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
------------------
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 $ million 2007 2006
=============================== =================
5,063 6,343 7,648 Exploration and Production 26,927 29,647
312 376 (1,337) Refining and Marketing 2,617 5,283
470 (57) 219 Gas, Power and Renewables 558 1,376
(276) (451) (373) Other businesses and corporate (1,104) (947)
(103) 59 (277) Consolidation adjustments (204) 52
------------------------------- -----------------
5,466 6,270 5,880 RC profit before interest and tax 28,794 35,411
------------------------------- -----------------
(149) (173) (242) Finance costs and other finance income (741) (516)
(1,347) (2,158) (2,561) Taxation (10,442) (12,331)
(75) (72) (105) Minority interest (324) (286)
------------------------------- -----------------
RC profit from continuing operations
3,895 3,867 2,972 attributable to BP shareholders(a) 17,287 22,278
=============================== =================
Inventory holding gains (losses) from
(1,015) 539 1,427 continuing operations 3,558 (253)
------------------------------- -----------------
Profit for the period from continuing
operations attributable to
2,880 4,406 4,399 BP shareholders 20,845 22,025
Profit (loss) for the period from Innovene
- - - operations(b) - (25)
------------------------------- -----------------
Profit for the period attributable to
2,880 4,406 4,399 BP shareholders 20,845 22,000
=============================== =================
RC profit from continuing operations
attributable
3,895 3,867 2,972 to BP shareholders 17,287 22,278
- - - RC profit (loss) from Innovene operations - (25)
------------------------------- -----------------
3,895 3,867 2,972 Replacement cost profit 17,287 22,253
=============================== =================
(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)See further detail in Note 2.
Results include Non-operating Items
------------------------------
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 $ million 2007 2006
================================ ===============
(177) 22 (616) Exploration and Production 553 2,382
(53) (344) (1,146) Refining and Marketing (952) (384)
215 (8) (62) Gas, Power and Renewables (97) 181
(188) (205) (63) Other businesses and corporate (227) (75)
-------------------------------- ---------------
(203) (535) (1,887) (723) 2,104
51 189 857 Taxation(a) 451 (851)
-------------------------------- ---------------
(152) (346) (1,030) Continuing operations (272) 1,253
-------------------------------- ---------------
- - - Innovene operations - (184)
- - - Taxation - (7)
-------------------------------- ---------------
(152) (346) (1,030) Total for all operations (272) 1,062
================================ ===============
An analysis of non-operating items by type is provided on page 21.
(a)Tax on non-operating items is calculated using the quarter's effective tax
rate on replacement cost profit from continuing operations.
Per Share Amounts
----------------
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 2007 2006
================================ ======================
Results for the period ($m)
2,880 4,406 4,399 Profit(a) 20,845 22,000
3,895 3,867 2,972 Replacement cost profit 17,287 22,253
-------------------------------- ----------------------
Shares in issue at period end
19,510,496 19,019,579 18,922,786 (thousand)(b) 18,922,786 19,510,496
3,251,749 3,169,930 3,153,798 - ADS equivalent (thousand)(b) 3,153,798 3,251,749
Average number of shares outstanding
19,610,871 19,061,853 18,979,138 (thousand)(b) 19,163,389 20,027,527
3,268,479 3,176,976 3,163,190 - ADS equivalent (thousand)(b) 3,193,898 3,337,921
Shares repurchased in the period
310,385 128,253 121,175 (thousand) 663,150 1,334,363
Per ordinary share (cents)
15.04 23.18 23.15 Profit for the period 108.76 109.84
20.08 20.34 15.69 RC profit for the period 90.20 111.10
Per ADS (cents)
90.24 139.08 138.90 Profit for the period 652.56 659.04
120.48 122.04 94.14 RC profit for the period 541.20 666.60
-------------------------------- ----------------------
(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
March. Holders of ordinary shares will receive 6.813 pence per share and holders
of American Depository Receipts (ADRs) $0.8115 per ADS. The dividend is payable
on 10 March to shareholders on the register on 22 February. 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 10 March.
Dividends Paid
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 2007 2006
================================ =====================
Dividends paid per ordinary share
9.825 10.825 10.825 Cents 42.300 38.400
5.241 5.278 5.308 Pence 20.995 21.104
58.95 64.95 64.95 Dividends paid per ADS (cents) 253.80 230.40
================================ =====================
Net Debt Ratio - Net Debt: Net Debt + Equity
-----------------------------------
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 $ million 2007 2006
================================ =====================
24,010 25,245 31,045 Gross debt 31,045 24,010
2,590 2,410 3,562 Cash and cash equivalents 3,562 2,590
-------------------------------- ---------------------
21,420 22,835 27,483 Net debt 27,483 21,420
================================ =====================
85,465 91,494 94,652 Equity 94,652 85,465
20% 20% 23% Net debt ratio 23% 20%
================================ =====================
Exploration and Production
----------------------
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 $ million 2007 2006
================================ =================
5,057 6,347 7,643 Profit before interest and tax(a) 26,938 29,629
6 (4) 5 Inventory holding (gains) losses (11) 18
-------------------------------- -----------------
Replacement cost profit before interest
5,063 6,343 7,648 and tax 26,927 29,647
================================ =================
By region:
1,534 703 816 UK 3,694 5,839
249 221 262 Rest of Europe 1,386 1,209
952 1,843 2,213 US 7,746 9,344
2,328 3,576 4,357 Rest of World 14,101 13,255
-------------------------------- -----------------
5,063 6,343 7,648 26,927 29,647
================================ =================
Results include:
Non-operating items
289 33 (538) UK (173) 821
(13) 7 (3) Rest of Europe 535 43
(269) (15) 222 US 376 1,758
(184) (3) (297) Rest of World (185) (240)
-------------------------------- -----------------
(177) 22 (616) 553 2,382
================================ =================
Exploration expense
6 2 17 UK 46 20
- - - Rest of Europe - -
324 60 61 US 252 633
78 182 123 Rest of World 458 392
-------------------------------- -----------------
408 244 201 756 1,045
================================ =================
Production (net of royalties)(b)
Liquids (mb/d) (net of royalties)(c)
239 151 199 UK 201 253
57 52 50 Rest of Europe 51 61
533 475 523 US 514 547
1,587 1,614 1,697 Rest of World 1,648 1,614
-------------------------------- -----------------
2,416 2,292 2,469 2,414 2,475
================================ =================
Natural gas (mmcf/d) (net of royalties)
888 582 853 UK 768 936
90 26 26 Rest of Europe 29 92
2,196 2,186 2,183 US 2,174 2,376
5,082 5,085 5,275 Rest of World 5,172 5,013
-------------------------------- -----------------
8,256 7,879 8,337 8,143 8,417
================================ =================
Total hydrocarbons (mboe/d)(d)
392 251 346 UK 333 414
73 57 55 Rest of Europe 56 77
912 851 900 US 888 957
2,463 2,492 2,606 Rest of World 2,541 2,478
-------------------------------- -----------------
3,840 3,651 3,907 3,818 3,926
================================ =================
Average realizations(e)
54.13 71.12 82.72 Total liquids ($/bbl) 67.45 59.23
4.38 3.93 4.83 Natural gas ($/mcf) 4.53 4.72
40.13 46.36 56.03 Total hydrocarbons ($/boe) 47.18 43.60
================================ =================
(a)Profit from continuing operations and includes profit after interest and tax
of equity-accounted entities.
(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.
Exploration and Production
----------------------
The replacement cost profit before interest and tax for the fourth quarter was
$7,648 million, an increase of 51% over the fourth quarter of 2006. This result
benefited from higher reported volumes, higher overall realizations and the
favourable effect of lagged tax reference prices in TNK-BP, partially offset by
higher costs reflecting the impacts of sector-specific inflation, project
start-up costs and higher depreciation charges. Additionally, the fourth-quarter
result was impacted by the retroactive effect of increased production taxes in
Alaska, which were effective mid-year. The net non-operating charge for the
quarter was $616 million and included fair value losses of $430 million on
embedded derivatives related to North Sea gas contracts as well as restructuring
costs. The fourth quarter of 2006 included a net charge of $177 million.
The replacement cost profit before interest and tax of $26,927 million for the
full year represented a decrease of 9% on the previous year. This result
benefited from higher liquids realizations and the favourable effect of lagged
tax reference prices in TNK-BP, but was impacted by lower gas realizations,
lower reported volumes, higher production taxes and higher costs reflecting the
impacts of sector-specific inflation, increased integrity spend and higher
depreciation charges. Additionally, the full-year result was lower due to the
absence of disposal gains in equity-accounted entities in 2006, primarily the
$892 million gain on TNK-BP's disposal of the Udmurtneft assets. The full-year
result included a net non-operating gain of $553 million compared with a $2,382
million gain in 2006.
Reported production for the fourth quarter was 3,907mboe/d, 2% higher than in
the fourth quarter of 2006. After adjusting for the effect of acquisitions and
disposals and the impact of lower entitlement in our production-sharing
agreements (PSAs), production was 3% higher than in the fourth quarter of 2006.
Reported production of 3,818mboe/d for the full year was 3% lower than in 2006
on a reported basis and was flat after adjusting for the effects of
acquisitions, disposals and lower PSA entitlements.
During the fourth quarter, we started production at five BP-operated major
projects: Mango and Cashima in Trinidad, Atlantis and King Subsea Pump in the
Gulf of Mexico and Greater Plutonio in Angola. Additionally, we had first
production from the Denise field in Egypt, where BP holds a 50% interest and,
shortly after the end of the quarter, we also had first production from the
Mondo field within the Kizomba C development in Angola, where BP holds a 26.67%
interest.
Furthermore, we had further exploration success in Azerbaijan with the Shah
Deniz SDX-04 discovery, in Angola with the Portia discovery and in Egypt with
the Satis and Taurus Deep discoveries.
In December, we announced an agreement with Husky Energy Inc. to create an
integrated North American oil sands business, by means of two separate joint
ventures. In one, BP will take a 50% interest in Husky Energy's Sunrise field in
Alberta, Canada, while in the other, Husky will take a 50% interest in BP's
Toledo refinery.
Also in December, the Libyan General People's Committee ratified the exploration
and production agreement between BP and Libya's National Oil Company, which we
announced in May of 2007.
During 2007, we extended our track record in achieving reported reserves
replacement of more than 100%, excluding acquisitions and disposals, in spite of
significant PSA effects associated with high oil prices.
Refining and Marketing
-------------------
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 $ million 2007 2006
=============================== ==================
(706) 936 26 Profit before interest and tax(a) 6,072 5,041
1,018 (560) (1,363) Inventory holding (gains) losses (3,455) 242
------------------------------- ------------------
Replacement cost profit before
312 376 (1,337) interest and tax 2,617 5,283
=============================== ==================
By region:
190 22 122 UK 1,097 351
336 492 278 Rest of Europe 1,652 2,249
(421) (527) (1,811) US (1,252) 1,353
207 389 74 Rest of World 1,120 1,330
------------------------------- ------------------
312 376 (1,337) 2,617 5,283
=============================== ==================
Results include:
Non-operating items
23 (4) (10) UK 667 15
(89) (16) (56) Rest of Europe (128) 93
25 (316) (977) US (1,181) (589)
(12) (8) (103) Rest of World (310) 97
------------------------------- ------------------
(53) (344) (1,146) (952) (384)
=============================== ==================
Refinery throughputs (mb/d)
188 - - UK 67 165
660 735 689 Rest of Europe 691 648
1,052 1,109 996 US 1,064 1,110
294 304 313 Rest of World 305 275
------------------------------- ------------------
2,194 2,148 1,998 Total throughput 2,127 2,198
=============================== ==================
81.6 83.4 84.0 Refining availability (%)(b) 82.9 82.5
=============================== ==================
Oil sales volumes (mb/d)
Refined products
354 350 328 UK 339 356
1,368 1,329 1,330 Rest of Europe 1,294 1,340
1,541 1,535 1,455 US 1,533 1,595
601 641 680 Rest of World 640 581
------------------------------- ------------------
3,864 3,855 3,793 Total marketing sales 3,806 3,872
1,920 1,687 1,696 Trading/supply sales 1,818 1,929
------------------------------- ------------------
5,784 5,542 5,489 Total refined product sales 5,624 5,801
1,959 1,709 1,659 Crude oil 1,885 2,110
------------------------------- ------------------
7,743 7,251 7,148 Total oil sales 7,509 7,911
=============================== ==================
Global Indicator Refining Margin ($/bbl)(c)
2.49 3.82 4.84 NWE 4.99 3.92
7.92 12.58 6.82 USGC 13.48 12.00
5.42 14.31 3.39 Midwest 12.81 9.14
14.59 6.90 8.49 USWC 15.05 14.84
2.95 4.52 5.80 Singapore 5.29 4.22
6.30 8.05 5.68 BP Average 9.94 8.39
=============================== ==================
Chemicals production (kte)
159 237 228 UK 967 990
797 587 660 Rest of Europe 2,650 3,156
976 1,117 1,088 US 4,328 3,464
1,357 1,569 1,497 Rest of World 6,083 6,454
------------------------------- ------------------
3,289 3,510 3,473 Total production 14,028 14,064
=============================== ==================
(a)Profit from continuing operations and includes profit after interest and tax
of equity-accounted entities.
(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. During 2006 and 2007, there was planned maintenance of a
substantial part of the Texas City refinery.
(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.
Refining and Marketing
-------------------
The replacement cost result before interest and tax was a loss of $1,337 million
for the fourth quarter of 2007 and was a profit of $2,617 million for the full
year. This compares with a replacement cost profit before interest and tax for
the fourth quarter and full year of 2006 of $312 million and $5,283 million
respectively. The fourth-quarter result included a net non-operating charge of
$1,146 million, primarily reflecting impairment charges associated with our exit
from the operated Convenience Retail channel in the US, restructuring costs, and
a reassessment of certain provisions. The full-year result included a charge of
$952 million for non-operating items compared with a charge of $384 million in
2006.
Compared with a year ago, the fourth-quarter result reflected a lower refining
margin environment, higher refining outages and costs, including those
associated with the repair and recommissioning activities at our Texas City and
Whiting US refineries, and a lower contribution from supply optimization. The
quarter's result also reflected the impact of a major scheduled turnaround at
the Toledo refinery. In addition, the charge for non-operating items was
significantly higher than a year ago. These factors were partially offset by the
effects of continued strong performance from a number of our marketing
businesses. The refining outages outlined above, and the majority of the
non-operating charges, related to our operations in the US, leading to the
fourth-quarter loss of $1,811 million in the US (which included non-operating
charges of $977 million). This compares with a loss of $421 million a year ago,
which included a non-operating gain of $25 million.
The average refining Global Indicator Margin (GIM) and BP's actual refining
margin for the fourth quarter were both lower than those in the fourth quarter
of 2006, mainly due to improved product stock levels and rising crude prices,
most notably in the US.
During 2007, the segment continued to focus on the restoration of operations at
the Texas City refinery and on investments in integrity management throughout
our refining portfolio. We have also focused on the repair and recommissioning
of the Whiting refinery following the operational issues in March 2007. In many
parts of the refining portfolio and the other market-facing businesses, we
delivered high reliability and improved results versus 2006. However for the
full year, compared with 2006, the impact of the outages and recommissioning
costs at the Texas City and Whiting refineries, cost inflation, lower results
from supply optimization and higher charges in respect of non-operating items
more than offset increased margins in both refining and marketing.
Refining throughputs were 1,998mb/d for the quarter, 196mb/d lower than the
fourth quarter of 2006. The reduction was mainly due to the effects of the
Coryton refinery disposal, major scheduled turnarounds at the Rotterdam and
Toledo refineries, as well as the outage at the Whiting refinery; this was
partially offset by improvements in the remainder of the refining portfolio. For
the full year, throughputs were 2,127mb/d, 71mb/d lower than in 2006. Refining
availability for the quarter and full year was 84.0% and 82.9% respectively,
higher than in the corresponding periods of 2006, reflecting the ongoing
progress towards Texas City recommissioning.
Marketing volumes were 3,793mb/d in the fourth quarter and 3,806mb/d for the
full year, slightly lower than in the equivalent periods last year, reflecting
reduced industry demand in Europe and supply disruptions caused by the outage at
the Whiting refinery.
By the end of 2007, the Whiting refinery had recommenced sour crude processing
and available distillation capacity exceeded 300,000bpd, in line with prior
guidance. At Texas City, we have successfully recommissioned the three
desulphurisation and upgrading units necessary to allow restart of the remaining
crude distillation capacity. The final sour crude unit is mechanically complete
and is expected to be fully operational during the first quarter. By mid-2008,
we expect most of the economic capability at the Texas City refinery to have
been restored.
On 15 November 2007, BP announced that it would sell all of its company-owned
and company-operated convenience sites in the US. The majority of sites will be
sold to franchisees with the remaining sites sold to dealers and large
distributors (jobbers).
On 5 December 2007, BP announced it had agreed to create an integrated North
American oil sands business with Husky Energy Inc., by means of two separate
joint ventures, one associated with BP's Toledo refinery.
In mid-January 2008, BP and Sinopec signed a memorandum of understanding to add
a new 650,000 tonnes per annum acetic acid plant at their YARACO joint venture
in Chongqing, upstream Yangtze River, south-west China. This world-scale acetic
acid plant, using BP's leading Cativa(R) technology, is expected to come
onstream in 2011.
Gas, Power and Renewables
-----------------------
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 $ million 2007 2006
============================= ================
468 (71) 304 Profit before interest and tax(a) 674 1,321
2 14 (85) Inventory holding (gains) losses (116) 55
----------------------------- ----------------
Replacement cost profit (loss) before interest
470 (57) 219 and tax 558 1,376
============================= ================
By region:
147 (85) (103) UK (178) 217
143 (37) (14) Rest of Europe (52) 123
114 (23) 23 US 128 692
66 88 313 Rest of World 660 344
----------------------------- ----------------
470 (57) 219 558 1,376
============================= ================
Results include:
Non-operating items
56 (12) (31) UK (74) 88
189 - (26) Rest of Europe (26) 189
- 4 (5) US 1 4
(30) - - Rest of World 2 (100)
----------------------------- ----------------
215 (8) (62) (97) 181
============================= ================
(a)Profit from continuing operations and includes profit after interest and tax
of equity-accounted entities.
The replacement cost profit before interest and tax for the fourth quarter and
full year was $219 million and $558 million respectively, compared with $470
million and $1,376 million a year ago. The net non-operating charge for the
fourth quarter was $62 million, comprising net fair value losses on embedded
derivatives, a provision for restructuring costs, a charge for the impairment of
a solar asset and a net disposal gain. The corresponding quarter of 2006
included a net non-operating gain of $215 million. For the full year, the net
charge for non-operating items was $97 million compared with a net gain of $181
million in 2006.
The fourth-quarter result was lower than the same period in 2006 primarily due
to the change in non-operating items, described above, and lower contributions
from the marketing and trading business, partly offset by better NGL operating
performance. The full-year result was also lower than in 2006 reflecting a net
charge for non-operating items (compared with a net gain last year) and lower
marketing and trading contributions, partly offset by improved NGL performance.
In the fourth quarter of 2007, Alternative Energy commenced full commercial
operations at the 300MW Cedar Creek project in Colorado, US and at the 40MW
Dhule project in India.
Information on fair value accounting effects is set out on page 10.
Other Businesses and Corporate
--------------------------
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 $ million 2007 2006
========================= =================
(265) (462) (389) Profit (loss) before interest and tax(a) (1,128) (885)
(11) 11 16 Inventory holding (gains) losses 24 (62)
------------------------- -----------------
Replacement cost profit (loss) before
(276) (451) (373) interest and tax (1,104) (947)
========================= =================
By region:
280 124 (63) UK (10) (268)
(97) (77) 23 Rest of Europe (35) (137)
(319) (359) (316) US (901) (425)
(140) (139) (17) Rest of World (158) (117)
------------------------- -----------------
(276) (451) (373) (1,104) (947)
========================= =================
Results include:
Non-operating items
13 1 (26) UK (25) (12)
(2) (11) 24 Rest of Europe 41 (5)
(199) (199) (61) US (247) (75)
- 4 - Rest of World 4 17
------------------------- -----------------
(188) (205) (63) (227) (75)
========================= =================
(a)Profit from continuing operations and includes profit after interest and tax
of equity-accounted entities.
Other businesses and corporate comprises Treasury (previously referred to as
Finance), the group's aluminium asset, interest income and costs relating to
corporate activities. The fourth quarter's result included a net charge of $63
million in respect of non-operating items, compared with a net charge of $188
million a year ago.
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.
The Gas, Power and Renewables business 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 below.
Information for all quarters of 2005, 2006 and 2007 can be found at www.bp.com/
FVAE.
Fourth Third Fourth
Quarter Quarter Quarter Year
2006 2007 2007 $ million 2007 2006
========================= =================
Refining and Marketing
Unrecognized gains (losses) brought forward from
(252) 274 367 previous period 72 283
(72) (367) (429) Unrecognized (gains) losses carried forward (429) (72)
------------------------- -----------------
Favourable/(unfavourable) impact relative to
(324) (93) (62) management's measure of performance (357) 211
========================= =================
Gas, Power and Renewables
Unrecognized gains (losses) brought forward from
399 198 234 previous period 155 123
(155) (234) (107) Unrecognized (gains) losses carried forward (107) (155)
------------------------- -----------------
Favourable/(unfavourable) impact relative to
244 (36) 127 management's measure of performance 48 (32)
========================= =================
(80) (129) 65 (309) 179
20 46 (29) Taxation(a) 105 (96)
------------------------- -----------------
(60) (83) 36 (204) 83
========================= =================
By region
Refining and Marketing
(27) 45 1 UK (52) 109
(60) 2 5 Rest of Europe (110) 101
(231) (142) (32) US (165) 13
(6) 2 (36) Rest of World (30) (12)
------------------------- -----------------
(324) (93) (62) (357) 211
========================= =================
Gas, Power and Renewables
75 (22) (11) UK 1 63
- - - Rest of Europe - -
191 (19) 19 US (77) (59)
(22) 5 119 Rest of World 124 (36)
------------------------- -----------------
244 (36) 127 48 (32)
========================= =================
(a)Tax is calculated using the quarter's effective tax rate on replacement cost
profit from continuing operations.
Cautionary Statement: The foregoing discussion contains forward looking
statements particularly those regarding refining production and capacity,
disposals, intended expansion and new production capability. 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 on stream; industry
product supply; demand and pricing; operational problems; general economic
conditions (including inflation); political stability and economic growth in
relevant areas of the world; changes in laws and governmental regulations and
quotas; 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 2006 and our 2006 Annual Report
on Form 20-F filed with the US Securities and Exchange Commission.
This information is provided by RNS
The company news service from the London Stock Exchange
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