3rd Quarter Results Part 1
BP PLC
6 November 2001
PART 1
BP p.l.c.
Group Results
Third Quarter 2001
London 6 November 2001
FOR IMMEDIATE RELEASE
PERFORMANCE AND GROWTH FIRMLY ON TRACK
---------------------------------------------------------------------------
Third Second Third
Quarter Quarter Quarter Nine Months
2000 2001 2001 $ million 2001 2000 %
======================= ====================
Replacement cost profit
2,947 3,032 2,355 before exceptional items 8,824 8,415
289 114 91 Special items(a) 250 761
560 653 603 Acquisition amortization(b) 1,900 937
----------------------- --------------------
Pro forma result adjusted
3,796 3,799 3,049 for special items 10,974 10,113
======================= ====================
11.43 11.92 9.44 - per ordinary share (pence) 33.94 30.77 10%
16.91 16.92 13.60 - per ordinary share (cents) 48.88 47.38 3%
1.01 1.02 0.81 - per ADS (dollars) 2.93 2.84
======================= ====================
o BP's third quarter pro forma result, adjusted for special items, was
$3,049 million compared to $3,796 million a year ago, a reduction of
20%.
o For the nine months the result was a record $10,974 million compared to
$10,113 million and the result per share was up by 3%. In sterling
terms the increase was 10%. Replacement cost profit, before exceptional
items, for the third quarter and nine months was $2,355 million and
$8,824 million respectively, compared to $2,947 million and $8,415
million a year ago.
o Return on average capital employed, on a pro forma basis and adjusted
for special items, was 18% in the third quarter compared to 23% a year
ago.
o The third quarter and nine months results reflect a less favourable
trading environment, offset by performance improvements which remain on
track to achieve the annual target.
o Third quarter oil and gas production, adjusted for disposals, was
around 3% higher than a year ago.
o The company purchased for cancellation 49 million of its own shares
during the quarter, at a cost of $400 million.
o Quarterly dividend 5.5 cents per share ($0.33 per ADS). The dividend
for the nine months was 16.25 cents per share, compared with 15.25
cents per share a year ago, an increase of 7%. Cash dividends paid in
the quarter and in the nine months are up 9% and 11%, respectively, on
a year ago.
BP Group Chief Executive, Lord Browne, commented:
'Despite a weaker world economy, BP continues to deliver great profits
and great growth. Our plans are robust to the poorer trading
environment and we will continue our established approach to cost
management and investment selection.'
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. This financial performance information and
measures derived therefrom, shown above and elsewhere in the document, are
provided in order to enable investors to evaluate better both the company's
current performance, in the context of past performance, and its performance
against that of its competitors.
(a) The special items refer to non-recurring charges and credits. The
special items for the quarter comprise Castrol integration costs,
Erdolchemie rationalization costs and a bond redemption charge. In
addition, for the nine months, special items include rationalization
costs in the European downstream commercial business.
(b) Depreciation and amortization relating to the fixed asset revaluation
adjustment and goodwill consequent upon the ARCO and Burmah Castrol
acquisitions.
Summary Quarterly Results
Exploration and Production's result was down 26% on a year ago because of
significantly lower liquids and natural gas realizations. There was continued
growth in production with overall hydrocarbon volumes up around 3%, adjusted
for disposals. Developments were sanctioned west of Shetlands, offshore Angola
and in Argentina.
In Gas and Power, the result reflected growing activity compared to a year
ago, offset by lower NGL margins.
The Refining and Marketing result reflected higher marketing volumes compared
to a year ago. The overall trading environment was similar, with lower
refining margins offset by improvements in retail margins.
The Chemicals' result was up on the second quarter, reflecting restored
production at three major cracker sites. Compared to a year ago, the result
reflected demand weakness and continued pressure on margins.
Interest expense for the quarter was $367 million versus $391 million in the
second quarter, after adjusting for bond redemption charges, reflecting lower
interest rates.
The pro forma effective tax rate on replacement cost profit, before
exceptional items, was 26% in the quarter.
Capital expenditure, excluding acquisitions, for the quarter was $3.3 billion
and $9.1 billion for the nine months. This is consistent with a 2001 outcome
of $13 billion. Total capital expenditure for the two periods was $3.4 billion
and $9.7 billion.
Net debt at the end of the quarter was $18.5 billion. The pro forma ratio of
net debt to net debt plus equity was 24%.
Net cash inflow for the quarter was $0.9 billion, compared with a net cash
outflow of $2.4 billion for the same period in 2000. The third quarter of 2000
included an outflow of $5.1 billion, net of cash acquired, relating to the
acquisition of Burmah Castrol and for the acquisition of the minority interest
in Vastar. In the third quarter of 2001, lower operating cash flow and higher
capital expenditure net of divestment proceeds were partly offset by lower tax
payments due to phasing effects.
---------
The commentaries above and following are based on the pro forma replacement
cost operating results for the quarter and nine months, before exceptional
items, adjusted for special items. The results of ARCO and Burmah Castrol have
been included with effect from 14 April and 7 July 2000 respectively. The
European fuels business has been consolidated with effect from 1 August 2000.
Reconciliation of Reported Results to
Pro Forma Results Adjusted for Special Items
Pro Forma Result Pro Forma Result
adjusted for ----- 3Q 2001 --------------- adjusted for
special items special items
-------------------
3Q 2Q 3Q Special Acq. Reported Nine Months
2000 2001 2001 Items* Amort+ Earnings $ million 2001 2000
=========================================== ==============
Exploration and
4,156 3,918 3,070 - 429 2,641 Production 12,124 11,010
132 173 130 - - 130 Gas and Power 415 388
Refining and
1,259 1,762 1,289 112 174 1,003 Marketing 4,045 3,237
267 9 113 8 - 105 Chemicals 203 896
Other businesses
(130) (128) (122) - - (122) and corporate (377) (490)
------------------------------------------- --------------
RC operating
5,684 5,734 4,480 120 603 3,757 profit 16,410 15,041
------------------------------------------- --------------
(460) (391) (367) 2 - (369)Interest expense (1,194) (1,159)
(1,379)(1,523)(1,049) (31) - (1,018)Taxation (4,195) (3,615)
(49) (21) (15) - - (15)MSI (47) (154)
------------------------------------------- --------------
RC profit before
3,796 3,799 3,049 91 603 2,355 exceptional items 10,974 10,113
------------------------------------------- --------------
184 Exceptional items before tax
(194)Taxation on exceptional items
-----
2,345 RC profit after exceptional items
(405)Stock holding gains (losses)
-----
1,940 HC profit
=====
* The special items refer to non-recurring charges and credits. The special
items for the quarter comprise Castrol integration costs, Erdolchemie
rationalization costs and a bond redemption charge. In addition, for the
nine months, special items include rationalization costs in the European
downstream commercial business.
+ Acquisition amortization is depreciation and amortization relating to the
fixed asset revaluation adjustment and goodwill consequent upon the ARCO
and Burmah Castrol acquisitions.
Net special and exceptional items before tax were $62 million credit and $229
million credit for the third quarter and nine months respectively.
Operating Results
Third Second Third
Quarter Quarter Quarter Nine Months
2000 2001 2001 2001 2000
======================= ==============
Replacement cost
4,695 4,972 3,757 operating profit ($m) 14,228 12,993
----------------------- --------------
Replacement cost profit
2,947 3,032 2,355 before exceptional items ($m) 8,824 8,415
----------------------- --------------
Profit after exceptional items ($m)
2,807 3,131 2,345 Replacement cost 9,018 8,171
3,351 3,171 1,940 Historical cost 8,415 9,460
----------------------- --------------
Per ordinary share (cents)
Pro forma result
16.91 16.92 13.60 adjusted for special items 48.88 47.38
RC profit before
13.04 13.51 10.50 exceptional items 39.30 39.42
HC profit after
14.85 14.12 8.66 exceptional items 37.48 44.32
Per ADS (cents)
Pro forma result
101.46 101.52 81.60 adjusted for special items 293.28 284.28
RC profit before
78.24 81.06 63.00 exceptional items 235.80 236.52
HC profit after
89.10 84.72 51.96 exceptional items 224.88 265.92
----------------------- --------------
Dividends per ordinary share
5.25 5.50 5.50 cents 16.25 15.25
3.602 3.911 3.805 pence 11.381 10.174
31.5 33.0 33.0 Dividends per ADS (cents) 97.5 91.5
----------------------- --------------
EBITDA(a) (cents)
33.31 32.46 25.04 per ordinary share 91.40 92.04
199.86 194.76 150.24 per ADS 548.40 552.24
----------------------- --------------
Adjusted EBITDA(b) (cents)
31.96 32.00 26.57 per ordinary share 92.79 90.17
191.76 192.00 159.42 per ADS 556.74 541.02
======================= ==============
(a) Profit for the period before interest, tax, depreciation and
amortization.
(b) Replacement cost profit before exceptional items, adjusted for special
items, and before interest, tax, depreciation and amortization.
Operating Statistics
Third Second Third
Quarter Quarter Quarter Nine Months
2000 2001 2001 2001 2000
======================= =============
Crude oil and natural gas
liquids production (mb/d)
(Net of Royalties)
521 471 457 UK 480 540
86 92 96 Rest of Europe 95 89
691 742 741 USA 735 730
604 580 589 Rest of World 592 568
----------------------- -------------
Total crude oil and
1,902 1,885 1,883 liquids production 1,902 1,927
======================= =============
Natural gas production (mmcf/d)
(Net of Royalties)
1,340 1,690 1,305 UK 1,713 1,571
104 121 139 Rest of Europe 143 129
3,362 3,550 3,577 USA 3,531 2,950
2,991 3,193 3,298 Rest of World 3,200 2,619
----------------------- -------------
7,797 8,554 8,319 Total natural gas production 8,587 7,269
======================= =============
Gas sales volumes (mmcf/d)
2,289 2,481 2,170 UK 2,682 2,360
151 201 170 Rest of Europe 207 162
6,845 8,516 8,692 USA 8,403 5,960
5,535 6,839 7,331 Rest of World 7,191 4,916
----------------------- --------------
14,820 18,037 18,363 Total gas sales volumes 18,483 13,398
======================= ==============
NGL sales volumes (mb/d)
- - - UK - -
- - - Rest of Europe - -
195 206 233 USA 220 149
171 171 162 Rest of World 180 179
----------------------- --------------
366 377 395 Total NGL sales volumes 400 328
======================= ==============
Operating Statistics (continued)
Third Second Third
Quarter Quarter Quarter Nine Months
2000 2001 2001 2001 2000
======================= =============
Oil sales volumes (mb/d)
Refined products
276 270 269 UK 266 242
981 1,031 1,058 Rest of Europe 1,055 843
1,911 1,954 1,863 USA 1,897 1,719
489 601 612 Rest of World 599 461
----------------------- --------------
3,657 3,856 3,802 Total marketing sales 3,817 3,265
1,843 2,022 2,744 Trading/supply sales 2,308 1,845
----------------------- --------------
5,500 5,878 6,546 Total refined product sales 6,125 5,110
5,725 4,131 4,680 Crude oil 4,431 6,164
----------------------- --------------
11,225 10,009 11,226 Total oil sales 10,556 11,274
======================= ==============
Chemicals production (kte)
779 799 804 UK 2,333 2,304
1,680 1,796 2,164 Rest of Europe 5,648 5,012
2,438 2,108 2,299 USA 6,664 7,619
591 618 703 Rest of World 2,023 1,745
----------------------- --------------
5,488 5,321 5,970 Total production 16,668 16,680
======================= ==============
Exploration and Production
3Q 2Q 3Q Nine Months
2000 2001 2001 $ million 2001 2000
================= ==============
3,552 3,441 2,641 Replacement cost operating profit 10,762 9,774
192 - - Special items - 475
412 477 429 Acquisition amortization 1,362 761
----------------- --------------
Pro forma operating result
4,156 3,918 3,070 adjusted for special items 12,124 11,010
================= ==============
Results include:
143 81 86 Exploration expense 336 442
----------------- --------------
27.84 24.74 23.08 BP average oil realizations(a) ($/bbl) 24.22 26.13
30.42 27.39 25.30 Brent Oil Price ($/bbl) 26.14 28.07
31.71 27.88 26.72 West Texas Intermediate oil price ($/bbl) 27.77 29.84
29.82 26.05 24.05 Alaska North Slope US West Coast ($/bbl) 25.01 27.99
================= ==============
BP average
3.01 3.43 2.49 natural gas realizations ($/mcf) 3.66 2.57
4.27 4.66 2.93 Henry Hub gas price(b) ($/mmBtu) 4.88 3.41
================= ==============
(a) Crude oil and natural gas liquids.
(b) Henry Hub First of the Month Index.
The pro forma result for the third quarter was $3,070 million, down $1,086
million on the third quarter 2000 result when adjusted for special items. The
result was significantly affected by lower oil and gas prices. Average BP
liquids realizations declined by 17% to $23.08 a barrel and natural gas
realizations averaged $2.49 per thousand cubic feet, down 17%. Higher volumes,
continued productivity driven cost savings and lower exploration expense
provided some offset to this adverse price effect. The pro forma result for
the nine months was a record $12,124 million, which was $1,114 million up on a
year ago when adjusted for special items, with performance improvements, net
portfolio changes and higher gas realizations partially offset by lower oil
realizations.
Third quarter oil and gas production, adjusted for disposals, increased by
around 3% over a year ago, with natural gas up 8% and liquids down slightly.
Crude oil production from the deepwater Gulf of Mexico increased by 25% as new
capacity continues to be added. The increase in natural gas resulted from
strong output growth in our joint venture in Argentina, up 40%, and in North
America, up 6%.
In support of continued growth, capital expenditure was $2.4 billion, $0.6
billion higher than a year ago. BP approved the Clair development (BP 28.6%
and operator) in the UK Continental Shelf, and agreed with its partners to
invest $940 million to develop an estimated 250 million barrels of recoverable
oil. Other developments approved were Jasmin, a Girassol satellite offshore
Angola, and the first stage of the Cuenca Marina Austral field in Argentina.
In early November, the third phase of Schiehallion, west of Shetlands, was
also approved.
Gas and Power
3Q 2Q 3Q Nine Months
2000 2001 2001 $ million 2001 2000
=================== ==============
132 173 130 Replacement cost operating profit 415 388
- - - Special items - -
- - - Acquisition amortization - -
------------------- --------------
Pro forma operating result
132 173 130 adjusted for special items 415 388
=================== ==============
The pro forma result for the third quarter and nine months was $130 million
and $415 million, respectively, compared with $132 million and $388 million a
year ago. The third quarter's marketing and trading performance has improved
on the back of a continued increase in activity with gas sales volumes up 24%
on a year ago. This has largely offset the effect of lower margins in the NGL
business. The nine months result reflected improved marketing and trading
performance, partly offset by a reduction in the NGL result.
In September, BP announced that it had agreed to purchase a set of natural gas
marketing and trading assets from TransCanada PipeLines Limited. This
acquisition will reinforce BP's position as a leader in the North American
energy marketing and merchant business.
Refining and Marketing
3Q 2Q 3Q Nine Months
2000 2001 2001 $ million 2001 2000
================= =============
964 1,477 1,003 Replacement cost operating profit 3,233 2,731
110 109 112 Special items 274 251
185 176 174 Acquisition amortization 538 255
----------------- -------------
Pro forma operating result
1,259 1,762 1,289 adjusted for special items 4,045 3,237
================= =============
4.83 5.78 3.83 Global Indicator Refining Margin(a)($/bbl) 4.62 3.99
----------------- -------------
Refinery throughputs (mb/d)
359 315 414 UK 347 302
627 623 646 Rest of Europe 654 560
1,765 1,642 1,568 USA 1,578 1,637
362 375 375 Rest of World 379 359
----------------- -------------
3,113 2,955 3,003 Total throughput 2,958 2,858
================= =============
(a) 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.
The pro forma result, after adjusting for special items, for the third quarter
was $1,289 million, an increase of $30 million or 2% on the same period last
year. The special items comprised Castrol integration costs. The main drivers
of the improvement on the corresponding quarter last year were higher retail
margins and volumes. Retail margins reflected lower wholesale prices in
several regions. Refining margins were volatile throughout the quarter and
were down $1 per barrel versus the prior year as particularly strong US
Midwest refining margins only partially offset lower refining margins in other
areas. Third quarter refinery throughputs decreased by 3.5% compared to a year
ago. The impact of refinery disposals more than offset underlying throughput
increases. For the nine months the result was $4,045 million, up $808 million
or 25%. Specials for the nine months also include rationalization costs in the
European downstream commercial business. The nine months result benefited from
higher refining margins and volume improvements and portfolio changes compared
to a year ago.
Third quarter marketing sales increased by 4% compared to a year ago, and
store sales were up 7% reflecting the consolidation of the European fuels
business and the increasing number of BP Connect stores. We are on track to
deliver our unit cost reduction target of 2.5% in 2001.
The roll-out of BP Connect continued during the quarter with over 230 BP
Connect stores now open in the UK, USA, Australia and New Zealand. BP's
leadership position in clean fuels continues to grow as BP is now providing
clean fuels to 76 cities.
In September, BP completed the sale of its Salt Lake City, Utah, and Mandan,
North Dakota, refineries in the USA.
Chemicals
3Q 2Q 3Q Nine Months
2000 2001 2001 $ million 2001 2000
================= =============
263 9 105 Replacement cost operating profit 195 842
4 - 8 Special items 8 54
- - - Acquisition amortization - -
----------------- -------------
Pro forma operating result
267 9 113 adjusted for special items 203 896
================= =============
128 105 110(b)Chemicals Indicator Margin(a) ($/te) 107(b) 130
================= =============
(a) The Chemicals Indicator Margin (CIM) is a weighted average of
externally-based product margins reflecting industry supply/demand
conditions. It is based on market data collected by Chem Systems in
their quarterly market analyses, then weighted based on the major
components of BP's product portfolio. The products and businesses
covered in the CIM are olefins and derivatives, 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, speciality intermediates, and the
remaining parts of the solvents and acetyls businesses. This quarter the
margin indicator has been adjusted to reflect the Erdolchemie purchase
and the impact of recently divested businesses. Prior quarters have been
restated.
(b) Provisional. The data for the third quarter is based on two months'
actuals and one month of provisional data.
Chemicals' pro forma result for the third quarter, after adjusting for special
items, was $113 million, up from $9 million in the second quarter. The
improvement was due to higher volumes from improved operations. The third
quarter result was a decrease of $154 million over the equivalent quarter in
2000. The lower result was caused by a deterioration in the trading
environment associated with weaker global economic growth. The nine months
result was significantly lower than a year ago due to the poor margin
environment, higher restructuring costs and the effect of unscheduled
shutdowns.
Third quarter production of 5,970kte is 12% above the previous quarter and 9%
above the same quarter of 2000. This record production benefits from full
ownership of Erdolchemie for the whole quarter and restored operations at
three major cracker sites.
BP continues to progress the restructuring programme, announced in August,
which is fundamental to its chemicals business. This is designed to lower
significantly the business' cost structure and to focus its portfolio. Actions
taken during the third quarter included announcement of the cessation of
production of Polybutenes and Panasols at Texas City in the USA and of Butyl
Acetate at Hull, England. We also announced the closure of our low-density
polyethylene manufacturing operation at Wilton, England. The third quarter and
nine months results include $27 million and $67 million, respectively, of
restructuring costs, in addition to the special item relating to Erdolchemie.
In early November, BP completed its deal with Solvay, originally announced in
late 2000. This deal will significantly strengthen BP's polyolefins business
in Europe and in the USA.
Other Businesses and Corporate
3Q 2Q 3Q Nine Months
2000 2001 2001 $ million 2001 2000
================= =============
(216) (128) (122) Replacement cost operating loss (377) (742)
86 - - Special items - 252
- - - Acquisition amortization - -
----------------- -------------
Pro forma operating result
(130) (128) (122) adjusted for special items (377) (490)
================= =============
Other Businesses and Corporate comprises Finance, BP Solar, the group's coal
asset, aluminium asset, its investments in PetroChina and Sinopec, interest
income and costs relating to corporate activities. BP Solar production for the
nine months was 25% higher than a year ago.
Exceptional Items
3Q 2Q 3Q Nine Months
2000 2001 2001 $ million 2001 2000
================= =============
Profit (loss) on sale of fixed assets and
138 171 184 businesses and termination of operations 573 142
(278) (72) (194) Taxation charge (379) (386)
----------------- -------------
(140) 99 (10) Exceptional items after taxation 194 (244)
================= =============
Exceptional items for the third quarter include profit from the sale of the
Salt Lake City and Mandan Refineries in the USA and losses associated with the
closure of certain chemical operations.
2001 Dividends
BP today announced a third quarterly dividend for 2001 of 5.5 cents per
ordinary share. Holders of ordinary shares will receive 3.805 pence per share
and holders of American Depository Receipts (ADRs) $0.33 per ADS share. The
dividend is payable on 10 December 2001 to shareholders on the register on 16
November 2001. 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 December 2001. The fourth quarter 2001 results and
dividend will be announced on 12 February 2002.
Outlook
BP Group Chief Executive, Lord Browne, concluded:
'Oil prices have softened as demand has weakened, particularly for
aviation fuel, after the tragic events of 11 September, while OPEC has
continued to produce beyond its quotas. The critical issue, as we look
forward, is whether OPEC will curb that output sufficiently to pull the
crude price back within its target range.
'US natural gas prices have settled at more normal levels, though we
should expect the usual seasonal variations. Refining margins continue to
show big regional differences but, overall, are likely to be down on last
year because of lower product demand. Retail margins have benefited
recently from falling product prices, but chemicals margins look set to
stay pretty flat due to weakening demand and excess capacity.
'While the climate is unsettled, the world is still open for business.
For our part we are intensifying our focus on cost and investment
discipline to ensure we sustain underlying performance, keep growth fully
profitable and maintain our robust financial health. Production growth
remains on target, at a very competitive level.'
----------------------------------------------------------------------
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
future levels of industry product supply, demand and pricing; currency
exchange rates; political stability and economic growth in relevant
areas of the world; 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 2000 and in the Annual
Report on Form 20-F filed with the US Securities and Exchange
Commission.
----------------------------------------------------------------------
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