BP 2005 Annual Report Download - page 10

8 Making energy more
Exploration and Production Our strategy remains to build
production with improving returns by focusing on finding
the largest fields, concentrating our involvement in a limited
number of the world’s most prolific hydrocarbon basins; by
building leadership positions in these areas; and by managing
the decline of existing producing assets, divesting assets
when they no longer compete in our portfolio.
Refining and Marketing Our strategy remains to focus on
our advantaged refineries, where we can achieve distinctive
returns through scale, flexible configuration and operational
excellence and develop supply opportunities around these
assets. We plan to expand our A&A business by continuing
to apply our advantaged technologies, building new acetic
acid and purified terephthalic acid (PTA) capacity in Asia
and maintaining our global competitive position. In our
marketing business, we continue to grow our focused and
differentiated offers. We operate in retail markets where
we can create a competitive edge from supply positions,
superior customer offers and efficiency across the value
chain. We will continue to focus our investments in
those areas where we have a distinctive position in the
marketplace. We are building strategic relationships in the
business-to-business sector, as well as increasing product
loyalty in our Castrol and other branded lubricants activities
and enhancing our strength in key growth markets. We also
aim to improve operational efficiency in manufacturing and
across the marketing base.
Gas, Power and Renewables Our strategy remains to
capture distinctive world-scale gas market positions by
accessing key pieces of infrastructure and to expand gross
margin by providing distinctive products to selected
customer segments and optimizing the gas and power value
chains. We have created the BP Alternative Energy business
to develop the world’s leading low-carbon power generation
and wholesale marketing and trading businesses.
In line with growing demand for cleaner fuels, BP seeks
to participate on a large scale in fast-growing markets for
natural gas, gas liquids and low-carbon power. We have strong
upstream gas assets near the major markets, significant
interests in gas pipelines and a series of integrated LNG
positions in the Pacific and Atlantic basins. We are expanding
our LNG business by accessing import terminals in Asia
Pacific, North America and Europe. We are extending our
significant strength in US NGLs processing and marketing
on a global basis.
The board delegates to the group chief executive
responsibility for developing BP’s strategy and its
implementation through five-year and annual plans (the
group plan) that determine the setting of priorities and
allocation of resources. The group chief executive is obliged
to discuss with the board, on the basis of the strategy and
group plan, all material matters currently or prospectively
affecting BP’s performance.
The group’s system of internal control governs the further
delegation of authority throughout the group. It sets out the
roles and relationships of the different parts of the business
Structure and strategy
BP operates globally, with business activities and customers
in more than 100 countries in Europe, the US, Canada,
Russia, South America, Australasia, Asia and Africa. We
have exploration and production interests in 26 countries.
Just under 40% of our fixed assets are located in the US
and around 25% in the UK and the rest of Europe.
BP is organized into three business segments, 22 group
functions and four regions.
Our three operating business segments are:
Exploration and Production, which includes oil and natural
gas exploration, development and production, together with
related pipeline transportation and processing activities;
Refining and Marketing, including oil supply and trading,
and the manufacture and marketing of petroleum products,
including aromatics and acetyls (A&A); and Gas, Power and
Renewables, including the marketing and trading of natural
gas, natural gas liquids (NGLs), liquefied natural gas (LNG),
LNG shipping and regasification activities, and low-carbon
power development, including solar and wholesale
marketing and trading (BP Alternative Energy).
Group functions serve the three business segments,
aiming to achieve coherence across the group, manage risk
effectively and achieve economies of scale. Some functions,
such as Economics, Group Compliance & Ethics (GC&E)
and Financial Control & Accounting, are centralized. Others,
such as Communications & External Affairs and Digital &
Communications Technology, are fully or partly decentralized,
to respond better to the specific needs of each segment.
The group’s research and engineering activities provide
technological support for all business segments.
Each head of region ensures regional consistency of the
activities of business segments and group functions and
represents BP to external parties. However, each segment
is managed on a global basis.
From 1 January 2005, our Petrochemicals segment
ceased to report separately, following the announcement in
2004 of our intention to divest the Olefins and Derivatives
(O&D) business. From that date, the retained A&A operations
have been reported within Refining and Marketing and O&D
within Other businesses and corporate, thus reducing the
number of business segments from four to three. In the
fourth quarter, we sold Innovene, which represented the
majority of O&D, to INEOS. Innovene operations have
subsequently been presented as discontinued operations and
the retained portion of O&D continues to be reported within
Other businesses and corporate.
STRATEGY
We make five-year and annual plans to execute our strategy
in the context of time to achieve three targets:
••• To underpin growth by a focus on performance,
particularly on returns, investing at a rate appropriate
for long-term growth.
••• To increase the dividend per share in light of our policy.
••• To return to shareholders all free cash flows in excess
of investment and dividend needs.
Performance review