BP 2006 Annual Report Download - page 6

4 BP Annual Report and Accounts 2006
Dear Shareholder BP’s performance in 2006 can be best
described as mixed. A great portfolio of assets and excellent
people who are executing a consistent strategy remained as
our core strength. However, results could and should have
been better. The ability to benefit from higher oil prices was
impaired by some of our major assets not being available.
For many years, BP has been a greatly admired group,
reflecting its strategic vision, determined execution and high
aspirations in areas such as safety, the environment and the
community – and I believe it still is. However, a number of
events in the US, starting with the tragic incident at the Texas
City refinery in March 2005, have deeply shocked the group,
led to increased public scrutiny and had an effect on BP’s
reputation as a responsible operator. We must ensure that the
lessons we have learned will enable us to demonstrate rapidly
that we are again in the forefront of our industry in all respects.
Our aspirations remain unchanged and, in the vast majority
of our activities, we continue to be justly proud of our safety
record, our environmental initiatives and our high ethical
standards. However, it is quite clear to your board that the
group’s record in some areas has not met the standards
to which we aspire. Above all, we must ensure that, at all
locations, those who work for us do so safely.
The board’s governance system has long balanced support
for the executive team in the development of the group’s
strategy with the need to ensure effective monitoring of its
implementation. In this context, both the full board and its
committees have considered the significant events of the
year and their impact on BP’s business and reputation.
The work of each of the committees is described in more
detail in the governance: board performance report on pages
36-43 of Notice of BP Annual General Meeting 2007 and also
on pages 76-82 of BP Annual Report and Accounts 2006.
The safety, ethics and environment assurance committee,
chaired by Dr Walter Massey, has played a particularly
important role during the year. The audit committee, chaired
by Sir Ian Prosser, has similarly had important work. I remain
confident in the work of all the committees and our overall
system of governance.
There have been a number of inquiries into the events at
Texas City and other aspects of the group’s operations. In
particular, on the recommendation of the US Chemical Safety
and Hazard Investigation Board, which was investigating the
Texas City incident, an independent panel was commissioned
by BP to examine the safety culture of our US refineries. The
panel was chaired by former US Secretary of State James A
Baker, III and reported to us in early January. It found that,
while the focus of the group had been on personal safety
performance, where significant improvement had been
achieved, there was insufficient emphasis on process safety.
The panel further found that, by concentrating on improving
personal safety statistics, the group had developed a false
sense of confidence in its safety culture. In essence, the panel
concluded that BP had fallen short in its approach to process
safety at its five US refineries. It made a number of
recommendations, all of which we have considered and
will implement. One recommendation was that the board,
for at least five years, should engage an outside expert,
independent of the executive, to report to it on the progress
of the implementation of the panel’s recommendations.
Your board will keep you fully advised on the implementation
of those recommendations to which we, and the group’s
executives and employees, are fully committed. Indeed, we
have long had a tradition of emphasizing safety and, in nearly
20 years of reporting, we have seen a significant improvement
in our safety performance.
It is important to stress that we have a clear strategy and
an underlying business that remains robust. BP has a set of
world-class assets that will ensure the continued success of
the group into the medium term. Our cash flow has remained
strong during the year. The board has therefore been able
to continue its policy of returning value to our shareholders
through both increased dividends and buybacks. I am pleased
to confirm a dividend, to be paid in March, of 10.325 cents per
share. The annual dividend paid of 38.40 cents or 21.104 pence
represents an increase of 10% in both dollar and sterling
terms. During 2006, we repurchased some $15.5 billion
of shares. Of these, 27% were for cancellation and the
remainder placed in treasury. Your board will continue to
keep its distribution policy under review.
I would like to pay tribute to John Browne, his executive
team and all our employees for their contributions to the
creation and maintenance of a robust, cash-generative
business. It has been a major task for the executive team
to respond to the pressing issues of 2006 while diligently
managing and guiding the business forward in a challenging
market. Although oil prices have remained high, we are in a
softening market and prices are some way from their peak;
costs of capital equipment and services, however, have risen
faster than inflation.
This year, the board, like many companies whose shares
are traded on both sides of the Atlantic, has streamlined the
company’s reporting process by using a common document
as the basis for both our Annual Report and Accounts and
our Annual Report on Form 20-F. As a result, the Annual
Report and Accounts now contains information that, in the
past, would only have appeared in our US reporting. The
short-form Annual Review continues to give a summary
of the group’s operations for the majority of our private
shareholders. We will keep our reporting process under
review, including a greater use of electronic communication
wherever we are able to do so.
In the summer of 2006, John and I agreed that he would
stay as chief executive until the end of 2008. Early in 2007,
we both decided that it would be in the group’s interest to
name a successor in order to provide a short orderly transition
Chairman’s letter