BP 2006 Annual Report Download - page 9

Safety Before addressing our financial performance, let me
talk about the things that did not go so well, for these have
absorbed much of my and the team’s attention. Safety has
always been one of our core priorities. Scrutiny of the group
has inevitably been dominated by the investigations into the
March 2005 explosion at the Texas City refinery, in which 15
of our co-workers tragically lost their lives, and into the pipeline
corrosion at Prudhoe Bay in Alaska.
It is an unavoidable fact that we operate in a hazardous
industry. But accidents of any kind cause people to question
the values that underpin our company. They also cast a shadow
over our many successes – and the fact that, around the world,
hundreds of thousands of employees and contractors work
safely for BP, with dedication and integrity.
BP aspires to be an industry leader in the three dimensions
of safety – personal safety, process safety and the
environment. We have had a strong track record in the day-
to-day personal safety of our people. In 2006, our recordable
injury frequency rate, the standard industry measure, fell to
0.47 per 200,000 hours worked, the lowest in our history.
There were also seven fatalities. Every death is a tragedy, but
we should recognize that this number has reduced significantly,
to the lowest level in nearly 20 years of reporting. I am
particularly pleased with the large drop in driving-related
fatalities, from 14 in 2003 to two in 2006, following the
implementation of our new driving safety standard. On
the environment, we continue to make progress in reducing
greenhouse gas emissions and the environmental impact
of our products.
Our response to the Baker report In January, former US
Secretary of State James A Baker, III and his panel published
a candid and thorough report into process safety management
at our US refineries. The panel was established by BP on
the recommendation of the US Chemical Safety and Hazard
Investigation Board in the wake of the Texas City tragedy and
was intended to provide lessons not just for us but for the
entire industry.
BP will implement the Baker panel’s recommendations and
we are now consulting with the panel on how best to do that.
Many of the recommendations are consistent with our own
internal reviews and our aim now is to develop a timely and
intelligent plan of action in order to transform BP into an
industry leader in process safety management.
Importantly, the panel did not conclude that BP intentionally
withheld resources on any safety-related assets or projects
for budgetary or cost reasons. The panel interviewed hundreds
of employees in the course of its work and observed that it
had seen no information to suggest that anyone – from BP’s
board members to its hourly-paid workers – acted in anything
other than good faith.
Our response to the Baker report comes alongside what
we were already doing to embed consistently high standards
of safety and operational integrity throughout BP. This includes
an ambitious four-year programme of investment in safety
and operational integrity right across the group and the
creation of an advisory board of external experts to assist
and advise BP America Inc. in monitoring the operations of
the US businesses, with particular focus on compliance, safety
and regulatory affairs. At Texas City itself, a new leadership
team has introduced world-class training programmes,
increased the number of safety inspectors, renovated major
units and relocated hundreds of employees. We expect Texas
City to be processing about 400,000 barrels per day of crude
oil by the end of 2007.
We are also implementing lessons from the two oil spills
and the cases of corrosion that occurred at Prudhoe Bay in
2006. When corrosion was found in August, we rapidly shut
down production as a precaution. Nearly 27,000 individual
radiographic or ultrasonic inspections of the pipeline system
have since been carried out and output was restored to its
full level in late 2006. We are replacing 16 miles of transit
lines, increasing spending on major maintenance and retaining
a team of independent corrosion experts as advisers.
We took similar precautionary action to replace subsea
components for the Thunder Horse platform in the Gulf
of Mexico. The components had passed industry tests and
met regulatory requirements but a metallurgical failure was
revealed when our engineers tested compliance with BP’s
own, more stringent, standards. We are now replacing the
equipment in question and expect Thunder Horse to start
production by the end of 2008.
Integrity We are also taking action to ensure that people
across BP behave with consistent integrity. During the year,
there were allegations of market manipulation in our US trading
operations. We have responded to these serious allegations
by making internal improvements and instituting a thorough
internal review by independent auditors.
Performance In terms of financial performance, the year
was a record one, with replacement cost profit rising 15%
to $22.3 billion, representing a return on average capital
employed of 22%. Thanks to our share buyback programme,
earnings per share rose faster than profits, by 22%, to
111.1 cents per share.
Our role as a leading international oil company is to build
strong and sustainable supply chains between producing
countries and markets around the world. In emerging economies
such as Algeria, Angola, Azerbaijan, Egypt, Indonesia and
Trinidad & Tobago, our investments help to increase the flow
of supplies to world markets as well as strengthening local
economies and contributing to economic development.
Our joint venture in Russia, TNK-BP, brings together BP’s
experience with local assets, capabilities and resources to
help increase production. Our experience in working in the
Russian Federation is to act with caution, respect and genuine
reciprocity. The agreement we concluded with Gazprom
during the year to provide liquefied natural gas (LNG) cargoes
indicates the scope for co-operation to build new supply
chains in the international marketplace. We also deepened
our strategic relationship with Rosneft, Russia’s second largest
oil company, investing $1 billion in a stake at its initial public
offering in July. That investment has risen by about 25% in
value. We are also exploring the Sakhalin IV and V licence areas
in a joint venture with Rosneft and have signed a protocol with
them to carry out joint studies in the basins of the Russian
arctic region.
In 2006, capital investment in our exploration and production
segment totalled $12.1 billion, excluding our investment in
Rosneft. We added 1.4 billion barrels of oil and 1.3 trillion cubic
feet of natural gas to our booked reserves for subsidiaries and
equity-accounted entities. We have decided to move solely to
the US Securities and Exchange Commission (SEC) basis of
reserves reporting to simplify disclosures and allow for easier
comparison with competitors. Our reserves replacement ratio,
BP Annual Report and Accounts 2006 7