BP 2008 Annual Report Download - page 16

Performance review
BP Annual Report and Accounts 2008
Performance review
Information on the company
General
Unless otherwise indicated, information in this document reflects 100%
of the assets and operations of the company and its subsidiaries that
were consolidated at the date or for the periods indicated, including
minority interests. Also, unless otherwise indicated, figures for total
revenues include sales between BP businesses.
The company was incorporated in 1909 in England and Wales
and changed its name to BP p.l.c. in 2001.
BP is one of the world’s leading oil companies on the basis of
market capitalization and proved reserves. Our worldwide headquarters
is located at 1 St James’s Square, London SW1Y 4PD, UK, tel +44 (0)20
7496 4000. Our agent in the US is BP America Inc., 501 Westlake Park
Boulevard, Houston, Texas 77079, tel [phone].
Overview of the group
BP is a global group, with interests and activities held or operated
through subsidiaries, jointly controlled entities or associates established
in, and subject to the laws and regulations of, many different
jurisdictions. These interests and activities covered two business
segments in 2008: Exploration and Production and Refining and
Marketing. With effect from 1 January 2008, the former Gas, Power and
Renewables segment ceased to report separately (see Resegmentation
in 2008 on page 16).
A separate business, Alternative Energy, reported in Other
businesses and corporate, handles BP’s low-carbon businesses and
future growth options outside oil and gas.
Exploration and Production’s activities include oil and natural gas
exploration, development and production (upstream activities), together
with related pipeline, transportation and processing activities (midstream
activities), as well as the marketing and trading of natural gas (including
LNG), power and natural gas liquids (NGLs). The activities of Refining and
Marketing include the refining, manufacturing, supply and trading,
marketing and transportation of crude oil, petroleum and petrochemicals
products and related services. The group provides high-quality
technological support for all its businesses through its research and
engineering activities.
All these activities are supported by a number of other
organizational elements comprising group functions and regions. Group
functions serve the business segments, aiming to achieve coherence
across the group, manage risks effectively and achieve economies of
scale. In addition, each regional head provides the required integration and
co-ordination of group activities and represents BP to external parties.
Internal control
The group’s system of internal control is designed to meet the
expectations of internal control of the Combined Code in the UK and of
COSO (committee of the sponsoring organizations for the Treadway
Commission) in the US. The system of internal control is the complete
set of management systems, organizational structures, processes,
standards and behaviours that are employed to conduct the business of
BP and deliver returns to shareholders. The design of the system of
internal control addresses risks and how to respond to them. Each
component of the system is in itself a device to respond to a particular
type or collection of risks.
Strategy
The group strategy describes the group’s strategic objectives and the
assumptions made by BP about the future. It describes strategic risks
and opportunities that arise from making such assumptions and the
actions to be taken to manage or mitigate the risks. The board delegates
to the group chief executive responsibility for developing BP’s strategy
and its implementation through the group plan that determines 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.
During 2008, we continued to pursue our three strategic
priorities of ‘Safety’, ‘People’ and ‘Performance’, which underpin BP’s
’forward agenda’.
Through this, we have taken steps to restore revenues, reduce
complexity and manage costs and have made significant progress
towards closing the competitive performance gap to our peer group.
Looking forward, our strategy is to create value for shareholders by
investing to deliver growth in Exploration and Production, together with
high-quality earnings and returns throughout our operations. Our first
priority will always be to ensure the safety and integrity of our operations.
We expect Exploration and Production to be our core source of
growth. We intend to re-invest competitively in Exploration and
Production to secure and grow high-quality oil and gas resources. This
investment is intended to be focused on strengthening our position
further by securing new access and achieving exploration success. It is
also intended to be targeted on a renewed focus on increasing recovery
from fields in which we already operate. We expect to make investment
across the full life cycle of our assets with an increased emphasis on
technology as a source of productivity, access and competitive advantage.
In Refining and Marketing, we expect to continue building our
business around advantaged assets in material and significant energy
markets. We intend to continue investing in improving the safety and
reliability of our operations. Additionally, we intend to drive further
operational performance and productivity by investing in the upgrade of
manufacturing capabilities within our integrated fuels value chains.
We also intend to invest selectively in international businesses,
including lubricants and petrochemicals, where we believe there is the
potential to deliver strong returns.
In Alternative Energy, we are focusing our investment activity in
new energy technology and low-carbon energy businesses that we
believe will provide long-term options to meet energy demand and
provide BP with significant long-term growth potential. These are wind,
solar, biofuels and carbon capture and storage.
We are dependent on our people and technology to deliver on
our strategy. We intend to invest in ensuring that we have people with
the right capability and experience to meet all of our objectives and the
technology to support the delivery of competitive business performance
and new business development. BP is committed to delivering its
strategy by operating safely, reliably, in compliance with the law and
within the discipline of a clear financial framework.
Geographical presence
We have well-established operations in Europe, the US, Canada, Russia,
South America, Australasia, Asia and parts of Africa. Currently, around
67% of the group’s capital is invested in Organisation for Economic
Cooperation and Development (OECD) countries, with around 41% of
our fixed assets located in the US and around 20% located in Europe.
We believe that BP has a strong portfolio of assets:
• In Exploration and Production, we have upstream interests in 29
countries. Exploration and Production activities are managed through
operating units that are accountable for the day-to-day management
of the segment’s activities. An operating unit is accountable for one
or more fields. Our current areas of major development include the
deepwater Gulf of Mexico, Azerbaijan, Algeria, Angola, Egypt and Asia
Pacific where we believe we have competitive advantage and the
foundation for volume growth and improved margins in the future.
We also have significant midstream activities to support our upstream
interests. Additionally, we undertake natural gas, power and NGLs
marketing and trading activity and LNG activity, which are focused on
identifying and capturing worldwide opportunities for our upstream
natural gas reserves, and we have an NGLs processing business in
North America.
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Performance review