BP 2010 Annual Report Download - page 44

Businessreview
Thereplacementcostprotbeforeinterestandtaxfor2010was
$30,886million,comparedwith$24,800millionforthepreviousyear.
2010includednetnon-operatinggainsof$3,199million,primarilygainson
disposalsthatcompletedduringtheyearpartlyoffsetbyimpairment
chargesandfairvaluelossesonembeddedderivatives.(See page 25 for
further information on non-operating items.)Inaddition,fairvalue
accountingeffectshadanunfavourableimpactof$3millionrelativeto
management’smeasureofperformance.(See page 26 for further
information on fair value accounting effects.)
Theprimaryadditionalfactorscontributingtothe25%increasein
replacementcostprotbeforeinterestandtaxwerehigherrealizations,
lowerdepreciationandhigherearningsfromequity-accountedentities,
mainlyTNK-BP,partlyoffsetbylowerproduction,asignicantlylower
contributionfromgasmarketingandtradingandhigherproductiontaxes.
Totalcapitalexpenditureincludingacquisitionsandassetexchanges
in2010was$17.8billion(2009$14.9billionand2008$22.2billion).For
furtherinformationonacquisitionsanddisposalsseepages43-44.
Developmentexpenditureofsubsidiariesincurredin2010,
excludingmidstreamactivities,was$9.7billion,comparedwith
$10.4billionin2009and$11.8billionin2008.
Prioryears’comparativenancialinformation
Thereplacementcostprotbeforeinterestandtaxfortheyearended
31December2009of$24,800millionincludedanetcreditfornon-
operatingitemsof$2,265million,withthemostsignicantitemsbeing
gainsonthesaleofoperations(primarilyfromthedisposalofour46%
stakeinLukArco,thesaleofour49.9%interestinKazakhstanPipeline
VenturesLLCandthesaleofBPWestJavaLimitedinIndonesia)andfair
valuegainsonembeddedderivatives.Inaddition,fairvalueaccounting
effectshadafavourableimpactof$919millionrelativetomanagement’s
measureofperformance.
Thereplacementcostprotbeforeinterestandtaxfortheyear
ended31December2008was$38,308millionandincludedanetcharge
fornon-operatingitemsof$990million,withthemostsignicantitems
beingnetimpairmentchargesandnetfairvaluelossesonembedded
derivatives,partlyoffsetbythereversalofcertainprovisions.The
impairmentchargeincludeda$517millionwrite-downofourinvestmentin
Rosneftbasedonitsquotedmarketpriceattheendoftheyear.Inaddition,
fairvalueaccountingeffectshadanunfavourableimpactof$282million
relativetomanagement’smeasureofperformance.
Theprimaryadditionalfactorcontributingtothe35%decreasein
thereplacementcostprotbeforeinterestandtaxfortheyearended
31December2009comparedwiththeyearended31December2008was
lowerrealizations.Inaddition,theresultwasimpactedbylowerincome
fromequity-accountedentitiesandhigherdepreciationbuttheresult
benetedfromhigherproductionandlowercosts,asaresultofour
continuedfocusoncostmanagement.
Outlook
In2011,wewillseektocontinuouslydriveoperationalriskreduction
throughtheS&ORfunction.Throughtherestructuringintodivisions,we
intendtodrivefunctionalexcellenceacrossthelifecycleofexploration,
developmentsandproductionandcontinuetofocusonbuildingour
technologicalandhumancapabilityforthefuture.
Webelievethatourportfolioofassetsremainswellpositionedto
competeandgrowvalueinarangeofexternalconditions.Wewillcontinue
toactivelymanageourportfoliowithafocusonvaluegrowth.
Upstream activities
Exploration
Thegroupexploresforoilandnaturalgasunderawiderangeoflicensing,
jointventureandothercontractualagreements.Wemaydothisaloneor,
morefrequently,withpartners.BPactsasoperatorformanyofthese
ventures.
Ourexplorationandappraisalcosts,excludingleaseacquisitions,in
2010were$2,706million,comparedwith$2,805millionin2009and
$2,290millionin2008.Thesecostsincludedexplorationandappraisal
drillingexpenditures,whichwerecapitalizedwithinintangiblexedassets,
andgeologicalandgeophysicalexplorationcosts,whichwerechargedto
incomeasincurred.Approximately80%of2010explorationandappraisal
costsweredirectedtowardsappraisalactivity.In2010,weparticipatedin
479gross(95.5net)explorationandappraisalwellsin10countries.The
principalareasofexplorationandappraisalactivitywereEgypt,the
deepwaterGulfofMexico,Libya,theNorthSea,OmanandonshoreUS.
Totalexplorationexpensein2010of$843million(2009$1,116
millionand2008$882million)includedthewrite-offofexpensesrelated
tounsuccessfuldrillingactivitiesinthedeepwaterGulfofMexico
($161million),theNorthSea($42million),Libya($26million),Angola
($24million)andothers($4million).Italsoincluded$157millionrelatedto
decommissioningofidleinfrastructure,asrequiredbytheBureauofOcean
EnergyManagementRegulationandEnforcement’sNoticeofLessees
2010G05issuedinOctober2010.
Reservesbookingfromnewdiscoverieswilldependontheresults
ofongoingtechnicalandcommercialevaluations,includingappraisaldrilling.
Provedreservesreplacement
Totalhydrocarbonprovedreserves,onanoilequivalentbasisincluding
equity-accountedentities,comprised18,071mmboe(12,077mmboefor
subsidiariesand5,994mmboeforequity-accountedentities)at
31December2010,adecreaseof1%(decreaseof4%forsubsidiariesand
increaseof6%forequity-accountedentities)comparedwiththe
31December2009reservesof18,292mmboe(12,621mmboefor
subsidiariesand5,671mmboeforequity-accountedentities).Naturalgas
representedabout41%(54%forsubsidiariesand14%forequity-
accountedentities)ofthesereserves.Thechangeincludesanetdecrease
fromacquisitionsanddisposalsof307mmboe(303mmboenetdecrease
forsubsidiariesand4mmboenetdecreaseforequity-accountedentities).
AcquisitionsoccurredinAzerbaijan,Canada,NorwayandtheUS.Disposals
occurredinCanada,EgyptandtheUS.
Theprovedreservesreplacementratioistheextenttowhich
productionisreplacedbyprovedreservesadditions.Thisratioisexpressed
inoilequivalenttermsandincludeschangesresultingfromrevisionsto
previousestimates,improvedrecoveryandextensionsanddiscoveries.For
2010theprovedreservesreplacementratioexcludingacquisitionsand
disposalswas106%(129%in2009and121%in2008)forsubsidiariesand
equity-accountedentities,74%forsubsidiariesaloneand166%for
equity-accountedentitiesalone.
In2010,netadditionstothegroup’sprovedreserves(excluding
productionandsalesandpurchasesofreserves-in-place)amountedto
1,503mmboe(686mmboeforsubsidiariesand818mmboeforequity-
accountedentities),principallythroughimprovedrecoveryfrom,and
extensionsto,existingeldsanddiscoveriesofnewelds.Ofour
subsidiaryreservesadditionsthroughimprovedrecoveryfrom,and
extensionsto,existingeldsanddiscoveriesofnewelds,approximately
67%wereassociatedwithnewprojectsandwereprovedundeveloped
reservesadditions.Theremainingadditionsareinexistingdevelopments
wheretheyrepresentamixtureofproveddevelopedandproved
undevelopedreserves.Volumesaddedin2010principallyreliedonthe
applicationofconventionaltechnologies.Theprincipalreservesadditionsin
oursubsidiarieswereintheUS(Arkoma,Hawkville,Kuparuk,Mars,
PrudhoeBay,ThunderHorse,TubularBells),theUK(Kinnoull,Loyal,Machar,
Schiehallion),Egypt(WestNileDelta),Trinidad(Immortelle)andIraq
(Rumaila).Theprincipalreservesadditionsinourequity-accountedentities
wereinArgentina(CerroDragon),Bolivia(Margarita),Canada(Sunrise)and
inRussia(Samotlor,Sorochinsko-Nikolskoye,Talinskoye,Uvat).
42BPAnnualReportandForm20-F2010