BP 2010 Annual Report Download - page 61

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Businessreview
Business review
Thefunctionseekstoidentifythebestmarketsandpricesforourcrudeoil,
sourceoptimalfeedstocksforourreneries,andprovidecompetitive
supplyforourmarketingbusinesses.Inaddition,wherereneryproduction
issurplustomarketingrequirementsorcanbesourcedmorecompetitively,
itissoldintothemarket.Whereverpossible,thegroupwilllooktooptimize
valueacrossthesupplychain.Forexample,BPwilloftensellitsowncrude
foritsrenerieswherethiswillprovideincrementalmargin.
Alongwiththesupplyactivitydescribedabove,thefunctionseeks
tocreateincrementaltradingopportunities.Itentersintothefullrangeof
exchange-tradedcommodityderivatives,over-the-counter(OTC)contracts
andspotandtermcontractsthataredescribedinCertaindenitions–
commoditytradingcontracts,onpage82.Inordertofacilitatethe
generationoftradingmarginfromarbitrage,blendingandstorage
opportunities,italsobothownsandcontractsforstorageandtransport
capacity.Thegrouphasdevelopedariskgovernanceframeworktomanage
andoverseethenancialrisksassociatedwiththistradingactivity,whichis
describedinFinancialstatements–Note27onpages185-190.
In2010,theFVCsaccountedforroughlythree-quartersofthe
operatingcapitalemployedainReningandMarketingandgeneratedjust
underhalfofthereplacementcostprot.
SignicanteventsintheFVCsin2010wereasfollows:
• TheWhitingrenerymodernizationprojectmadesignicantprogressin
2010asabovegroundconstructionbegan,includingthereactorsforthe
newgasoilhydrotreater,thenewtowersontherevampedcrude
distillationunitandthecoker’ssixnewdrums.Twothird-partyworld-
scalehydrogenunitswerecommissionedin2010andbeganproviding
hydrogentotherenery.Progressonimportantpipeline
interconnectionscompletedin2010willallowWhitingearlyaccessto
greatercrudeimportsandproductexportopportunities.
• IntheUS,BP’sreputationsufferedasaresultoftheoilspillintheGulf
ofMexico,whichhadanadverseimpactonourbrandedfuels
marketing,butthishadrecoveredbyyearend.Weofferedadditional
marketingsupporttoourcustomersinanattempttomitigatethese
declines.
• IntheGulfofMexicoregion,salesweredownyearonyearbyupto
30%insomesitesinthesecondquarter,butregainedgroundoverthe
secondhalfof2010.
• InOctober,BPopenedacutting-edgefuelstechnologydevelopment
centreinSouthAfrica,whichwillfocusonqualityassurance,technical
serviceandmarketingsupportforthelocalmarket.
• TheintegratedsupplyandtradingfunctionwithintheFVCsannounced
thatitwasreorganizingitsinternalstructureinordertosimplifythe
organizationandreducecosts.
• InOctober,BPsolditsFrenchretailbusinesstoDelekEuropeB.V.
• During2010,BPalsocompletedthedivestmentofseveralpackages
ofnon-strategicterminalsandpipelinesintheUSEastofRockiesand
WestCoast.Thisprogrammeofdivestmentofnon-strategicpipelines
andterminalswillcontinueduring2011.
• FollowingastrategicreviewofourbusinessesinsouthernAfrica,we
intendtofocusouractivitieswithinthecontinentonSouthAfricaand
Mozambique.Asaresult,BPagreedtosellitsfuelsmarketing
businessesinNamibia,ZambiaandBotswanatoPumaEnergyandin
addition,BPintendstosellits50%interestinBPMalawiandBP
TanzaniatoPumaEnergy.ThesaleofBPTanzaniatoPumaEnergyis
subjecttothepre-emptionrightsofitsco-shareholders.Onlythesale
oftheBotswanabusinesshadbeencompletedasat31December
2010,theothersalesareexpectedtobecompletedin2011.
• During2010BPcompletedthesaleofanumberofEuropeanterminals
aspartofongoingassetoptimizationactivities.
aOperatingcapitalemployedistotalassets(excludinggoodwill)lesstotalliabilities,excludingnance
debtandcurrentanddeferredtaxation.
International businesses
OurIBsprovidequalityproductsandservicestocustomersinmorethan
70countriesworldwidewithasignicantfocusonEurope,NorthAmerica
andAsia.Ourproductsincludeaviationfuels,lubricants,LPGand
petrochemicalsthataresoldforuseinthemanufactureofarangeof
products,suchasfabrics,bresandvariousplastics.Webelieveeachof
theseIBsiscompetitivelyadvantagedinthemarketsinwhichwehave
chosentoparticipate.Suchadvantageisderivedfromseveralfactors,
includinglocation,proximityofmanufacturingassetstomarkets,physical
assetquality,operationalefciency,technologyadvantageandthestrength
ofourbrands.Eachbusinesshasaclearstrategyfocusedoninvestinginits
keyassetsandmarketpositionsinordertodelivervaluetoitscustomers
andoutperformitscompetitors.
In2010,theIBsaccountedforjustunderaquarterofthesegment’s
operatingcapitalemployedaandjustoverhalfofthereplacement
costprot.
Marketingsalesintheinternationalbusinessesincludesalesofglobal
fuelsandlubricants.Thefollowingtablesetsoutthedetailbybusiness.
thousandbarrelsperday
Internationalbusinessessalesvolumes 2010 2009 2008
AirBP   450 434 478
LPG   58 67 64
Lubricants  50 49 54
 558 550 596
Lubricants
Wemanufactureandmarketlubricantsandrelatedproductsandservices
totheautomotive,industrial,marineandenergymarketsacrosstheworld.
Wesellproductsdirecttoourcustomersinaround45countriesanduse
approvedlocaldistributorsfortheremaininglocations.Customerfocus,
distinctivebrands,superiortechnologyandrelationshipsremainthe
cornerstonesofourlong-termstrategy.
BPmarketsprimarilythroughitsmajorbrandsofCastrolandBP,
andalsotheAralbrandinsomespecicmarkets.Castrolisarecognized
brandworldwideandwebelieveitprovidesuswithasignicant
competitiveadvantage.
Intheautomotivelubricantssector,wesupplylubricantsandother
relatedproductsandservicestointermediatecustomerssuchasretailers
andworkshops.These,inturn,serveend-consumerssuchascar,truckand
motorcycleowners.In2010,roughly30%ofreplacementcostprot
beforeinterestandtaxwasgeneratedfromemergingmarkets,whichwe
believecontinuetohavethepotentialforsignicantlong-termgrowth.
BP’smarinelubricantsbusinessisoneofthelargestglobal
suppliersoflubricantstothemarineindustry,withglobalpresenceinover
800ports.BP’sindustriallubricantsbusinessisaleadingsuppliertothose
sectorsofthemarketinvolvedinthemanufactureofautomobiles,trucks,
machinerycomponentsandsteel.BPisalsoaleadingsupplieroflubricants
fortheoffshoreoilandaviationindustries.
Petrochemicals
Wemanufactureandmarketfourmainproductlines:puriedterephthalic
acid(PTA),paraxylene(PX),aceticacid,andolensandderivatives(O&D).
Ourstrategyistoleverageourindustry-leadingtechnologyinselected
markets,togrowthebusinessandtodeliverindustry-leadingreturns.New
investmentsaretargetedprincipallyinthehigher-growthAsianmarkets.
PTAisarawmaterialusedinthemanufactureofpolyestersusedin
bres,textilesandlm,andpolyethyleneterephthalate(PET)bottles.Acetic
acidisaversatileintermediatechemicalusedinavarietyofproductssuch
aspaints,adhesivesandsolvents,aswellasitsuseintheproductionof
PTA.WehaveastrongglobalmarketshareinthePTAandaceticacid
markets,withamajormanufacturingpresenceinAsia,particularlyChina.
PXisafeedstockforPTAproduction.Wealsoproduceanumberofother
specialitypetrochemicalsproducts.
BPAnnualReportandForm20-F2010 59