BP 2013 Annual Report Download - page 37

Strategic report
BP Annual Report and Form 20-F 2013 33
unfavourable impact of $178 million in 2013 versus an unfavourable impact
of $427 million in 2012 and a favourable impact of $63 million in 2011.
After adjusting for non-operating items and fair value accounting effects,
underlying RC profit before interest and tax was $3.6 billion (2012 $6.5
billion, 2011 $6.0 billion).
The fuels business delivered an underlying RC profit before interest and tax
of $2,230 million for the year (2012 $5,012 million, 2011 $3,639 million).
Compared with 2012, 2013 saw significantly weaker refining margins.
Margins were weakened by reduced throughput due to the planned crude
unit outage at our Whiting refinery and commissioning of the new units
that were part of the refinery modernization project and the absence of
earnings from the divested Texas City and Carson refineries. This was
partially offset by a significantly improved supply and trading contribution
and lower overall turnaround activity during the year. Compared with 2011,
the 2012 result reflected strong operations that enabled us to capture the
higher refining margin environment, partly offset by a lower supply and
trading contribution.
The lubricants business delivered an underlying RC profit before interest
and tax of $1,272 million for the year (2012 $1,285 million, 2011 $1,250
million). These results reflect sustained underlying performance for the
lubricants business.
The petrochemicals business delivered an underlying RC profit before
interest and tax of $130 million for the year (2012 $166 million, 2011 $1,120
million). Compared with 2012, the 2013 result reflected weaker product
margins resulting from over supply in certain markets partially offset by
lower turnaround activity in the US and Europe.
Our petrochemicals productiona of 13,943 thousand tonnes (kte) in 2013
was lower than the previous two years (2012 14,727kte, 2011 14,866kte)
due to the sale of our BPCM Kuantan PTA plant in 2012 as well as reduced
output in both years for commercial reasons given the low-margin
environment.
A summary of our interests in petrochemicals production capacity as at
31 December 2013 is provided on page 244.
a Petrochemicals production includes 1,494kte of petrochemicals produced at our Gelsenkirchen
and Mülheim sites in Germany for which the income is reported in our fuels business.
Our fuels business
The fuels strategy focuses largely on fuels value chains (FVCs) which
include large-scale, highly upgraded and feedstock advantaged refineries
that are integrated with logistics and marketing as well as fuels marketing
businesses primarily supplied by our global supply and trading organization.
The FVCs seek to optimize the activities of our assets across the supply
chain through: advantaged feedstock delivery to the refineries;
manufacture of high-quality fuels; distribution through pipeline and terminal
infrastructure; and marketing and sales to our customers on a regional
basis. This integration, together with a focus on excellent execution and
cost management as well as a strong brand, market presence and
customer base, are key to our financial performance.
Refining
At 31 December 2013 we owned or had a share in 14 refineries producing
refined petroleum products that we supply to retail and commercial
customers. A summary of our interests in refineries and average daily
crude distillation capacities as at 31 December 2013 is provided on
page 243. As part of our plan to reshape BP’s US fuels business, we
completed the sales of the Texas City and Carson, California refineries and
associated logistic and marketing assets. The Texas City refinery and a
portion of our retail and logistics network in the south-east US were sold to
Marathon Petroleum Corporation on 1 February 2013 for consideration of
up to $2.5 billion. On 3 June 2013 we completed the sale of the Carson
refinery in California, ARCO network and related regional logistics assets to
Tesoro Corporation for approximately $2.4 billion.
Strategic investments in our refineries are focused on maintaining the
safety and reliability of our assets while improving unit margins versus the
competition. The most important of these strategic investments in 2013
was the Whiting refinery modernization project. During the year the new
coker, crude oil unit, gasoil hydrotreater, and an upgraded sulphur recovery
complex were all commissioned. We plan to progressively ramp up heavy
crude processing to approximately 280,000 barrels per day during the
second quarter of 2014. This major investment transforms Whiting into
one of the key advantaged downstream assets in our portfolio, with the
capacity to process a greater proportion of heavy crudes, and underpins
our ability to deliver increased cash flow from 2014 onwards.
Refinery operations were strong this year, with Solomon refining
availability of 95.3%. Utilization rates were at 86% principally due to the
planned crude unit outage at our Whiting refinery as part of the
modernization project. Overall refinery throughputs in 2013 were lower
than those in 2012, mostly driven by the divestment of the Texas City and
Carson refineries and associated logistics and marketing activities in 2013.
Creating our North American
advantaged refinery
We are creating a portfolio of advantaged
refineries in North America. At our Whiting
refinery we’ve commissioned all the major units
for our largest project in recent history, helping us
move towards that goal.
We built or reconfigured almost every process unit
as part of the modernization project. This included
new crude distillation and coking units and improved
hydro-treating sulphur recovery and increasing
coking capacity. Across the 1,400 acre site we
installed around 380 miles of pipe – more than
enough to run from London, England to Glasgow in
Scotland. This work has improved productivity and
safety at the refinery, creating the potential to
increase our heavy sour crude processing.
This, combined with Whiting’s advantaged Midwest
location, gives us the additional flexibility to process
crude from three major geographic sources
(Canada, US mid-continent and Gulf Coast),
supporting our ability to deliver increased cash flow.
Our Downstream business provides
significant cash generation for the group.