BP Annual Report and Form 20-F 2011 - Company Reporting

Business reviewThe table below summarizes the volume, by region, of crude oil andfeedstock processed by BP for its own account and for third parties.Utilization data is also summarized below.thousand barrels per dayRefinery throughputs a 2011 2010 2009US 1,277 1,350 1,238Europe 771 775 755Rest of World 304 301 294Total 2,352 2,426 2,287Refinery capacity utilizationCrude distillation capacityat 31 December b 2,679 2,667 2,666Refinery utilization c 88% 91% 86%US 87% 93% 85%Europe 91% 91% 89%Rest of World 84% 84% 83%a Refinery throughputs reflect crude oil and other feedstock volumes.b Crude distillation capacity is gross rated capacity, which is defined as the highest average sustainedunit rate for a consecutive 30-day period.c Refinery utilization is annual throughput divided by crude distillation capacity, expressed as apercentage.Overall refinery throughputs decreased by 74mb/d in 2011 relative to2010, mainly due to the second quarter weather-related power outagesin the US.We continue to invest to develop the capability of producing cleanerfuels to meet the requirements of our customers and their communities.For example, in April 2011, BP announced a major investment in a newhydrotreater unit and hydrogen plant at our Cherry Point refinery, calledthe clean diesel project. This project will allow the refinery to produce fuelsthat meet ultra-low sulphur diesel (ULSD) standards for rail and marinediesel customers. In addition, the new hydrogen plant will allow improvedoperation of naphtha reforming units at the refinery.In addition to refined petroleum products, we also blend andmarket biofuels at our refineries. Biogasoline (bioethanol) and biodiesel(hydrogenated vegetable oils and fatty acid methyl esters) continue togrow in volume, primarily in Europe and the US, as regulatory requirementsdemand heavier blending levels. Our response is to continue to developblend capabilities and to work with regulators, biofuels supply chains andother stakeholders to improve the sustainability of the biofuels we blendand supply.Downstream of our refineries, our priorities are to operate anadvantaged infrastructure and logistics network (which includes pipelines,storage terminals and road or rail tankers), drive excellence in operationaland transactional processes, and deliver compelling customer offers in thevarious markets in which we operate.We supply fuel and related convenience services to retailconsumers through company-owned and franchised retail sites, as wellas other channels, including wholesalers and jobbers. We also supplycommercial customers within the transport and industrial sectors.Our retail network is largely concentrated in Europe and the US,but also has established operations in Australasia, and southern Africa. Wehave developed networks in China in two separate joint ventures, one withPetroChina and the other with China Petroleum and Chemical Corporation(Sinopec) and these joint ventures in China operate around 700 dualbranded sites.As at 31 December 2011, BP’s worldwide retail network consistedof some 21,800 sites across the US, Europe, Australia, New Zealand andsouthern Africa. This is a reduction of 300 since 2010, primarily due toa focus on fewer higher throughput sites and portfolio changes such asthe southern African disposals. These retail sites are primarily brandedBP, ARCO and Aral. We expect the number of sites to fall in 2012 as wedispose of the southern part of our US West Coast FVC. In 2011, brandedfuels sales in the US continued to recover from the oil effects of theDeepwater Horizon oil spill, and market share stabilized but remained lowerthan before the oil spill, partly caused by the slowdown in US gasolinedemand. We continue to invest in our fuels marketing in growing markets,for example in 2011, we piloted a new convenience retail offer in Polandwith Carrefour.The table below shows the number of BP-branded retail sites by region.Number of retail sites operated under a BP brandRetail sites a b 2011 2010 2009US 11,300 11,300 11,500Europe 8,200 8,400 8,600Rest of World 2,300 2,400 2,300Total 21,800 22,100 22,400a The number of retail sites includes sites not operated by BP but instead operated by dealers,jobbers, franchisees or brand licensees that operate under a BP brand. These may move to or fromthe BP brand as their fuel supply or brand licence agreements expire and are renegotiated in thenormal course of business. Retail sites are primarily branded BP, ARCO and Aral.b Excludes our interest in equity-accounted entities which are dual-branded.Some of these retail sites include a convenience store which offersconsumers a range of food, drink and other consumables and services in aconvenient and innovative manner. The convenience offer includes brandssuch as ampm, Wild Bean Café and Petit Bistro and includes partnershipswith leading retailers such as Marks & Spencer in the UK and Carrefour inPoland.BP’s integrated supply and trading function is responsible fordelivering value across the overall crude and oil products supply chain.This structure enables the optimization of BP’s FVCs to maintain a singleinterface with the oil trading markets and to operate with a single setof trading compliance processes, systems and controls. The oil tradingbusiness (including support functions) has trading offices in Europe, theUS and Asia and employs around 1,500 people. This enables the functionto maintain a presence in the more actively traded regions of the globaloil markets in order to gain an overall understanding of the supply anddemand forces across this market. It has a two-fold strategic purpose inour business.First, it seeks to identify the best markets and prices for our crudeoil, source optimal feedstocks for our refineries, and provide competitivesupply for our marketing businesses. In addition, where refineryproduction is surplus to marketing requirements or can be sourced morecompetitively, it is sold into the market. Wherever possible, the group willlook to optimize value across the supply chain. For example, BP will oftensell its own crude and purchase alternative crudes from third parties for itsrefineries where this will provide incremental margin.Second, the function seeks to create and capture incrementaltrading opportunities. It enters into the full range of exchange-tradedcommodity derivatives, over-the-counter (OTC) contracts and spot andterm contracts (described in Certain definitions – commodity tradingcontracts on page 111). In order to facilitate the generation of tradingmargin from arbitrage, blending and storage opportunities, it also ownsand contracts for storage and transport capacity. The group has developeda risk governance framework to manage and oversee the financial risksassociated with this trading activity, see Financial statements – Note 26 onpages 217-222.The group’s trading activities in oil are managed by the integratedsupply and trading function. In order to carry out the unique delegationsfrom the BP group, the integrated supply and trading function operates andenforces a robust system of internal control. The internal control systemsoperated by the regional business leads are augmented by internal supportfunctions that provide independent oversight, including product control,risk, trade completion and accounting and reporting. They are furthersupported by regional and group ethics and compliance and groupinternal audit.AviationOur global aviation business, Air BP, is one of the world’s largest and bestknown aviation fuels suppliers, serving many major commercial airlinesas well as the general aviation and military sectors. We have marketingsales in excess of 450 thousand barrels per day. Air BP’s strategic aim isto grow its position in the core locations of Europe, the US, Australasiaand the Middle East, while focusing its portfolio towards airports that offerlong‐term competitive advantage.98 BP Annual Report and Form 20-F 2011