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

Business reviewLPGOur global LPG marketing business sells bulk, bottled, automotive andwholesale LPG products in 10 countries, with sales of over 50 thousandbarrels per day. As noted in the Acquisitions and disposals section, BPannounced in February 2012 its intent to sell the bulk and bottled LPGbusinesses in nine countries, and will retain the autogas and wholesaleLPG sales from refineries which will be integrated into the fuels valuechains.LubricantsOur lubricants business manufactures and markets lubricants and relatedproducts and services to the automotive, industrial, marine, aviation andenergy markets across the world. At the end of 2011, the operating capitalemployed relating to the lubricants business was approximately $5 billionincluding goodwill of around $3 billion (see Financial statements – Note 10on pages 206-207).We organize our lubricants business into customer sectors. Theautomotive sector serves the needs of land-based vehicles including cars,trucks, motorbikes, buses, tractors, earth movers and other vehicles.Our industrial sector serves customers who run or maintain plant andequipment; our marine sector serves users of river and sea-going vessels;aviation serves aircraft operators and maintenance industries; and ourenergy sector serves the oil and gas and power industries.In the automotive lubricants sector, which accounts for more thantwo-thirds of our lubricants sales, we supply lubricants and other relatedproducts and services to intermediate customers such as retailers andworkshops. These, in turn, serve end-consumers such as car, truck andmotorcycle owners.BP’s marine lubricants business is one of the largest globalsuppliers of lubricants to the marine industry, with a global presence inover 800 ports. BP’s industrial lubricants business is a leading supplier tothose sectors of the market involved in the manufacturing of automobiles,trucks, machinery components and steel. We are also a leading supplier oflubricants for the oil, gas and aviation industries. In the oil and gas industrywe supply some of world’s largest production and drilling companies, andwe estimate that we supply over 30% of the world’s subsea control fluids.In the aviation industry, we are the lubricants supplier for around 40% ofthe jet engines of the world’s commercial airlines.We look to market and sell our products across the world. We sellproducts direct to our customers in around 45 countries and use approvedlocal distributors for other geographies. Approximately 40% of ouremployees are located in non-OECD markets and around 20% of staff arelocated in China and India alone. We are particularly strong in Europe andkey Asia Pacific markets including India.Our lubricants business markets primarily through our major brandsof Castrol and BP, and through the Aral brand in specific European markets,notably Germany. Castrol is a recognized brand worldwide and we believeit provides us with a significant competitive advantage.Distinctive brands, superior technology and building and sustainingcustomer relationships remain the cornerstones of our long-term strategy.Our participation in the value chain is focused on areas ofcompetitive differentiation and strength. These fall into three main areas:the development of formulations and the application of cutting-edgetechnology; developing product brands and communicating the benefitsthat our products provide to our customers; and building and extendingour relationships with customers so that our products and services aredelivered in a manner which best meets their needs.We have chosen not to participate at scale in base oil or additivesmanufacturing. We are, however, one of the largest purchasers of base oilin the market.We participate in blending in locations where scale and competitiveadvantage can be sustained, or where customer service or security ofsupply are of critical importance and otherwise difficult to secure. We havea network of 27 wholly-owned and operated blending plants worldwide andjoint ownership in five others operated by third parties.Our focus is on developing premium products, and we often workalongside original equipment manufacturers (OEMs) in doing this. The newCastrol EDGE professional range was launched in 2011 to the franchisedworkshop market in Europe and Africa.In 2011, approximately 45% of the lubricants replacement cost profitbefore interest and tax was generated from non-OECD markets.PetrochemicalsOur petrochemicals business is global, with operations in the US, Europeand Asia. The business buys a range of feedstocks for input into ourmanufacturing units, the majority of which have been built and operateutilizing our proprietary technology. We manufacture and market four mainproduct lines: purified terephthalic acid (PTA), paraxylene (PX), acetic acid,and, through joint ventures, olefins and derivatives (O&D). We also producea number of other speciality petrochemicals products. At the end of 2011,the operating capital employed relating to the petrochemicals business wasapproximately $5 billion.Our strategy is to leverage our industry-leading technology in themarkets in which we choose to participate, to grow the business, and todeliver industry-leading returns. New investments are targeted principally inthe higher-growth Asian markets. We both own and operate 100%-ownedassets, and have also invested in a number of joint ventures in Asia, whereour partners are leading companies within their domestic market.PTA is a raw material used in the manufacture of polyesters usedin fibres, textiles and film, and polyethylene terephthalate (PET) bottles.PTA production requires PX as a feedstock, which we produce in the USand Europe and buy in Asia. PTA is then reacted with glycol to producepolyester chips or fibres, which are in turn used to produce PET bottles,polyester fibres and various speciality products, including protectivescreens for computers and TVs. PX production is primarily from the mixedxylene stream produced in a reformer within a refinery.Acetic acid is a versatile intermediate chemical used in a varietyof products such as paints, adhesives and solvents, as well as in theproduction of PTA. In producing acetic acid, we purchase methanol andeither make or buy carbon monoxide (CO). CO can be produced from avariety of hydrocarbon feedstocks, including natural gas, naphtha, fuel oiland coal.Our O&D business is based in China and is focused on servingthe Chinese and Asian markets. The SECCO joint venture between BP,Sinopec and its subsidiary, Shanghai Petrochemical Company, is our mainO&D site and is BP’s single largest investment in China. BP also co-ownsone other naphtha cracker site outside Asia, which is integrated with ourGelsenkirchen refinery in Germany.The petrochemicals business runs 16 manufacturing sites inthe UK, the US, Belgium, Germany, China, Indonesia, South Korea,Malaysia and Taiwan, including our joint ventures, and we also have twopetrochemicals plants which are managed by the fuels business as theyutilize feedstock from our Gelsenkirchen refinery.Business review: BP in more depthBP Annual Report and Form 20-F 2011 99