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

Business reviewOther businesses and corporateOther businesses and corporate comprises the Alternative Energybusiness, Shipping, Treasury (which includes interest income on thegroup’s cash and cash equivalents), and corporate activities worldwide. Italso included the group’s aluminium business until its disposal in 2011.The replacement cost loss before interest and tax for the yearended 31 December 2011 was $2,478 million, compared with $1,516million for the previous year. 2011 included a net charge for nonoperatingitems of $822 million. (See page 58 for further informationon non-operating items.) The primary additional factors affecting 2011’sresult compared with that of 2010 were significantly higher functionaland corporate costs; loss of aluminium contribution following disposalof the group’s aluminium business in 2011; impacts of restructuring inthe Alternative Energy business; higher Shipping losses, partly offset byimproved foreign exchange hedging results.The replacement cost loss before interest and tax for the yearended 31 December 2010 included a net charge for non-operating items of$200 million.The replacement cost loss before interest and tax for the yearended 31 December 2009 included a net charge for non-operating items of$489 million.The primary additional factors reflected in 2010’s result comparedwith that of 2009 were improved business performance, more favourableforeign exchange effects and cost efficiencies.Key statistics$ million2011 2010 2009Sales and other operating revenues a 2,957 3,328 2,843Replacement cost (loss) before interestand tax (2,478) (1,516) (2,322)Capital expenditure and acquisitions 1,853 1,234 1,299a Includes sales between businesses.Alternative EnergyAlternative Energy comprises BP’s low-carbon businesses and futuregrowth options outside oil and gas, which we believe have the potential tobe a material source of low-carbon energy and are aligned with BP’s corecapabilities. These are biofuels, wind and a range of strategic investments.Our marketA more diverse mix of energy will be required to meet long-term futuredemand. BP’s own estimates suggest that global primary energy demandwill increase by around 40% between 2010 and 2030. Supported bygovernment policies, renewables’ global share of power generation,is expected to be 11% by 2030. Between 2010 and 2030, biofuels areexpected to account for 23% of transport energy demand growth a .Our performanceIn 2011, our biofuels business acquired the Brazilian sugar and ethanolproducer Companhia Nacional de Açúcar e Álcool (CNAA) for $705 million.Our wind business added 401MW of gross generation capacity during2011 (274MW net), with the commercial start-up of the Cedar Creek 2 andSherbino 2 wind farms. At the end of 2011, BP began winding down itsremaining solar operations as it prepares to exit the solar business.Alternative Energy continues to make progress against itscommitment to invest $8 billion in low-carbon businesses by 2015. Ourinvestment since 2005 is $6.6 billion b .a BP Energy Outlook 2030.b The majority of costs have been capitalized, some were expensed under IFRS.BiofuelsBP believes that it has a key technological role to play in enabling thetransport sector to respond to the dual challenges of energy security andclimate change. We have embarked on a focused programme of biofuelsdevelopment based around the most efficient transformation of sustainableand low-cost sugars into a range of fuel molecules. BP continues to investthroughout the entire biofuels value chain, from sustainable feedstocksthat minimize pressure on food supplies through to the development of theadvantaged fuel molecule biobutanol, which has a higher energy contentthan ethanol and delivers improved fuel economy. See Technology –Alternative Energy on page 76 for further information.BP has production facilities operating, or in the planning andconstruction phases, in the US, Brazil and the UK.The 2011 CNAA acquisition included mills located in Goiás andMinas Gerais states that supply both Brazilian and international marketswith ethanol. We have also increased our share in the Brazilian biofuelscompany, Tropical BioEnergia S.A., to 100%, by acquiring the remaining50% for cash consideration of approximately $71 million. The acquisitionincluded an operating ethanol mill, located in Goiás state. BP now ownsand operates three producing ethanol mills in Brazil, with a total crushcapacity a of 7.2 million tonnes per annum. The blending and distributionof biofuels continues to be carried out by our Refining and Marketingsegment, in line with regulation.a Crush capacity represents a maximum capacity to process biofuels feedstock.WindIn wind power, BP has focused its business in the US, where we havedeveloped one of the leading wind portfolios.During 2011, full commercial operations commenced at the CedarCreek 2 wind farm in Colorado with a gross capacity of 251MW (BP 50%)and in Texas at the 150MW Sherbino 2 wind farm. Construction is nearlycomplete at a further Texas wind farm, the 225MW Trinity Hills facility,and construction has commenced at the 141MW Mehoopany wind farm inPennsylvania, and at the 470MW Flat Ridge wind farm in Kansas.BP increased its net wind generation capacity to 1,048MW during2011, an increase of 35% over the prior year.2011 2010 2009Wind – net rated capacity atyear-end (megawatts) a 1,048 774 711a Net wind capacity is the sum of the rated capacities of the assets/turbines that have entered intocommercial operation, including BP’s share of equity-accounted entities. The equivalent capacitieson a gross-JV basis (which includes 100% of the capacity of equity-accounted entities where BPhas partial ownership) were 1,763MW in 2011, 1,362MW in 2010 and 1,237MW in 2009. Thisincludes 32MW of capacity in the Netherlands which is managed by our Refining and Marketingsegment.SolarBP has been involved in solar for more than 35 years and in the last twoyears the industry has changed radically into a low margin commoditymarket. At the end of 2011, BP began winding down its remaining solaroperations as it prepares to exit the solar business. BP will take thenecessary steps to transfer its obligations and assets to its affiliates or tothird parties.Emerging business and venturesOur emerging business and ventures unit brings together BP’s venturingand carbon markets expertise with extensive carbon capture and storagecapability. Through venturing we have 29 separate venturing investmentsspanning three broad areas: bioenergy, electrification and carbon solutions.We are able to deploy specialist carbon capture and storage capabilities onour own operations and to monitor CO 2storage opportunities, such as theIn Salah gas field where we have injected almost 4 million tonnes of CO 2since 2004.In September 2011, SCS Energy, an independent power producerinvolved in clean power projects, acquired the Hydrogen Energy Californiajoint venture project from BP and Rio Tinto.Separately, the 400MW Hydrogen Power Abu Dhabi projectwith CCS is awaiting further decisions, including arrangements for CO 2Business review: BP in more depthBP Annual Report and Form 20-F 2011 101