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

Business reviewThe group expects its total capital expenditure, excluding acquisitions and asset exchanges, to be around $22 billion in 2012. The following tablesummarizes the group’s capital expenditure commitments for property, plant and equipment at 31 December 2011 and the proportion of that expenditurefor which contracts have been placed. Capital expenditure is considered to be committed when the project has received the appropriate level of internalmanagement approval. For jointly controlled assets, the net BP share is included in the amounts shown. Where operating lease costs are incurred inconnection with a capital project, some or all of the cost may be capitalized as part of the capital cost of the project. Such costs are included in theamounts shown.$ millionCapital expenditure commitments Total 2012 2013 2014 2015 20162017 andthereafterCommitted on major projects 32,951 15,113 7,443 4,268 2,828 1,535 1,764Amounts for which contracts have been placed 12,517 7,689 2,789 1,094 511 315 119In addition, at 31 December 2011, the group had committed to capital expenditure relating to investments in equity-accounted entities amounting to $610million. Contracts were in place for $332 million of this total.Cash flowThe following table summarizes the group’s cash flows.$ million2011 2010 2009Net cash provided by operating activities 22,154 13,616 27,716Net cash (used in) investing activities (26,633) (3,960) (18,133)Net cash provided by (used in) financingactivities 482 840 (9,551)Currency translation differences relatingto cash and cash equivalents (492) (279) 110Increase (decrease) in cash and cashequivalents (4,489) 10,217 142Cash and cash equivalents at beginningof year 18,556 8,339 8,197Cash and cash equivalents at end of year 14,067 18,556 8,339Net cash provided by operating activities for the year ended 31 December2011 was $22,154 million compared with $13,616 million for 2010, theincrease primarily reflecting a reduction in the cash outflow in respect ofthe Gulf of Mexico oil spill from $16,019 million in 2010 to $6,813 millionin 2011. Excluding the impacts of the Gulf of Mexico oil spill, net cashprovided by operating activities was $28,967 million for 2011, compared to$29,635 million for 2010, a decrease of $668 million. Profit before taxationdecreased by $1,018 million, working capital requirements increased by$1,509 million and income taxes paid increased by $1,879 million. Theseimpacts were partially offset by a decrease of $2,622 million in the netimpairment, gains and losses on sale of businesses and fixed assets,and an increase in dividends received from jointly controlled entities andassociates of $2,104 million.Net cash provided by operating activities for the year ended31 December 2010 was $13,616 million compared with $27,716 millionfor 2009, the reduction primarily reflecting a net cash outflow of $16,019million in respect of the Gulf of Mexico oil spill. Excluding the impacts ofthe Gulf of Mexico oil spill, profit before taxation increased by $10,986million and a decrease in working capital requirements contributed $842million. This higher profit before tax did not result in an equivalent netincrease in operating cash flow because it included $4,854 million innet gains on disposals, net of impairments, a decrease of $1,160 millionin depreciation, depletion, amortization and exploration expense, and adecrease of $787 million in the net charge for provisions, less payments, allof which are non-cash items.Net cash used in investing activities was $26,633 million in 2011,compared with $3,960 million and $18,133 million in 2010 and 2009respectively. The increase in cash used in 2011 reflected a decreaseof $14,222 million in disposal proceeds, including the impact of therepayment in 2011 of a $3,530 million disposal deposit received in 2010,following the termination of the Pan American Energy LLC sale agreement,and an increase of $8,441 million in acquisitions, net of cash acquired; ofwhich $7.0 billion was for the Reliance transaction. The decrease in 2010compared with 2009 reflected an increase of $14,273 million in disposalproceeds and a decrease in capital expenditure and investments of $2,445million, partly offset by an increase in acquisitions of $2,469 million.Net cash provided by financing activities was $482 million in 2011compared with $840 million net cash provided in 2010 and $9,551 millionnet cash used in 2009. The decrease in net cash provided in 2011 primarilyreflected a decrease in net proceeds from long-term financing of $4,734million, and an increase in dividends paid of $1,445 million partly offset by anet increase in short-term debt of $5,846 million. The net increase in cashprovided in 2010 compared with 2009 reflected a decrease in dividendspaid of $7,957 million, an increase in net proceeds from long-term financingof $1,686 million and a decrease in net repayments of short-term debt of$786 million.The group has had significant levels of capital investment for manyyears. Cash flow in respect of capital investment, excluding acquisitions,was $18.8 billion in 2011, $18.9 billion in 2010 and $21.4 billion in 2009.Sources of funding are completely fungible, but the majority of the group’sfunding requirements for new investment come from cash generated byexisting operations. The group’s level of net debt, that is debt less cash andcash equivalents, was $29.0 billion at the end of 2011, $25.9 billion at theend of 2010 and $26.2 billion at the end of 2009.During the period 2009 to 2011, our total sources of cash amountedto $87 billion, while our total uses of cash amounted to $90 billion. The netcash usage of $3 billion, and the increase in cash and cash equivalents heldof $6 billion, were financed by an increase in finance debt of $9 billion overthe three-year period. During this period, the price of Brent crude oil hasaveraged $84.14 per barrel. The following table summarizes the three-yearsources and uses of cash.$ billionSources of cashNet cash provided by operating activities 63Disposals 2487Uses of cashCapital expenditure 59Acquisitions 13Net repurchase of shares –Dividends paid to BP shareholders 17Dividends paid to minority interests 190Net use of cash (3)Increase in finance debt 9Increase in cash and cash equivalents 6Disposal proceeds received during the three-year period exceeded cashused for acquisitions, as a result in particular of our ongoing disposalprogramme started in 2010. Net investment (capital expenditure andacquisitions less disposal proceeds) during this period averaged $16 billionper year. Dividends paid to BP shareholders totalled $17 billion during thethree-year period, with no ordinary share dividends being paid in respectof the first three quarters of 2010. In the past three years, $4 billion hasbeen contributed to funded pension plans. This is reflected in net cashprovided by operating activities in the table above. The balance of cash andcash equivalents held has been increased in light of the group’s currentcircumstances, as noted above.Business review: BP in more depthBP Annual Report and Form 20-F 2011 105