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

Business reviewbalance of participation and capital employed from established to growthregions.In March 2010, we set a target to shareholders to deliver aperformance improvement of at least $2 billion by 2012 relative to a 2009baseline and we believe we are on track to deliver this by the end of 2012 a .In addition, post-2012, we plan to grow our margin further through ourfocus on growth markets and expansion of our margin capture capability,which we expect to achieve through projects such as those describedbelow.In our fuels business, as previously announced, we are planningto dispose of our Texas City refinery and the southern part of theUS West Coast FVC before the end of 2012. We are investing in ourexisting operations to sustain safe, compliant standards and selectivelyinvesting in cash margin capture projects. The largest of these projectsis the repositioning of the Whiting refinery towards heavy feedstockadvantage, which is already under way and scheduled to come onstreamin the second half of 2013. In addition to the repositioning of the Whitingrefinery, margin capture projects include the Cherry Point refinery cleandiesel project, Toledo refinery continuous catalytic reforming project,Gelsenkirchen refinery margin improvement programme and the recentlyannounced Brazil aviation acquisition (see Acquisitions and disposalssection on page 97).We are also well positioned for growth in our lubricants andpetrochemicals businesses. In our lubricants business, around half of ourprofit growth in recent years has come from the emerging economies innon-OECD countries as we have expanded in these markets. We havea material presence in the Indian automotive lubricant market. Thesepositions provide a strong base to capture further long-term growth. Inpetrochemicals around 45% of our capacity is in the demand centre ofAsia. Growth options are enabled by our distinctive technology, operationalcapability and access through key strategic relationships. During 2011the latest example of our strategy deployment was the signing of amemorandum of understanding with IndianOil Corp (IOC) to explore thepotential for establishing a 50:50 joint venture to invest in a 1 million tonneper annum (mtpa) acetic acid plant in Gujarat, India. The joint venture willuse BP’s latest Cativa ® catalyst and technology, while the associatedgasification facilities would utilize petroleum coke feedstock from IOC.Additionally, in 2011 BP received local government approval for a 1.25mtpaPTA plant in Zhuhai, China, and is now seeking final central governmentalapproval.From 2012 we plan to create a new revenue stream inpetrochemicals through licencing our technology, beginning with ouraromatics products of PX and PTA.As part of our drive towards more efficient operations, we havebeen transforming our back office. In 2011, we made further progress onour global SAP implementation within the fuels and lubricants businesses.We also continued to expand the scale of our business service centres(BSCs). BSCs are regional centres for certain finance, operationalprocurement and IT services for the BP group.a This performance improvement will be measured by comparing Refining and Marketing’sreplacement cost profit before interest and tax for 2009 with that of 2012, after adjusting fornon-operating items, fair value accounting effects and the impact of changes in the refining marginand petrochemicals environment (including energy costs), foreign exchange impacts and price-lageffects for crude and product purchases. This adjusted measure of replacement cost profit beforeinterest and tax is non-GAAP. We believe the measure is useful to investors because it is one thatis viewed and closely tracked by management as an important indicator of segment performance.Our performance2011 performanceSafety and operational riskSafety remains the top priority across BP, and we are committed toleadership in process safety and to ensuring that our operations are safe,compliant and reliable with regard to both personal and process safety.Refining and Marketing utilizes the group’s operating managementsystem (OMS). OMS provides a set of group-wide requirements and asystematic way of working to continuously improve the way we operate.(OMS is explained in more detail on page 65). While all Refining andMarketing entities have transitioned on to OMS, we continue to work toenhance local systems and processes at all our sites.All our major manufacturing entities (refineries and petrochemicalssites) have been through two performance improvement cycles (PIC) ofOMS, and all other entities across our FVCs will have completed theirsecond PIC by the end of 2012. The PIC is a management review carriedout within each entity of their local operating management system, whichidentifies areas where further actions can be taken to enhance our systemsand processes. These actions are risk-prioritized and form an integral partof each entity’s annual and longer-term planning. Where appropriate,actions are aggregated to provide common solutions.Direction and oversight of safety in Refining and Marketing isprovided by the segment operating risk committee (SORC) chaired by thechief executive officer of Refining and Marketing. Monitoring of safety andcompliance in our operations is conducted by the newly-formed safetyand operational risk function, for which there is a Refining and Marketingsegment team independent of the segment CEO.As outlined on page 65, BP has further strengthened its risk reviewprocess, and this process was applied to Refining and Marketing to ensurethat appropriate risk management and mitigating actions were prioritizedthroughout the segment.We measure our personal safety performance through theemployment of a recordable injury frequency (RIF) rate and a days awayfrom work case frequency (DAFWCF) rate, as well as a severe vehicleaccident rate.In 2011, our RIF (measured by the number of recordable injuriesto the BP workforce per 200,000 hours worked) was 0.37, slightly higherthan the 2010 rate of 0.35. The 2011 DAFWCF (a subset of the RIF thatmeasures the number of cases where an employee misses one or moredays from work) was 0.108, compared with 0.114 in 2010. There was asignificant improvement in the severe vehicle accident rate (SVAR) in 2011with 61 severe vehicle accidents compared with 77 in 2010.While progress has been made in the area of personal safety, therewere two workplace fatalities in 2011. These tragic events have been fullyinvestigated, and the learnings shared and actioned.Process safety is measured by the process safety incident index(PSII), a weighted index which reflects both the number and severity ofevents per 200,000 hours worked. The PSII for 2011 was 0.36, equal tothe 2010 rate, and better than the 2009 rate of 0.48. While the number ofPSII events has increased from 2010, the overall severity of the events hasreduced.In terms of operational integrity, the number of losses of primarycontainment (LOPC), a measure of unplanned or uncontrolled releases ofmaterial from primary containment, was 5% lower in 2011 than in 2010.The number of oil spills greater than one barrel was slightly higher in 2011(145) than 2010 (132) however the volumes of oil spills were significantlylower in 2011 than in 2010 at 0.4 million litres compared with 1.3 millionlitres respectively.In our US refineries, we continue to implement therecommendations of the BP US Refineries Independent Safety ReviewPanel and regulatory bodies. See the Safety section on page 67 for furtherinformation on progress.Business review: BP in more depthBP Annual Report and Form 20-F 2011 95