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

Business reviewFinancial and operating performance$ million2011 2010 2009Replacement cost profit (loss)before interest and tax aFuels b 3,003 2,628 (914)Lubricants 1,350 1,357 1,059Petrochemicals c 1,121 1,570 5985,474 5,555 743Sales and other operatingrevenues d 344,116 266,751 213,050Capital expenditure and acquisitions 4,130 4,029 4,114thousand barrels per dayTotal refinery throughputs e 2,352 2,426 2,287%Refining availability f 94.8 95.0 93.6thousand tonnesTotal petrochemicals production g 14,866 15,594 12,660a Income from petrochemicals produced at our Gelsenkirchen and Mulheim sites is reported withinthe fuels business. Segment level overhead expenses are included within the fuels business.b 2009 includes a $1.6 billion impairment of goodwill in the US West Coast FVC.c 2010 includes $338 million gain from non-operating items.dIncludes sales between businesses.e Refinery throughputs reflect crude oil and other feedstock volumes.f Refining availability represents Solomon Associates’ operational availability, which is defined as thepercentage of the year that a unit is available for processing after subtracting the annualized timelost due to turnaround activity and all planned mechanical, process and regulatory maintenancedowntime.g Petrochemicals production includes 1,699kte of petrochemicals produced at our Gelsenkirchen andMulheim sites in Germany for which the income is reported in our fuels business.Replacement cost profit before interest and tax for the year ended31 December 2011 was $5,474 million, compared with $5,555 million forthe previous year. The full-year results included a net loss for non-operatingitems of $602 million, compared with a gain of $630 million in 2010. Thenon-operating items in 2011 mainly related to impairment charges relatingto our disposal programme, partially offset by gains on disposal. (Seepage 58 for further information on non-operating items). In addition, fairvalue accounting effects had a favourable impact of $63 million, comparedto a favourable impact of $42 million in 2010. (See page 58 for furtherinformation on fair value accounting effects.)After adjusting for non-operating items and fair value accountingeffects, Refining and Marketing reported record earnings in 2011 a .Strong refinery operations enabled us to capture the benefitsavailable in 2011 from BP’s location advantage in accessing WTI-basedcrude grades. Compared with 2010, the result also benefited from a higherrefining margin environment and a stronger supply and trading contribution.These benefits were partly offset by a significantly higher level ofturnarounds in 2011 than 2010 and negative impacts from increasedrelative sweet crude prices in Europe and Australia and the weather-relatedpower outages in the second quarter.In the fuels business, financial performance for the full year wasimpacted by the factors noted above. Operational performance was strongwith Solomon refining availability at 94.8% and refinery utilisation at 88%for the year.Performance in our lubricants business in 2011 was impacted byan increasingly difficult marketing environment characterized by significantbase oil price increases and weaker demand. These impacts were partlyoffset by supply chain efficiencies, and the strength of our products andbrands, which has allowed the increased cost of goods to be largelyrecovered in the market.In our petrochemicals business, compared with 2010, the 2011result was negatively impacted by weakening market conditions as theyear progressed, as additional Asian capacity came onstream during theyear at a time of weaker demand. This was somewhat offset by thestrength in aromatics margins and volumes in the first half of the year.Sales and other operating revenues for 2011, analysed in the table below,were $344 billion, compared with $267 billion in 2010 and $213 billion in2009. These increases were primarily due to increasing oil prices.$ millionSales and other operating revenues a 2011 2010 2009Sale of crude oil through spot andterm contracts 57,055 44,290 35,625Marketing, spot and term sales ofrefined products 273,940 209,221 166,088Other sales and operating revenues 13,121 13,240 11,337344,116 266,751 213,050a Includes sales between businesses.The following table sets out oil sales volumes by type for the past threeyears. Marketing sales volumes were 3,311mb/d, slightly lower than2010, principally reflecting reduced demand in some OECD markets andsimplification of our portfolio.thousand barrels per dayRefined products volumes 2011 2010 2009Marketing sales a 3,311 3,445 3,560Trading/supply sales b 2,465 2,482 2,327Total refined product marketing sales 5,776 5,927 5,887Crude oil c 1,532 1,658 1,824Total oil sales 7,308 7,585 7,711a Marketing sales include sales to service stations, end-consumers, bulk buyers and jobbers (i.e. thirdparties who own networks of a number of service stations and small resellers).b Trading/supply sales are sales to large unbranded resellers and other oil companies.c Crude oil sales relate to transactions executed by our integrated supply and trading function,primarily for optimizing crude oil supplies to our refineries and in other trading. 79 thousand barrelsper day relate to revenues reported by Exploration and Production.Prior years’ comparative financial informationThe replacement cost profit before interest and tax for the year ended31 December 2010 of $5,555 million included a net gain for non-operatingitems of $630 million, mainly relating to gains on disposal, partly offset byrestructuring charges. Almost half of this gain related to our petrochemicalsbusiness, mainly relating to the disposal of our share of BP’s interests inethylene and polyethylene production in Malaysia to Petronas. In addition,fair value accounting effects had a favourable impact of $42 million relativeto management’s measure of performance. The primary additional factorscontributing to the increase in replacement cost profit before interestand tax compared with 2009 were improved operational performancein the FVCs, continued strong operational performance in lubricants andpetrochemicals, and further cost efficiencies, as well as a more favourablerefining environment. Against very good operational delivery, the resultswere impacted by a significantly lower contribution from supply and tradingcompared with 2009.The replacement cost profit before interest and tax for the yearended 31 December 2009 of $743 million included a net charge for nonoperatingitems of $2,603 million. The most significant non-operating itemswere restructuring charges and a $1.6 billion one-off non-cash loss to impairall of the segment’s goodwill in the US West Coast FVC relating to our2000 ARCO acquisition. This resulted from our annual review of goodwill asrequired under IFRS and reflected the prevailing weak refining environmentthat, together with a review of future margin expectations in the FVC, led toa reduction in expected future cash flows.a In 2011, there was a charge of $602 million for non-operating items and a favourable impact of$63 million for fair value accounting effects. After adjusting for these impacts, replacement costprofit before interest and tax was $6,013 million. This is a non-GAAP measure, which managementbelieves is useful to investors because it is viewed and closely tracked by management as animportant indicator of segment performance.96 BP Annual Report and Form 20-F 2011