BP 2018.pdf - Growing the business and advancing the energy...

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Unformatted text preview: Growing the business and advancing the energy transition BP Annual Report and Form 20-F 2018 Advancing energy to improve people’s lives Contents Strategic report Overview 2 BP at a glance 4 How we run our business 6 Chairman’s letter 8 Group chief executive’s letter 9 The changing energy mix Financial statements Helge Lund succeeded Carl-Henric Svanberg as chairman. Helge joined the board in July and took the chair on 1 January 2019. 113 Consolidated financial statements of the BP group 134 Notes on financial statements Supplementary information on 210  oil and natural gas (unaudited) 238  Parent company financial statements of BP p.l.c.   See page 6. Strategy 10 Our strategy 12 BP investor proposition 14 Major project start-ups Performance 16 Measuring our progress 18 Global energy markets 19 Group performance 22 Upstream 28 Downstream 34 Rosneft 37 Other businesses and corporate 38 Alternative energy 40 Innovation in BP 43 Sustainability 43 Safety and security 45 Climate change 48 Managing our impacts 49 Value to society 49 Human rights 50 Ethical conduct 51 Our people 53 How we manage risk 55 Risk factors Additional disclosures Corporate governance 58 Board of directors 63 Executive team 68 Introduction from the chairman 70 Board activity in 2018 74 Shareholder engagement 74 International advisory board 75 Audit committee 81 Safety, ethics and environment assurance committee 83 Remuneration committee 84 Geopolitical committee 85 Chairman’s committee 86 Nomination and governance committee 87 Directors’ remuneration report 110 Directors’ statements 273 Contents Including information on liquidity and capital resources, oil and gas disclosures, upstream regional analysis and legal proceedings. Shareholder information 305 Contents Including information on dividends, our annual general meeting and share prices. 315 Glossary 320  Non-GAAP measures reconciliations 323 Signatures 324 Cross-reference to Form 20-F 325 Information about this report Glossary Words and terms with this symbol are defined in the glossary on page 315. Cautionary statement This document should be read in conjunction with the cautionary statement on page 303. What we do We provide customers with fuel for transport, energy for heat and light, power for industry, lubricants to keep engines moving and the petrochemicals products used to make everyday items such as paints, clothes and packaging.  Find out more about our activities on page 4. Our people and our values The BP values express who we are and what we stand for. They capture the individual and collective behaviours we expect from everyone who works for us. Our people help build enduring relationships based on mutual trust with governments, customers, partners, suppliers and communities. Read more about our people on page 51   or visit bp.com/values. Informing our thinking Global prosperity is shaping economic and energy trends. By 2040: Safety GDP doubling >2.5 billion people Respect Excellence lifted from low incomes Courage  See how we consider a range of scenarios on page 9. One team Our performance in 2018 Our strategy Our four strategic priorities are designed to allow us to be competitive at a time when prices, policy, technology and customer preferences are evolving rapidly. See how our businesses have performed and how we are reducing our emissions, improving our products and creating low carbon businesses.   Find out more on pages 16 to 56.   Find out more on page 10. BP Annual Report and Form 20-F 2018 1 BP at a glance We are a global energy business with wide reach across the world’s energy system. We have operations in Europe, North and South America, Australasia, Asia and Africa. Scale Data as at or for the year ended 31 December 2018 unless otherwise stated. BP in action Highlights of some of our activities in 2018. Completed a significant turnaround at our largest refinery, Whiting in the US. 73,000 78 19,945 employees countries million barrels of oil equivalent – proved hydrocarbon reservesa 18,700 63,000 retail sites square kilometres of new exploration access Acquired Chargemaster, operator of the UK’s largest electric vehicle charging network. a  n a combined basis of O subsidiaries and equityaccounted entities. Purchased a 16.5% interest in the UK’s Clair field from ConocoPhillips – increasing our share to 45.1%. Opened more than 220 REWE to Go® convenience retail sites in Germany. Signed a production-sharing agreement with SOCAR to explore and develop in the North Absheron basin in Azerbaijan’s Caspian Sea. Acquired a portfolio of unconventional assets from BHP in some of the best basins across Texas and Louisiana. Opened our 440th BP-branded retail site in Mexico. Formed a strategic alliance with Petrobras to explore joint projects in upstream, downstream, trading and low carbon. And accessed new acreage in the Santos basin, offshore Brazil, making us the second-largest exploration holder in the basin. 2 See Glossary BP Annual Report and Form 20-F 2018 Signed an agreement with the governments of Mauritania and Senegal to enable development of the BP-operated Greater Tortue Ahmeyim gas project. Gained approval for the Ghazeer project to develop the second phase of the Khazzan field in Oman. $9.4bn 3.7 profit attributable to BP shareholders (2017 $3.4 billion) 16 Strategic report – overview Performance Six major projects started up in 2018 million barrels of oil tier 1 process equivalent per day – safety events hydrocarbon productiona KPI (2017 3.6mmboe/d) KPI (2017 18) KPI $12.7bn 100% underlying replacement group proved reserves cost profit replacement ratio a KPI See key performance indicators on page 16. (2017 $6.2 billion) Completed a deal to develop resources in the Kharampurskoe and Festivalnoye licence areas in Russia, jointly with Rosneft. KPI (2017 143%) KPI a On a combined basis of subsidiaries and equityaccounted entities. Invested in PowerShare – a Chinese company that’s connecting EV drivers, charge point operators and power suppliers. And signed a memorandum of understanding with NIO Capital to explore opportunities in advanced mobility.  See pages 14 and 15. More on our renewables activity  Investments in electric vehicle technology on page 42. carbon ambitions on  Low  pages 46-48. Took delivery of British Partner – the first of six state-of-the-art liquefied natural gas ships being constructed in South Korea. Fuelled the first non-stop flight from Perth to London with Air BP jet fuel produced at our nearby Kwinana refinery. Lightsource BP delivered its first Indian solar project. And BP sanctioned the second phase of the KG D6 development in the ‘Satellite cluster’ deepwater gas fields in India with Reliance. BP Annual Report and Form 20-F 2018 See Glossary 3 How we run our business Business model foundations From the deep sea to the desert, from rigs to retail, we deliver energy products and services to people around the world. We provide customers with fuel for transport, energy for heat and light, power for industry, lubricants to keep engines moving and the petrochemicals products used to make everyday items such as paints, clothes and packaging.   Safe and reliable operations   Talented people We strive to create and maintain a safe operating culture where safety is front and centre. This is not only safer for people and the environment – it also improves the reliability of our assets. We work to attract, motivate, develop and retain the best talent the world offers and equip our people with the right skills for the future. Our performance and ability to thrive globally depend on it.   See Safety and security on page 43. 1   See Our people on page 51. Finding oil and gas We have a diverse portfolio across businesses, resource types and geographies. Having upstream, downstream and renewables businesses, along with well-established trading capabilities, helps to mitigate the impact of commodity pricing cycles. Our geographic reach gives us access to growing markets and new resources, as well as diversifying exposure to geopolitical events. We are helping to meet the dual challenge of society’s need for more energy while reducing emissions through our ‘reduce, improve, create’ framework (see page 46). We believe that our long history, well-recognized brands and customer offers, combined with our unique partnership with Rosneft, help differentiate us from our peers. 2 Creating value Our role in society The energy we produce helps support economic growth and improve quality of life for millions of people. We strive to be a world-class operator, a responsible corporate citizen and a great employer. We believe the societies and communities we work in should benefit from our presence. We aim to create positive, meaningful and sustainable impacts in those communities through our social investments. We contribute to economies around the world by employing local people, helping to develop national and local suppliers, and through the funds we pay to governments from taxes and other agreements. 1 Finding oil and gas New access allows us to renew our portfolio, discover additional resources and replenish our development options. We focus our exploration activities in the areas that are competitive in the portfolio, and develop and use technology to reduce costs and risks. 2 D  eveloping and extracting oil and gas We develop the resources that meet our return threshold and produce hydrocarbons that we then sell to the market or distribute to our downstream facilities. Our upstream pipeline of future projects gives us choice about which we pursue.  See bp.com/society for more information on how we generate value to society. 4 Developing and extracting oil and gas BP Annual Report and Form 20-F 2018 We also seek to grow or extend the life of existing fields – such as our Clair Ridge project, which is helping unlock additional resources from the Clair field in the UK North Sea.   See Upstream on page 22. 3 Transporting and trading We move oil and gas through pipelines and by ship, truck and rail. We also trade a variety of products including oil, natural gas, liquefied natural gas, power and carbon products, as well as derivatives and currencies. BP’s traders serve more than 12,000 customers across some 140 countries in a year. Our customers range from independent power producers to utilities and municipalities. We are the largest trader of natural gas in North America. We use our market intelligence to analyse supply and demand for commodities across our global network.   Partnerships and collaboration   Governance and oversight New technologies help us produce energy safely and more efficiently. We selectively invest in areas with the potential to add greatest value to our business, now and in the future, including building lower carbon businesses. We aim to build enduring relationships with governments, customers, partners, suppliers and communities in the countries where we operate. Our risk management systems and policy provide a consistent and clear framework for managing and reporting risks. The board regularly reviews how we identify, evaluate and manage risks.   See Innovation in BP on page 40. 3 Transporting and trading 6 Venturing 4 M  anufacturing and marketing fuels and products We produce refined petroleum products at our refineries and supply distinctive fuels and convenience retail services to consumers. Our advantaged infrastructure, logistics network and key partnerships help us to have differentiated fuels businesses and deliver compelling customer offers, including lower carbon products. Our lubricants business has premium brands and access to growth markets. It also leverages technology and customer relationships, all of which we believe gives us competitive advantage. We serve automotive, industrial, marine and energy lubricant markets across the world.  See Rosneft on page 34 and Upstream analysis by region on page 279. 4 Strategic report – overview Technology and innovation  See How we manage risk on page 53 and Corporate governance on page 57. Manufacturing and marketing 5 Generating renewable energy In petrochemicals our proprietary technology solutions deliver leading cost positions compared to our competitors. In addition to our own petrochemicals plants, we work with partners and license our technology to third parties.   See Downstream on page 28. 5 Generating renewable energy We have been investing in renewables for many years. Our focus is on biofuels, biopower, wind energy and solar energy. We operate a biofuels business in Brazil, using one of the world’s most sustainable and advantaged feedstocks to produce renewable ethanol and power. We also provide renewable power through our significant interests in onshore wind energy in the US, and develop and deploy technology to drive efficiency. And in solar energy we target the growing demand for large-scale solar projects worldwide through Lightsource BP.  See Alternative energy on page 38 and Climate change on page 45. 6 Venturing We invest in high-tech companies to help accelerate and commercialize new technologies, products and business models. Our focus is on five areas that are core to our strategy for advancing the energy transition: advanced mobility, bio and low carbon products, carbon management, digital transformation and power and storage.   See bp.com/venturing. BP Annual Report and Form 20-F 2018 5 Chairman’s letter I am of the view that more energy with fewer emissions – the dual challenge – can be met if a progressive and pragmatic approach is taken to the energy transition. Dear fellow shareholder, 2018 has been a year of very good operating performance, important strategic progress and continued change. Our teams have delivered strong results across the business and we are well positioned to continue to deliver value as we play our part in the dual challenge of delivering more energy with fewer emissions. It was an honour to be appointed chairman of BP. I have huge respect for the responsibilities that come with the role and I will do my utmost to provide thoughtful leadership to the board of directors and support for Bob Dudley and his team as we advance BP in a changing energy landscape. BP’s strong position is a great tribute to my predecessor as chairman, Carl-Henric Svanberg. During his nine-year tenure Carl-Henric did an outstanding job of guiding our company through difficult times. On behalf of the board, I want to thank him for his contribution. It has been a pleasure to get to know my new colleagues on the board, and I believe we have a wide ranging combination of diversity, skills, experience and knowledge that we need to steer the company through a landscape that is both uncertain and presents possibilities. Last year we welcomed Dame Alison Carnwath and Pamela Daley to the board, each with extensive experience gained in a range of executive and non-executive roles in large companies. And this year we say farewell to Alan Boeckmann and Admiral Frank ‘Skip’ Bowman. Alan and Skip have both made valuable contributions during their tenures, particularly through their leadership and membership of our safety, ethics and environment assurance committee. $8.1bn total dividends distributed to BP shareholders Strengthening organizational culture and capability 6.3% The work of the board will continue to evolve over time to make sure that BP is best positioned to advance the energy transition, embrace digital disruption and meet society’s changing expectations of major companies. In my short time so far at BP I have already seen for myself many examples of the commitment of our people. Their drive and determination have brought BP to where it is today, and I want to thank them for their hard work. It is critically important we continue to strengthen our organizational capabilities – both by developing our people and by continuing to attract the world’s top talent. We look forward to doing this by continuing to foster a diverse and inclusive culture, where everyone feels valued. ordinary shareholders annual dividend yield 6.4% ADS shareholders annual dividend yield 6 See Glossary BP Annual Report and Form 20-F 2018 Strategic report – overview Our progressive, pragmatic approach to the energy transition There are two defining priorities for our industry. One is to produce more energy to meet growing global demand as emerging economies develop and provide people with a better quality of life. The other is to play our part in reducing greenhouse gas emissions. I am of the view that more energy with fewer emissions – the dual challenge – can be met if a progressive and pragmatic approach is taken to the energy transition. In BP we recognize that energy in many forms will be required, produced in ways that are cleaner and better. That is why we see ourselves not just as an oil and gas business but as a global energy business. We also recognize that we must be constantly improving and seeking out new ideas and possibilities. We must be able to learn fast and harness all the potential of the rapid advances in digital and other new technologies. This year, the board is pleased to support a resolution that has been proposed by a group of investors at our annual general meeting in May. The resolution, if passed, will pave the way for additional reporting to help investors better understand how BP’s strategy is consistent with the Paris climate goals. We see this as an important opportunity for investors to appraise our progress in responding to the dual challenge. Further details can be found in the Notice of Meeting, to be published in April. Our clear purpose Earning trust through strong values Finally, I think it is important for BP’s success that we have a clear purpose – one that is strongly linked to society’s needs. That is why one of the first things I have done with the board is review our purpose in line with our strategy and values. Our purpose is to advance energy to improve people’s lives. Today the world needs more energy than ever but with fewer emissions. To help meet this dual challenge we have to be financially strong and make sure we continue to be an attractive investment through the energy transition. Pursuing this approach, BP is guided by its values of safety, respect, excellence, courage and one team. These are values I personally share. I believe they help to build trust with our people, partners, the communities in which we work, and with you, the owners of the company. I look forward to working with Bob and the team as we advance the energy transition, delivering through our strategy, guided by our values and inspired by our purpose. I also look forward to hearing from you, and meeting many of you, in the coming months and years as we look to reward your trust and confidence in BP. Above all, our primary focus has to always be on operating safely and reliably, minute by minute, day after day. Protecting people, the environment and our assets is always our top priority and the bedrock on which success is built. I think of it as having the tightest defence in the league, like a good football team. If you have a strong defence, you can be more forward looking, compete harder and be better positioned to win. We value the dialogue we have with you and others, sharing our achievements, our challenges and our plans and seeking your views. This report is one of many ways we update you on our activities and progress. Helge Lund Chairman 29 March 2019   More information Corporate governance Page 57 BP Annual Report and Form 20-F 2018 7 Group chief executive’s letter Our strategy is delivering value for you, our shareholders, while being flexible and agile for the energy transition underway. Advancing the energy transition The deals we made and the strategy we have in place are evidence that BP is a forward-looking energy business. One that is already playing an active role in advancing the energy transition. That’s why we are makin...
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