BP plc · LSE:BP.
BP — Investor Presentation (October 2003)
67 slides from BP's investor presentation, Oct 17, 2003
Slide 1: TNK-BP presentation to the financial community
TNK-BP presentation to the financial community london & new york 16th & 17th October 2003
Slide 2: John Browne, group chief executive: overview
John Browne group chief executive overview
Slide 3: Cautionary statement
cautionary statement The information contained in this presentation has been derived from financial and other information prepared by the entities comprising the TNK-BP joint venture. Such information has been prepared on the basis of generally accepted accounting principles in Russia which differ i
Slide 4: BP experience in Russia
BP experience in Russia z history z lessons learned z first mover advantage
Slide 5: Estimated reserves
estimated reserves bn bbls z SEC basis proved developed 3.2 z SEC basis proved (incl. undeveloped) 4.1 z SPE proved developed 6.1 z SPE proved (incl. undeveloped) 9.4 z additional resources (oil equivalent) 21.4 BP share of TNK-BP resource & reserves = 50% SEC basis : estimated proved, truncated at
Slide 6: Russian risk
Russian risk z political risk is relative z progress to date
Slide 7: Valuation
valuation price $/bbl TNK-BP Yukos Amoco Sibneft estimated proved reserves 4.0 5.8 8.0 - SEC basis estimated proved reserves 1.7 2.5 8.0 - SPE estimated SPE reserves + 0.5 1.2 -- resources
Slide 8: Governance
governance z BP and AAR equal control z BVI company under English law z board’s powers limited by shareholder agreement
Slide 9: Management
management z management’s priorities improve safety improve planning and forecasting improve control and ethical conduct improve reporting and disclosure improve production exports and cost efficiency
Slide 10: TNK-BP indicators
TNK-BP indicators 2001 2002 1H 03 production mbd 1039 1115 1229 Brent $/bbl 24.45 25.02 28.73 net revenue $/bbl 16.98 20.19 21.80 crude exported 39% 43% 51% (to internationally priced markets) lifting costs $/bbl 2.78 2.58 2.50 organic capex (est.) $bn 1.2 0.6 0.3 ops. cash flow $m not available 203
Slide 11: Forward looking estimates
forward looking estimates z production growth strong z reinvestment z dividend policy: minimum of 40% of TNK-BP US GAAP net income $600m dividend expected for 1H 03 z Slavneft
Slide 12: TNK-BP impact on BP
TNK-BP impact on BP z gross equity method z 1H 03 would have added: 3% to EPS* 0.1% to ROACE* 3% to post tax cash flow z estimate that accretive to EPS at $16 Brent z estimate positive net cash flow contribution down to $13 Brent * 1H 03 actual prices, BP on pro-forma basis, reconciliation to neares
Slide 13: Distribution of production
distribution of production 2007* 1998 North America North Sea GOM Deepwater Trinidad Azerbaijan Angola Latin America Asia Pacific other TNK-BP *BP projection
Slide 14: Mikhail Fridman
Mikhail Fridman chairman TNK-BP & chairman Alfa Group
Slide 15: Viktor Vekselberg
Viktor Vekselberg chairman Renova
Slide 16: Len Blavatnik
Len Blavatnik chairman Access Industries
Slide 17: Tony Hayward: strategic fit of TNK-BP within the BP portfolio
Tony Hayward chief executive exploration & production strategic fit of TNK-BP within the BP portfolio
Slide 18: Build – six new profit centres
build – six new profit centres mboed 3000 2500 TNK-BP 2000 Trinidad GoM Deepwater 1500 Azerbaijan Asia Pacific Angola 1000 500 0 2003 2004 2005 2006 2007 source: BP projections 03 - 07
Slide 19: TNK-BP fields: scale
TNK-BP fields: scale bn bbls SPE estimated reserves basis 2.5 SNG (Samotlor south) TNK-BP fields 2.0 BP fields 1.50 TNK-N (Samotlor north) 1.0 Talinskoye 0.5 Bakhilovskoye Khokhryakovskoye 0.0
Slide 20: TNK-BP fields: quality
TNK-BP fields: quality BP fields recovery % TNK-BP fields recovery factor assumed in proved developed 70 reserves estimate Forties recovery to date Magnus 60 Prudhoe Bay 50 Kuparuk 40 Samotlor South 30 20 10 Talinskoye 0 20 30 40 50 60 70 BP reservoir complexity index
Slide 21: TNK-BP fields: how do they compare?
TNK-BP fields: how do they compare? finding & development costs around half of BP ($/bbl) average lifting costs ($/bbl) similar to BP average DD&A ($/bbl) less than BP average
Slide 22: TNK-BP estimated reserves and resources
TNK-BP estimated reserves and resources 30.8bn boe resources: BP share 50% estimated SEC basis reserves 4.1 3.2 estimated bn boe SEC 0.9 Basis SEC basis PD 3.2 D 6.3 PD PU possible TNK-BP SEC basis PD+PUD 4.1 C 2.9 SE proved 13.4 gas remaining PD SPE PD 6.1 reserves SPE PD+PUD 9.4 (SPE) remaining PU
Slide 23: Byron Grote: BP financial perspective on TNK-BP
Byron Grote chief financial officer BP financial perspective on TNK-BP
Slide 24: Deal update
deal update february announcement $bn deal closure $bn acquisition cost: 6.6 acquisition cost: 5.9 cash 3.0 cash 3.0 - higher debt (0.7) - interest 0.3 shares 3.8 shares 3.8 - discount (0.2) - discount (0.2) dividend (0.3) contributed assets: 1.0 contributed assets: 0.9 BP investment 7.6 BP investme
Slide 25: Disclosures for TNK-BP
disclosures for TNK-BP z TNK-BP US GAAP based financial statements z TNK International US GAAP based financial statements requirement of bond holders: semi-annually z subsidiaries annual accounts – local accounting principles
Slide 26: BP financial reporting
BP financial reporting z TNK-BP being accounted for as a joint venture z BP investment reported on a gross equity basis includes 50% share of TNK-BP operating profit separate reporting of interest, tax & MSI z BP share of TNK-BP income adjusted to reflect depreciation of BP’s investment to comply wi
Slide 27: Accounting differences: BP vs. TNK-BP
accounting differences: BP vs. TNK-BP 1H 03 $m TNK-BP US GAAP net income 1186 BP 50% share 593 adjustments: - incremental DD&A (fair value) (183) - FAS 143 implementation (decommissioning) (106) - deferred consideration (shares) accretion, other (56) BP's reported share of net income from 248 TNK-BP
Slide 28: Depreciation: BP vs. TNK-BP
depreciation: BP vs. TNK-BP value to be depreciated $4.9bn 4.9 BP 50% share of estimated SEC PD reserves 1.6bn bbls BP investment $6.8bn tangibles 1.9 $4.9bn DD&A per unit of 3.2 bn bbls production 3.10 estimated intangibles 1.0 SEC Basis PD other assets on other assets 0.5 straight line basis 0.50
Slide 29: How would TNK-BP have been reported by BP?
how would TNK-BP have been reported by BP? BP BP share illustrative result 1H 03 $m actuals* of TNK-BP 1H 03 1H 03 proforma operating result adjusted 10911 469 for special items interest expense (411) (133) taxation (3570) (56) minority shareholders interest (86) (32) proforma result adjusted 6844 2
Slide 30: How would TNK-BP have been reported by BP?
how would TNK-BP have been reported by BP? illustrative proforma balance sheet BP BP share 30 Jun 03 $m actuals of TNK-BP 30 Jun 03 30 Jun 03 fixed assets: tangible/intangible* 88712 (100) investments 10684 5905 current assets: cash 2115 252 other 46980 - creditors < 1 year (45222) (3727) creditors
Slide 31: TNK-BP dividends
TNK-BP dividends z policy: minimum 40% of TNK-BP net income (US GAAP based) z basis: board proposal & shareholder approval z 1H 03: $600m dividend expected
Slide 32: There will now be a 10 minute natural break
there will now be a 10 minute natural break
Slide 33: Robert Dudley, CEO TNK-BP: TNK-BP overview
Robert Dudley CEO, TNK-BP TNK-BP overview
Slide 34: Agenda
agenda z organisation z strategic priorities z financials z Slavneft z summary
Slide 35: Organisation
organisation President & CEO Dudley СОО Executive Director Vekselberg/McVay Khan EVP EVP EVP EVP Chief EVP EVP EVP Strategy EVP Field CFO Support Internal Legal Downstream Technology PPM & Bus. Upstream Services Potter, CK Services Affairs Counsel Considine Dupree Cook Development Dibtsev Lubashevsk
Slide 36: TNK-BP strategic priorities
TNK-BP strategic priorities z resources to reserves to production z margin enhancement z gas
Slide 37: TNK-BP upstream portfolio
TNK-BP upstream portfolio core production areas West Siberia project areas Moscow Rospan TNK Sakhalin Nyagan Udmurt Verkhnochenskoye Samotlor Kovykta Saratov Orenburg NNG Volga Urals East Siberia Volga West East total Urals Siberia Siberia 9.4 1H 03 production (mbd) 395 834 0 1.229 * reserves (bn bb
Slide 38: Resources to reserves to production
resources to reserves to production estimated reserves & resources (bn boe) 35 international 30 markets infrastructure access 25 near possible infrastructure led 20 development Ryabchik 15 infill drilling probable field optimisation 10 drilling & re-completions SPE proved 5 current production 0 shor
Slide 39: TNK-BP key upstream assets
TNK-BP key upstream assets 2002 oil production mbd 350 SNG (Samotlor south) 300 top five fields represent 50% of TNK-BP 250 total oil production 200 150 TNK-N (Samotlor north) 100 Khokhryakovskoye Talinskoye 50 Verkhne-Kolikyeganskoye 0
Slide 40: Sources of production growth
sources of production growth z waterflood optimisation z hydraulic fractures z idle well recovery z electric submersible pumps (ESP)
Slide 41: TNK-BP recovery factors
TNK-BP recovery factors OOIP* recovery factor top five TNK-BP thru- upside further fields bn boe to date proved thru- upside developed possible potential Samotlor south 44.6 35% 40% 47% +3% Samotlor north 8.1 18% 25% 42% +3% Khokhrykovskoye 1.5 15% 37% 48% +2% Yem-Yegovskoye 5.8 2% 5% 25% +5% Talins
Slide 42: Waterflood optimisation
waterflood optimisation TNK-BP fields BP fields recovery factor - further upside potential recovery % recovery factor assumed in resource estimate 70 recovery factor assumed in proved developed reserves estimate Forties Magnus recovery to date 60 Prudhoe Bay 50 Kuparuk 40 Samotlor 30 20 10 Talinskoy
Slide 43: Major upstream asset: Samotlor field
major upstream asset: Samotlor field (south & north) z 3rd largest oil field ever discovered - twice as big TNK-N as Prudhoe Bay z 30 major pay zones z production 2002: 465mbd Samotlor z opportunities increased recovery potential Gas Ryabchik Cap infill drilling idle well recovery
Slide 44: Upstream asset: Khokhryakovskoye
upstream asset: Khokhryakovskoye z 3 major pay zones Zone B1 z part of NNP subsidiary z production 2002 - 65mbd z opportunities increased recovery potential waterflood reconfiguration switching low rate producers to injectors increases both injection and production rate
Slide 45: Hydraulic fractures
hydraulic fractures rate increase over z excellent results to date - previous techniques avg. improvement 38% % 120 z more is possible 100 extensive candidate pool improved effectiveness 80 with cost reductions 60 40 z potential 10-20mbd 2004/05 20 0 Samotlor Orenburg Nyagan
Slide 46: Idle well recovery
idle well recovery z extensive conversion from idle wells opportunities - 8000 suitable idle wells to water injectors to producers recompletions z low cost Samotlor z VK* pilot underway 2 idle wells converted to water Talinskoye injection 18 idle wells 0 1000 2000 3000 4000 5000 reactivated number o
Slide 47: Electric submersible pumps (ESPs)
electric submersible pump (ESPs) Samotlor z TNK-BP ESP run lives are NNP a fraction of industry average TNG Nyagan z optimisation Orenburg draw-down pump size Yugraneft Udmurtneft z offers potential for: increased production industry avg. lower costs 0 500 1000 1500 z potential 70mbd average active
Slide 48: Medium term: Ryabchik opportunity in Samotlor
medium term: Ryabchik opportunity in Samotlor Ryabchik Ryabchik АV1 АV1 АV2-3 АV2-3 АV4-5 АV4-5 BV10 BV8 z 1bn bbl recoverable reserve potential z brown-field development behind pipe in Samotlor z currently primary depletion with low recovery z recovery via waterflood - application of BP experience
Slide 49: TNK-BP strategic priorities
TNK-BP strategic priorities z resources to reserves to production z margin enhancement z gas
Slide 50: TNK-BP downstream portfolio
TNK-BP downstream portfolio Moscow Ryazan Saratov Nizhnevartovsk Lisichansk Orsk retail end-03 growth 02/03 Number of sites: 2 239 11% Fuel volumes: 8bn litres pa 12% Convenience sales: $17m pa 19% retail market share: >50% 25% - 50% <25% refinery
Slide 51: Downstream asset: Ryazan refinery
downstream asset: Ryazan refinery z largest refinery in TNK-BP portfolio (340kbd) z one of Russia’s most upgraded refineries z ~ $400m invested over 01- 03 on improvement of upgrading capability z meets EU fuel quality standards z well located to supply major Moscow market by both pipeline and rail
Slide 52: Downstream asset: Moscow retail
downstream asset: Moscow retail z leading player in Russia’s major market with 25% share of fuel z 2 strong brands z 230 branded sites by end '03 z TNK-BP site throughputs in Moscow 2-3 times that of other Russian markets z TNK-BP growing fuel and convenience sales at above - market rates (5% pa and
Slide 53: Crude netbacks: pipeline exports most attractive option
crude netbacks: pipeline exports most attractive option 1H 03 netback $/bbl distribution of crude % non-CIS pipeline exports refined product sales non-CIS rail exports CIS exports non-CIS barge exports domestic sales netback calculation excludes income from gas and oilfield services
Slide 54: Maximising value by increasing exports
maximising value by increasing exports 100% 6% crude… 90% domestic 80% sales 70% 60% far-abroad 12% crude… 50% exports near-abroad 40% trending up export 30% 20% 10% 43% crude… 0% far-abroad 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 export 4% fuel & losses 100% 90% 80% 19% product… 70% domes
Slide 55: TNK-BP strategic priorities
TNK-BP strategic priorities z resources to reserves to production z margin enhancement z gas
Slide 56: Long term: East Siberia gas Kovyktinskoye
long term: East Siberia gas Kovyktinskoye East RUSSIA Siberia z "super giant" resource NE China z 1 major gas pay zone MONGOLIA Markets z currently under appraisal z opportunities access to large and growing Asia-Pacific gas market Kovykta potential deeper horizons increased drilling efficiency
Slide 57: TNK-BP financial framework
TNK BP financial framework z gearing net debt likely to be ~$3bn end 03 implying gearing ~30% (US GAAP basis) end 03 z dividend policy pay out minimum 40% of net income as dividends surplus cash flow not re-invested to be returned to shareholders as additional dividends
Slide 58: Performance: 2001 to 1H 03
performance: 2001 to 1H 03 2001 2002 1H 03 production mbd 1039 1115 1229 lifting costs $/bbl 2.78 2.58 2.50 DDA $/bbl 1.47 1.62 1.81 net income $mm 1439 1380 1186 capex $bn 1.2 0.6 0.3 source: historic combined financial statements for TNK-BP (un-audited)
Slide 59: TNK-BP production
TNK-BP production mbod history future projection 1500 1400 1300 1200 1100 1000 900 800 2001 2002 2003 2004 2005 source: TNK-BP estimates
Slide 60: Lifting costs
lifting costs $/bbl 2.80 history future projection 2.70 2.60 2.50 2.40 2.30 2.20 2.10 2.00 2001 2002 2003 2004 2005 source: TNK-BP estimates
Slide 61: Capital spending (organic)
capital spending (organic) $mm 1400 history future projection 1200 1000 800 600 400 200 0 2001 2002 2003 2004 2005 source: TNK-BP estimates
Slide 62: TNK-BP sources and uses of cash
TNK-BP sources and uses of cash $m 2002 1H 03 z strong cash generation 3000 z large inorganic 2500 investment 1H 03 2000 Onako/ 1500 Orenburgneft 1000 minorities 500 Slavneft 0 sources uses sources uses z estimated 1H 03 ops cash investments financing disposals capex dividend capacity of $600m based
Slide 63: Slavneft – estimated impact
Slavneft – estimated impact estimated net impact on Slavneft TNK-BP TNK-BP proved reserves 1.6bn bbls (SPE) 0.8bn bbls + 9% estimated resource base 9.0bn bbls (SPE) 4.5bn bbls + 15% estimated ’02 production 294mbd 147mbd + 13% refining capacity 540mbd 270mbd + 31% retail sites 540 270 + 13% based on
Slide 64: Megionneftegas
Megionneftegas z proximity North Samotlor z similarity z synergy t e gas Samotlor nn ef io Meg z upside 2002 production new hydraulic pump recompletions figures (mbd) wells fractures optimisations Megion 260 139 84 246 88 S Samotlor 329 38 170 474 85
Slide 65: Summary
summary z volume growth - expected around 7% in 2004, around 5% in 2005 z synergies and cost reductions - on track z pricing reform - realisations improving as exports rise z future growth options being progressed - e.g. Kovytka
Slide 66: Q&A session
q&a session z John Browne - group chief executive BP z Mikhail Fridman - chairman of TNK-BP & Alfa Group z Viktor Vekselberg - chairman Renova z Len Blavatnik - chairman Access Industries z Tony Hayward - chief executive exploration & production BP z Byron Grote - chief financial officer BP z John M
Slide 67: Slide 67