BP plc · LSE:BP.
BP — Tnk-Bp — Investor Presentation (September 2004)
79 slides from BP's investor presentation, Sep 13, 2004
Slide 1: TNK-BP Presentation to financial community
TNK-BP Presentation to financial community 13 September 2004 Moscow, Russian Federation
Slide 2: Introduction
Robert Dudley President and CEO Introduction
Slide 3: Forward Looking Statements: Cautionary Statement
Forward Looking Statements: Cautionary Statement This presentation and the associated slides and discussion contain forward looking statements, particularly those regarding TNK-BP’s asset portfolio and changes to it, capital employed, capital expenditure, cash flow, cash returns, costs, divestments,
Slide 4: Agenda
Agenda • Welcome and introduction • Core executives perspectives on TNK-BP: − Robert Dudley, President and Chief Executive Officer: Introduction -Strategy and Governance − Tony Considine, Executive Vice President, Downstream: Downstream Today − Igor Dibtsev, Executive Vice President, Upstream: Upstr
Slide 5: TNK-BP at a glance
TNK-BP at a glance • 2003 annualized average liquids production: 1.28 mln bpd • August 2004 record liquids production of 1.5 mln bpd + 0.2 mln bpd (Slavneft) • Year-end 2003 liquid reserves: − SPE total proved: 9,060 mln bbls − SPE total proved + probable: 17,383 mln bbls − SEC total proved with lic
Slide 6: Competitive context
Competitive context TNK-BP is Russia’s 3rd largest oil company… 1800 90 1600 80 2003 Annual crude production (mtpa) 2003 Annual crude production (kbpd) 1400 70 1200 60 1000 50 800 40 600 30 400 20 200 10 0 0 Yukos Lukoil TNK-BP Surgut Sibneft Tatneft Rosneft Slavneft Bashneft Source: Company reports
Slide 7: TNK-BP Competitive Context
TNK-BP Competitive Context 2003 DACF/CE, % 2003 EBITDA, $/boe 29.3 25 30 27 25.4 20.1 23.8 23.8 24 20 18.4 21 18 15 15 12 10 8.0 8.3 9 6 5 3 0 0 TNK-BP Russian 3 Emg Mkt Oils Super Majors TNK-BP Russian 3 Emg Mkt Oils Super Majors 2003 Total Cost of Supply, $/boe 2003 Capex, $/boe 18 15.8 15.9 14 15
Slide 8: Organisation
Organisation President & CEO Dudley СОО Executive Director Vekselberg / McVay Khan EVP EVP EVP EVP Chief EVP EVP EVP EVP Strategy Field CFO Support Internal Legal Upstream Downstream Technology PPM & Bus. Services Potter, CK Services Affairs Counsel Dibtsev Considine Dupree Cook Development Lubashev
Slide 9: TNK-BP strategic priorities
TNK-BP strategic priorities • Resources to reserves to production • Margin enhancement • Gas • Value enhancement through improved governance, transparency and performance management 9
Slide 10: Governance
Governance • Corporate Restructuring • Management Information Systems • Accounting Transformation Project • Upstream Asset Based Organization • Strengthening External Audit • New Policies and Standards • Enterprise-Wide Risk Management 10
Slide 11: Progress against HSE goals
Progress against HSE goals • Committed to Russian industry leadership in HSE • Company-wide safety standards issued • Greenfield to International Standards • International-standard company-wide incident reporting system • Tonnage used for the carriage of TNK-BP oil on the ocean or rivers are to be o
Slide 12: Performance management
Performance management • delivery & rewards • strategy • productivity gains • policies & standards • control & structure • business plans • interventions • processes 12
Slide 13: 1H 2004 delivery versus expectations
1H 2004 delivery versus expectations March expectation for 1H 2004 Full Year 2004 actual Crude production, kbpd 1,600 1,580 Lifting cost, $/bbl 2.4 – 2.5 2.4* Organic capex, $ bn 1.3 0.5 * FX normalized, excludes Slavneft Milestones in 1H 2004 • Krasnoyarsk – Taimyr (KT-4) Greenfield acquisition; 10
Slide 14: TNK-BP Downstream Today
Tony Considine Executive Vice President Downstream TNK-BP Downstream Today
Slide 15: Total Russian oil production 2003
Total Russian oil production 2003 Natural flow and pressure points Crude Current production capacity limit 8.4 mln bpd FULL Crude export 4.7 mln bpd Refineries Integrated • Small liquid market creates refining a risk of distressed domestic sales 3.2 mln bpd • Without Downstream, TNK- Independent BP
Slide 16: Crude export capacity: 2002-2006F
Crude export capacity: 2002-2006F Transneft Export Expansions kbpd mtpa 800 40 35 600 600 30 25 430 400 20 274 15 178 200 10 94 5 0 0 2002 2003 2004 2005E 2006E Source: TNK-BP projection 16
Slide 17: Downstream portfolio
Downstream portfolio Refining Karelia Refining Refineries volumes, mtpa St. Petersburg Russia 5 22 Ukraine 1 6 Retail volume, Marketing Retail sites blpa Market share Russia 1,080 4.3 10% Yaroslavl Ukraine 1,020 1.4 18% Kaluga Moscow Nizhnevartovsk refinery Tula Ryazan Kursk Ryazan RUSSIA UKRAINE re
Slide 18: Downstream oil flows – 1H 2004
Downstream oil flows – 1H 2004 Equity Oil Term/Spot Refinery Term/Spot Marketing Production Crude Throughput Product Sales Sales/Purchase Sales/Purchase 1,354 kbpd 881 kbpd 530 kbpd* 221 kbpd 276 kbpd Barge, Pipeline & Rail to Over Barge, Pipeline & Rail to a 30 Destinations large number of worldwid
Slide 19: Competitive context
Competitive context Refining Throughput, 2003 Refining and Marketing 1.0 50 0.8 Adding 50% of Slavneft 40 • TNK-BP’s refineries processed 14% of crude 0.6 30 oil in Russia and 33% of mln bpd mtpa 0.4 20 refining throughput in Ukraine in 2003 0.2 10 • Refineries location allows 0.0 0 Lukoil Yukos TNK
Slide 20: 2004 Distribution Outlook
2004 Distribution Outlook Crude sales structure 9% crude… 100% domestic sales 80% far-abroad 60% exports 6% crude… trending near-abroad 40% up export(1) 20% Rail 55% crude… far-abroad Pipeline 0% export 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 Refined products sales structure 2% 100% losses
Slide 21: Exports expansion
Exports expansion • Crude oil export are expected to rise from 53% of TNK-BP’s crude production in 2003 to a forecasted 54-55% in 2004 • Crude oil export % rising despite large production volume increase • Expansion of export crude via rail mode is increasing • Optimisation of refined product sales
Slide 22: TNK-BP optimisation process
TNK-BP optimisation process Export Crude 13 Fields Pipe (280 routes) 18 Ports 6 Quality Grade of Export pipe supply Rail (95 routes) Crude Barge (2 routes) Pipe supply via e nt rt Crude for domestic market for refining sh ipm expo ns for Tra inery ref Products for Export 5 Refineries Pipe (46 routes
Slide 23: Netback profile
Netback profile • Most of crude is sold on FOB basis (ports) and DAF FSU border (pipeline), most of oil products is sold on FOB basis • Current average transportation costs: pipeline export (Transneft): 2.2 USD per bbl (1.9 USD per bbl in 2003), railway export: 5.5 USD per bbl (5.4 USD per bbl in 20
Slide 24: Refining
Refining • Ryazan Refinery: VGO upgrade expected to be completed in 2005 – increased gasoline production and ability to produce quality to meet European standards • Lisichansk Refinery: Bitumen unit completed 2004 and Isomerization units planned for 2005 • Saratov Refinery: Visbreaker project comple
Slide 25: Marketing Strategy
Marketing Strategy • Developing company owned and operated retail network in high growth markets • Rationalizing and decapitalizing legacy assets in core regions and divesting in low demand regions • Utilizing our 2 distinct Brands in the highest growth and value metropolitan markets • Applying full
Slide 26: Marketing
Marketing Trade channels analysis Sites by Channel 2004 Product Porfolio 2004 Company High owned octane 92/95/98 octane Other Jobber Low octane • Aim to grow sales volume 2% above market • Focus on growing (9% PA) high octane gasoline growth demand in high volume markets • Focus investments in impro
Slide 27: Downstream organic capital
Downstream organic capital Latest Historical estimate $ mln 400 350 300 250 200 150 100 50 0 2002 2003 2004 27
Slide 28: Downstream Summary
Downstream Summary • Downstream helps TNK-BP create a fully integrated value chain from wellhead to international and domestic customers for crude oil and petroleum products • Downstream business adds significantly to the value of the group through the optimisation of hydrocarbon flows and through m
Slide 29: TNK-BP Upstream Today
Igor Dibtsev Executive Vice President Upstream TNK-BP Upstream Today
Slide 30: Agenda
Agenda • Overview • Production delivery • Cost management and lifting cost • Capital expenditure outlook • Asset challenges and enhancements • Brownfield opportunities • Production outlook 30
Slide 31: Upstream asset base
Upstream asset base Geographically diverse Volga West East Liquid Volumes Urals Siberia Siberia Total 03 production (kbpd) 407 869 0 1,277 * reserves (bn bbls) 1.9 7.1 0 9.1 ** resource (bn bbls) 4.1 23.1 1.8 28.9 * SPE proved ** SPE 3P consolidated reserves (excluding Slavneft) West Siberia Moscow
Slide 32: Key upstream assets by reserves
Key upstream assets by reserves 2P SPE Reserves by Category by Field (Liquids Only) Mln Bn bbls Tonnes 5.0 Probable Samotlorskoye (SNG) SPE PUD 4.5 39% of 2P 66% of 2P PDNP 600 80% of 2P reserves 4.0 reserves in reserves in PDP in 20 fields Samotlor Field just 7 fields Samotlorskoye (TNK-NV) 500 3.5
Slide 33: Resources to reserves
Resources to reserves bn boe mln tonnes Oil and Condensate SPE Resources 45 6000 40 SPE Gas resource Proved (Probable + 5000 International markets Possible possible) 35 Infrastructure access Kovykta and Rospan 30 4000 Probable 25 Near infrastructure Possible led development 3000 20 Oil, Condensate a
Slide 34: Production growth delivery to date
Production growth delivery to date kbpd mtpa 1,500 75 1,400 1,300 65 1,200 1,100 55 1,000 900 45 800 700 35 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2001 2002 2003 2004 Note: Including JVs, excluding Slavneft production 34
Slide 35: Production outlook 2004-07
Production outlook 2004-07 Liquids (excluding Slavneft) Historical Latest estimate Future projections kbpd mtpa Current 1,800 performance 90 1,600 80 7% growth 1,400 rate 70 1,200 60 1,000 50 800 40 600 30 400 20 200 10 0 0 2001 2002 2003 2004 2005 2006 2007 35
Slide 36: Cost management
Cost management Lifting costs $/boe Cost challenges Latest 3,0 Historical estimate • Electricity rates and usage 2,8 • HSE/infrastructure integrity • Accelerated development 2,6 premiums • Oil field services 2,4 • Steel/tubulars price rises 2,2 Productivity enhancements 2,0 2001 2002 2003 2004 • Imp
Slide 37: Upstream capital spending
Upstream capital spending Latest Increases in capital Historical estimate $ mln • More Greenfield 900 • Integrity management 800 700 600 Capital productivity 500 • Investment evaluation 400 tracking system (e.g. WETS) 300 200 • Capital Value Process (CVP) 100 • Improved drilling capability 0 and eff
Slide 38: Upstream asset enhancements
Upstream asset enhancements Verkhne-Kolikyeganskoye VKY 2004 Base Operations and Waterflood VKY Field Waterflood Response Production Profiles Redevelopment 52.5 • Pilot Waterflood started in Dec 2003 • 11 wells converted to 47.5 water injection • Pressure maintenance Production Rate (kbpd) enhancing
Slide 39: Brownfield opportunities: Samotlor field overview
Brownfield opportunities Samotlor field overview Samotlor license • Third largest conventional oil field ever boundary discovered Prudhoe Bay • 2003 production: 520 kbpd Oil field boundary • Proved reserves year-end 2003 (SPE Proved): 3.8 bn bbls (excluding gas) • Redevelopment/rehabilitation/field
Slide 40: Brownfield opportunities: Ust' Vakh (Samotlor)
Brownfield opportunities Ust’ Vakh (Samotlor) Samotlor • Peripheral area of Samotlor, partially outside the license current developed area boundary • Development of Ust-Vakh area is obstructed by Prudhoe Bay the Ust-Vakh river and its flood plain Oil field boundary • Ust-Vakh Phase 1 Project for the
Slide 41: Brownfield opportunities: Ryabchik (Samotlor)
Brownfield opportunities Ryabchik (Samotlor) Samotlor • Shallow largely undeveloped accumulation that license requires boundary − Extensive re-completion of existing wells Prudhoe Bay (approx. 75%) Oil field boundary − New drilling (approx. 25%) • Low recovery reservoir with waterflood and enhanced
Slide 42: Material brownfield growth potential
Material brownfield growth potential • Base TNK-BP oil and gas business has material growth potential through 2007 and beyond • Longer term, more exploration and New Access are key kbpd mtpa 2,800 140 2,400 120 2,000 Base 100 Brownfield 1,600 80 1,200 60 800 40 400 20 0 0 2004E 2005E 2006E 2007E 42
Slide 43: Break
Break There will now be a 15 minute break
Slide 44: Technology and the future
James Dupree Executive Vice President Technology Technology and the future
Slide 45: Technology Delivery Model
Technology Delivery Model • Underpin Brownfield Production Delivery − Working expert groups around major activities − Focused efforts on significant opportunities • Deliver the Greenfield Agenda − Development planning − Capital value processes • Reserves Management − Reserves progression − Medium to
Slide 46: TNK-BP recovery factors
TNK-BP recovery factors OOIP* recovery factor top five TNK-BP fields thru- upside further 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 47: Brownfield Delivery
Brownfield Delivery Activity Focused Production Outlook • Drilling and Recompletions kbpd mtpa − Ust Vakh & Ryabchik 1,900 95 c. 60% of delivery 1,700 85 • Hydraulic Fracturing − 3 fracs per day 1,500 75 Brownfield by activity − Focused on program 1,300 65 enhancements 1,100 55 • ESP Optimizations −
Slide 48: Enabling Technologies
Enabling Technologies Investment Efficiency (WETS) One Year Scorpion plot : All Areas : One Year Scorpion plot : Wellwork Wellwork: by Activity Jan-Apr 04 Optimizations Jan-Apr 04 55 2.0 SNGDU-2 50 Fracs 1.8 Orenburg Center 45 1.6 40 1.4 Cuml Cost ($ mln) 35 SNGDU-1 Cuml Cost ($ mln) 1.2 30 Fracs an
Slide 49: Focused Intervention
Focused Intervention Enhanced Hydraulic Fracturing One year SCORPION PLOT: Nyagan BU Talinskoye Field Frac Intervention Program Highlights 7.0 • Improved hydraulic fracturing design 6.0 • Enhanced 5.0 candidate selection Cuml Cost ($ mln) 4.0 criteria 3.0 • Implementation of better downhole 2.0 Afte
Slide 50: Standards, Process and Technology
Standards, Process and Technology Electrical Submersible Pumps Tandem Jet Pump Implementation in Garshinskoye Field ESP Update kbpd ktpa 0,6 30 • ESP Units account for Before 80% of production 0,5 After 25 • 12,500 Wells with ESP Rate 0,4 20 0,3 15 with 9,200 currently 0,2 10 producing 0,1 5 • 38 ES
Slide 51: Enhanced Field Management
Enhanced Field Management Waterflood Conformance 2004 Conversion Activity Koshilskoye Example • 745 mmbo OOIP • 2003 Year End recovery of 5% • 3:1 to 4:1 producer to injector ratio • 1 injector / 300 acre+ • Plan: Convert to 1 injector per 100 acre system • 2004 Program: 1.8 mln bbls @ $0.13/bbl wit
Slide 52: Greenfield Delivery
Greenfield Delivery Uvat Development West • Development of multiple fields Siberia across 13 leases stretching 230km Salym • 1.1 bn bbl potential with medium Khanti - Khanti Mansisk AO Mansisk Samotlor , term production delivery of c. 200 kbpd Severo South Demianskoye Tyumen Oblast • Current Develop
Slide 53: Reserves Management
Reserves Management 3P Reserve Oil and Condensate Categorization and Additional Gas Resource 40 • 2003 External Audit: SEC Reserves from 35 Gas Resource (Probable & 4.1 to 4.3 bn bbl Possible) 30 Resources (Bn bbl) • Single independent and comprehensive reserve audit across all TNK-BP assets 25 Poss
Slide 54: Exploration and New Field developments
Exploration and New Field developments Underpinning long term growth with reserves renewal • Exploration − Core producing areas − Greenfield oil exploration – Uvat − Gas developments – Rospan, Kovykta − Yamal, Offshore • Undeveloped − West Siberia and other basins 54
Slide 55: Russian Petroleum Basins
Russian Petroleum Basins Gas Oil BARENTS 63 KT 4 TIMAN 30 Moscow PECHORA Rospan EAST SIBERIA 37 VOLGA- WEST Ryabchik 26 URALS SIBERIA VC 105 Kovykta SAKHALIN Uvat 531 Irkutsk Ultimately Recoverable Reserves in bnboe with gas/oil division. Source: BP reports, 2003 55
Slide 56: Sources of New Reserves for TNK-BP
Sources of New Reserves for TNK-BP Brownfield Greenfield oil oil and gas • Three option sets to deliver new proved reserves IDENTIFIED OIL IDENTIFIED − Brownfield oil OIL AND GAS Probable 7 Bnbbl − Greenfield oil and gas Probable 7 Bnboe Possible 10 Bnbbl Possible 6 Bnboe − Yet to find oil and gas Y
Slide 57: Looking forward
Looking forward • TNK-BP oil and gas business has material growth • Greenfield becomes significant after 2007 kbpd mtpa 2,800 140 2,400 120 Greenfield 2,000 100 1,600 80 1,200 60 800 40 Base + Joint Ventures + Brownfield 400 20 0 0 2004E 2005E 2006E 2007E 57
Slide 58: TNK-BP Gas Optionality
Viktor Vekselberg Chief Operating Officer TNK-BP Gas Optionality
Slide 59: Kovykta
Kovykta East Siberia development triangle Yurubcheno - Bysakhtakh • Kovykta is a super giant gas field Tokhomskoe Tympuchikan Paygin Chyandinskoe with gas in-place of between 1.4 to Sobinskoe Verkhnechonskoye 1.9 trillion cubic meters and 0.5 to Talakanskoe 0.7 bn bbls condensate Krasnoyarsk Danilov
Slide 60: Rospan
Rospan • 3P Gas resource of c. 4.2 Bnboe • Rich gas & condensate • Current Gas Production circa 3.2 bcma and condensate circa 700 thousand tonnes per annum • No reserves booked to date Super Giant • Currently under appraisal Urengoy (Gazprom) − FEED underway − Increased drilling and Rospan completio
Slide 61: Gas portfolio expanding
Gas portfolio expanding kbpd mtpa 2,800 140 2,400 Gas Condensate 120 2,000 100 1,600 80 1,200 60 800 Base + Joint Ventures + Brownfield + Greenfield 40 400 20 0 0 2004E 2005E 2006E 2007E 61
Slide 62: Gas business is poised to grow
Gas business is poised to grow • Rospan to be consolidated under TNK-BP management subject to regulatory approval • Kovykta making real progress from IFS to local gas project to gas delivery to Asian markets • Associated gas business still lacking regulatory clarity for pipeline access • Gas busines
Slide 63: Financial Results, Taxation & Framework
Kent Potter CFO Financial Results, Taxation & Framework
Slide 64: Agenda
Agenda • Financial framework • Financial highlights • Taxation • Accounting transformation • Corporate restructuring 64
Slide 65: Financial framework
Financial framework • Gearing (net debt / net debt + equity, US GAAP basis) − target gearing range of 25-35% − gearing declined from 18% (end 03) to 7% (end June 04) as net debt fell from $1.9 bn to $0.7 bn − gearing was 18% at 1st September 2004 and we plan to achieve 25% by year end • Dividend pol
Slide 66: Financial highlights
Financial highlights Increased Earnings and Cash Flow driven by volume growth & strong trading environment Metric Units Notes 2002 2003 1H 2004 Price - Urals (NWE) $/bbl 24.3 27.1 30.8 Oil production (excl JVs) Kbpd (a) 1,081 1,242 1,354 EBITDA $ mln (b) 2,771 3,971 2,777 Net income $ mln 1,550 2,81
Slide 67: Taxation
Taxation Typical distribution of sales revenue from oil exports 40 35 30 25 USD 20 15 10 5 0 15 20 25 30 35 $/bbl, Urals Investor Margin Production Costs + DD&A Transportation costs General Overhead Other Tax Mineral MET Extraction Tax Export Duty Profit Tax 67
Slide 68: Taxation
Taxation Marginal tax rate in % 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% $/bbl 15 20 25 30 35 Russia Norway US GoM UK old fields UK new fields Source: International Tax and Investment Council/Petroleum Advisory Forum/TNK-BP 68
Slide 69: Accounting Transformation Project (ATP)
Accounting Transformation Project (ATP) ATP Objectives What will it deliver? Benefits • Faster Close • Increased Shareholder Value • RAS and IAS Accounting • Improved Decision Making • Management Reporting • Reduced Operating Costs 69
Slide 70: Corporate restructuring
Corporate restructuring Goals • Reduce the number of legal entities, streamline business processes and reduce costs • Drive better transparency to enhance corporate governance • Facilitate clearer management information for optimal decision-making • Develop proposals that treat all shareholders in a
Slide 71: Corporate restructuring
Corporate restructuring Current Group structure Target Group structure International TNK-BP TNK-BP Limited NRH NRH (Successor to TNK, ONAKO TNK Sidanco Sidanco and ONAKO, and principal subs) Production, refining, Production, refining, Production, refining, marketing subs and marketing subs and marke
Slide 72: Final thoughts
Robert Dudley President and CEO Final thoughts
Slide 73: Slavneft
Slavneft North Samotlor Slavneft – 2003 impact proved reserves 0.7 bn bbls (SPE) Samotlor resource base 4.4 bn boe (SPE) as fteg gi onne production 177 kbpd Me refining volumes 194 kbpd retail sites circa 300 Note: Slavneft 50% 73
Slide 74: Slavneft – production impact
Slavneft – production impact Historical Latest estimate Future projections kpbd mtpa 300 15 250 223 200 177 10 142 150 100 5 50 0 0 2001 2002 2003 2004 2005 2006 2007 74
Slide 75: Large opportunity set
Large opportunity set • Much achieved, much to do kbpd mtpa 2 800 140 2 400 120 2 000 100 Slavneft (50%) 1 600 80 1 200 60 800 40 400 20 0 0 2004E 2005E 2006E 2007E Base Joint Ventures Brownfield Greenfield Condensate Slavneft (50%) Gas 75
Slide 76: Group capital expenditure
Group capital expenditure • Self funded within financial framework • Increased spend reflects acceleration of Brownfield and Greenfield growth Latest Future $ mln Historical estimate projections 2 500 2 000 1 500 1 000 500 0 2001 2002 2003 2004 2005 2006 2007 76
Slide 77: 2004 – 2007 expected performance
2004 – 2007 expected performance • Crude production growth expectations maintained at : − 12% 2004 − Around 7% through 2007 • Organic capex spend of around $1.5-1.9 bn − 100% Rospan − Ramping up Greenfield • Maturing set of Greenfield and gas options • Production costs around $2.50/bbl 77
Slide 78: Summary
Summary • No surprises and a quality opportunity set • High quality skilled workforce • Resource base confirmed and robust • Right technology application can deliver • Focus on margin enhancement via channel optimization • Gas will become increasingly important • Governance progressing, more to do 7
Slide 79: Q&A Session
Q&A Session • Robert Dudley President and Chief Executive Officer • Tony Considine Executive Vice President, Downstream • Igor Dibtsev Executive Vice President, Upstream • James Dupree Executive Vice President, Technology • Viktor Vekselberg Chief Operating Officer • Kent Potter Chief Financial Offi