BP plc · LSE:BP.
BP — Investor Presentation (2004)
47 slides from BP's investor presentation, Aug 8, 2004
Slide 1: BP's strategy: progress and prospects
JOHN BROWNE BP’s Strategy: Progress and Prospects John Browne BP’s strategy: progress and prospects Thank you, Byron. Let me start my overview with the strategic context. 1
Slide 2: The Purpose of Consolidation
The Purpose of Consolidation the purpose of consolidation z scale z scope z capability z capacity Having moved first in the round of industry consolidation over the past five years, BP has continued to take steps to build itself into one of the small number of so- called “Supermajors” of the oil ind
Slide 3: Scope, capability and capacity
• secondly, scope: successful companies need to operate globally to access the best opportunities, often in challenging areas; • thirdly, capability: successful companies need “integrated know how”, the ability to combine technical, commercial and diplomatic skills. This is critical in making large
Slide 4: Reserves and Enterprise Value: 1997
Reserves and Enterprise Value: 1997 reserves and enterprise value: 1997 EV $bn 300 250 200 Shell Exxon 150 100 Texaco ENI Mobil BP 50 ARCOElf REP Chevron Fina Amoco TOT 0 0.0 Philips 5.0 10.0 15.0 20.0 25.0 reserves billion boe end of year 1997, based on published data. For an oil and gas company re
Slide 5: Reserves and Enterprise Value: Current
Reserves and Enterprise Value: Current reserves and enterprise value: current EV $bn 300 XOM 250 200 BP Shell 150 TOT 100 ENI CVX COP 50 REP 0 0.0 5.0 10.0 15.0 20.0 25.0 reserves billion boe end of year 2003 reserves. 19/03/04 enterprise value. based on published data. BP includes share of TNK-BP r
Slide 6: Sources and Uses of Cash 2000-2003
Sources and Uses of Cash 2000 - 2003 sources and uses of cash 2000-2003 sources uses $bn $bn cash from operations 69 capex 52 divestments 25 acquisitions 14 stock buy backs 6 dividends 20 pensions 2 We have managed the sources and uses of funds over the last few years to position us for this. Since
Slide 7: Resources and Customer Facing Businesses
Finally, cash was used to strengthen the financial condition of certain of our pension funds. The main conclusion is that the higher oil prices allowed BP to invest in attractive assets and markets at a somewhat faster rate than it might otherwise have been able to do. Now we want our shareholders t
Slide 8: Customer Facing Businesses
Customer Facing Businesses into which we invested all the operating cash flow generated by them. The mergers and acquisitions of the last five years had brought us a set of great market positions, brands, people and skills which enabled us for the first time to consider developing the full potential
Slide 9: Selection of Assets and Markets
the consequences of making marginal investments in the Resources Business in such activities as gas to liquids or heavy oil; • and lastly, Customer Facing Businesses allow us to balance risk to returns from the oil price. At very low oil prices (that is, around $16/bbl) the Customer Facing Businesse
Slide 10: Strategy
Strategy strategy resources z build production with steadily improving cash returns z invest in the largest, lowest cost basins z manage decline of existing production assets customer facing z expand customer capture z improve quality to grow gross margin z grow cash flow at constant cash returns Th
Slide 11: Oil Price Uncertainties
As I have said previously, oil prices are impossible to predict, either on a short or long term basis. Oil Price Uncertainties oil price uncertainties z demand z supply OPEC non OPEC There are many uncertainties. One is demand, which has been volatile and has grown by less than 1% p.a. on average si
Slide 12: Oil Prices: The Last 20 Years
the last 20 years, when at one time or another, some of these uncertainties about supply and demand have prevailed. Oil Prices: The Last 20 Years oil prices: the last 20 years frequency 60 50 40 30 20 10 0 16-17 19-20 22-23 Brent 60 month moving average oil prices $/bbl The spot price has of course
Slide 13: Oil Prices
Oil Prices oil prices z $20/bbl for resource allocation z $16/bbl for contingency planning z $20/bbl for financial planning It is our view that it is quite reasonable to use $20/bbl, always testing projects at $16/bbl on the downside. There is a quite separate question about financial planning: at w
Slide 14: Future Oil Prices
Finally, stepping away from resource allocation, contingency planning and financial planning, the question is what could the price of oil be over the next few years. Future Oil Prices future oil prices considerations z OPEC’s track record z OPEC dynamics z demand z historical real oil prices ($24/bb
Slide 15: Business Segments
financial planning but as I will demonstrate later, the price of oil will, in large part, determine the size of BP’s distributions of excess free cash flows to shareholders over and above our dividend. Business Segments business segments z resources business existing profit centres new profit centre
Slide 16: Existing Profit Centres: Production and Capex
Existing Profit Centres: Production and Capex existing profit centres: production and capex mmboed $bn 3.0 5 4 2.0 3 2 1.0 1 0.0 0 02 03 04 05 06 07 08 production excluding new projects new projects capex 04-08 BP estimates Production estimates from these centres are shown on the slide. These centre
Slide 17: Existing Profit Centres: Managing Production
Existing Profit Centres: Managing Production existing profit centres: managing production z new projects z operational uptime z addition of reserves z control of investments and costs In managing the production from these existing centres, we work on four factors: • first, new projects, primarily in
Slide 18: Existing Profit Centres: Cash Returns
Existing Profit Centres: Cash Returns existing profit centres: cash returns mmboed % 3.0 40 2.5 30 2.0 1.5 20 1.0 10 0.5 0.0 0 02 03 04 05 06 07 08 production cash returns 04-08 BP estimates As you can see on this slide, cash returns reduce slightly as the overall production from the portfolio reduc
Slide 19: New Profit Centres: Projects
New Profit Centres: Projects new profit centres: projects 2004 2005 Atlas Methanol Mad Dog In Salah Thunderhorse Kizomba A Azeri Holstein BTC NW Shelf LNG T4 In Amenas Trinidad LNG T4 Now to the new profit centres - I’ll deal with Russia in a moment. The single most important challenge here is to en
Slide 20: New Profit Centres: Cash Returns
In contrast to the existing centres this portfolio has much lower F&D costs because the fields are large and new. Unit cash costs are also around half the level of those of the existing centres. New Profit Centres: Cash Returns new profit centres: cash returns % 80 mmboed % 3.0 40 2.5 60 2.0 40 1.5
Slide 21: Existing and New Profit Centres
Existing and New Profit Centres existing and new profit centres $bn % $bn 70 40 10 60 8 50 40 6 20 30 4 20 2 10 0 0 0 02 03 04 05 06 07 08 operating capital employed cash returns capex 04-08 BP estimates Combining both the existing and new profit centres (but excluding Russia) the relationship of re
Slide 22: TNK-BP: Capital Employed and Oil Production
TNK-BP: Capital Employed and Oil Production TNK-BP: capital employed and oil production mmbd $bn 1.2 8 7 1 6 0.8 5 0.6 4 3 0.4 2 0.2 1 0 0 03 04 05 06 07 08 production capital employed data prior to August 2003 represents BP interest in assets contributed to TNK-BP. 2003 partial year production. 04-
Slide 23: TNK-BP
TNK-BP TNK-BP z synergies and additional production z dividend from strong residual cash flow z continued investment self-financed z longer term importance Some of the increases are being offset in TNK-BP by synergies and additional production. We expect that at $20/bbl, TNK-BP will be able to pay d
Slide 24: E&P: Beyond 2008
As the most recent estimates from the International Energy Agency show for the longer term, which means from 2010 onwards, just three areas will supply the bulk of world trade in oil and gas - Russia, the Persian Gulf (that is Saudi Arabia, Iran and Iraq) and West Africa. On this basis, our position
Slide 25: Resources Business Summary
beyond. With finding and development costs in the range of $4 to $5 per barrel we estimate that medium term capital expenditure of around $8 to $8.5bn p.a. and longer term expenditure in the range of $8-$9 bn p.a. (in 2007 and beyond) will be sufficient to continue to grow reserves and production. R
Slide 26: Business Segments
• firstly, after the recent highgrading, we are mitigating the decline of the cash returns of the existing profit centres as we adjust our operations in line with production; • secondly, in the five new profit centres, production grows at the same time as more capital employed comes into service, wi
Slide 27: Customer Facing Businesses: Investment
During their building, these segments produced no surplus cash flow to the Group and our intention now is to target them to produce underlying free cash flow in proportion to their capital employed (at least when compared to the E&P segment’s potential at around $20/bbl). Customer Facing Businesses:
Slide 28: Customer Facing Businesses: Returns
Customer Facing Businesses: Returns customer facing businesses: returns $bn % 50 60 50 40 40 30 30 20 20 10 10 0 0 01 02 03 04 05 06 operating capital employed cash returns 04-06 BP estimates This chart shows the historical cash returns over the period ’01 to ’03; these have varied both as the Custo
Slide 29: Refining and Marketing
Capturing the most gross margin and controlling costs are the key operational targets. This set of segments has long term potential in not only the United States and Europe (our principal areas of focus) but also in new markets in which we are developing (China is an example). Refining and Marketing
Slide 30: Oil Products Marketing
In oil products marketing, we are continuing to expand the reach of our new convenience format, BP Connect, and introducing new products (such as premium fuels like BP Ultimate). Oil Products Marketing oil products marketing fuels retailing index 120 convenience retailing lubricants index 115 index
Slide 31: Petrochemicals
Petrochemicals petrochemicals z returns z disposals z operations reliability cost reductions z portfolio advantaged products olefins and derivatives As I have previously said, Petrochemicals returns have been poor. Cash returns have been 10% over the ’00 to ’03 period. Our intent is to improve this
Slide 32: Petrochemicals: Cash Returns
Petrochemicals: Cash Returns petrochemicals: cash returns % 25 20 15 10 5 0 00 01 02 03 advantaged (aromatics + acetyls) olefins and derivatives This chart shows the historic pattern of cash returns for these two sub-segments. Clearly, our Advantaged Products (with significantly higher market shares
Slide 33: Gas, Power and Renewables
Gas, Power and Renewables gas, power and renewables z developing customers for equity gas z three principal sub-segments marketing and trading NGLs LNG Turning now to Gas and Power. This is our smallest segment in financial terms not least because it is comprised of the marketing margins only for ga
Slide 34: Summary: Customer Facing Segments
us supply 1.4 bn cubic feet per day of equity gas into LNG plants, up from 0.7 bn cubic feet per day in 2000. We expect to add a further 0.8 bn cubic feet per day by 2006, bringing our total volume to over 2.2 bn cubic feet per day. My colleagues in the Customer Facing Businesses will give some more
Slide 35: Patterns of Investment
Patterns of Investment patterns of investment $bn 2003 2004 2005-06 capital expenditure 14.0 13.5 12.0-12.5 p.a. upstream 9.7 9.0 gp&r 0.3 0.6 refining & marketing 3.0 2.8 petrochemicals 0.8 0.9 other 0.2 0.2 acquisitions 6.0 1.4 divestments (6.4) (3.0-4.0) (1.0) p.a. note: TNK-BP consideration (equ
Slide 36: Group Cash Returns: Pre-tax
Group Cash Returns group cash returns: pre-tax $bn % 120 40 100 30 80 60 20 40 10 20 0 0 01 02 03 04 05 06 operating capital employed cash returns 04-06 BP estimates Here is an updated chart which shows history and a future shape. Although much has happened over the last year, the shape of the chart
Slide 37: Distributions
Distributions distributions z dividends z gearing z excess free cash flow It has been a little while since we talked about our dividend policy. So I would now like to talk about: • firstly, how the Board sets the dividend; • secondly, how we think about gearing; • and thirdly, the use of excess free
Slide 38: Gearing
course actual dividend cover has been much higher because of the strength of trading conditions; • thirdly, the effect of circumstances which may require planning assumptions to be modified; • and lastly, our track record of dividend growth which has been 6.8% p.a since 1999, the year in which we st
Slide 39: Excess free cash flow and share buybacks
In periods of high oil prices such as the one we find ourselves in today, the Group generates significant “excess free cash flow” after capital expenditure and dividends. Rather than using this cash to reduce debt below our target gearing levels, we are committed to the return of 100% of this excess
Slide 40: Shareholder Distribution Potential
Shareholder Distribution Potential shareholder distribution potential 2001-2003 2004-2006 cases avg. case A B C 26 Brent $/bbl 20 25 30 4.3 HH $/mcf 3.5 4.4 5.3 3.3 refining $/bbl 2.7 2.7 2.7 $bn 0 10 20 30 40 2001-2003 share buybacks dividends shareholder distribution A potential 2004-2006 B C 04-0
Slide 41: Organisation
provide shareholders with additional returns through disciplined cash flow and gearing management. Organisation organisation z new framework z individual accountabilities z control processes z targets z deliver performance z manage risk Just before I summarise I thought I would say a little on our o
Slide 42: Internal targets and performance management
consistently. An extensive report on many aspects of how we apply our values in practice is included in BP’s Sustainability Report to be published on April the 6th. Internal targets for the top 600 managers are based on several factors, the most important of which are: • firstly, safe operations; •
Slide 43: Summary
circumstances which may occur in an uncertain world. Indeed, I believe our position gives us a clear competitive advantage in such circumstances. So to summarize … Summary summary z free cash flow z financial strength z asset quality z returns As now developed, we believe BP already holds the assets
Slide 44: Reducing capital investment to trend levels
With the Customer Facing Businesses more optimally sized and the bulk of the investment in the new upstream profit centres behind us, we are planning to reduce capital investment to trend levels while output grows. We are bridging between a period of acquisitions and organic growth, and in this peri
Slide 45: Targets
Targets targets z reinvest for long term growth z increase dividends z distribute 100% of excess cash flow We have three targets: • first, to underpin growth by a focus on performance, particularly on cash returns, investing at a rate appropriate for long term growth; • second, to increase the divid
Slide 46: Strategic Indicators
strategic indicators z production growth from 2003 to 2008 • 5% p.a. average without TNK-BP • 7% p.a. average with TNK-BP z pre-tax cash returns improvement of around 2 percentage points by end 2006 z pre-tax operating capital employed growth of around 15% by end 2006 z F&D costs in range of $4-5/bb
Slide 47: The logic of restructuring and handover
Back in 1998 when we announced the merger with Amoco, we were only partially conscious of the chain of events we were setting in train. It is hard to predict the consequence of any particular step. We feel we are now at a similar point of change. The logic of restructuring is not just about making c