BP plc · LSE:BP.
BP — FY2005 Earnings Presentation
86 slides from BP's earnings presentation, Feb 7, 2006
Slide 1: Presentation to the financial community
Presentation to the financial community Tuesday 7th February 2006
Slide 2: Fergus MacLeod, Head of Investor Relations
Fergus MacLeod Head of Investor Relations
Slide 3: Cautionary statement
Cautionary statement Forward-looking Statements This presentation and the associated slides and discussion contain forward looking statements, particularly those regarding BP’s asset portfolio and changes to it, acquisitions, capital expenditure, cash flow and cash generation, competitive position,
Slide 4: John Browne, Group Chief Executive
John Browne Group Chief Executive
Slide 5: Agenda
Agenda • Results • Strategy • Discussion 5
Slide 6: 2005
2005 • Record level of net income • Record free cash flow of $25bn • Reduced gearing to below 17% • Sold Innovene for $8.3bn cash • Replaced 100% of production • Started 7 new upstream projects • Launched BP Alternative Energy • Distributed $19bn of cash to shareholders • Increased dividend by 10% y
Slide 7: The outlook
The outlook • Increasing production by 4% p.a. at $40/bbl ’05-‘10 • Maintaining capital discipline • High-grading portfolio – ca. $3bn divestments p.a. • Shareholder distribution potential $50bn ’06-’08 at $41/bbl: − +25% on ’03-’05 in similar environment 7
Slide 8: Byron Grote, Chief Financial Officer
Byron Grote Chief Financial Officer
Slide 9: Trading environment
Trading environment $/bbl Oil realisation $/mcf Gas realisation 60 10 50 8 40 6 30 20 4 10 2 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2004 2005 2004 2005 $/bbl Refining indicator margin 14 Change vs. 2004 12 10 Average realizations 3Q 9 months 8 Crude oil $/bbl 31% 38% 6 Natural gas $/mcf
Slide 10: Financial results
Financial results Change vs. 2004 Results for the fourth quarter $bn % % per share • Replacement cost profit 4.4 +26 +31 • Profit including inventory gains/losses 3.7 +22 +28 • Net cash provided by operating activities 4.2 (18) (14) ¢/share • Dividend to be paid next quarter 9.375 +10 Change vs. 200
Slide 11: Non-operating items (NOIs)
Non-operating items (NOIs) 2005 $m 1Q 2Q 3Q 4Q Year Non-operating items 787 (1,206) (1,255) (1,164) (2,838) $bn Tax (245) 384 334 611 1,084 post-tax Total post-tax 542 (822) (921) (553) (1,754) 1.0 0.5 0.0 (0.5) (1.0) (1.5) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2004 2005 11
Slide 12: 2005 vs. 2004 group result
2005 vs. 2004 group result $bn post-tax 25 20 15 10 5 0 2004 NOI Price / A&D DD&A Texas Restruc- Other 2005 Margin City / turing Storms 12
Slide 13: Exploration & Production
Exploration & Production 4Q result - $bn pre-tax* • Higher oil and gas prices 7 • IFRS embedded 6 derivative charge (NOI) 5 • Hurricane impacts 4 3 • Increased TNK-BP contribution 2 1 • Full year production 0 growth impacted by 4Q 04 4Q 05 hurricanes NOIs included $(228)m $(979)m above *Under IFRS i
Slide 14: Reserves replacement ratio
Reserves replacement ratio* 2004 2005 UK GAAP / SORP 110% 100% Long term planning prices (2004 $20/bbl, 2005 $25/bbl) US GAAP / SEC 89% 95% Year end prices (2004 $40/bbl, 2005 $58/bbl) * Discoveries, extensions, revisions and improved recovery only, excludes A&D activity 14
Slide 15: Refining & Marketing
Refining & Marketing 4Q result - $bn pre-tax* 2.0 • Stronger refining and 1.5 retail margins 1.0 • Texas City and Hurricanes 0.5 • Restructuring charges 0.0 • IFRS fair value 4Q 04 4Q 05 accounting: negative (0.5) impact NOIs included $(365)m $50m above *Under IFRS includes profit after interest and
Slide 16: Gas, Power & Renewables
Gas, Power & Renewables 4Q result - $bn pre-tax* 0.6 • IFRS embedded derivatives charge (NOI) 0.4 • Lower gas marketing and trading contribution 0.2 • IFRS fair value accounting: positive impact 0.0 4Q 04 4Q 05 NOIs included $40m $(307)m above *Under IFRS includes profit after interest and tax of eq
Slide 17: Other Business & Corporate
Other Business & Corporate 4Q result - excluding Innovene $bn pre-tax* 0.0 • Corporate activities phasing (0.2) (0.4) (0.6) 4Q 04 4Q 05 NOIs included $(11)m $(64)m above *Under IFRS includes profit after interest and tax of equity-accounted entities 17
Slide 18: Olefins & Derivatives
Olefins & Derivatives • Innovene − Sale completed 16th December − $8.3bn cash proceeds • Retained operations − Reported in OB&C during 2005 − Transfer to R&M in 2006 18
Slide 19: Guidance on 2006 group items
Guidance on 2006 group items • Other Business & Corporate (OB&C): − $(900)m / year ± $200m • Interest expense: − Finance costs: proportionate to debt level and market interest rates − Other finance expense: $200 million improvement • Pensions & Benefits: − Operating expense: similar to 2005 − Cash c
Slide 20: Guidance on tax rate
Guidance on tax rate 2005 2006* Effective tax rate (ETR) Underlying ETR 35% 37% One-time items (3)% 2% Reported ETR 32% 39% Marginal ETR 40% 42% Cash tax rate 31% 40% Cash tax rate expected to fall back to 35% beyond 2006 *2006 estimate based on similar prices and margins as in 2005 20
Slide 21: 2006 estimated rules of thumb
2006 estimated rules of thumb Full year (pre-tax) $m Oil price Brent ± $1/bbl 500 Gas price Henry Hub ± $0.1/mmbtu 80 Refining margin GIM ± $1/bbl 950 • Rules of thumb are approximate • Actual impacts will depend on: − Volumes / portfolio mix − Absolute price level − Refining availability 21
Slide 22: Sources and uses of cash
Sources and uses of cash $bn post-tax 2004 2005 40 35 Disposals 30 25 Disposals Buybacks Buybacks 20 Operations Dividends Operations 23.4 26.7 Dividends 15 Acquisitions 10 Organic Organic capex capex 5 0 Sources Uses Sources Uses 22
Slide 23: Net debt ratio
Net debt ratio % 40 35 30 25 20 15 10 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2004 2005 Net debt ratio = net debt / (net debt + equity) 23
Slide 24: Shareholder distributions
Shareholder distributions $bn 20 Buybacks Dividends 18 Share issues 16 14 12 10 8 6 4 2 0 (2) 2002 2003 2004 2005 24
Slide 25: External environment
External environment • Oil prices • Gas prices • Refining margins 25
Slide 26: Oil demand
Oil demand % 5 Oil demand GDP 4 3 2 1 0 2001 2002 2003 2004 2005 Source: Oil demand, BP estimate; GDP, Oxford Economic Forecasting 26
Slide 27: Oil supply
Oil supply Non-OPEC output growth OPEC surplus capacity Million Million b/d b/d 6 6 4 4 2 2 0 0 00 01 02 03 04 05 00 01 02 03 04 05 Year-on-year change; source: BP End year; source: ’00 – ’03 DOE/EIA; ’04 – ’05 BP estimates 27
Slide 28: Crude oil prices
Crude oil prices Dated Brent $ per bbl 70 60 $54.52 50 +42% $38.27 40 30 20 10 0 2000 2001 2002 2003 2004 2005 Daily prices Source: USGC Platts quotes 28
Slide 29: Gas prices
Gas prices US Henry Hub $ per mmbtu 20 18 16 14 12 10 $8.94 8 $5.88 +52% 6 4 2 0 2000 2001 2002 2003 2004 2005 Daily prices Source: USGC Platts quotes 29
Slide 30: Refining margins
Refining margins BP Global Indicator Margin (GIM) $ per bbl 30 25 20 15 $8.60 10 $6.34 +36% 5 0 2000 2001 2002 2003 2004 2005 30
Slide 31: Refining: light heavy spreads
Refining: light heavy spreads WTI – Maya $ per bbl 20 15 10 5 0 2000 2001 2002 2003 2004 2005 Weekly averages Source: USGC Platts quotes 31
Slide 32: Exploration & Production
Exploration & Production • Consistent and enduring strategy • Start-up of 20 new projects over the next 3 years • Improvement in unit margins • Resource base: 18bn boe proved, 41bn boe non-proved • Russia • Disciplined increase in capital spending • Scale and quality of the portfolio: continuous hig
Slide 33: Tony Hayward, Chief Executive, Exploration & Production
Tony Hayward Chief Executive, Exploration & Production
Slide 34: Strategy
Strategy • Build production with improving returns • Focus − Material positions − Biggest fields • First mover – create number one or two positions • Manage decline • Portfolio 34
Slide 35: Exploration track record (external view)
Exploration track record (external view) Mmboe discovered Value per year 95-04 created $bn 1,200 30 BP 1,000 800 20 600 Shell 400 10 ExxonMobil Total Eni 200 Chevron 0 0 Eni Chevron Shell Mobil Total Exxon- 1 2 3 4 BP Finding cost $/boe Source: Wood MacKenzie Exploration Strategy and Performance stu
Slide 36: Exploration focus
Exploration focus Sakhalin GoM Deep Egypt Water Algeria Trinidad Angola Deep Water 36
Slide 37: Reserves replacement
Reserves replacement % 160 BP 5 year moving average 140 120 100 80 60 40 20 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 Reserve replacement for subsidiaries + associates, excludes A&D 37
Slide 38: Finding & development costs
Finding & development costs $/boe 9 5 year moving average Industry F&D cost BP F&D cost 8 7 6 5 4 3 2 1 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 BP F&D is for subsidiaries + associates; industry data is for subsidiaries only 38
Slide 39: Andy Inglis, Deputy Chief Executive, E&P
Andy Inglis Deputy Chief Executive, Exploration & Production
Slide 40: Project start-ups
Project start-ups 2003 - 2005 2006 - 2008 2009 and beyond 9 Trinidad Train 3 9 Clair ACG Phase 3 Magnus Extension Alaska Gas Rospan 9 Jasmim 9 Mad Dog Angel North West Area Atlantis North San Juan North 9 Xikomba 9 Central Azeri Atlantis Development Red Mango Flank Block 18 West Shenzi 9 Atlas Metha
Slide 41: Sources of EBITDA improvement
Sources of EBITDA improvement 2005 - 2008 Volume $bn New Profit Existing Profit Russia Segment Centres Centres Margin $bn New Profit Existing Profit Russia Segment Centres Centres BP projection 41
Slide 42: Existing profit centres
Existing profit centres Production mmboe/d Divestments 02-05 2.5 Production excluding divestments 2.0 1.5 1.0 0.5 0.0 02 03 04 05 06 07 08 09 10 2006 onwards - BP projection at $40/bbl Brent 42
Slide 43: TNK-BP: production and capex
TNK-BP: production and capex mmboe/d Capex $bn 2.5 3 2 2 1.5 1 1 0 2003 2004 2005 2006 2007 2008 TNK-BP gross: 2006 onwards - BP projection 43
Slide 44: TNK-BP
TNK-BP • Refining and marketing enhancements • Portfolio high-grading • Organisational capability improving • Dividends 44
Slide 45: E&P investment
E&P investment Organic capex $bn BP TNK-BP Pan American Energy 14 12 10 8 6 4 2 0 2003 2004 2005 2006 2007 2008 BP projection for ’06-’08 2003 TNK-BP capex reflects BP's estimated net share post-merger TNK-BP and PAE are self-funding. 45
Slide 46: Costs and taxes
Costs and taxes • Portfolio • Sector specific cost escalation • Supply chain management • Discipline and focus • Taxes 46
Slide 47: Production
Production mmboe/d 6 5 TNK-BP 4 New 3 profit centres 2 Existing 1 profit centres 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Actual prices and Production at $40 portfolio BP projection for ‘06-’10 with end ‘05 portfolio 47
Slide 48: Resource growth & progression
Resource growth & progression 2001- 2005 New Further discoveries appraisal, revisions 8.0 7.8 Start ‘01 End ‘05 Purchased Sold resources resources 25.9 12.5 Non-proved 4.4 40.7 9.1 15.2 2.7 Proved 1.9 18.3 41.1 59.0 6.7 Produced Totals in billion boe Proved UK SORP, non-proved BP data 48
Slide 49: Reserves and resources progression
Reserves and resources progression bn boe New Access 70 Exploration Exploration success “Yet to Find” 60 Technology Enhanced recovery, under 50 development new viscous oil & tight gas technology Commercial 40 alignment & existing Kovykta, Alaska viscous technology 30 Sanctioned GoM DW discoveries by
Slide 50: E&P summary
E&P summary • Focussed exploration strategy • 13 years reserve replacement of 100% or more • 4% p.a. production growth ’05-’10 at $40/bbl − Major projects on track − Decline in existing centres 3% p.a. − Strong operating performance from TNK-BP • Strong and growing resource base • Discipline and foc
Slide 51: Gas
Gas • Second largest natural gas producer amongst the International Oil Companies • Largest supplier of gas to North America • Operating a fully integrated gas business • Access to key infrastructure to place natural gas into high value markets • LNG business growing rapidly 51
Slide 52: Vivienne Cox, Chief Executive, Gas, Power & Renewables
Vivienne Cox Chief Executive, Gas, Power & Renewables
Slide 53: Gas: integration
Gas: integration Upstream Midstream Downstream Pipeline Power LNG Production Liquefaction Re-gasification Industry / Other #2 producer #2 Gas into LNG plants #1 North 8.4bcf/day 1.7bcf/day America gas 53
Slide 54: Gas: production
Gas: production bcf/d Average 4% p.a. growth ’05 -’10 10 8 6 4 2 0 2005 2006 2007 2008 2009 2010 ’06 onwards BP projection 54
Slide 55: Gas: resources
Gas: resources Gas resources Includes BP share of TNK-BP 55
Slide 56: Gas: infrastructure
Gas: infrastructure Major pipelines Future pipeline Gas liquefaction LNG re-gasification options plants 1.7bcf/day terminals >1bcf/day Includes projects under development and contractual rights to liquefaction / re-gasification 56
Slide 57: Gas: monetisation
Gas: monetisation • 2005: 80% pipeline, 20% LNG • 2010: 70% pipeline, 30% LNG • Growing LNG − Tangguh / NW Shelf − Shipping / merchant trading − Re-gasification: US, UK, Spain, China • Other routes to market − Power generation − Gas to Liquids (GTL) − Gas marketing: North American leader 57
Slide 58: Alternative energy
Alternative energy 2006 2015 Three-fold increase in solar Grow wind power to 450MW Build commercial hydrogen power plants Construct cogeneration plants totalling over 700MW Cut greenhouse gas emissions by 24 million tonnes/year BP projections 58
Slide 59: Gas summary
Gas summary • 2nd largest gas producer with distinctive production growth • 2nd largest supplier of gas into LNG plants • Strong marketing positions in large and growing markets • Integrated to provide value across the gas chain • Moving ahead with low carbon power 59
Slide 60: Refining & Marketing
Refining & Marketing • Refurbishing Texas City and restarting production 1Q onwards • Increasing investment in advantaged refineries • Developing low-cost supply envelopes around our refineries • Improving margins through superior customer offers and rigorous cost management: reducing unit costs • B
Slide 61: John Manzoni, Chief Executive, Refining & Marketing
John Manzoni Chief Executive, Refining & Marketing
Slide 62: R&M: shape
R&M: shape 2005 operating capital employed 4% 4% 9% Refining Aromatics & Acetyls 46% Retail Business Marketing 25% Lubricants New Markets 12% 62
Slide 63: Refining: Texas City
Refining: Texas City • 23rd March explosion • 21st September Hurricane Rita shutdown • Inspection and engineering evaluation • Repairs and modification programme • Training and accountabilities • Phased start-up from 1Q 63
Slide 64: Refining: portfolio
Refining: portfolio Average size kbbl/d 220 BP XOM 200 CVX 180 160 TOT RDS 140 COP 120 7 8 9 10 11 Complexity index 2 mmbbl/d Circle area proportional to Source: Oil & Gas Journal 2005, excludes TNK-BP nameplate capacity 64
Slide 65: Refining: investments
Refining: investments Organic capex $bn 1.6 Upgrading Base / Integrity 1.2 0.8 0.4 0.0 03 – 05 Average 06 – 08 Average BP projection ‘06-’08 65
Slide 66: Refining: optimisation & cost efficiency
Refining: optimisation & cost efficiency Commercial Energy optimisation intensity index index 400 101 300 100 200 99 100 98 0 97 2003 2004 2005 BP data, indexed 2003 = 100 66
Slide 67: A&A: growth & cost efficiency
A&A: growth & cost efficiency Nameplate Cost efficiency capacity mtes index, 2003 = 100 16 110 12 100 8 90 4 0 80 03 04 05 av. 06-08 Americas Europe Asia BP projection ‘06-’08 67
Slide 68: Retail: brands
Retail: brands 7 / / — ampm ‘\ N bp connect _ Castrol | 68
Slide 69: Retail: offer quality
Retail: offer quality Ultimate Shop Gross Ultimate Gross Sales margin mix index margin index k$/m2 index 500 250 120 10 400 200 110 300 150 9 200 100 100 100 0 50 90 8 03 04 05 03 04 05 BP data. Gross margin and Ultimate mix indexed 2003 = 100 69
Slide 70: Retail: portfolio
Retail: portfolio Fixed Net assets $bn investment $bn 12 0.75 0.5 8 0.25 4 0 03 04 05 Av. 06-08 No of BP owned sites 8.6 8.4 7.6 5.8 (thousands) BP projection ‘06-’08 70
Slide 71: R&M: cost efficiency programmes
R&M: cost efficiency programmes • Phase 1: in execution − Marketing operating / overhead costs − Complete by end ’07 − $0.5bn cost reduction in ‘08 − 10% improvement in marketing unit costs targeted • Phase 2: in final planning − Transaction system effectiveness − Further productivity improvement 71
Slide 72: R&M: investment patterns
R&M: investment patterns Organic capex $bn Marketing Infrastructure 4 Aromatics & Acetyls Refining Disposals 3 2 1 0 Disposals (1) ‘03 – ‘05 average ‘06 – ‘08 average BP projection ‘06-’08 72
Slide 73: R&M: summary
R&M: summary • Focus on safety and integrity • Invest into advantaged capacity • Deliver efficiency improvements • Improve customer offers 73
Slide 74: Production growth 2000 - 2005
Production growth 2000 - 2005 CAGR % Peer Group 5 BP 4 TOT 3 World Average 2 4.4 3.6 1 2.0 0 -0.8 -1.0 (1) -1.7 RDS XOM (2) CVX (3) Source: company reports, broker estimates for Total 4Q05 74
Slide 75: Underlying ROACE vs. competition
Underlying ROACE vs. competition ROACE % 30 BP Peer Range 25 20 15 10 5 0 2001 2002 2003 2004 2005* BP ROACE Headline 11% 7% 15% 16% 20% Underlying 13% 9% 17% 20% 24% Peer range: ExxonMobil, Shell, Chevron, Total; peer source: published reports *2005 rolling 4Qs to 3Q05 BP data: ’01-’02 UK GAAP; ’03
Slide 76: Reinvestment ratios
Reinvestment ratios 120% BP Peer Range 80% 40% 0% 2001 2002 2003 2004 2005* Peer range: ExxonMobil, Shell, Chevron, Total BP data: ’01-’02 UK GAAP; ’03-’05 IFRS Peer source: Published reports *2005 rolling 4Qs to 3Q05 reinvestment ratio = organic capex / cash from operations 76
Slide 77: Investment
Investment $bn 2004 2005 2006 Capital expenditure 13.8 13.9 ~15 Exploration & Production 9.7 10.1 ~11 Refining & Marketing 2.7 2.7 3.3 Gas, Power & Renewables 0.5 0.2 0.5 Other 0.9 0.9 0.2 Acquisitions 2.8 0.2 - Divestments (5.0) (11.2) (3) Source: Company reports; ‘06 BP projection Divestments pre-
Slide 78: Free cash flow
Free cash flow • Grow sustainable free cash flow • 2005: a record $25bn, helped by environment and Innovene sale • ’03-’05 average: − around $15bn p.a. at $41/bbl average oil price − around $13bn p.a. after adjusting for divestments and working capital changes 78
Slide 79: Five point business plan
Five point business plan Objective: Grow sustainable Free Cash Flow 1. Grow production 4% p.a. ‘05-’10 at $40/bbl 2. Control cost increases below inflation 3. Increase ROACE relative to peer group 4. Maintain capital discipline: ~around $15bn ’06 ~$0.5bn/yr increase ’07-’08 5. Divest $3bn per year a
Slide 80: Financial framework
Financial framework • Dividends • Gearing • Use of excess free cash flow 80
Slide 81: Dividends
Dividends • Progressive • Sustainable: − test under downside conditions: $25/bbl • Dynamic: − per-share dividend benefits from reduction in equity base from buyback programme 81
Slide 82: Historical dividend
Historical dividend 5 year average 20 year average CAGR % CAGR % 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 Dollar Inflation Sterling Inflation Dollar Inflation Sterling Inflation DPS DPS DPS DPS Dividends as paid basis, 2005 YTD inflation 82
Slide 83: Shareholder distribution potential
Shareholder distribution potential 2003 - 2005 2006 - 2008 cases average A B C 41 Brent $/bbl 25 41 60 6.7 HH $/mcf 8.3 4.0 6.7 9.5 6.4 refining $/bbl 11.3 3.5 6.4 6.4 $bn 0 10 20 30 40 50 60 70 ‘03- $19bn $21bn ’05 A $30bn ‘06- $50bn B ’08 C $65bn Share buybacks Dividends Assumptions-based potentia
Slide 84: 2006 guidance
2006 guidance • Production in the range of 4.1 - 4.2 mmboe/d at $40/bbl • Capital spending around $15bn • Divestment level to be around $3bn 84
Slide 85: Summary
Summary • Strong near term operating environment • Growth momentum underpinned by quality of incumbent positions in resources and assets • Maintaining capital and cost discipline • Commitment to grow and distribute free cash flow 85
Slide 86: Q&A
Q&A John Browne Byron Grote Group Chief Executive Chief Financial Officer Tony Hayward Andy Inglis Chief Executive Exploration Deputy Chief Executive & Production Exploration & Production Vivienne Cox John Manzoni Chief Executive Chief Executive Gas, Power & Renewables Refining & Marketing 86