BP plc · LSE:BP.
BP — FY2006 Earnings Presentation
71 slides from BP's earnings presentation, Feb 6, 2007
Slide 1: BP Full Year 2006 Results and Strategy Update
BP Full Year 2006 Results and Strategy Update 6 February 2007
Slide 2: John Browne, Group Chief Executive
John Browne Group Chief Executive
Slide 3: Cautionary Statement
Cautionary Statement Forward Looking Statements Cautionary Statement This presentation and the associated slides and discussion contain forward looking statements, particularly those regarding capital expenditure, capital investments, spending on integrity management, annual charges, cost inflation,
Slide 4: John Browne, Group Chief Executive
John Browne Group Chief Executive
Slide 5: Agenda
Agenda • Review of 2006 • Strategy and performance in context • Trading environment • 2007 priorities − Business updates • Financial framework • 2007 guidance • Q&A 5
Slide 6: 2006: Financial results
2006: Financial results • Replacement cost profit − $22.3bn, up 15% − Per share 111.1¢, up 22% • Post tax operating cash flow $28.2bn, up 5% • Quarterly dividend per share 10.325¢ − Up 5% vs. last quarter − Up 10% vs. last year • Distributed $23.2bn to shareholders: $15.5bn by share buybacks • Dives
Slide 7: 2006: Incidents and responses
2006: Incidents and responses • Texas City − Implementing Baker Panel’s process safety recommendations • Prudhoe Bay and Thunder Horse − Embedding learning across the company • Propane trading 7
Slide 8: 2006: Milestones
2006: Milestones • 2006 reserve replacement 113% • 10 new discoveries including Kaskida, Titania, Urano and in Uvat area • New upstream access: Pakistan, India and Oman • Start-up of 9 new upstream projects • Re-commissioning of Texas City continues • Significant progress in Alternative Energy • $3b
Slide 9: Byron Grote, Chief Financial Officer
Byron Grote Chief Financial Officer
Slide 10: Trading environment
Trading environment $/bbl Oil realization $/mcf Gas realization 70 12 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 2005 2006 2005 2006 $/bbl Refining indicator margin 14 Change vs. 2005 12 4Q Year 10 Average realizations 8 Crude oil $/bbl 5% 23% 6 Natural gas $/mc
Slide 11: Financial results
Financial results Change vs. 4Q 2005 Results for the fourth quarter $bn % % per share • Replacement cost profit 3.9 (12)% (6)% • Profit including inventory gains/losses 2.9 (22)% (16)% • Net cash provided by operating activities 5.0 17% 24% ¢/ share • Dividend to be paid next quarter 10.325 +10 % Ch
Slide 12: Exploration & Production
Exploration & Production Pre-tax $bn 8 • Lower gas realizations 7 • Lower volumes 6 • Sector specific inflation 5 • Greater integrity spend 4 • Higher non-cash costs 3 • TNK-BP 2 − Absence of disposal gain 1 − Lagged tax reference prices 0 4Q 05 NOI Underlying 4Q 06 • Non-Operating Items (NOI) $m $m
Slide 13: Refining & Marketing
Refining & Marketing Pre-tax $bn 0.4 • Higher Texas City volumes 0.3 0.2 • Absence of rationalization charges 0.1 0.0 • Smaller fair value charge (0.1) • Higher turnaround costs and (0.2) integrity spend (0.3) • Lower refining and 4Q 05 NOI Underlying 4Q 06 $m $m marketing margins (215) Underlying r
Slide 14: Gas, Power & Renewables
Gas, Power & Renewables Pre-tax $bn 0.7 0.6 0.5 • Lower NGL and marketing & 0.4 trading contribution 0.3 • Smaller fair value gain 0.2 • Non-Operating Item (NOI) 0.1 − Disposals 0.0 4Q 05 NOI Underlying 4Q 06 $m $m 436 Underlying result 255 (307) Non-operating items 215 129 Total result 470 14
Slide 15: Other business & corporate
Other business & corporate Pre-tax $bn 0.0 (0.1) (0.2) • 2006 underlying charge (0.3) consistent with prior guidance (0.4) (0.5) 4Q 05 NOI Underlying 4Q 06 $m $m (345) Underlying result (88) (64) Non-operating items (188) (409) Total result (276) 15
Slide 16: Guidance on 2007 items
Guidance on 2007 items • OB&C: annual charge of $900m±$200m • Full year effective tax rate: 37% • Rules of thumb: Full year (pre-tax) $m Oil price Brent ±$1/bbl 500 Gas price Henry Hub ±$0.1/mmbtu 90 Refining margin GIM ±$1/bbl 950 Note: Rules of thumb provided are approximate. Actual impacts will d
Slide 17: Sources and uses of cash
Sources and uses of cash Post tax 2005 2006 $bn 40 35 Disposals Disposals 30 Buybacks 25 Buybacks 20 Dividends Operations Dividends Operations Acquisitions* 15 26.7 28.2 10 Organic Organic 5 capex capex 0 Sources Uses Sources Uses * Acquisitions include Rosneft IPO 17
Slide 18: Net debt ratio
Net debt ratio % 40 35 30 25 20 15 10 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2005 2006 Net debt ratio = net debt / (net debt + equity) 18
Slide 19: Shareholder distributions
Shareholder distributions $bn 24 Buybacks Dividends Share issues 21 18 15 12 9 6 3 0 (3) 2002 2003 2004 2005 2006 19
Slide 20: John Browne, Group Chief Executive
John Browne Group Chief Executive
Slide 21: Strategy
Strategy E&P • Focus on the most prolific hydrocarbon basins and the biggest fields • Build leadership positions in these areas • Manage decline of existing producing assets and divest when appropriate Gas • Access to premium gas markets R&M • Integrated chains of supply based around complex efficie
Slide 22: Strategic indicators
Strategic indicators 1995 2006 Ratio Production (mboed) 1428 3926 2.7 Production/share (boe/ADR/yr) 0.28 0.43 1.5 Reserves (bn boe) 8.4 17.7 2.1 Reserves/share (boe/ADR) 4.5 5.3 1.2 Share of gas in total production (%) 15 37 2.5 Number of countries > 100mbd 3 8 n.a. Total refining capacity (mbd) 200
Slide 23: Crude oil prices since 1995
Crude oil prices since 1995 Dated Brent $ per bbl 80 70 60 50 40 12-year average 30 $29.34 20 10 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Daily prices Source: Platts quotes 23
Slide 24: Oil demand and economic growth
Oil demand and economic growth % 5 4 3 2 1 0 00 01 02 03 04 05 06 Oil demand GDP Source: oil demand, BP estimate; GDP, ’00 -’06 Oxford Economic Forecasting 24
Slide 25: Oil supply growth and surplus capacity
Oil supply growth and surplus capacity 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 06 00 01 02 03 04 05 06 End year; Year-on-year change; Source: ’00 – ’03 DOE/EIA; Source: BP ’04 – ’06 BP estimates 25
Slide 26: Crude oil prices 2000-07
Crude oil prices 2000-07 Dated Brent $ per bbl 80 2006 Avg 70 $65.14 2005 Avg 60 +19% $54.52 50 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 Daily prices Source: Platts quotes 26
Slide 27: US gas prices 2000-07
US gas prices 2000-07 US Henry Hub $ per mmbtu 20 18 16 14 12 2005 Avg 10 $8.64 8 -16% 6 2006 Avg 4 $7.24 2 0 2000 2001 2002 2003 2004 2005 2006 Chart uses daily “common” Henry Hub prices; annual averages are based on the “monthly Platts index” Source: Platts quotes 27
Slide 28: Refining margins 2000-07
Refining margins 2000-07 $ per bbl 30 25 20 15 2005 Avg 10 $8.50 -1% 5 2006 Avg $8.39 0 2000 2001 2002 2003 2004 2005 2006 Daily margins BP Global Indicator Margin (GIM); 2006 portfolio basis 28
Slide 29: 2007 priorities
2007 priorities • Safety − Personal safety − Process safety − Environment • Performance 29
Slide 30: Safety in operations
Safety in operations 1999-2006 Workforce fatalities Oil spills greater 1 bbl 35 Non-road related Road related 1200 30 1000 25 800 20 600 15 10 400 5 200 0 0 99 00 01 02 03 04 05 06 99 00 01 02 03 04 05 06 Recordable injury frequency Integrity management incidents* 100 HiPO MIA 1.6 80 1.2 60 0.8 40 0
Slide 31: Focus on process safety
Focus on process safety • Actions under way to improve integrity of plant and operations − Implementing new standards − Implementing new Operations Management System • Baker Panel recommendations accepted – provides further learning • Sustaining level of integrity management spending − Around $1bn i
Slide 32: 2007 priorities
2007 priorities • Safety • Performance − Deliver upstream projects − Atlantis by end 2007 − Thunder Horse by end 2008 − Texas City − Expected to be processing 400,000 bpd by end of 2007 32
Slide 33: Tony Hayward, Group Chief Executive Designate
Tony Hayward Group Chief Executive Designate
Slide 34: Exploration & Access
Exploration & Access Exploration • Deepwater Gulf of Mexico − Kaskida • Angola − Titania and Urano • TNK-BP − Uvat area Access • Oman • Pakistan • India • Gulf of Mexico lease sale 34
Slide 35: Reserves replacement
Reserves replacement % 160 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 06 Reserves replacement for subsidiaries + associates, excludes the effects of acquisitions & divestments, SEC basis 35
Slide 36: Major projects: 2006 key start ups
Major projects 2006 key start ups • Azerbaijan − BTC Pipeline / East Azeri • Algeria − In Amenas • Trinidad − Cannonball • Egypt − Temsah Redevelopment • Angola − Dalia 36
Slide 37: Major projects: 2007 key start ups
Major projects 2007 key start ups • Angola − Greater Plutonio − Rosa − Kizomba A Phase 2 • Gulf of Mexico − Atlantis − King Subsea • Trinidad − Red Mango • North America Gas − San Juan Coal Bed Methane expansion 37
Slide 38: Existing Profit Centres
Existing Profit Centres Alaska, North Sea, North America Gas, Latin America, Egypt, Middle East • Production lower than forecast in Alaska and North Sea − Increased levels of downtime − Reduced operational efficiency − Infill drilling activity slippage - tight supply chain • Resource base strong - r
Slide 39: Bob Dudley, President and CEO TNK-BP
Bob Dudley President and CEO TNK-BP
Slide 40: TNK-BP
TNK-BP West Siberia Moscow Ukraine Rospan Ryazan Nyagan Samotlor Verknechonsk Saratov Orenburg Uvat Kovykta Volga Urals East Siberia Refineries Core production areas Project areas 40
Slide 41: Strategy and performance highlights
Strategy and performance highlights The strategy remains unchanged • Resources to Reserves to Production − Production growth of 30% since 2003 − Licence extensions − New Resource Access of 5 Bn boe risked, 60% Exploration Success rate • Margin Enhancement − $600m Ryazan Modernization, Increased Refi
Slide 42: TNK-BP production and capex
TNK-BP production and capex 2003-2007 Capex mmboed $bn 2.5 5 Capex 2.0 4 1.5 Disposals 3 1.0 2 0.5 1 0.0 0 2003 2004 2005 2006 2007e TNK-BP projection for 2007 42
Slide 43: Major projects and new access
Major projects and new access West Siberia Bolshekhetsky Rospan Verknechonsk Orenburg Uvat Kovykta Volga Urals East Siberia 43
Slide 44: Underpinning the future
Underpinning the future • The four promises made in February 2003: − Production Growth − Technology Transfer − Corporate Governance − Good Corporate Citizen of Russia • Organisational Capability – building a world-class company 44
Slide 45: Tony Hayward, Group Chief Executive Designate
Tony Hayward Group Chief Executive Designate
Slide 46: E&P investment: 2004 - 2007
E&P investment: 2004 - 2007 Organic Capex $bn 16 BP TNK-BP Pan American Energy 14 12 10 8 6 4 2 0 2004 2005 2006 2007e 2006 Capex excludes Rosneft BP projection for 2007 TNK-BP and PAE are self-funding 46
Slide 47: Margin pressures
Margin pressures • Inflationary pressure on operating costs partly mitigated by − Supply chain management − Focussing activity on the most material opportunities • Government take increasing • Rising depreciation per barrel 47
Slide 48: Portfolio evolution
Portfolio evolution mmboed 4.5 4.0 3.5 Disposals 1 TNK-BP 2 3.0 2.5 2.0 EPC 2 1.5 1.0 0.5 NPC 2 0 2001 2002 2003 2004 2005 2006 1 Reported production associated with assets divested between 2001 and 2006 inclusive 2 Retained - 1/1/07 Portfolio 48
Slide 49: Production outlook
Production outlook Guidance impacted by: • Focus on safety and operational efficiency • PSC entitlements - $40/bbl to $60/bbl price assumption • 2006 divestments • Gulf of Mexico project delays • TNK-BP project phasing • Conservatism − Greater allowance for unplanned downtime − Operational efficienc
Slide 50: Production guidance
Production guidance Guidance based on current portfolio at $60/barrel: 2007 3.8 - 3.9 mmboed Effectively flat vs 2006 after allowing for divestment impact By 2009 More than 4.0 mmboed By 2012 More than 4.3 mmboed Reserve base strong : portfolio lengthening : sustainable growth BP estimates for 2007,
Slide 51: Resource growth & progression
Resource growth & progression 2002- 2006 New Further discoveries appraisal, revisions 7.2 8.3 Start ‘02 End ‘06 Purchased Sold resources resources 26.2 12.1 Non-proved 4.5 41.3 8.0 16.3 2.4 Proved 2.0 17.7 42.5 59.0 7.0 Produced Totals in billion boe Proved reserves SEC basis 51
Slide 52: The ultimate prize: improving recovery
The ultimate prize: improving recovery • Recovery to date: 19% • Proved reserves: 28% − 12 years of current production • Today’s non-proved recovery limit: 49% − Additional 29 years of current production • The future: 1% improvement = 2 billion boe 52
Slide 53: E&P – a sustainable future
E&P – a sustainable future • Focussed and successful exploration and access strategy • 13 year track record of 100%+ reserves replacement continues* • Sustainable growth − More than 4.3 mmboed by 2012 • Strong and growing resource base • Challenges : Alaska and North Sea operational performance, maj
Slide 54: John Manzoni, Chief Executive, Refining & Marketing
John Manzoni Chief Executive, Refining & Marketing
Slide 55: R&M: Key messages
R&M: Key messages • Focus on safety and integrity • Improvement from 2006 • Disciplined execution of strategy 55
Slide 56: Baker Panel
Baker Panel • Implement panel recommendations • Recommendations in line with actions already underway; more to do • BP committed to becoming an industry leader in process safety • Integrity spend in US refineries increased from $1.2bn (2005) to $1.7bn per year (2007-10) BP estimates for 2007-2010 56
Slide 57: Refining: Texas City
Refining: Texas City Throughput kbpd % 500 100 400 80 300 60 200 40 100 20 0 0 2005 2006 2007e 2008e Sweet Sour High value products BP estimates for 2007-2008 57
Slide 58: Refining: Availability
Refining: Availability Availability % 100 90 80 70 60 50 2004 2005 2006 2007e 2008e BP estimates for 2007-2008 58
Slide 59: Refining: Portfolio
Refining: Portfolio Average Size kbpd 240 220 BP CVX XOM 200 180 160 Total 140 COP RDS 120 7.0 8.0 9.0 10.0 11.0 Complexity index 2 mmbbl/d Circle area proportional to Source: Oil & Gas Journal 2006 nameplate capacity Excludes TNK-BP 59
Slide 60: Marketing: Strategy unchanged
Marketing: Strategy unchanged • Differentiated branded offers and disciplined execution to grow gross margin • Focused investment in markets where we can be number 1 or 2 • Cost management to ensure efficiency improves over time 60
Slide 61: Marketing: Cost efficiency
Marketing: Cost efficiency Headcount reduction 3000 • On track to deliver $0.5bn cost benefits in 2008 2000 from efficiency projects 1000 0 2005 2006 2007e • Further productivity improvements to come Gross Margin / Distribution and admin costs from investments into 1.4 systems 1.3 1.2 2005 2006 2007
Slide 62: R&M: Investment patterns
R&M: Investment patterns Organic capex $bn 5 Marketing 4 Infrastructure 3 Refining 2 1 Biofuels 0 Aromatics & Acetyls (1) Disposals Disposals (2) 2004 – 2006 2007e average BP estimates for 2007 62
Slide 63: R&M: Key messages
R&M: Key messages • Focus on safety and integrity • Improvement from 2006 • Disciplined execution of strategy 63
Slide 64: John Browne, Group Chief Executive
John Browne Group Chief Executive
Slide 65: Gas, Power & Renewables
Gas, Power & Renewables • Gas remains an important part of the portfolio • Growing LNG marketing and trading business • Second largest gas producers among IOCs • World’s largest marketer and trader among IOCs • Wind capacity 450 MW by end 2007 • Solar capacity 300 MW by end 2007 BP estimates for 200
Slide 66: Investment
Investment $bn 2005 2006 2007e Capital expenditure 13.9 15.9* ~18 Exploration & Production 10.1 12.1* ~13 Refining & Marketing 2.8 3.1 ~4 Gas, Power, Renewables & Other 1.0 0.7 ~1 Organic capex only *Excludes $1bn investment in Rosneft IPO BP estimates for 2007 66
Slide 67: Historical dividend
Historical dividend 2001-2006 1987-2006 Average 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 67
Slide 68: Impact of share buyback programme 2006 vs. 2001
Impact of share buyback programme 2006 vs. 2001 Absolute growth Per-share growth (%) (%) Replacement cost 163 195 profit Cash from operations 61 80 Dividend 59 79 Production 15 29 68
Slide 69: 2007 guidance
2007 guidance • Production − 3.8 – 3.9 mmboed assuming $60/bbl oil price and current portfolio • Organic capex − Around $18bn • Total Group costs − Expected to grow in line with sector inflation • Distribution policy unchanged − Distribute 100% of all excess free cash flow to shareholders BP estimat
Slide 70: Summary
Summary • Priorities: safety and performance • High-quality asset base • Acting on lessons learned from 2005-06 • Robust and unchanged financial framework 70
Slide 71: Questions & answers
Questions & answers LONDON NEW YORK John Browne Bob Malone Group Chief Executive Chairman & President, BP America Inc. Byron Grote David Allen Chief Financial Officer Group Managing Director & Chief of Staff Tony Hayward Iain Conn Group Chief Executive Designate Group Managing Director Bob Dudley An