presentation to the financial community tuesday 11th february 2003
John Browne
introduction
agenda
introduction & context 4Q and 2002 results strategy overview plans and prospects
upstream gas, power & renewables Ralph refining & marketing petrochemicals
John Browne Byron Grote John Browne
Russia & conclusions
Tony Hayward Alexander John Manzoni Iain Conn John Browne
2002 scorecard
improved safety performance competitive financial performance
proforma result $8.7 bn cash from operations $19.3 bn proforma ROACE 13%
(down 25% vs 2001) (down 14% vs 2001)
improvement of $1.2bn at mid cycle dividend up 9% Veba acquisition 175% reserves replacement 2.9% production growth vs 5.5% estimate
lessons from 2002
review of strategy strategy sound portfolio review/highgrading clearer capital and cost allocation production volume useful indicator of growth but only if combined with value and risk measures not an end in itself
the external world
uncertain world recovery
weak financial markets
lack of consumer and business confidence war fears
strong oil price – less strong fundamentals US gas strong market facing businesses remain weak
..……a difficult and uncertain trading environment
Byron Grote
4th quarter & 2002
This presentation and the associated slides and discussion contain statements, particularly those regarding acquisitions, availability, capacity, capital employed, capital expenditure, cash flows, costs, savings, debt, demand, depreciation, divestments, dividends, earnings, efficiency, gearing, growth, improvements, investments, margins, markets, performance, prices, production, productivity, profits, realisations, reserves, results, returns, revenues, sales, share buy backs special and exceptional items, strategy, synergies, tax rates, trends, value, volumes, the effects of BP merger and acquisition activity, which are or may be forward looking statements. Actual results may differ from those expressed in such statements, depending on a variety of factors including future levels of industry product supply; demand and pricing; political stability and economic growth; development and use of new technology; actions of competitors; and natural disasters, wars and acts of terrorism. Statements and data contained in this presentation and the associated slides and discussions, which relate to the performance of BP in this and future years, represent plans, indicators or projections. Unless otherwise made clear, references to financial measures are to such measures calculated on a proforma basis, which in the case of past performance have been adjusted for special items. February 2003
trading environment
4Q 01 17.72 2.28 3Q 02 24.40 2.25 4Q 02
Full Year 2002 2001 average realisations
liquids $/bbl natural gas $/mcf indicator margins 22.69 2.46 22.50 3.30
24.78 2.87
2.40 112
*provisional
1.98 120
2.76 100*
refining $/bbl petrochemicals $/te
2.11 102* 109
4.06
financial results
results for the fourth quarter
% change vs 4Q 01
proforma reported net cash from operating activity dividend
$2.6bn $1.7bn $6.2bn
49% 140% 12% 6.25¢/share 14.8%
% change vs 2001
9% ROACE (proforma)
results for the year
proforma reported net cash from operating activity dividend
$8.7bn $4.7bn $19.3bn 9%
(25)% (43)% (14)% 24¢/share
ROACE (proforma)
13.0%
2002 vs 2001 variance
proforma basis
$bn RCP 14 12 $1.2bn pre-tax $0.8bn post-tax
10 8
6 4 2 0
2001
gas prices refining margin other environment effects underlying improvement interest expense
2002
sources of underlying improvement
proforma basis
$bn pre-tax
upstream gas, power & renewables refining & marketing petrochemicals overview total
feb 2002 estimate 0.6 0 0.4 0.6 (0.2) 1.4
2002 result 0.2 0 0.4 0.6 0 1.2
special and exceptional items
$bn pre-tax
2 1 0 (1) (2) (3) (4)
4Q 2002 specials: disposals in 2002: disposals in 2003:
(0.6) 0.3 (1.2) (1.5)
96
97
98
99
00
01
02
sources and uses of cash
$bn
2001
2002
30
25 20 15 10 5
tax, interest & msi operations buybacks disposals
dividends
acquisitions
22.4
13.3
19.3
13.4
organic capex
0
sources
uses
sources
uses
financial framework
2001
dividend declared (¢/UK share) 1Q 2Q 3Q 4Q 5.25 5.50 5.50 5.75 1 281 35.4% 29.5%
2002
5.75 6.00 6.00 6.25 750 34.7% 27.5%
buybacks ($millions) proforma tax rate proforma gearing*
*proforma gearing = net debt / (net debt + equity - acquisition adjustment)
John Browne
strategy overview
strategy
choice: create distinctive set of investment opportunities upstream bias invest or divest to realise value choice improves quality financial discipline: balance cash in and cash out over time at
standardised assumptions productivity: strategic focus - ‘right’ level of costs gross margin: maximised with centrally allocated capital and costs choice combined with discipline and productivity leads to long term growth with competitive returns
dividends
5 year
dollar dps 7% inflation
CAGR % 10 8 6 4 2 0 dollar dps inflation sterling dps inflation
20 year
4% sterling dps inflation 3%
CAGR % 10 8 6 4 2 0 dollar dps
5 year 7% 2%
20 year 7% 4%
2%
inflation
sterling dps
inflation
5 year average
20 year average
strategy: key points
finding reserves
building new upstream profit centres
investment and returns upstream
growth in refining, oil products marketing & petrochemicals
upstream
disproportionate share of largest / lowest cost fields
discoveries > 250mmboe 1998 - 2002
25 20
1998 - 2001*
• highest reserve replacement added by exploration alone (119%)
range
15
10 5 0
• lowest finding cost ($0.95/boe)
BP
major competitors
*source: company reports
source: Wood Mackenzie
superior opportunity set
relative production capacity – new profit centres 2002
GoM Deepwater Trinidad
2007*
Angola
Azerbaijan Asia Pacific LNG
ca. 20% of total
ca. 40% of total
*BP projection
building new profit centres
production mboed capex $m
2500 2000 1500 1000 500 0 01 ROACE* 02 10 03 9 04 10 05 11 06 12 07 14
7000 6000 5000 4000 3000 2000
production
capex
1000 0
source: BP capacity projections 2003 - 2007
*proforma ROACE estimated using standardised assumptions
upstream summary
production mboed
4500 4250 4000 3750 3500 3250 3000 2750 2500
capex $m
13000
production
12000 11000 10000 9000
capex
8000
2250
01
ROACE* 12
7000
02
13 13
*proforma ROACE estimated using standardised assumptions
03
12
04
12
05
06
12
07
source: BP capacity projections 2003 - 2007
refining & marketing
proforma capital employed broadly flat asset high grading continues
cost focus
gross margin growth potential ROACE at standardised assumptions
expected in 12-14% range
petrochemicals
focus on 7 advantaged products competitively advantaged gross margin structure
capital employed broadly constant
ROACE at standardised assumptions -
+3% expected by 2006
business segments
upstream Tony Hayward
gas, power & renewables
refining & marketing petrochemicals
Ralph Alexander
John Manzoni Iain Conn
Tony Hayward
upstream
plans and prospects
basin lifecycle
cumulative reserves
production
cashflow
capex
create
build
produce
harvest
create - giant discoveries
by number 98-02
25 20 15
0.8
exploratory replacement ratio
average 98 - 01
BP TFE
1.4 1.2 1
10 5 0 BP XOM TFE Shell CVX
0.6
XOM
0.4
CVX
Shell
0.2 0 0
giant discoveries >250mmboe source: Wood Mackenzie
1 2 finding cost $/boe
3
4
source: company reports
create – strategic focus
remaining resources BP others yet to find
Azerbaijan GoM DW Trinidad Angola DW Asia Pacific LNG*
source: BP estimates
*comparative data not available
create - summary
right decisions (quality through choice)
right capabilities (know-how)
right tools (technology)
state of the art petroleum system analysis - regional evaluation
best in class seismic depth imaging
build – five new profit centres
mboed 2500 2000 1500 1000 500 0 01 GoM Deepwater Azerbaijan
source: BP projections 03 - 07
production capacity
02
03
04
05
06 Angola Rest of World
07
Trinidad Asia Pacific LNG
build – five new profit centres
capital 2003 - 2007
$m
7000 6000 5000 4000 3000 2000 1000 0 01 02 03 04 05 06 07
total build capital
GoM Deepwater Trinidad
Azerbaijan Asia Pacific LNG Angola
source: BP projections 03 - 07
build – improving quality
$/boe
profit margin
cash margin
2002 average
proforma RCOP
2007 average*
2002 build
non cash cost
2007 build*
cash costs
*BP projection, RCOP estimated using standardised assumptions
existing profit centres
mboed 3500 3000 2500 2000 1500 1000 500 0 01 02 03 04 05 06 07
$m
8000 7000 6000 5000 4000 3000 2000 1000 0
Asia Pacific Domestic Middle East Latin America Egypt
North Sea
North America Gas
Alaska
capital expenditure
source: BP projections 03 - 07
existing profit centres – sustaining the reserve base
% 100 90
reserve replacement
80
70 60
50
00
proved developed reserves source: BP
01
02
existing profit centres – sustained investment quality
$m/mboed 16 investment efficiency 14 12 10
cum. rate mboed 200 wellwork evaluation & tracking
150
GoM Shelf
8
6 4
100
Rockies
50
Prudhoe Bay programme
2
0 01
*BP projection
0
Bruce
02
03 *
0
100
200 300 400 500 600
spend $m
best-in-class costs
lifting costs
$2.61 /boe $2.44 /boe $2.35 to $2.40 /boe
01
portfolio
operating practice & restructuring
02
portfolio
operating practice & restructuring
03*
*BP projection
upstream divestments
year
2002*
asset
Veba package
pre-tax
proceeds $bn
Al Rayyan Qadirpur Kashagan
2003 Montrose/Arbroath
2.5
N. America packages Forties/GoM Shelf package Trinidad interest* JDA / Colombia Swap Tangguh interest*
total
*completed
3.0
5.5
upstream summary
production mboed 4500 4250 4000 3750 3500 3250 3000 2750 2500 2250 01 02 03 04 05 06 07 capex production capex $m 13000 12000 11000 10000 9000 8000 7000
source: BP capacity projections 03 - 07
Ralph Alexander
gas, power & renewables
plans & prospects
gas, power & renewables strategic purpose
integrated with other business segments
maximise the value of our gas through marketing
grow value of our natural gas liquids production
build a profitable renewables business
gas, power & renewables
gas supplied to plants
mmscfd 2000 1500 1000 500 0 00 01 02 03 04 Trinidad 2&3 Trinidad 1 Indonesia Australia
building markets ahead of LNG supply
markets captured as of 31/12/02
mmscfd 2000 1500 1000
Spain China Other Americas
500
Japan
0 05
source: BP projections 03 - 05
gas, power & renewables
gas supplied to plants
mmscfd 2000 1500 1000 500 0 00 01 02 03 04 Trinidad 2&3 Trinidad 1 Indonesia Australia
building markets ahead of LNG supply
markets captured as of 31/12/02
mmscfd
New LNG
2000 1500 1000
China Other Americas
Spain
500
Japan
~
0 08
05
source: BP projections 03 - 05, 08
Atlantic basin LNG: optimising returns with market flexibility
BCFD
2 1.5 1
0.5
0 02 05 08
source: BP projections 05, 08
John Manzoni refining & marketing plans and prospects
r&m: building scale
marketing volumes refining throughput
$bn
24 20 16 12 8 98
average proforma capital employed
index 1998 = 100 160 140 120
$bn
2 1.6 1.2 0.8
divestment proceeds
100 80
0.4 0 98 99 00 01 02
99
00
01
02
r&m: efficiency
unit costs index 1998 = 100 110
unit costs cash costs
cash costs $bn 10 9
100 8 90 7 80 98
*BP projection
6 99 00 01 02 03*
r&m: brands
position in relevant market
Europe
# 2 # 1 # 2
North America
# 2
Australasia
China India
*foreign oil company
# 1
# 1*
# 2
refining: investment
refining capex $m
1000 800 600 400 200 0
clean fuels capex base capex
99
source: BP projections 03 - 05
00
01
02
03
04
05
refining: quality
unit costs index 1998 = 100 100 90 80 70 60 95 96
availability %
97
50
40 98 99 00 01 02 03 * 94
availability unit costs
*BP projection
refining: quality
unit costs index 1998 = 100 100 90 80 70 60 95
0.5
availability %
97
$/bbl
1.5
refining unit gross margin vs 00**
96
1
50
40 98 99 00 01 02 03 * 94
0 01 02 03*
availability unit costs
*BP projection
**at standardised assumptions
retail: portfolio
volumes up 45% since 1998
market selection convenience markets fuels markets continuous highgrading
retail: convenience growth
sales index 1998 = 100 BP convenience sales convenience market sales (OECD data)
130
120 110 100 90 98
*BP projection
99
00
01
02
03*
retail: efficiency
index 2000=100
130 120
store sales per m2 unit costs average fuel volume per site
$000/m2
8.6
7.8 110
7.0
100 90 6.2
00
*BP projection
01
02
03*
lubricants: growth and efficiency
growth & efficiency
unit costs revenues
index 2000=100
120 115 110 105 100 95 90 00 01
02
03*
*BP projection
lubricants: growth and efficiency
growth & efficiency
unit costs revenues
growth vs market
index 2000=100
120 115 110 105 100
index 2000=100
115 110 105 100
market share unit gross margin
95 90 00 01 02 03* 95 00 01 02 03*
*BP projection
r&m: summary
powerful platform with opportunities for growth
unit gross margin expectation - stable or increasing
aim to continue productivity improvements
focused investment choices
Iain Conn
petrochemicals
plans and prospects
capacity growth and transformation
mte
36 34 32 30 28 26 24 22 20 98 99 00 01 02 03 *
capacity (mte)
*BP projection
capacity growth and transformation
index 1998 =100
mte
36 34 32 30 28 26 24 22 20 98 99 00 01 02 03 *
140 120 100 80 60 40
capacity (mte)
*BP projection
gross margin/te (production)
capacity growth and transformation
index 1998 =100
mte
36 34 32 30 28 26 24 22 20 98 99 00 01 02 03 *
140 120 100 80 60 40
capacity (mte)
*BP projection
gross margin/te (production)
cash fixed costs/te (capacity)
seven core products
acetic acid #1 (1.9 mte) acrylonitrile #1 (1.0 mte)
ethylene #1* (4.8mte)
PTA #1 (5.7 mte)
polypropylene #2 (2.8 mte) high density PE #2 (1.7 mte)
paraxylene #1 (2.8 mte)
Notes: 1) product, BP market position (2002 capacity) 2) *BP #1 in Europe, #4 globally
disciplined investment
$ m 2500 2000 % core capital employed 100 90
1500
1000 500
80
70 60
0
99
BP investment
source: BP projections 03 - 06
50
00 01 02 03 04 05 06
JV financed investment % core capital employed
distinctive portfolio
capacity growth - leverage to the upside
focus on seven core products
portfolio, costs, functional excellence
plans to improve underlying returns by 3%
Russia
Russian industry position
2002 production mboed
1600 1200 800 400 0
TNK Tatneft Sibneft Sidanco Surgutneftegaz NewCo Yukos Lukoil
terms
consideration
$3bn cash at close
$1.25bn in BP ordinary shares per year for
3 years after close
BP and AAR combine nearly all Russian
assets including:
Sidanco TNK BP retail in Moscow RUSIA interests Sakhalin interests
value
valuation metrics TNK / Sidanco BP Lukoil Yukos
EV/DACF 2003
4.9
8.6
5.1
5.5
EV/reserves $/boe: (5.2*- 8.6** bn boe) EV/2003 production $000 per boe/d
*BP view
1.8 – 3.1
9.7
0.9
1.8
13.4
43.9
9.4
12.3
**Miller & Lents on behalf of TNK
multiples are based on broker forecasts for BP, Lukoil and Yukos TNK/Sidanco 2003 DACF and production based on BP estimates
potential upside
sources of upside value synergies and cost reductions production capacity growth
$bn to NewCo NPV at 9%
1.5 2.0
future growth options
pricing reforms total
source: BP estimates
2.0
up to 2.0 up to 7.5
financial impact on BP
equity accounted
gearing for BP up by 2 - 3% at closing
accretive to earnings per share and ROACE at standardised
assumptions
self-financing at standardised assumptions around 13% of BP 2002 oil & gas production
around 30% of BP 2002 oil reserves*
* including all equity accounted entities
governance
corporate structure 50/50 ownership BP/AAR subject to English law shareholders’ agreement board representation (50%) extensive reserve powers and veto rights financial framework and 3-year agreement corporate governance and management BP CEO of NewCo BP performance and control processes
target delivery 00-03
proforma basis
$bn RCOP improvement
4
2001 - $2.0 bn
2002 - $1.2 bn 10% CAGR
$500m RCOP improvement required for remaining target delivery
3
2 1 0
00
*BP projection
01
02
03*
patterns of investment
$ billions
2001
2002
2003
2004
2005
capital expenditure
upstream gp&r refining & marketing petrochemicals other
13.2
8.6 0.4 2.4 1.4 0.4
13.3
9.3 0.3 2.7 0.8 0.2
14.0 -14.513.5 -14.5
0.4 2.7 0.7 0.3 9.8 - 10.2 0.5 3.0 0.9 0.4
12.2 -13.2
acquisitions
divestments
proforma gearing
0.9 (2.9) 29.5%
5.8 (6.8) 27.5% (3.0 - 6.0)
source: BP projections 2003 - 2005
impact of prices and margins
avg 98 99 00 01 02
realised hydrocarbon price
6 17.9 (6) 2 4.3
$1/boe =
$1bn RCOP
realised refining unit gross margin $1/bbl = $1bn RCOP
(2) 20 237 (20)
petrochemicals unit gross margin $35/tonne = $1bn RCOP
• protection of financial strength on downside • leverage on upside
gross margin = revenue less cost of goods sold measured at 2002 levels of production/throughput
cost efficiency
2000 cash costs $bn 2001 2002 2003*
money of the day
inflation adjusted**
17.8
17.8
19.5
18.9
20.3
19.2
20.3
18.7
proforma ACE ($bn) costs(mod)/proforma ACE
56.6 31%29%
66.5 28%
71.9 27%
76.0
*BP projection **inflation corrections use global consumer price index (2000 real)
strategic management of costs
operating costs grow with volume best in class efficiency long term approach revenue investment optimise across segments overhead costs align with needs of business economies of scale
delivering value
ROACE %
20
15
BP ROACE at standardised assumptions proforma average capital employed
capital employed $bn
100 75 10 5 0 50
25
0 99 00 01 02 03 04 05
ROACE = (proforma result + after tax finance interest + MSI) / proforma ACE
BP projections 2003 – 2005
delivering value
a balanced framework
value growth
dividend policy stock buy backs
$4bn to date $2bn announced
q&a session
John Browne group chief executive
Dick Olver
Byron Grote Tony Hayward Ralph Alexander John Manzoni
deputy group chief executive
chief financial officer chief executive, e&p chief executive, gp&r chief executive, r&m
Iain Conn
David Allen
chief executive, petrochemicals
chief of staff
presentation to the financial community tuesday 11th february 2003