BP 2006 Annual Report Download - page 29

Refining and Marketing
Our Refining and Marketing business is responsible for the supply and
trading, refining, marketing and transportation of crude oil, petroleum and
chemicals products to wholesale and retail customers. BP markets its
products in more than 100 countries. We operate primarily in Europe and
North America but also market our products across Australasia and in
parts of Asia, Africa and Central and South America.
Key statistics $million
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2006 2005a2004a
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Sales and other operating revenues
for continuing operations 232,855 213,326 170,639
Profit before interest and tax from
continuing operations 5,041 6,926 6,506
Total assets 80,964 77,485 73,582
Capital expenditure and acquisitions 3,144 2,860 2,989
$ per barrel
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Global Indicator Refining Marginb8.39 8.60 6.31
Profit before interest and tax from continuing operations includes profit after interest
and tax of equity-accounted entities.
aWith effect from 1 January 2006, the following assets were transferred to or from
the Refining and Marketing segment:
– Three equity-accounted entities were transferred from Other businesses and
corporate following the sale of Innovene;
– The South Houston Green Power co-generation facility (in the Texas City refinery)
and the Watson co-generation facility (in the Carson refinery) were transferred to
Gas, Power and Renewables as a result of the formation of BP Alternative Energy;
and
– Hydrogen for Transport activities were transferred from Gas, Power and
Renewables.
The 2005 and 2004 data above has been restated to reflect these transfers.
bThe Global Indicator Refining Margin (GIM) is the average of regional industry
indicator margins, which we weight for BP’s crude refining capacity in each region.
Each regional indicator margin is based on a single representative crude with product
yields characteristic of the typical level of upgrading complexity. The refining margins
are industry-specific rather than BP-specific measures, which we believe are useful
to investors in analysing trends in the industry and their impact on our results.
The margins are calculated by BP based on published crude oil and product prices
and take account of fuel utilization and catalyst costs. No account is taken of BP’s
other cash and non-cash costs of refining, such as wages and salaries and plant
depreciation. The indicator margin may not be representative of the margins
achieved by BP in any period because of BP’s particular refining configurations and
crude and product slate.
The changes in sales and other operating revenues are explained in more
detail below.
$million
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2006 2005 2004
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Sale of crude oil through spot and
term contracts 38,577 36,992 21,989
Marketing, spot and term sales of
refined products 177,995 155,098 124,458
Other sales including non-oil and to
other segments 16,283 21,236 24,192
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232,855 213,326 170,639
mb/d
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Sale of crude oil through spot and
term contracts 2,110 2,464 2,312
Marketing, spot and term sales of
refined products 5,801 5,888 6,398
The Refining and Marketing segment includes a portfolio of businesses,
namely Refining, Retail, Lubricants, Business-to-Business Marketing
and Aromatics and Acetyls. Our strategy is to continue our focused
investment in key assets and market positions. We aim to improve the
quality and capability of our manufacturing portfolio. Over the past five
years, this has been taking place through upgrades of existing conversion
units at several of our facilities and investment in new clean fuels units
at the Castello
´n refinery in Spain, the Kwinana refinery in Australia and all
our US refineries (excluding the Carson refinery, which was already
producing a full slate of clean fuels). Over the next five years, our refining
portfolio will be upgraded further through the construction of a new coker
at the Castello
´n refinery, an increase in the Whiting refinery’s ability to
process Canadian heavy crude, upgrades to diesel and gasoline
desulphurization capability at the Nerefco refinery in the Netherlands,
completion of a major upgrade to the olefin cracker at the Gelsenkirchen
refinery in Germany and the site reconfiguration and installation of a new
hydrocracker at the Bayernoil refinery, also in Germany. In addition, the
portfolio will be improved through upgrades implemented during the
recommissioning of the Texas City refinery in the US.
Our marketing businesses, underpinned by world-class manufacturing
such as our Aromatics and Acetyls portfolio, generate customer value
by providing quality products and offers. Our retail strategy provides
differentiated fuel and convenience offers to some of the most attractive
markets. Our lubricants brands offer customers benefits through
technology and relationships and we focus on increasing brand
and product loyalty in Castrol lubricants. We continue to build deep
customer relationships and strategic partnerships in the business-to-
business sector.
Refining and Marketing manages a portfolio of assets that we believe
are competitively advantaged across the chain of downstream activities.
Such advantage derives from several factors, including location (such as
the proximity of manufacturing assets to markets), operating cost and
physical asset quality.
We are one of the major refiners of gasoline and hydrocarbon products
in the US, Europe and Australia. We have significant retail and business-
to-business market positions in the US, UK, Germany and the rest of
Europe, Australasia, Africa and Asia. We are enhancing our presence in
China and exploring opportunities in India. Refining and Marketing also
includes the Aromatics and Acetyls business, which maintains
manufacturing positions globally, with an emphasis on Asia growth,
particularly in China.
During 2006, significant events were:
– BP announced that it had entered the final planning stage of a $3-billion
investment in Canadian heavy crude oil processing capability at its
Whiting, US, refinery. This project is expected to reposition Whiting
competitively as a top-tier refinery by increasing its Canadian heavy
crude processing capability by 260,000 barrels per day and modernizing
it with equipment of significant size and scale. Reconfiguring the
refinery also has the potential to increase its production of motor fuels
by about 15%, which is about 1.7 million additional gallons of gasoline
and diesel per day. Construction is tentatively scheduled to begin in
2007, pending regulatory approval.
– BP also announced plans to invest $500 million over the next 10 years
to establish a dedicated bioscience research laboratory. The BP Energy
Biosciences Institute (EBI) is planned to be the first of its kind in the
world and to be attached to a major academic centre. On 1 February
2007, BP announced that it had selected the University of California,
Berkeley, and its partners the University of Illinois at Urbana–
Champaign and the Lawrence Berkeley National Laboratory for the
research programme. Further, BP and DuPont announced the creation
of a partnership to develop, produce and market a next generation of
biofuels. The companies’ joint strategy is to deliver advantaged biofuels
that will provide improved options for expanding energy supplies and
accelerate the move to renewable transportation fuels that lower
overall greenhouse gas emissions. The first product to market is
expected to be biobutanol, an improved biocomponent for gasoline.
Initial introduction activities are currently targeted on the UK market.
– In 2006, plans for a second purified terephthalic acid (PTA) plant at
the BP Zhuhai Chemical Company Limited site in Guangdong province,
China, were approved by the Chinese government and the plant is
expected to come on stream at the end of 2007.
– BP continues to develop its retailing business in both new markets
and new business models. In 2006, developments included:
rThe roll-out of the BP Connect Wild Bean Cafe
´brands to its dealer
network in a franchise agreement. We are expecting to develop a
network of 150 Connect franchise sites along with a further 100
company-owned Connect sites in the UK by the end of 2010.
rThe successful piloting of a Marks & Spencer store partnership
in the UK, with the intention of rolling this out to a further 200
stores in 2007.
BP Annual Report and Accounts 2006 27