BP 2007 Annual Report Download - page 48

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Financial and operating performance
Group operating results
The following summarizes the group’s operating results.
$ million except per share amounts
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2007 2006 2005
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Sales and other operating revenues from continuing operationsa284,365 265,906 239,792
Profit from continuing operationsa21,169 22,311 22,448
Profit for the year 21,169 22,286 22,632
Profit for the year attributable to BP shareholders 20,845 22,000 22,341
Profit attributable to BP shareholders per ordinary share – cents 108.76 109.84 105.74
Dividends paid per ordinary share – cents 42.30 38.40 34.85
aExcludes Innovene, which was treated as a discontinued operation in accordance with IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’. See Financial
statements – Note 3 on page 110.
Business environment
Crude oil prices reached new record highs in 2007 in nominal terms. The
average dated Brent price rose to $72.39 per barrel, an increase of 11%
over the $65.14 per barrel average seen in 2006. Daily prices began the
year at $58.62 per barrel and rose to $96.02 per barrel at year-end due to
OPEC production cuts in early 2007, sustained consumption growth and
the resulting drop in commercial inventories after the summer.
Natural gas prices in the US and the UK declined in 2007. The Henry
Hub First of Month Index averaged $6.86 per mmBtu, 5% lower than the
2006 average of $7.24 per mmBtu. Prices were pressured by record LNG
imports in summer, continued domestic production growth and
inventories that set a new record at the end of the storage injection
season. Average UK gas prices fell to 29.95 pence per therm at the
National Balancing Point in 2007, 29% below the 2006 average of
42.19 pence per therm.
Refining margins reached a new record high in 2007, with the BP
Global Indicator Margin (GIM) averaging $9.94 per barrel. The premium
for light products above fuel oils remained exceptionally high, reflecting a
continuing shortage of upgrading capacity and favouring fully upgraded
refineries over less complex sites.
The retail environment continued to be extremely competitive in 2007
with market volatility, high absolute prices, as well as a rising crude
market.
The business environment in 2006 was mixed compared with 2005,
but still robust in comparison with historical averages. Crude oil and UK
natural gas prices increased, while US natural gas prices and global
refining margins fell.
The dated Brent price averaged $65.14 per barrel, an increase of more
than $10 per barrel over the $54.48 per barrel average seen in 2005, and
varied between $78.69 and $55.89 per barrel. Prices peaked in early
August before retreating in the face of a mild hurricane season and rising
inventories. OPEC action late in the year helped support prices.
Natural gas prices in the US declined in 2006 compared with 2005, but
remained well above historical averages. The Henry Hub First of Month
Index averaged $7.24 per mmBtu, $1.41 per mmBtu below the 2005
average of $8.65 per mmBtu. Rising production and weak consumption
resulted in above average inventories, depressing gas prices relative to
crude oil. UK gas prices rose slightly in 2006, averaging 42.19 pence per
therm at the National Balancing Point, compared with a 2005 average of
40.71 pence per therm.
Refining margins were only slightly lower in 2006, with the BP GIM
averaging $8.39 per barrel. This reflected further oil demand growth,
lingering effects on US refinery production from the 2005 hurricanes and
gasoline formulation changes in several US states. The premium for light
products over fuel oils remained exceptionally high, favouring upgraded
refineries over less complex sites.
Retail margins improved slightly in 2006, benefiting from a decline in
the cost of product during the second half of the year, despite intense
competition.
Hydrocarbon production
Our total hydrocarbon production during 2007 averaged 2,549mboe/d for
subsidiaries and 1,269mboe/d for equity-accounted entities, a decrease
of 3% (3.5% for liquids and 2.6% for gas) and 2% (1.3% for liquids and
8.4% for gas) respectively compared with 2006. In aggregate, the
decrease primarily reflected the effect of disposals and net entitlement
reductions in our PSAs. Compared with 2005, 2006 hydrocarbon
production for subsidiaries decreased by 3.3% in 2006 reflecting a
decrease of 5.1% for liquids and a decrease of 1.3% for natural gas.
Increases in production in our new profit centres were offset by
anticipated decline in our existing profit centres and the effect of
disposals. Hydrocarbon production for equity-accounted entities
increased by 0.1%, reflecting a decrease of 1.3% for liquids and an
increase of 10.2% for natural gas.
Profit attributable to BP shareholders
Profit attributable to BP shareholders for the year ended 31 December
2007 was $20,845 million, including inventory holding gains of $3,558
million. Inventory holding gains or losses are described in footnote a
below. Profit attributable to BP shareholders for the year ended
31 December 2006 was $22,000 million, after inventory holding losses of
$253 million. Profit attributable to BP shareholders for the year ended
31 December 2005 was $22,341 million, including inventory holding
gains of $3,027 million. The profit attributable to BP shareholders for the
year ended 31 December 2006 included a loss from Innovene operations
of $25 million, compared with a profit of $184 million in the year ended
31 December 2005. The loss/profit from Innovene for the years 2006 and
2005 included losses on remeasurement to fair value of $184 million and
$591 million respectively. Financial statements – Note 3 on page 110
provides further financial information for Innovene.
Profit attributable to BP shareholders for the year ended 31 December
2007 included net gains of $2,132 million on the disposal of assets; and
was after net impairment charges of $1,324 million, a further charge of
$500 million in respect of the March 2005 Texas City refinery incident, a
charge of $338 million associated with restructuring (with a further
charge of $1 billion expected in 2008), a charge of $185 million in relation
to new, and revisions to existing, environmental and other provisions, a
charge of $91 million in respect of a donation to the BP Foundation, a net
fair value loss of $7 million on embedded derivatives (these embedded
derivatives are fair valued at each period end with the resulting gains or
losses taken to the income statement) and a charge of $410 million in
respect of the reassessment of certain provisions.
Profit attributable to BP shareholders for the year ended 31 December
2006 included net gains of $3,286 million on the disposal of assets, net
fair value gains of $608 million on embedded derivatives and a credit of
$44 million in relation to new, and revisions to existing, environmental
and other provisions; and was after a charge of $925 million in respect of
the March 2005 Texas City refinery incident, a charge of $535 million
relating to the reassessment of certain provisions, a charge of
$155 million in respect of a donation to the BP Foundation and a net
impairment charge of $121 million.