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Financial framework
AspartofourresponsetotheGulfofMexicooilspill,werevisedour
nancialframeworkduring2010.Theaimoftherevisedframeworkisto
providethegroupwithnancialexibilityinthemediumterm,aswe
completeour$30-billiondisposalprogrammeandfullourcommitmentto
fundtheDeepwaterHorizonOilSpillTrust.SeeFinancialstatements–
Note2onpage158.
Weintendtoinvesttogrowthecompanyandshareholdervalue
sustainablythroughthebusinesscycleandweintendtomaintainacapital
structurethatallowsthegrouptoexecuteitsstrategyandisresilientto
inherentvolatility.
Wealsointendtomaintainasignicantliquiditybufferandto
reduceournetdebtratiotowithinarangeof10-20%,comparedwithour
previouslytargetedrangeof20-30%.Forfurtherinformationonnetdebt,
whichisanon-GAAPmeasure,seeFinancialstatements–Note36on
page198.
Wewillseektomaintainshareholderdistributionsinlinewith
operatingperformancethroughthebusinesscycle.On1February2011,
weannouncedtheresumptionofquarterlydividendpayments,atalevel
webelieveisprudentandrecognizesourcurrentcircumstances.Westill
faceuncertaintiesastotheamountandtimingoffuturecashowsand
wehaveanobligationtocontribute$5billionperannumtothe
DeepwaterHorizonOilSpillTrustforeachofthenextthreeyears.
Ourintentionistoincreasethedividendovertime,inlinewiththe
circumstancesofthecompany.
Dividends and other distributions to shareholders
InJune2010,theBPboardrevieweditsdividendpolicyinlightoftheGulf
ofMexicooilspillandtheagreementtoestablishthe$20-billiontrustfund,
decidingthatnoordinarysharedividendswouldbepaidinrespectofthe
rstthreequartersof2010.On1February2011,BPannouncedthe
resumptionofquarterlydividendpayments,withafourth-quarterdividend
of7centspershare.
Webelievethislevelissupportedbythesuccessofourdisposal
programmethusfar,andbytheimprovingbusinessenvironment,butis
balancedbytherecognitionofourcontinuingobligationtofundtheTrust
untiltheendof2013andtheneedtoretainnancialexibility.Weintendto
increasethedividendlevelovertimeinlinewiththecircumstancesofthe
company.ThetotaldividendpaidtoBPshareholdersin2010was
$2.6billion,comparedwith$10.5billionfor2009.Thedividendpaidper
sharewas14cents,adecreaseof75%comparedwith2009.Insterling
terms,thedividenddecreased76%.WedeterminethedividendinUS
dollars,theeconomiccurrencyofBP.
During2010and2009,thecompanydidnotrepurchaseanyofits
ownshares.
Financing the group’s activities
Asummaryofnancingactivitiesduring2010followingtheGulfofMexico
oilspillisincludedonpage63.Thegroup’sprincipalcommodity,oil,is
pricedinternationallyinUSdollars.Grouppolicyhasgenerallybeento
minimizeeconomicexposuretocurrencymovementsbynancing
operationswithUSdollardebt,orbyusingcurrencyswapswhenfunds
havebeenraisedincurrenciesotherthanUSdollars.
Thegroup’snancedebtat31December2010amountedto
$45.3billion(2009$34.6billion).Ofthetotalnancedebt,$14.6billionis
classiedasshorttermattheendof2010(2009$9.1billion).Included
withinshort-termdebtis$6.2billionrelatingtothepreviouslymentioned
depositsreceivedforannounceddisposaltransactionsstillpendinglegal
completionpostthebalancesheetdate(2009nil).Theshort-termbalance
alsoincludes$6.9billionforamountsrepayablewithinthenext12months
relatingtolong-termborrowings(2009$3.9billion).Commercialpaper
marketsintheUSandEuropeareafurthersourceofshort-termliquidity
forthegrouptoprovidetimingexibility.At31December2010,
outstandingcommercialpaperamountedto$1.0billion(2009$0.4billion).
Duetotheuncertaintyofcommercialpapermarketsintimesofcrisis,we
choosenottoincludeourcommercialpaperbalanceswhenconducting
stresstestsofourliquidity.Wedo,nonetheless,makeuseofthese
marketswhentheyarecommerciallyattractive.
WehaveinplaceaEuropeanDebtIssuanceProgramme(DIP)underwhich
thegroupmayraiseupto$20billionofdebtformaturitiesofonemonthor
longer.At31December2010,theamountdrawndownagainsttheDIP
was$12.3billion(2009$11.4billion).Inaddition,thegrouphasinplacean
unlimitedUSshelfregistrationstatementunderwhichitmayraisedebt
withmaturitiesofonemonthorlonger.Noneoftherecentcapitalmarket
bondissuancescontainedanyadditionalnancialcovenantscomparedto
thegroup’scapitalmarketsissuancespriortotheGulfofMexicooilspill.
Thematurityproleandxed/oatingratecharacteristicsofthe
group’sdebtaredescribedinFinancialstatements–Note35onpage197.
Netdebtwas$25.9billionattheendof2010,aslightreduction
fromthe2009year-endnetdebtpositionof$26.2billion.Includedinnet
debtarecashandcashequivalentsof$18.6billionat31December2010
(2009$8.3billion).Theratioofnetdebttonetdebtplusequitywas21%at
theendof2010,comparedwith20%attheendof2009.
BPmanagesitscashpositiontoensurethegrouphasliquidityas
andwhenrequired.Cashbalancesarepooledcentrallywherepermissible,
anddeployedgloballyasrequired.Cashsurplusesaredepositedwith
creditworthybanksandmoneymarketfundswithshortmaturitiesto
ensureavailability.Furtherinformationonthemanagementofliquidityrisk
andcreditriskisprovidedinFinancialstatements–Note27on
pages188-190,andonthecashpositioninFinancialstatements–Note31
onpage191.
BPexpectstomaintainastrongcashposition.This,togetherwith
ourlowernetdebtratiotarget,aimstoensurethegrouphastheexibility
tomeetfuturenancialobligationsandreectsaprudentapproachto
managingthebalancesheetandtheliquidityrequirementsofthecompany.
Thegroupalsohasaccesstosignicantsourcesofliquidityinthe
formofcommittedbankfacilities.At31December2010,thegrouphad
availableundrawncommittedborrowingfacilitiesof$12.5billion(2009
$5.0billion),madeupof:
• $5.3billionofstandbyfacilities,ofwhich$0.4billionisavailabletodraw
andrepaybymid-September2011,$4.6billionuntilmid-October2011,
and$0.3billionuntilmid-January2013.
• $7.2billionof364-dayfacilities,ofwhich$4.0billioncanbedrawnuntil
lateMay2011,$2.0billiondrawnuntiltheendofJune2011,$0.7billion
drawnuntilearlyJuly2011and$0.5billiondrawnuntillateAugust2011.
Anyamountsdrawnarerepayableupto364daysfromthedate
ofdrawing.
Withthelevelofundrawncommittedbankfacilitiesincreasingsincethe
GulfofMexicooilspillincidentandwiththelevelsofcashincreasing,our
overallliquiditylevelsstrengthenedoverthecourseof2010.
BPbelievesthat,takingintoaccountthesubstantialamountsof
undrawnborrowingfacilitiesandlevelsofcashandcashequivalents,and
theongoingabilitytogeneratecash,includingfurtherdisposalproceeds,
thegrouphassufcientworkingcapitalforforeseeablerequirements.
Thereremainssignicantuncertaintyregardingtheamountandtimingof
futureexpendituresandtheimplicationsforfutureactivities.SeeRisk
factorsonpages27-32,andFinancialstatements–Note2onpage158,
Note37onpage199andNote44onpage218forfurtherinformation.
Off-balance sheet arrangements
At31December2010,thegroup’sshareofthird-partynancedebtof
equity-accountedentitieswas$6,987million(2009$6,483million).These
amountsarenotreectedinthegroup’sdebtonthebalancesheet.
Thegrouphasissuedthird-partyguaranteesunderwhichamounts
outstandingat31December2010are$404million(2009$319million)in
respectofliabilitiesofjointlycontrolledentitiesandassociatesand
$664million(2009$667million)inrespectofliabilitiesofotherthirdparties.
Oftheseamounts,$355million(2009$286million)ofthejointlycontrolled
entitiesandassociatesguaranteesrelatetoborrowingsandforother
third-partyguarantees,$649million(2009$633million)relatesto
guaranteesofborrowings.
64BPAnnualReportandForm20-F2010