BP 2011 Annual Report Download - page 103

BP Annual Report and Form 20-F 2011 101
Business review: BP in more depth
Business review
Other businesses and corporate
Other businesses and corporate comprises the Alternative Energy
business, Shipping, Treasury (which includes interest income on the
group’s cash and cash equivalents), and corporate activities worldwide. It
also included the group’s aluminium business until its disposal in 2011.
The replacement cost loss before interest and tax for the year
ended 31 December 2011 was $2,478 million, compared with $1,516
million for the previous year. 2011 included a net charge for non-
operating items of $822 million. (See page 58 for further information
on non-operating items.) The primary additional factors affecting 2011’s
result compared with that of 2010 were significantly higher functional
and corporate costs; loss of aluminium contribution following disposal
of the group’s aluminium business in 2011; impacts of restructuring in
the Alternative Energy business; higher Shipping losses, partly offset by
improved foreign exchange hedging results.
The replacement cost loss before interest and tax for the year
ended 31 December 2010 included a net charge for non-operating items of
$200 million.
The replacement cost loss before interest and tax for the year
ended 31 December 2009 included a net charge for non-operating items of
$489 million.
The primary additional factors reflected in 2010’s result compared
with that of 2009 were improved business performance, more favourable
foreign exchange effects and cost efficiencies.
Key statistics
$ million
2011 2010 2009
Sales and other operating revenuesa2,957 3,328 2,843
Replacement cost (loss) before interest
and tax (2,478) (1,516) (2,322)
Capital expenditure and acquisitions 1,853 1,234 1,299
a Includes sales between businesses.
Alternative Energy
Alternative Energy comprises BP’s low-carbon businesses and future
growth options outside oil and gas, which we believe have the potential to
be a material source of low-carbon energy and are aligned with BP’s core
capabilities. These are biofuels, wind and a range of strategic investments.
Our market
A more diverse mix of energy will be required to meet long-term future
demand. BP’s own estimates suggest that global primary energy demand
will increase by around 40% between 2010 and 2030. Supported by
government policies, renewables’ global share of power generation,
is expected to be 11% by 2030. Between 2010 and 2030, biofuels are
expected to account for 23% of transport energy demand growtha.
Our performance
In 2011, our biofuels business acquired the Brazilian sugar and ethanol
producer Companhia Nacional de Açúcar e Álcool (CNAA) for $705 million.
Our wind business added 401MW of gross generation capacity during
2011 (274MW net), with the commercial start-up of the Cedar Creek 2 and
Sherbino 2 wind farms. At the end of 2011, BP began winding down its
remaining solar operations as it prepares to exit the solar business.
Alternative Energy continues to make progress against its
commitment to invest $8 billion in low-carbon businesses by 2015. Our
investment since 2005 is $6.6 billionb.
a BP Energy Outlook 2030.
b The majority of costs have been capitalized, some were expensed under IFRS.
Biofuels
BP believes that it has a key technological role to play in enabling the
transport sector to respond to the dual challenges of energy security and
climate change. We have embarked on a focused programme of biofuels
development based around the most efficient transformation of sustainable
and low-cost sugars into a range of fuel molecules. BP continues to invest
throughout the entire biofuels value chain, from sustainable feedstocks
that minimize pressure on food supplies through to the development of the
advantaged fuel molecule biobutanol, which has a higher energy content
than ethanol and delivers improved fuel economy. See Technology –
Alternative Energy on page 76 for further information.
BP has production facilities operating, or in the planning and
construction phases, in the US, Brazil and the UK.
The 2011 CNAA acquisition included mills located in Goiás and
Minas Gerais states that supply both Brazilian and international markets
with ethanol. We have also increased our share in the Brazilian biofuels
company, Tropical BioEnergia S.A., to 100%, by acquiring the remaining
50% for cash consideration of approximately $71 million. The acquisition
included an operating ethanol mill, located in Goiás state. BP now owns
and operates three producing ethanol mills in Brazil, with a total crush
capacitya of 7.2 million tonnes per annum. The blending and distribution
of biofuels continues to be carried out by our Refining and Marketing
segment, in line with regulation.
a Crush capacity represents a maximum capacity to process biofuels feedstock.
Wind
In wind power, BP has focused its business in the US, where we have
developed one of the leading wind portfolios.
During 2011, full commercial operations commenced at the Cedar
Creek 2 wind farm in Colorado with a gross capacity of 251MW (BP 50%)
and in Texas at the 150MW Sherbino 2 wind farm. Construction is nearly
complete at a further Texas wind farm, the 225MW Trinity Hills facility,
and construction has commenced at the 141MW Mehoopany wind farm in
Pennsylvania, and at the 470MW Flat Ridge wind farm in Kansas.
BP increased its net wind generation capacity to 1,048MW during
2011, an increase of 35% over the prior year.
2011 2010 2009
Wind – net rated capacity at
year-end (megawatts)a1,048 774 711
a Net wind capacity is the sum of the rated capacities of the assets/turbines that have entered into
commercial operation, including BP’s share of equity-accounted entities. The equivalent capacities
on a gross-JV basis (which includes 100% of the capacity of equity-accounted entities where BP
has partial ownership) were 1,763MW in 2011, 1,362MW in 2010 and 1,237MW in 2009. This
includes 32MW of capacity in the Netherlands which is managed by our Refining and Marketing
segment.
Solar
BP has been involved in solar for more than 35 years and in the last two
years the industry has changed radically into a low margin commodity
market. At the end of 2011, BP began winding down its remaining solar
operations as it prepares to exit the solar business. BP will take the
necessary steps to transfer its obligations and assets to its affiliates or to
third parties.
Emerging business and ventures
Our emerging business and ventures unit brings together BP’s venturing
and carbon markets expertise with extensive carbon capture and storage
capability. Through venturing we have 29 separate venturing investments
spanning three broad areas: bioenergy, electrification and carbon solutions.
We are able to deploy specialist carbon capture and storage capabilities on
our own operations and to monitor CO2 storage opportunities, such as the
In Salah gas field where we have injected almost 4 million tonnes of CO2
since 2004.
In September 2011, SCS Energy, an independent power producer
involved in clean power projects, acquired the Hydrogen Energy California
joint venture project from BP and Rio Tinto.
Separately, the 400MW Hydrogen Power Abu Dhabi project
with CCS is awaiting further decisions, including arrangements for CO2