BP 2012 Annual Report Download - page 74

Business review: BP in more depth
BP Annual Report and Form 20-F 2012
72
Downstream
2012 was a year of sustained safety and operational
improvements and significant strategic progress
in repositioning Downstream, with further progress
in our Whiting refinery modernization project
(WRMP) and agreement reached on major
divestments in the US.
What we do
Our Downstream segment is the product- and service-led arm of BP,
focused on fuels, lubricants and petrochemicals. We have significant
operations in Europe, North America and Asia, and we also manufacture
and market our products across Australasia, southern Africa and Central
and South America. The Downstream segment operates hydrocarbon
value chains covering three main businesses: fuels, lubricants and
petrochemicals.
Fuels – The fuels business is made up of regionally based integrated
fuels value chains (FVCs), which include refineries, a number of fuels
marketing businesses, a global aviation fuels marketing business, and
global oil supply and trading activities. These businesses sell refined
petroleum products including gasoline, diesel, aviation fuel and LPG.
Lubricants – Our lubricants business manufactures and markets
lubricants and related products and services. It is a global business
adding value through brand, technology and relationships.
Petrochemicals – Our petrochemicals business produces
petrochemicals products at manufacturing locations around the world
leveraging proprietary BP technology. These products are then used by
others to make vital consumer products such as paints, plastic bottles
and fibres for clothing.
Our strategy
In Downstream we are focused on a consistent set of priorities executed
in a systematic and disciplined way.
t These priorities start with safety and include excellent execution,
portfolio quality and integration and growing margin share through
exposure to growth.
t Our segment strategy is about winning sustainably in the markets in
which we choose to participate. This means seeking to outperform the
best competitor in a region and doing it safely.
t Our aim is to invest to strengthen our established positions while
maintaining overall capital employed. Over time we will seek to shift
participation and capital employed from established to growth markets.
t We strive to do this within a stable financial framework delivering
attractive returns and growth in earnings and cash flow.
Our market – 2012 summary
0
32
40
16
24
8
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Global refining marker margin ($/bbl)
2011
5-year range (2007-2011) 2012
t Globally, average refining margins improved as refinery closures and
operational issues reduced product supply.
t Global lubricants demand continued to be weak in 2012 as a result of
economic slowdown, despite growth in excess of 2% in the emerging
markets of Brazil, Russia, India and China.
t Petrochemicals margins for our products suffered steep declines driven
by capacity additions in Asia, coupled with lower growth in demand.
Our performance – 2012 summary
t The process safety metrics of loss of primary containment and process
safety incident index improved compared with 2010 and 2011
(see pages 73-74).
t In 2012 replacement cost profit before interest and tax for the segment
was $2.8 billion, compared with $5.5 billion in 2011. After adjusting for
non-operating items and fair value accounting effects, we delivered a
record underlying replacement cost profita before interest and tax of
$6.4 billion, compared with $6.0 billion in 2011, despite a significant
reduction in the supply and trading contribution (see page 74).
t We announced that we have agreed to sell our Carson refinery in
California and associated marketing and logistics to Tesoro Corporation
for an estimated $2.5 billion, and our Texas City refinery and associated
assets to Marathon Petroleum Corporation for up to $2.4 billion. The
sale of Texas City was completed on 1 February 2013. During the year
we recognized impairment losses totalling $2.6 billion related to these
assets held for sale.
t We have made significant progress on WRMP, which remains on track
to be commissioned in the second half of 2013 (see page 76).
t As part of our exit from the LPG bulk and bottled business we
announced sales of six of the nine country operations to be sold and
completed three of these sales during 2012.
t In 2012 the lubricants business once again delivered more than $1 billion
of profit on both a replacement cost and underlying replacement cost
basis. This is the fifth consecutive year in which the lubricants business
has delivered more than $1 billion of underlying replacement cost profit.
t In petrochemicals, we completed the first steps in implementing a new
licensing strategy. We signed licences with two third parties for use of
our proprietary technology in world-scale plants in India.
t We also made further progress on major petrochemicals projects in
India and China (see pages 78-79).
Downstream profitability ($ billion)
Underlying RC profit before interest and taxRC profit before interest and tax
2
008
2
009
2
0
1
0
2
0
11 2
0
12
7
6
5
4
3
2
1
Outlook
t In 2013 we expect refining margins to decline slightly from the relatively
high average levels seen in 2012 as further refining capacity comes
onstream and demand continues to be weak in many markets.
t We expect the financial impact of refinery turnarounds in 2013 to be
lower than in 2012.
t Demand for lubricants in 2013 is expected to be similar to 2012.
t We expect the petrochemicals market to remain difficult in 2013 as
further new Chinese PTA capacity enters the market.
t We expect our segment capital expenditure to be slightly lower in 2013
than in 2012 as we enter the final phase of WRMP.
a
Underlying replacement cost profit before interest and tax is not a recognized GAAP measure.
See footnote b on page 34 for further information. The equivalent measure on an IFRS basis is
replacement cost profit before interest and tax.