BP 2012 Annual Report Download - page 82

Business review: BP in more depth
BP Annual Report and Form 20-F 2012
80
TNK-BP
Since 2003, BP has owned 50% of TNK-BP, an integrated oil company.
The other 50% is owned by the consortium of Alfa Access Renova (AAR).
TNK-BP’s major assets are held by OAO TNK-BP Holding. Other assets of
TNK-BP include OAO Slavneft, an equity-accounted joint venture with
Gazpromneft in Russia, and TNK Overseas Ltd, which holds its major
non-Russian interests. TNK-BP employs about 50,000 staff. Globally,
TNK-BP is the tenth largest non-fully state-owned oil company as
measured by both SEC proved reserves and hydrocarbon production. It
has upstream interests in Russia, Brazil, Venezuela and Vietnam, which
produced approximately 2 million barrels of oil equivalent per day (gross
TNK-BP) in both 2012 and 2011. TNK-BP also has downstream interests in
five refineries in Russia and one in Ukraine, with total throughput of
approximately 656mb/d in 2012 compared with 711mb/d in 2011. It has
over 1,500 branded retail stations in Russia and Ukraine.
From 1 January 2012, BP’s investment in TNK-BP has been reported as a
separate operating segment, reflecting the way in which the investment
has been managed.
Following the announcement of the agreement described below, BP’s
investment in TNK-BP met the criteria to be classified as an asset held for
sale. Consequently, BP ceased accounting for its interest in TNK-BP using
the equity method from 22 October 2012. BP will continue to report its
share of TNK-BP’s production and reserves until the transaction
completes.
Definitive agreements with Rosneft
Having agreed heads of terms on 22 October 2012, BP announced on
22 November that it, Rosneft and Rosneftegaz – the Russian state-owned
parent company of Rosneft – had signed definitive and binding sale and
purchase agreements (SPAs) for the sale of BP’s 50% interest in TNK-BP
to Rosneft, and for BP’s further investment in Rosneft. The transaction
will consist of three tranches:
t BP will sell its 50% shareholding in TNK-BP to Rosneft for cash
consideration of $25.4 billion (which includes a dividend of $0.7 billion
received from TNK-BP in December 2012) and Rosneft shares
representing a 3.04% stake in Rosneft (TNK-BP SPA).
t BP will use $4.8 billion of the cash consideration to acquire a further
5.66% stake in Rosneft from the Russian government at a price of
$8 per share (representing a premium of 12% to the Rosneft share
closing price on the bid date of 18 October 2012).
t BP will use $8.3 billion of the cash consideration to acquire a further
9.8% stake in Rosneft from a Rosneft subsidiary at a price of
$8 per share.
The SPAs were signed after the Russian government approved BP’s
purchase of the 5.66% stake in Rosneft. On completion, the net result of
the overall transaction is that BP will receive $12.3 billion in cash (including
$0.7 billion of TNK-BP dividends received by BP in December 2012) and
will acquire an 18.5% shareholding in Rosneft. Combined with BP’s
existing 1.25% shareholding, this will result in BP owning 19.75% of
Rosneft. It is expected that the TNK-BP sale and the further investment in
Rosneft will complete on the same day. At this level of ownership, BP
expects to be able to account for its share of Rosneft’s earnings,
production and reserves on an equity basis. In due course BP expects to
have two seats on Rosneft’s nine-person main board.
Completion is subject to certain customary closing conditions, including
governmental, regulatory and anti-trust approvals, and is anticipated to
occur during the first half of 2013. Under the terms of the SPAs, BP has
agreed not to dispose of any of the Rosneft shares acquired in the
transaction for at least 360 days following completion. In addition, the
TNK-BP SPA contains remedial provisions that take effect if certain
events occur.
Financial and operating performance
$ million
2012 2011 2010
Profit before interest and taxa3,370 4,185 2,617
Inventory holding (gains) losses 3(51) –
Replacement cost profit before
interest and tax 3,373 4,134 2,617
Net charge (credit) for
non-operating itemsb(246) ––
Underlying replacement cost profit
before interest and taxc3,127 4,134 2,617
a
The TNK-BP segment includes equity-accounted earnings from associates, in which all amounts
shown relate to BP’s 50% share in TNK-BP, as follows:
Profit before interest and tax 4,405 5,992 3,866
Finance costs (84) (132) (128)
Taxation (979) (1,333) (913)
Minority interest (356) (342) (208)
Net income 2,986 4,185 2,617
Inventory holding (gains) losses, net of tax 3(51) –
Net income on a replacement cost basis 2,989 4,134 2,617
Net charge (credit) for non-operating items,b
net of tax 138 ––
Net income on an underlying replacement
cost basisc3,127 4,134 2,617
b Disclosure of non-operating items for TNK-BP began in 2012.
c
Underlying replacement cost profit is not a recognized GAAP measure. See footnote b on
page 34 for information on underlying replacement cost profit.
2012 2011 2010
Production (net of royalties)(BP share)d
Crude oil (thousand barrels
per day) 876 871 856
Natural gas (million cubic feet
per day) 784 710 640
Total hydrocarbonse (thousand
barrels of oil equivalent per day) 1,012 994 967
Estimated net proved reservesd
(net of royalties)(BP share)
Crude oil (million barrels)f4,540 4,305 3,750
Natural gas (billion cubic feet)g4,492 2,881 2,359
Total hydrocarbonsf g (million
barrels of oil equivalent) 5,315 4,802 4,157
Average oil marker prices $ per barrel
Urals (Northwest Europe – CIF) 110.19 109.08 78.26
Russian domestic oil 53.98 49.57 36.96
d BP continues to report its share of TNK-BP’s production and reserves until the transaction to sell
its 50% share to Rosneft closes.
e Expressed in thousands of barrels of oil equivalent per day (mboe/d). Natural gas is converted to
oil equivalent at 5.8 billion cubic feet = 1 million barrels.
f
Includes 328 million barrels (310 million barrels at 31 December 2011 and 254 million barrels
at 31 December 2010) in respect of the 7.35% minority interest in TNK-BP (7.37% at
31 December 2011 and 7.03% at 31 December 2010).
g Includes 270 billion cubic feet (174 billion cubic feet at 31 December 2011 and 137 billion cubic
feet at 31 December 2010) in respect of the 6.17% minority interest in TNK-BP (6.27% at
31 December 2011 and 5.89% at 31 December 2010).
Replacement cost profit before interest and taxh for the TNK-BP segment
was $3,373 million, compared with $4,134 million in 2011. These amounts
include BP’s equity-accounted share of TNK-BP’s earnings. In 2012,
equity-accounted earnings are included from 1 January to 21 October,
after which our investment was classified as an asset held for sale and
therefore equity accounting ceased.
h Under equity accounting, BP’s share of TNK-BP’s earnings after interest and tax has been
included in the BP group income statement within profit before interest and tax.