BP 2012 Annual Report Download - page 84

Business review: BP in more depth
BP Annual Report and Form 20-F 2012
82
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.
The replacement cost loss before interest and tax for the year ended
31 December 2012 was $2,795 million, compared with $2,478 million for
the previous year. 2012 included a net charge for non-operating items of
$798 million. (See page 37 for further information on non-operating
items.)
After adjusting for non-operating items, the underlying replacement cost
loss before interest and tax for the year ended 31 December 2012 was
$1,997 million compared with $1,656 million in 2011. The 2012 result was
impacted by the loss of income from the sale of the aluminium business
in 2011, adverse foreign exchange effects and higher corporate and
functional costs.
The replacement cost loss before interest and tax for the year ended
31 December 2011 included a net charge for non-operating items of
$822 million.
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 primary additional factors reflected in 2011’s result compared with
that of 2010 were weaker business performance and higher corporate
costs, offset by more favourable foreign exchange effects and cost
efficiencies.
$ million
2012 2011 2010
Sales and other operating revenuesa 1,985 2,957 3,328
Replacement cost (loss) before
interest and tax (2,795) (2,478) (1,516)
Net (favourable) unfavourable
impact of non-operating items 798 822 200
Underlying replacement cost profit
(loss) before interest and taxb(1,997) (1,656) (1,316)
Capital expenditure and acquisitions 1,435 1,853 1,234
a Includes sales between businesses.
b Underlying replacement cost profit (loss) is not a recognized GAAP measure. See footnote b on
page 34 for information on underlying replacement cost profit.
Alternative Energy
Alternative Energy comprises BP’s lower-carbon businesses and future
growth options outside oil and gas. These are biofuels, wind and a range
of other longer-term technology investments.
Market commentary
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 1.6% per annum between 2010 and 2030.
Supported by government policies, renewables’ global share of power
generation is expected to be 11% by 2030. Through 2030, biofuels are
expected to account for 13% of transport energy demand growtha.
a BP Energy Outlook 2030.
2012 performance
Alternative Energy continues to deliver on its mission to invest in and
develop new, material sources of lower-carbon energy that are in
alignment with BP’s core capabilities.
In 2012 our wind business brought three new wind farms into operation,
bringing its total to 16 operating farms in nine US states. Across our wind
facilities, BP’s net share of wind generation for 2012 was 3,587GWh
(5,739GWh gross), compared with 2,394GWh (4,309GWh gross) a year
ago. Additional projects continue to be evaluated.
Globally, BP has continued to increase its biofuels production. In Hull, UK,
we have commissioned the joint venture Vivergo ethanol facility with a
production capacity of 420 million litres per year. In Brazil, BP is
progressing expansion of its ethanol production at its existing three sugar
cane ethanol mills. In conjunction with joint venture partner DuPont, BP
is undertaking leading edge research into the production of biobutanol
under the company name Butamax.
Across our biofuels business, BP’s net share of ethanol-equivalent
production for 2012 was 404 million litres compared with 314 million litres
(410 million litres gross)b a year ago. The majority of this production is from
BP’s sugar cane mills in Brazil.
In the US, BP has made the strategic decision to focus its biofuels business
on the research, development, and commercialization of cellulosic ethanol
technology at its facilities in San Diego, California, and Jennings, Louisiana.
Alternative Energy has now invested approximately $7.6 billionc, investing
at a faster pace than its 2005 commitment of $8 billion over 10 years.
b BP acquired the remaining 50% of Tropical Bioenergia on 22 November 2011.
c The majority of costs were initially capitalized, although 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 on the most efficient transformation of sustainable
and low-cost sugars into a range of fuel molecules. Our strategy is to
focus on the conversion of cost-advantaged feedstocks that are materially
scalable and that can be competitive in an $80 crude oil environment
without subsidies.
To this end, BP now operates three sugar cane mills in Brazil producing
bioethanol, sugar and exporting power to the grid. We continue to
evaluate options to increase production at these facilities. Likewise,
through the joint venture Vivergo, we are operating the largest bioethanol
facility in the UK, and one of the largest in Europe. At 420 million litres per
year, the Vivergo facility represents around a third of the UK’s 2012-13
requirements under the Renewable Transport Fuels Obligation (RTFO). In
addition, once Vivergo is at full production, it is set to become the largest
source of animal feed in the UK.
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 on pages 57-59 for further information.
Wind
In wind power, BP has focused its business onshore in the US. BP has an
interest in 16 wind farms located in nine US states: California (1), Colorado
(2), Hawaii (1), Idaho (1), Indiana (3), Kansas (2), Pennsylvania (1), South
Dakota (1) and Texas (4).
During 2012, together with our partners, we completed construction of
wind farms in Kansas, Pennsylvania and Hawaii. We have created nearly
4,300 construction jobs and more than 200 jobs operating wind farms
since creation of our wind business.
BP increased its net wind generation capacity in the US to 1,558MWd
during 2012, an increase of over 50% compared with the end of the
prior year.
d BP also has 32MW of wind capacity in the Netherlands, operated by Downstream.
Solar
The exit of our solar business as announced in December 2011 has been
substantially completed.
Emerging business and ventures
Our emerging business and ventures unit brings together BP’s venturing
and carbon markets expertise with our carbon capture and storage
capability. Through this unit, we have invested more than $175 million
across 33 separate investments spanning the following areas: bioenergy,
energy efficiency and storage, carbon management, renewable power
and, more recently, in emerging oil and gas technologies. These
investments provide BP with insight and access to cutting-edge
technologies that can help make the company more efficient, productive,
sustainable and profitable. See Technology on pages 57-59 for further
information.