BP 2013 Annual Report Download - page 153

7. Segmental analysis
The group’s organizational structure reflects the various activities in which BP is engaged. At 31 December 2013, BP had three reportable segments:
Upstream, Downstream and Rosneft.
Upstream’s activities include oil and natural gas exploration, field development and production; midstream transportation, storage and processing; and
the marketing and trading of natural gas, including liquefied natural gas (LNG), together with power and natural gas liquids (NGLs).
Downstream’s activities include the refining, manufacturing, marketing, transportation, and supply and trading of crude oil, petroleum, petrochemicals
products and related services to wholesale and retail customers.
During 2013, BP completed transactions for the sale of BP’s interest in TNK-BP to Rosneft, and for BP’s further investment in Rosneft. BP’s interest in
Rosneft is accounted for using the equity method and is reported as a separate operating segment, reflecting the way in which the investment is
managed.
Other businesses and corporate comprises the Alternative Energy business, the group’s shipping and treasury functions, and corporate activities
worldwide. The Alternative Energy business is an operating segment which is reported within Other businesses and corporate as it does not meet the
materiality thresholds for separate segment reporting.
The Gulf Coast Restoration Organization (GCRO), which manages all aspects of our response to the 2010 Gulf of Mexico incident, reports directly to
the group chief executive and is overseen by a board committee, however it is not an operating segment.
The accounting policies of the operating segments are the same as the group’s accounting policies described in Note 1. However, IFRS requires that
the measure of profit or loss disclosed for each operating segment is the measure that is provided regularly to the chief operating decision maker for
the purposes of performance assessment and resource allocation. For BP, this measure of profit or loss is replacement cost profit or loss before
interest and tax which reflects the replacement cost of supplies by excluding from profit or loss inventory holding gains and lossesa. Replacement cost
profit or loss for the group is not a recognized measure under IFRS.
Sales between segments are made at prices that approximate market prices, taking into account the volumes involved. Segment revenues and
segment results include transactions between business segments. These transactions and any unrealized profits and losses are eliminated on
consolidation, unless unrealized losses provide evidence of an impairment of the asset transferred. Sales to external customers by region are based on
the location of the seller. The UK region includes the UK-based international activities of Downstream.
All surpluses and deficits recognized on the group balance sheet in respect of pension and other post-retirement benefit plans are allocated to Other
businesses and corporate. However, the periodic expense relating to these plans is allocated to the other operating segments based upon the
business in which the employees work.
Certain financial information is provided separately for the US as this is an individually material country for BP, and for the UK as this is BP’s countryof
domicile.
aInventory holding gains and losses represent the difference between the cost of sales calculated using the average cost to BP of supplies acquired during the period and the cost of sales calculated on
the first-in first-out (FIFO) method after adjusting for any changes in provisions where the net realizable value of the inventory is lower than its cost. Under the FIFO method, which we use for IFRS
reporting, the cost of inventory charged to the income statement is based on its historic cost of purchase, or manufacture, rather than its replacement cost. In volatile energy markets, this can have a
significant distorting effect on reported income. The amounts disclosed represent the difference between the charge (to the income statement) for inventory on a FIFO basis (after adjusting for any
related movements in net realizable value provisions) and the charge that would have arisen if an average cost of supplies was used for the period. For this purpose, the average cost of supplies during
the period is principally calculated on a monthly basis by dividing the total cost of inventory acquired in the period by the number of barrels acquired. The amounts disclosed are not separately reflected
in the financial statements as a gain or loss. No adjustment is made in respect of the cost of inventories held as part of a trading position and certain other temporary inventory positions.
Financial statements
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