BP 2013 Annual Report Download - page 35

Strategic report
BP Annual Report and Form 20-F 2013 31
Downstream
2013 was a year of improved safety performance,
operational improvements and delivery of significant
milestones to enhance the quality of our portfolio.
Our business model and strategy
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 also manufacture
and market our products across Australasia, southern Africa and Central
and South America.
The segment comprises three businesses:
• Fuels – fuels value chains (FVCs) including refineries, fuels marketing
businesses and global oil supply and trading activities. We sell refined
petroleum products including gasoline, diesel, aviation fuel and LPG.
• Lubricants – manufactures and markets lubricants and related
products and services globally, adding value through brand,
technology and relationships, such as collaboration with original
equipment manufacturing partners.
• Petrochemicals – manufactures products at locations around the
world, using proprietary BP technology. These products are then
used by others to make vital consumer products such as paint,
plastic bottles and textiles.
We aim to operate all of our businesses as safe and reliable value
chains. We participate in multiple stages of each value chain as we
believe we can deliver greater returns from integration than from
owning a collection of discrete assets. These value chains, combined
with our advantaged manufacturing operations, supply and trading
capability and expertise in technology, allow us to pursue long-term
competitive returns and sustainable growth, serving customers and
promoting BP and our brands through high quality products.
We research, develop and deploy a wide range of technologies,
processes and techniques, aiming to enhance safety and risk
management, increase efficiency and reliability, improve our margins
and create new market opportunities.
• Competitive returns.
• Material and growing cash flows for the group through exposure to
growth opportunities and markets.
This strategy is about winning sustainably in the markets where we
choose to participate. We seek to outperform the best competitor in a
region and do it safely; investing to strengthen our established positions
while maintaining overall capital employed, and still seeking to shift the
mix of participation and capital employed from established to growing
markets. We do this while operating within a stable financial framework
to deliver attractive returns and growth in earnings and cash flow.
The delivery of these activities is optimized and integrated with support
from global functions with specialist areas of expertise: technology,
finance, procurement and supply chain, human resources, global
business services and information technology.
Our performance – 2013 summary
• Our personal and process safety performance improved compared
with 2012 and 2011 (see Safety on page 41).
• We completed the commissioning of all major units for the Whiting
refinery modernization project, transforming it into one of our key
advantaged downstream assets and supporting our ability to deliver
increased cash flow in 2014 and beyond.
• We also completed the sales of our Texas City and Carson refineries.
• Lubricants achieved steady replacement cost (RC) profit before
interest and tax through our exposure to growth markets, technology
investments and targeted marketing programmes.
• In petrochemicals, we announced two new proprietary technologies
which we expect to lower manufacturing costs and increase
efficiency for the production of key products.
4.9
6.0
2.9 2.9
Downstream profitability ($ billion)
Underlying RC profit before interest and taxa
RC profit before interest and tax
2009 2010 2011 2012 2013
7
6
5
4
3
2
1
6.5
3.6
0.7
3.6
5.6 5.5
See Financial performance on page 32 for an explanation of the main
factors influencing Downstream profit in 2013 compared with 2012.
Outlook
• In 2014 we anticipate refining margins will remain under pressure
due to high gasoline stocks and new competitor capacity additions,
as well as weak demand in many markets.
• We expect the financial impact of refinery turnarounds in 2014 to be
lower than in 2013.
• Whiting continues to progressively increase heavy crude processing,
and we expect to reach heavy crude processing levels of 280,000
barrels per day during the second quarter 2014.
• We anticipate demand for lubricants in 2014 will be similar to 2013.
• We expect a similarly challenging environment for petrochemicals in
2014, characterized by excess supply.
• Capital expenditure is forecast to be slightly lower in 2014 than in
2013, post commissioning of all major units of the Whiting refinery
modernization project.
Cherry Point refinery processes around 230,000 barrels of crude oil per day,
primarily for transportation fuels.
a Underlying RC profit before interest and tax is not a recognized GAAP measure. See footnote c
on page 23 for further information. The equivalent measure on an IFRS basis is RC profit before
interest and tax.
Our strategy focuses on four priorities executed in a systematic and
disciplined way:
• Safety performance.
• High-quality downstream portfolio.