BP 2013 Annual Report Download - page 39

Strategic report
In March 2013 BP completed sale and purchase
agreements with Rosneft and Rosneftegaz.
Central processing and pumping facility at the Yuganskneftegaz field,
onshore Russia.
BP and Rosneft
• BP sold its investment in TNK-BP in exchange for $11.8 billion in cash
and an 18.5% stake in Rosneft. Together with its existing 1.25%
shareholding, BP now holds a 19.75% stake in the company.
• BP’s shareholding in Rosneft allows us to benefit from a diversified set
of existing and potential projects in the Russian oil and gas sector. BP
considers Rosneft share price appreciation and dividend growth as
primary sources of value for its shareholders.
• Rosneft’s strategy is to pursue sustainable growth of crude oil
production, develop its gas business and complete its refinery
modernization programme.
• BP is positioned to contribute to Rosneft’s strategy through the sharing
of technology, people, processes and best practice. We also have the
potential to undertake standalone projects with Rosneft, both in Russia
and internationally.
• Bob Dudley was elected to the Rosneft board of directors in June
2013, and became a member of the Rosneft board’s strategic planning
committee.
Rosneft – 2013 summary
• Rosneft announced in June 2013 that it had completed the process of
integrating TNK-BP and subsequently the Rosneft board approved a
modified business plan for 2013 incorporating the acquisition of
TNK- BP.
• Rosneft concluded long-term crude oil supply agreements with China
National Petroleum Corporation (CNPC) and Sinopec, signalling China
as an additional market for Russian crude.
• Rosneft completed the acquisition of the remaining 49% in the Itera
joint venture, 51% of Sibneftegaz and agreed to buy gas assets from
ALROSA.
• Rosneft made a voluntary offer in October 2013 to buy out the
non-controlling shareholders of RN Holding (formerly TNK-BP Holding).
By the closing date of the offer in January 2014, Rosneft had received
acceptances of its offer from over 98% of such shareholders.
Rosneft
BP Annual Report and Form 20-F 2013 35
Our lubricants business continued to increase the proportion of total sales
resulting from premium product sales; in 2013 the percentage of premium
sales was 40% compared with 39% in 2012 and 37% in 2011.
In January 2014, BP announced that it had agreed to sell its specialist
global aviation turbine oils business. The transaction, which is subject to
regulatory and other approvals, is expected to be completed in the second
quarter of 2014.
Our petrochemicals business
Our strategy is to own and develop petrochemical value chain businesses
which are built around proprietary technology. We apply this technology to
existing businesses and to access new growth markets where we wish to
build material shares. Overall, the business targets attractive absolute
returns and material, increasing cash flows by satisfying demand growth,
particularly in Asia.
We manufacture and market four main product lines:
• Purified terephthalic acid (PTA).
• Paraxylene.
• Acetic acid.
• Olefins and derivatives.
We also produce a number of other speciality petrochemicals products.
Our portfolio is underpinned with proprietary technology and leading cost
positions allowing BP assets to remain competitive against the newest
world-scale units being built in China. These capacity additions and
technology advances have resulted in a sharp fall in margins leading to
losses for the older, less efficient producers. New capacity additions are
targeted principally in the higher-growth Asian markets.
We both own and operate assets, and have also invested in a number of
joint arrangements in Asia, where our partners are leading companies
within their domestic market. For example, the construction of our new,
third PTA plant with our partner, Zhuhai Port Co. in Guangdong, China is
progressing well and is planned to begin production in late 2014. The
retro-fit of key elements of our PTA technology to existing plants is under
way. We expect these investments to have a material impact on efficiency
and reduce annual operating costs.
Our technology team develops, deploys and optimizes chemicals technology
to advance the competitiveness of the installed asset base and deliver
competitively advantaged projects to access growth. We plan to continue
deploying our technology in new asset platforms to access Asian demand
and advantaged feedstock sources.
In 2013 we announced two new proprietary petrochemicals technologies,
SaaBre and Hummingbird. SaaBre significantly reduces the cost of
production of acetic acid from syngas and avoids the need to purify carbon
monoxide or purchase methanol. SaaBre technology could also be used to
produce methanol and ethanol. Hummingbird simplifies the process of
converting ethanol to ethylene, a key component for the manufacture of
plastics. Hummingbird could open the way for the production of
biopolymers from bioethanol. Both technologies are expected to deliver
significant reductions in variable manufacturing costs and simplify the
manufacturing process.
In December 2013, we agreed to purchase all interests held by our
partners, Mitsui Chemicals, Inc. (MCI) and Mitsui & Co. Ltd. (MBK) in PT
Amoco Mitsui PTA Indonesia (AMI) which produces and markets PTA in
the Republic of Indonesia. This transaction completed on 28 February 2014
and is consistent with our strategy of growing our PTA business in our
chosen markets.
In September 2013, we signed a non-binding memorandum of
understanding with Oman Oil Corporation to assess jointly a facility in
Oman for the manufacture of acetic acid, deploying our SaaBre technology.
The economic environment for some of our products is likely to remain
under pressure in 2014. The impact of capacity additions in Asia continues
to depress margins for PTA. The environments for our acetic acid and
olefins and derivative value chains are expected to improve in the latter
part of 2014 as the high growth markets absorb excess capacity.