BP 2013 Annual Report Download - page 41

Strategic report
BP Annual Report and Form 20-F 2013 37
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 including
centralized functions.
Financial performance
$ million
2013 2012 2011
Sales and other operating revenuesa1,805 1,985 2,957
Replacement cost profit (loss) before
interest and tax (2,319) (2,794) (2,468)
Net (favourable) unfavourable impact
of non-operating items 421 798 822
Underlying replacement cost profit
(loss) before interest and taxb(1,898) (1,996) (1,646)
Capital expenditure and acquisitions 1,050 1,435 1,853
a
Includes sales to other segments.
b
Underlying replacement cost profit (loss) is not a recognized GAAP measure. See footnote c on
page 23 for information on underlying replacement cost profit (loss).
The replacement cost loss before interest and tax for the year ended
31 December 2013 was $2.3 billion (2012 $2.8 billion, 2011 $2.5 billion).
The 2013 result included a net charge for non-operating items of
$421 million (2012 $798 million, 2011 $822 million).
After adjusting for non-operating items, the underlying replacement cost
loss before interest and tax for the year ended 31 December 2013 was
$1.9 billion (2012 $2.0 billion, 2011 $1.6 billion). This result reflected higher
income on cash balances and lower corporate costs. 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 costs.
Alternative Energy
BP is committed to alternative energy and our strategy is focused on
operating large scale businesses and commercializing our innovative
technologies. BP continues to invest in expanding the scale of our biofuels
business and in leveraging our unique capabilities and experience in
agri-business, bio-technology and bio-refining. We also have an operating
wind business. As at 31 December 2013, we have invested approximately
$8.3 billionc, exceeding our 2005 commitment of $8 billion over 10 years.
c The majority of costs were initially capitalized, although some were expensed under IFRS.
Biofuels
BP believes that it has a key role to play in enabling the transport sector to
respond to the dual challenges of energy security and climate change. We
have 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/bbl crude oil environment without subsidies.
We operate three sugar cane mills in Brazil producing bioethanol and sugar,
and exporting power to the grid. We continue to evaluate options to
increase production at these facilities and have already started work on
expanding ethanol production capacity at one mill and this work is
expected to be completed in 2014. Likewise, we are ramping up
production at our Vivergo joint venture plant, which is the largest
bioethanol facility in the UK and one of the largest in Europe. Once up to
full production capacity of 420 million litres per year, the Vivergo facility will
represent around 20% of the UK’s total 2012-13 requirements under the
Renewable Transport Fuels Obligation (RTFO).
BP continues to invest throughout the entire biofuels value chain, from
growing sustainable higher-yielding and lower-carbon feedstocks through
to the development, production and marketing of the advantaged fuel
molecule biobutanol, which has higher energy content than ethanol and
delivers improved fuel economy.
In conjunction with its partner DuPont, BP is undertaking leading-edge
research into the production of biobutanol under the company name
Butamax.
Across our biofuels business, BP’s share of ethanol-equivalent productiond
for 2013 was 521 million litres (552 million litres gross) compared with 404
million litres 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.
d Ethanol-equivalent production includes ethanol and sugar.
Wind
In wind power, our business is focused onshore in the US. In 2013 we
marketed our wind business for sale. Despite receiving a number of bids,
we determined it was not the right time to sell and instead are focusing on
optimizing performance at our 16 wholly owned and joint-venture wind
farms.
BP maintained its net wind generation capacity in the US at 1,558MWe
during 2013. BP’s net share of wind generation for 2013 was 4,203GWh
(7,363GWh gross), compared with 3,587GWh (5,739GWh gross) a year
ago.
e BP also has 32MW of wind capacity in the Netherlands, operated by our Downstream segment.
Emerging business and ventures
Our emerging business and ventures unit invests in technology
entrepreneurs working at the frontiers of their fields – across the entire
energy spectrum. Investments focus on emerging, strategic technologies,
oil and gas, downstream technologies including fuels and chemicals, and
biotech and bioenergy. The unit has made 37 separate investments, with
$210 million of committed capital.
Shipping
We transport our products across oceans, around coastlines and along
waterways using a combination of BP-operated, time-chartered and
spot-chartered vessels. All vessels conducting BP activities are subject to
our health, safety, security and environmental requirements. The primary
purpose of our shipping and chartering activities is the transportation of
our hydrocarbon products. In addition, we may use surplus capacity to
transport third-party products. In December 2013, BP announced it had
signed a contract with Hyundai Mipo Dockyard Co., Ltd to build 14 new
product tankers in Korea. The first of these will be delivered in 2016.
Tre as ur y
Treasury manages the financing of the group centrally, ensuring liquidity is
sufficient to meet group requirements, and manages key financial risks
including interest rate, foreign exchange, pension and financial institution
credit risk. From locations in the UK, the US and Singapore, Treasury
provides the interface between BP and the international financial markets
and supports the financing of BP’s projects around the world. Treasury
trades foreign exchange and interest rate products in the financial markets,
hedging group exposures and generating incremental value through
optimizing and managing cash flows and the short-term investment of
operational cash balances. Trading activities are underpinned by the
compliance, control and risk management infrastructure common to all
BP trading activities. For further information, see Financial statements –
Note 19.
Insurance
The group generally restricts its purchase of insurance to situations where
this is required for legal or contractual reasons. Losses are borne as they
arise, rather than being spread over time through insurance premiums with
attendant transaction costs. This approach is reviewed on a regular basis
and if specific circumstances require such a review.
Outlook
In 2014 Other businesses and corporate annual charges, excluding
non-operating items, are expected to be in the range of $1.6-$2.0 billion.