BP 2007 Annual Report Download - page 7

BP ANNUAL REVIEW 2007 5
Group chief executive’s review
Dear Shareholder It is a great privilege to give my first review as
group chief executive of BP. 2007 was a year of major transition,
both for the group and for the oil and gas industry as a whole.
High and volatile prices are challenging assumptions across the
industry. The dated Brent crude oil price set a nominal record of
$96.02 per barrel (bbl) at year-end, driven by continued demand
growth and OPEC production cuts. Given ample supply, spot
natural gas prices in the US and Europe declined, with the Henry
Hub First of Month Index averaging $6.86 per million British
thermal units in 2007, compared with $7.24 the previous year.
Refining margins reached a record quarterly high of $16.66/bbl
in the second quarter due to low refinery availability in the US,
but fell back to more seasonal levels in the second half.
Safety, people and performance When I took over as group
chief executive, the immediate task was to restore the integrity
and the efficiency of BP’s operations. I set out three priorities:
safety, people and performance. There has been progress in
all three areas but there is more to do.
Running safe and reliable operations is our greatest
responsibility. At the start of 2007, the panel, chaired by former
US Secretary of State James A Baker, III, reported on the
safety culture across our US refineries, following the tragic
accident at Texas City in 2005. We agreed to implement all
its recommendations and accepted the challenge to transform
BP into a world leader in process safety. All parts of the group
are actively working to implement the panel’s recommendations
relevant to their business.
A new operating management system, designed to bring
greater consistency to our operations, is being introduced. We
continue to implement cross-group programmes designed to
enhance operations leadership competence at all levels of BP.
We are redoubling our efforts to make sure we have the
right people in the right places. Whether it be in our refineries,
exploring in the ultra deepwater of the Gulf of Mexico, pioneering
enhanced oil recovery techniques in Alaska or commencing
operations at the largest wind facility in the US, we know it
is our people who make the difference.
When it comes to my third priority, our financial performance
is not good enough. Replacement cost profit in 2007 fell 22%
to $17,287 million. Dividends payable in respect of 2007
increased by 16% to 45.50 cents per share. In sterling
terms the increase was 7%.
Restoring revenues and reducing complexity The unsatisfactory
financial performance was primarily a result of two things: missing
revenues, principally from delayed projects and poor reliability in
some of our US refineries; and excessive complexity in the way
we manage the business, which has added to costs.
We are resolutely tackling both these issues. The fourth quarter
saw the build-up of operational momentum, with the start-up of
six new exploration and production projects, including Atlantis
and King Subsea Pump in the Gulf of Mexico, Greater Plutonio
in Angola, and Mango and Cashima in Trinidad & Tobago.
By the end of 2007, the Whiting refinery had recommenced
sour crude processing and available distillation capacity exceeded
300,000 barrels per day (b/d). At Texas City, we successfully
recommissioned the three desulphurization and upgrading units
necessary to allow restart of the remaining crude distillation
capacity. The final sour crude unit is mechanically complete and,
by mid-2008, we expect most of the economic capability to have
been restored. The Thunder Horse platform in the Gulf of Mexico
is on track to start production by the end of 2008.
With output now ramping up from these fields and refineries,
we anticipate that operational momentum will become financial
momentum in the second half of this year and into 2009.
BP’s forward agenda Last October, I outlined a forward agenda,
designed to make BP a simpler and more efficient organization,
with a focus to improve behaviours throughout the business by
embedding a high-performance culture.
The group’s long-term future is also being secured. We made
significant discoveries in Azerbaijan and Egypt and secured
access to major new sources of oil and gas in Oman and Libya
and an attractive joint venture to access Canadian oil sands.
In 2007, we again replaced more than 100% of our reported
reserves. In Russia, our joint venture TNK-BP continued to
perform strongly. Through our alternative energy business, we
are investing in the low-carbon energy sources of the future.
Step by step, we are rebuilding the group’s momentum
and strengthening our capability. I have great confidence in the
strength of our portfolio and our people; I would like to thank
them all for the way they have responded to the challenge. We
are all committed both to enhancing world energy security and
to meeting the challenge of climate change. Our task now is to
put BP back where it belongs – at the forefront of the industry.
Tony Hayward
Group Chief Executive
22 February 2008