UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended 31 December 2018
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 1-6262
BP p.l.c.
(Exact name of Registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organization)
1 St James’s Square, London SW1Y 4PD
United Kingdom
(Address of principal executive offices)
Dr Brian Gilvary
BP p.l.c.
1 St James’s Square, London SW1Y 4PD
United Kingdom
Tel +44 (0) 20 7496 5311
Fax +44 (0) 20 7496 4573
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act
Title of each class | Name of each exchange on which registered | |
Ordinary Shares of 25c each | New York Stock Exchange* | |
Floating Rate Guaranteed Notes due 2019 | New York Stock Exchange | |
Floating Rate Guaranteed Notes due 2021 | New York Stock Exchange | |
Floating Rate Guaranteed Notes due 2022 | New York Stock Exchange | |
2.237% Guaranteed Notes due 2019 | New York Stock Exchange | |
1.676% Guaranteed Notes due 2019 | New York Stock Exchange | |
1.768% Guaranteed Notes due 2019 | New York Stock Exchange | |
2.315% Guaranteed Notes due 2020 | New York Stock Exchange | |
2.521% Guaranteed Notes due 2020 | New York Stock Exchange | |
4.500% Guaranteed Notes due 2020 | New York Stock Exchange | |
4.742% Guaranteed Notes due 2021 | New York Stock Exchange | |
3.561% Guaranteed Notes due 2021 | New York Stock Exchange | |
2.112% Guaranteed Notes due 2021 | New York Stock Exchange | |
2.500% Guaranteed Notes due 2022 | New York Stock Exchange | |
2.520% Guaranteed Notes due 2022 | New York Stock Exchange | |
3.245% Guaranteed Notes due 2022 | New York Stock Exchange | |
3.062% Guaranteed Notes due 2022 | New York Stock Exchange | |
2.750% Guaranteed Notes due 2023 | New York Stock Exchange | |
3.216% Guaranteed Notes due 2023 | New York Stock Exchange | |
3.994% Guaranteed Notes due 2023 | New York Stock Exchange | |
3.535% Guaranteed Notes due 2024 | New York Stock Exchange | |
3.814% Guaranteed Notes due 2024 | New York Stock Exchange | |
3.224% Guaranteed Notes due 2024 | New York Stock Exchange | |
3.790% Guaranteed Notes due 2024 | New York Stock Exchange | |
3.506% Guaranteed Notes due 2025 | New York Stock Exchange | |
3.796% Guaranteed Notes due 2025 | New York Stock Exchange | |
3.119% Guaranteed Notes due 2026 | New York Stock Exchange | |
3.410% Guaranteed Notes due 2026 | New York Stock Exchange | |
3.017% Guaranteed Notes due 2027 | New York Stock Exchange | |
3.279% Guaranteed Notes due 2027 | New York Stock Exchange | |
3.588% Guaranteed Notes due 2027 | New York Stock Exchange | |
3.723% Guaranteed Notes due 2028 | New York Stock Exchange | |
3.937% Guaranteed Notes due 2028 | New York Stock Exchange | |
4.234% Guaranteed Notes due 2028 | New York Stock Exchange | |
* | Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Ordinary Shares of 25c each | 21,525,464,027 | |
Cumulative First Preference Shares of £1 each | 7,232,838 | |
Cumulative Second Preference Shares of £1 each | 5,473,414 | |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Emerging growth company ¨
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ¨ | International Financial Reporting Standards as issued by the International Accounting Standards Board x | Other ¨ | ||
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
BP Annual Report and Form 20-F 2018 Growing the business and advancing the energy transition BP Annual Report and Form 20-F 2018
Advancing energy to improve people’s lives Contents Strategic report Financial statements Helge Lund succeeded Overview Carl-Henric Svanberg 113 Consolidated financial statements 2 BP at a glance as chairman. Helge of the BP group 4 How we run our business joined the board in July 134 Notes on financial statements and took the chair on 6 Chairman’s letter 210 Supplementary information on 1 January 2019. oil and natural gas (unaudited) 8 Group chief executive’s letter See page 6. 9 The changing energy mix Strategy 10 Our strategy Additional disclosures Corporate governance 12 BP investor proposition 273 Contents 14 Major project start-ups 58 Board of directors Including information on liquidity 63 Executive team and capital resources, oil and gas Performance 68 Introduction from the chairman disclosures, upstream regional 16 Measuring our progress analysis and legal proceedings. 70 Board activity in 2018 18 Global energy markets 74 Shareholder engagement 19 Group performance 74 International advisory board Shareholder information 22 Upstream 75 Audit committee 305 Contents 28 Downstream 81 Safety, ethics and environment Including information on dividends, 34 Rosneft assurance committee our annual general meeting 37 Other businesses and corporate 83 Remuneration committee and share prices. 38 Alternative energy 84 Geopolitical committee 315 Glossary 40 Innovation in BP 85 Chairman’s committee 320 Non-GAAP measures reconciliations 43 Sustainability 86 Nomination and governance committee 323 Signatures 43 Safety and security 87 Directors’ remuneration report 45 Climate change 324 Cross-reference to Form 20-F 48 Managing our impacts 325 Information about this report 49 Value to society 49 Human rights 50 Ethical conduct 51 Our people 53 How we manage risk Glossary 55 Risk factors Words and terms with this symbol are defined in the glossary on page 315. Cautionary statement This document should be read in conjunction with the cautionary statement on page 303.
What we do Our people We provide customers with fuel for and our values transport, energy for heat and light, power for industry, lubricants to keep The BP values express who we are engines moving and the petrochemicals and what we stand for. They capture the products used to make everyday items individual and collective behaviours we such as paints, clothes and packaging. expect from everyone who works for us. Our people help build enduring Find out more about our activities on page 4. relationships based on mutual trust with governments, customers, partners, suppliers and communities. Read more about our people on page 51 Informing our thinking or visit bp.com/values. Global prosperity is shaping economic and energy trends. Safety By 2040: Respect GDP doubling Excellence >2.5 billion people lifted from low incomes Courage See how we consider a range of One team scenarios on page 9. Our performance in 2018 See how our businesses have performed and how we are reducing our emissions, Our strategy improving our products and creating low Our four strategic priorities are designed carbon businesses. to allow us to be competitive at a time Find out more on pages 16 to 56. when prices, policy, technology and customer preferences are evolving rapidly. Find out more on page 10. BP Annual Report and Form 20-F 2018 1
BP at a glance We are a global energy business Scale with wide reach across the 73,000 78 19,945 world’s energy system. We have employees countries million barrels of oil operations in Europe, North and equivalent – proved South America, Australasia, Asia hydrocarbon reservesa and Africa. 18,700 63,000 Data as at or for the year ended 31 December 2018 retail sites square kilometres of unless otherwise stated. new exploration a On a combined basis of access subsidiaries and equity- accounted entities. Completed a significant Acquired Chargemaster, Purchased a 16.5% interest BP in action turnaround at our largest operator of the UK’s in the UK’s Clair field from Highlights of some of refinery, Whiting in largest electric vehicle ConocoPhillips – increasing our activities in 2018. the US. charging network. our share to 45.1%. Opened more than 220 REWE to Go® convenience retail sites in Germany. Signed a production-sharing Acquired a portfolio of agreement with SOCAR to unconventional assets from BHP explore and develop in the in some of the best basins across North Absheron basin in Texas and Louisiana. Azerbaijan’s Caspian Sea. Signed an agreement with the governments of Opened our 440th Mauritania and Senegal BP-branded retail site to enable development of in Mexico. the BP-operated Greater Tortue Ahmeyim gas Formed a strategic alliance project. with Petrobras to explore joint projects in upstream, downstream, trading and low carbon. And accessed new acreage in the Santos basin, Gained approval for the offshore Brazil, making us the Ghazeer project to develop second-largest exploration the second phase of the holder in the basin. Khazzan field in Oman. 2 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – overview Performance Six major projects $9.4bn 3.7 16 started up in 2018 profit attributable million barrels of oil tier 1 process to BP shareholders equivalent per day – safety events hydrocarbon productiona (2017 $3.4 billion) KPI (2017 3.6mmboe/d) KPI (2017 18) KPI $12.7bn 100% underlying replacement group proved reserves cost profit replacement ratio a a On a combined basis of KPI See key performance subsidiaries and equity- indicators on page 16. (2017 $6.2 billion) KPI (2017 143%) KPI accounted entities. See pages 14 and 15. Completed a deal to Invested in PowerShare – a Chinese More on our develop resources in company that’s connecting EV renewables activity the Kharampurskoe and drivers, charge point operators Festivalnoye licence and power suppliers. And signed areas in Russia, jointly a memorandum of understanding with Rosneft. with NIO Capital to explore opportunities in advanced mobility. Investments in electric vehicle technology on page 42. Low carbon ambitions on pages 46-48. Took delivery of British Partner – the first of six state-of-the-art liquefied natural gas ships being constructed in South Korea. Fuelled the first non-stop flight from Perth to London with Air BP jet fuel produced at our nearby Kwinana refinery. Lightsource BP delivered its first Indian solar project. And BP sanctioned the second phase of the KG D6 development in the ‘Satellite cluster’ deepwater gas fields in India with Reliance. BP Annual Report and Form 20-F 2018 See Glossary 3
How we run our business Business model foundations Safe and reliable operations Talented people From the deep sea to the desert, We strive to create and maintain a safe We work to attract, motivate, develop and from rigs to retail, we deliver operating culture where safety is front and retain the best talent the world offers and energy products and services centre. This is not only safer for people equip our people with the right skills for and the environment – it also improves the the future. Our performance and ability to people around the world. reliability of our assets. to thrive globally depend on it. We provide customers with fuel for See Safety and security on page 43. See Our people on page 51. transport, energy for heat and light, power for industry, lubricants to keep engines moving and the petrochemicals products used to make everyday items such as paints, clothes and packaging. 1 Finding oil and gas We have a diverse portfolio across businesses, resource types and geographies. Having upstream, downstream and renewables businesses, along with well-established trading capabilities, helps to mitigate the impact of commodity pricing cycles. Our geographic reach gives us access to growing markets and new resources, as well as diversifying exposure to geopolitical events. We are helping to meet the dual challenge of society’s need for more energy while reducing emissions through our ‘reduce, improve, create’ framework (see page 46). We believe that our long history, well-recognized brands and customer offers, combined with our unique partnership with Rosneft, help differentiate us from our peers. 2 Developing and extracting oil and gas Creating value Our role in society The energy we produce helps support 1 Finding oil and gas We also seek to grow or extend the life of existing fields – such as our Clair Ridge project, economic growth and improve quality New access allows us to renew our portfolio, which is helping unlock additional resources of life for millions of people. We strive to discover additional resources and replenish from the Clair field in the UK North Sea. be a world-class operator, a responsible our development options. We focus our corporate citizen and a great employer. exploration activities in the areas that are See Upstream on page 22. We believe the societies and competitive in the portfolio, and develop and 3 Transporting and trading communities we work in should benefit use technology to reduce costs and risks. We move oil and gas through pipelines and by from our presence. We aim to create 2 Developing and extracting ship, truck and rail. We also trade a variety of positive, meaningful and sustainable oil and gas impacts in those communities through products including oil, natural gas, liquefied our social investments. We develop the resources that meet our natural gas, power and carbon products, as return threshold and produce hydrocarbons well as derivatives and currencies. BP’s traders We contribute to economies around that we then sell to the market or distribute serve more than 12,000 customers across the world by employing local people, to our downstream facilities. Our upstream some 140 countries in a year. Our customers helping to develop national and local pipeline of future projects gives us choice range from independent power producers to suppliers, and through the funds we about which we pursue. utilities and municipalities. We are the largest pay to governments from taxes and trader of natural gas in North America. other agreements. We use our market intelligence to analyse See bp.com/society for more information supply and demand for commodities across on how we generate value to society. our global network. 4 BP Annual Report and Form 20-F 2018
Strategic report – overview 5 isk management systems and policy Venturing See bp.com/venturing. See Alternative energy on page 38 and Climate change on page 45. See How we manage risk on page 53 See How we manage risk on page 57. and Corporate governance Governance and oversight 6 And in solar energy we target the growing large-scaledemand for projects solar BP. Lightsource worldwide through Our r provide a consistent and clear framework The board reporting risks. and managing for regularly reviews how we identify, evaluate risks. manage and We invest in high-tech companies help to new commercialize and accelerate business and products technologies, models. Our focus is on five areas that are core our to strategy for advancing the advancedenergy transition: mobility, carbon carbon products, low and bio management, digital and transformation storage. and power BP Annual Report and Form 20-F 2018 Generating renewable energy Generating renewable 5 o build enduring relationships Generating renewable energy renewable Generating See Downstream on page 28. See Rosneft on page 34 and Upstream analysis See Rosneft on page 34 and by region on page 279. Partnerships collaboration and 5 to thirdto parties. In petrochemicals our proprietary technology solutions deliver leading cost positions to addition In competitors. our to compared our own petrochemicals plants, we work with partners technology our license and We aim t partners, customers, with governments, suppliers countriesthe communities and in operate. we where using one of the world’s most sustainable and renewable produce to feedstocks advantaged ethanol and We also power. provide renewable power through our significant interests in onshore wind energy in the US, and develop and deploy technology drive to efficiency. We have been investing in renewables for many years. Our focus is on biofuels, solar energy wind energy. and biopower, We operate a biofuels business in Brazil, Manufacturing and marketing 4 Venturing 6 echnologies help us produce energy Manufacturing and marketing fuels fuels marketing and Manufacturing and products products and See Innovation in BP on page 40. See Innovation in BP on page Transporting and trading and Transporting Technology and innovation 3 4 safely and more efficiently. We selectively invest in areas with the potential add to greatest value our to business, now and in the future, carbon businesses. lower building including New t We produce refined petroleum products at our refineries and supply distinctive fuels and convenience retail services to consumers. Our advantaged infrastructure, logistics network and partnerships key help us have to differentiated fuels businesses offers, compelling deliver customer and carbon products. lower including premium has business lubricants Our brands and access growth to markets. It also leverages technology and customer relationships, all of which we believe gives us competitive advantage. We serve energy industrial, and marine automotive, world. the across markets lubricant
Chairman’s letter I am of the view that more energy with fewer emissions – the dual challenge – can be met if a progressive and pragmatic approach is taken to the energy transition. Dear fellow shareholder, 2018 has been a year of very good operating performance, important strategic progress and continued change. Our teams have delivered strong results across the business and we are well positioned to continue to deliver value as we play our part in the dual challenge of delivering more energy with fewer emissions. It was an honour to be appointed chairman of BP. I have huge respect for the responsibilities that come with the role and I will do my utmost to provide thoughtful leadership to the board of directors and support for Bob Dudley and his team as we advance BP in a changing energy landscape. BP’s strong position is a great tribute to my predecessor as chairman, Carl-Henric Svanberg. During his nine-year tenure Carl-Henric did an outstanding job of guiding our company through difficult times. On behalf of the board, I want to thank him for his contribution. It has been a pleasure to get to know my new colleagues on the board, and I believe we have a wide ranging combination of diversity, skills, experience and knowledge that we need to steer the company through a landscape that is both uncertain and presents possibilities. Last year we welcomed Dame Alison Carnwath and Pamela Daley to the board, each with extensive experience gained in a range of executive and non-executive roles in large companies. And this year we say farewell to Alan Boeckmann and Admiral Frank ‘Skip’ Bowman. Alan and Skip have $8.1bn both made valuable contributions during their tenures, particularly total dividends distributed through their leadership and membership of our safety, ethics and to BP shareholders environment assurance committee. Strengthening organizational culture and capability 6.3% The work of the board will continue to evolve over time to make sure that BP is best positioned to advance the energy transition, embrace ordinary shareholders digital disruption and meet society’s changing expectations of major annual dividend yield companies. In my short time so far at BP I have already seen for myself many examples of the commitment of our people. Their drive and determination have brought BP to where it is today, and I want to thank 6.4% them for their hard work. It is critically important we continue to strengthen our organizational capabilities – both by developing our ADS shareholders people and by continuing to attract the world’s top talent. We look annual dividend yield forward to doing this by continuing to foster a diverse and inclusive culture, where everyone feels valued. 6 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – overview 7 More information Corporate governance Page 57 29 March 2019 BP Annual Report and Form 20-F 2018 Our clear purpose Finally, I think it is important for BP’s success that we have a clear purpose – one that is strongly linked society’s to needs. That is why one of the first things I have done with the board reviewis our purpose in line with our strategy and values. Our purpose is advance to energy Lund Helge Chairman to improveto people’s lives. the world Today needs more energy than ever butwith emissions. fewer help meet this To dual challenge we have be to financially strong and sure we make continueto be an energy transition. the through attractive investment I look forward working to with Bob and the team as we advance the values our guided by strategy, our through energy delivering transition, and inspired by our purpose. I alsolook forward hearing to from you, and meeting many of you, in the coming months and years as we look to confidence and trust your BP. in reward This the board year, is pleased support to a resolution that has been proposed by a group of investors at our annual general meeting in May. The resolution, if passed, will pave the way for additional reporting to help investors better understand how BP’s strategy is consistent with the Paris climate goals. We see this as an important opportunity for investors appraise to our progress in responding the to dual challenge. Further details can be found in the Notice of Meeting, be to published in April. in to playto our part in reducing greenhouse gas emissions. I am of the view that more energy with emissions fewer – the dual challenge – can be met if a progressive and pragmatic approach is taken the to energy transition. In BP we recognize that energy in many forms willbe required, produced in ways that are cleaner and better. That is why we see ourselves not just as an oil and gas business but as a global energy business. We also recognize that we must be constantly improving and seeking out new ideas and possibilities. We must be able learn to fast and harness all the potential of the rapid advances in digital and other new technologies. share. I believe they help build to trust with our people, partners, company. the Above all, our primary focus has always to be on operating safely and reliably, minute by minute, day after Protecting day. people, the environment and our assets is always our top priority and the bedrock on which success is built. I think of it as having the tightest defence in the league, a good like football team. If you have a strong defence, you can be more forward looking, compete harder and be better positioned to win. We value the dialogue we have with you and others, sharing our achievements, our challenges and our plans and seeking your views. This report is one of many ways we update you on our activities progress. and Earning trust through strong values Pursuing this approach, BP is guided by its values of safety, respect, excellence, courage and one team. These are values I personally more energy meet to growing global demand as emerging economies develop and provide people with a better quality of life. The other is the communities in which we work, and with you, the owners of There are two defining prioritiesfor our industry. One to is produce Our progressive,Our pragmatic approach the to energy transition
Group chief executive’s letter Our strategy is delivering value for you, our shareholders, while being flexible and agile for the energy transition underway. Advancing the energy transition The deals we made and the strategy we have in place are evidence that BP is a forward-looking energy business. One that is already playing an active role in advancing the energy transition. That’s why we are making bold changes across our entire business to reduce emissions in our operations, improve products to help customers reduce their own emissions, and to create new low carbon businesses. This is our ‘reduce, improve, create’ (RIC) framework which we are backing up with clear targets. I am pleased to report we are making good progress against these targets. BP is also working with peers on a range of fronts, in particular to tackle methane emissions and create opportunities for carbon capture, utilization and storage. You’ll see this in our work with the Oil and Gas Dear fellow shareholder, Climate Initiative, which I chair, and whose members now represent 30% of global oil and gas production. I am pleased to report that 2018 was another remarkable year for BP. Our safety performance continued to improve overall, helping to create As well as action across the industry, at BP we understand that meeting record operational reliability, which led to strong production, and record our own low carbon ambitions is a shared responsibility across our refining throughput. entire business. That’s why we are now incentivizing around 36,000 employees who are eligible for an annual cash bonus to play a role by Strength in numbers linking their reward to one of our emissions reduction targets. This ultimately contributed to us maintaining a healthy balance sheet Possibilities everywhere as we more than doubled our underlying profit, nearly doubled our return on average capital employed, and significantly increased We will continue to be open and transparent about our ambitions, plans operating cash flow. and progress, recognizing that the trust of our shareholders and other stakeholders is essential to BP remaining a reliable and attractive It was a year in which we secured our biggest deal in 20 years, acquiring long-term investment. And only by ensuring we remain a world-class BHP’s world-class unconventional oil and gas onshore US assets. We investment, can we most effectively play our part in advancing a low also made progressive moves in mobility, such as the acquisition carbon future. of the UK’s leading electric vehicle charging network to create BP Chargemaster. As a global energy business with scale, expertise and strong relationships around the world, we don’t just believe we have an BP is in good shape. Our strategy is delivering value for you, important part to play in the dual challenge, we see value-generating our shareholders, while being flexible and agile for the energy opportunities for BP throughout the energy transition. transition underway. We’re making good progress delivering our strategy while flexing and • We continued to focus on advantaged oil and gas in the Upstream, adapting to an environment that is changing fast. We have a great team delivering new supplies of gas from four of our six new major projects at BP and I would like to thank them all for their continued dedication and brought online in 2018. We are also expanding our LNG portfolio and relentless commitment to advancing the energy transition. developing new markets in transport and power. • In the Downstream, we expanded our retail offer, as seen by more than 25% growth in our convenience partnerships, to around 1,400 sites worldwide. • As we pursue venturing and low carbon across multiple fronts, Lightsource BP doubled its global solar presence to 10 countries. Bob Dudley • And we underpinned all this by continuing to modernize our plants, Group chief executive processes, and portfolio by harnessing the potential of digital and new 29 March 2019 technologies to provide greater efficiencies, reliability and safety. GAAP equivalents Profit attributable to shareholders: $9.4bn (2017: $3.4bn) Average capital employed: $165.5bn (2017: $159.4bn) 8 BP Annual Report and Form 20-F 2018
Strategic report – overview 9 Rapid transition Rapid Evolving transition Evolving 2 1 This scenario is consistent with the with consistent This scenario is Paris goals, and is broadly similar to the reduction in carbon emissions in Sustainable Development IEA’s the Scenario. This scenario assumes that This scenario assumes government policies, technology and social preferences continue to to continue preferences social and evolve in a manner and speed seen past. recent the over More information 20 BP Energy Outlook See bp.com/energyoutlook for more information on our projections of future energy trends and factors that could affect them out to 2040. BP Technology Outlook See bp.com/technologyoutlook for information on how technology could influence the way we meet the energy challenge into the future. 1�� le� 2�� e�a� Ren �� 1� BP Annual Report and Form 20-F 2018 and storage. and Gas offers a cleaner alternative coal to for power generation and can lower emissions at scale. It also provides a valuable partner for temperatures high the at heating delivers intermittency, renewables required by industry and is increasingly used in transportation. Across Thatsaid, oil and gas could meet at least 50% of the world’s energy needs in 2040 – even in a scenario consistent with the Paris goals, with the share of gas growing aided by increasing use of carbon capture, use our scenarios, gas grows robustly, overtaking coal as the second-largest source of energy by 2030. Oil demand grows for the next years 10 in our evolving transition scenario, before gradually levelling out due factors to such as accelerating gains in vehicle efficiency and greater use of biofuels, natural gas and electricity. The largest source of oildemand growth is the non-combusted use of oil, for example as a feedstock for petrochemicals. �� �� 20� �� ��dro �� �� 28� mand in 2040 decreases by 14Mb/d. al energy consumption grows by emissions from energy decline emissions use from 2 �� Rapid transition Biofuels grow by 4Mb/d. by around 45% by 2040. fifth. one around Glob Oil de CO 10 2 • • • 2�� �lear �� �u 2�� 2�� �oal � 2�� ��� 2�� �a� d gas account for more than half of d energy demand increases by one third emissions from energy increase emissions use from 2 BP Outlook Energy explores the forces shaping the ��l Evolving transition Evolving Worl CO Oil an global energy in 2040. by 7% by 2040.by 7% from 2017 to 2040. to from 2017 1 Rapid transition 20�0 Actual energy mix 201� Evolving transition 20�0 ��ll�on tonne� o� o�l e�u��alent� ��e �um o� t�e �uel ��are� ma� not e�ual 100� due to round�n�� 0 Energy consumption 2040 – projections In all the scenarios considered, world GDP more than doubles by 2040 economies. fast-growing developing prosperity in increasing by driven In the evolving transition scenario, this improvement in living standards causes energy demand increase to by a third by 2040, driven mainly by India, China and other developing Asian economies. The rate of growth however is slower than in the previous 20 years, as the world increasingly learns produce to more with less energy. Despite this, a substantial proportion of the world’s population in 2040 could live in countries where low. energy per person relatively consumption average is the Atthe same time, the energy mix is changing as technology advances, Renewables shift evolve. policy and measures preferences consumer The demand for energy is set increase to significantly – growing supporteconomies need energy to industry their infrastructure. and are now the fastest-growing energy source in the world today and in our evolving transition scenario we estimate that they could account for 15% of all energy15% consumption in 2040 – and in other scenariosmore. • • • global energy transitionout to 2040 and the key uncertainties surrounding that transition. use We the scenarios the in Outlook together with a range of other analysis and information when forming our long-term strategy. The The changing energy mix
Our strategy Society is demanding solutions for more energy, delivered in new Growing advantaged oil and better ways for a low carbon and gas in the upstream future. Our strategy is designed to meet this dual challenge. Through new technologies, energy will be produced more efficiently and in new ways, helping to meet the expected rise in demand. Our strategy allows us to be competitive at a Invest in more oil and gas, time when prices, policy, technology and producing both with increasing customer preferences are evolving rapidly. efficiency. We believe having a balanced portfolio with advantaged oil and gas, a competitive Key highlights downstream and a range of low carbon activities, with the flexibility of our strategy, Transforming US onshore gives us optionality whatever path the transition takes. With the experience we have and the portfolio we’ve created, we can embrace the energy transition in a way that enhances our investor proposition, while continuing to meet the need for energy. More information Purchased unconventional assets from BHP, Financial framework How this underpins our commitment giving us access to some of the best basins to disciplined investment and growing in the onshore US. shareholder value. See page 13. See Upstream on page 24. Collaborative partnerships Signed a new production-sharing agreement with SOCAR, Azerbaijan’s state oil and gas company, to jointly explore and develop block D230 in the Caspian Sea. And formed a strategic alliance with Petrobras to explore joint projects in upstream, downstream, trading and low carbon in Brazil. See Upstream analysis by region on page 279. Project approvals Sanctioned Ghazeer in Oman – the second phase of development in the Khazzan gas field; Alligin and Vorlich in the UK North Sea; the Cassia Compression and Matapal gas projects in Trinidad; KG D6 Satellites in India; Zinia 2 in Angola; Manuel and Atlantis Phase 3 in the Gulf of Mexico; and Tortue in Mauritania and Senegal. See Upstream on page 22. Major project start-ups Started up six major projects, making a significant contribution to the 900,000 barrels per day of expected new production from major project start-ups between 2016 and 2021. See Upstream on page 22. 10 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – strategy 11 See page 52. See Innovation in BP on page 40. See Innovation in BP on page 40. four platforms in the US Gulf of Mexico. The cloud-based tool helps reduce the time it problem a diagnose to engineers take could from hours minutes. to Trialled new technologies, such as smart glasses in the US and digital vests in Oman, helpto increase safety and efficiency at our operations. Cloud-based technologies Deployed Plant Operations Advisor on our Intelligent operations Installed APEX technology across all our BP-operatedupstream data gather to assets identifyabout help and every efficiency well improvements. Process automation Reduced the time it takes complete to manual contract as management such tasks, and customer data processing, by using robotic process automation. This is helping optimize to productivity and drive processes, business our satisfaction. customer improve Modernizing the whole group wearableUsing technologies Simplify our processes and enhanceSimplify our processes digitalour productivity through solutions. for ® by pipeline for 2 BP Annual Report and Form 20-F 2018 See Innovation in BP on page 42. See Climate change on page 45. See bp.com/sustainability for more information. See Climate change on page 45. use at their planned their US commercial-scale at use waste-to-fuels plant. Venturing and lowVenturing carbon across multiple fronts Cleaner powerCleaner Working with the Oil and Gas Climate Initiative progressto the Clean Gas Project, which plans then and power, generate gas to natural use to transport and capture CO the of Chargemaster, operator of the largest UK’s network. charging electric vehicle Advancing solar Lightsource BP has doubled the number of countries where it has a presence since 2017. December waste to fuelTurning Licensed technology, developed by BP and Johnson Matthey, Fulcrum to BioEnergy to meet evolving technology, trends. consumer and policy Harnessing battery power Made a series of investments in electric vehicle technology and infrastructure help to battery for demand rising to respond us charging facilities, including acquisition the Pursue new opportunities storage in a formation under the southern North Sea. sponsorship and sponsorship retail sites in Germany, taking the total See Downstream page 28. See Downstream on page 28. See Downstream on page 28. ® Market-led growth in the downstream Strong brands and partnerships lubricants our Strengthened fuels and partnership with Renault Sport Racing – extending our BP Castrol broadening the relationship include to joint development of advanced mobility solutions technologies. new and Sustainable aviation fuel Entered an into innovative collaboration between Air BP and Neste, a leading renewable products producer, secure to and promote the supply of sustainable aviation fuel. Expanded our network 440 to BP-branded retail sites in Mexico and opened our first Indonesia. in sites Growing retail new in markets Convenience partnerships Opened more than 220 additional REWE to Go number of convenience partnership to convenience of number sites around 1,400 across our global retail network. Innovate with advanced productsInnovate with advanced and strategic partnerships. Key highlightsKey
BP investor proposition of demand in a low carbon world. We have strong incumbent positions in many of the world’s top hydrocarbon basins and a robust pipeline of growth opportunities – see page 27. We started up six major projects in 2018. Fit for the Focused on Safer The Downstream business has a strong and focused presence. We future returns have advantaged manufacturing facilities, considerable potential for growth in our marketing businesses, and are expanding our retail network in rapidly growing markets such as Mexico, Indonesia and China. We also provide products – such as fuels with ACTIVE technology Safe, reliable A distinctive Value based, – and offers that help consumers lower their emissions – see page 28. and efficient portfolio fit for a disciplined Through our well-established supply and trading function we generate execution changing world investment and value by providing the link between our businesses and third-party cost focus customers. In November BP and partners in banking and trading launched VAKT, the world’s first blockchain platform for managing post-trade oil and commodities commercially. And we’re increasing our activity in renewables, building on our existing solar, wind and biofuels businesses, and creating new business models. For example Lightsource BP has doubled the number of countries Growing sustainable free where it has a presence since December 2017 – see page 47. cash flow and distributions Embedded within our strategy is our commitment to advance a low to shareholders over the long term carbon future. We plan to deliver this across our entire business by reducing emissions in our operations, improving our products and services, and creating low carbon businesses. See Our low carbon ambitions on page 46. Our investor proposition is to grow sustainable free cash flow and distributions to shareholders over the long term. We believe our strategy We are actively managing the portfolio to remain resilient in a enables this, through a focus on safe, reliable and efficient execution, changing world and believe we have enough flexibility in our portfolio leveraging our distinctive portfolio, and disciplined investment to support to reshape our business and balance sheet in around 10 years should growing returns. we need to. This enables us to monitor changing trends and legislation, and provides us with optionality to adjust our portfolio and adapt to Safer the future. Safety is one of our core values and our number one priority. We are focused on being systematic, disciplined and process driven. Focused on returns A safe business doesn’t just protect people, it also helps improve We have a disciplined financial framework that is central to our strategy, operating performance, leading to improved business and financial and clear growth plans out to 2021 and beyond. performance. In recent years overall safety events have declined, and Recent portfolio additions and new long-term agreements – for example we’ve increased upstream plant reliability and downstream refining our purchase of BHP’s unconventional onshore assets in the US and availability . the new production-sharing agreement we signed with SOCAR in Azerbaijan – have strengthened our position. See Measuring our progress on page 16 and Safety on page 43. We have held our capital frame of $15-17 billion a year for organic Fit for the future expenditure for the past three years and expect to do so at least out to As an integrated business, we benefit from having upstream, 2021. We believe we can continue to generate robust organic growth downstream, renewable energy businesses and an established trading within this framework and that the strength of our balance sheet will function. Our balanced portfolio spans resource types and geographies allow us to deal with any near-term volatility. with a strong and distinctive set of assets, brands and relationships. We remain confident in our guidance on returns of greater than 10% In the Upstream we are growing ‘advantaged’ oil and gas – that by 2021 at an oil price of $55/bbl (based on real 2017 Brent oil prices). means low cost or high margin. This improves the likelihood that See Group performance on page 19. the hydrocarbons we produce are resilient and competitive in terms Distributions to shareholders Our commitment to growing distributions to shareholders is underpinned 2.5% $8.1bn by our progressive dividend policy and share buyback programme. dividend increase total dividends distributed in July to BP shareholders in 2018 In July 2018 we announced a 2.5% increase to our dividend, and over the year distributed total dividends to shareholders of $8.1 billion. We have remained active in our share buyback programme, buying back 50 million ordinary shares in 2018 at a cost of $355 million including fees and stamp duty. 12 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – strategy Our financial framework We maintain a disciplined financial framework, which underpins our investment choices and supports growth in sustainable free cash flow, returns and distributions to shareholders. Our balance sheet and cash cover metrics are strong, and during 2018 this enabled us to acquire the BHP Lower 48 assets, funded using available cash. Alongside the real momentum across our businesses, and in line with growing free cash flow and the receipt of divestment proceeds, we continue to expect to deliver the 2021 targets laid out two years ago. 2018 outcome Guidance 2019-2021 Capital expenditure Organic capital expenditure was $15.1 We expect organic capital expenditure to be billion*, at the bottom end of our guidance. in the range of $15-17 billion per year. Divestments Total divestment and other proceeds of We expect more than $10 billion of $3.5 billiona achieved. This was in line with divestments over the next two years. This guidance of more than $3 billion for the year. includes divestments announced as part of the BHP transaction. Gulf of Mexico oil spill 2018 payments totalled $3.2 billion, in line We expect payments of around $2 billion in payments with our guidance of just over $3 billion. 2019, stepping down to around $1 billion per year for the next 14 years. Gearing Gearing at the end of 2018 was 30.3%**. We expect gearing to be in the range of 20-30%. Group return on average ROACE was 11.2%***, almost double that We expect ROACE to be more than 10% by capital employed (ROACE) in 2017. 2021 at $55/bbl (based on real 2017 Brent oil prices). Distributions We increased the quarterly dividend by 2.5% Progressive dividend and a continued share in July and repurchased 50 million ordinary buyback programme, which is expected to shares at a cost of $355 million in 2018. fully offset the impact of scrip dilution since the third quarter of 2017 by the end of 2019. Our published guidance will be updated for any impacts associated with the new lease accounting standard, IFRS 16 ‘Leases’, during 2019. a This includes a $0.6 billion loan repayment to BP relating to the refinancing of Trans Adriatic Pipeline AG. Divestment proceeds for 2018 were $2.9 billion. Nearest equivalent GAAP measures * Capital expenditure: $25.1 billion. ** Gross debt ratio: 39.3%. ***Numerator: Profit attributable to BP shareholders $9.4 billion; Denominator: Average capital employed $165.5 billion. BP Annual Report and Form 20-F 2018 See Glossary 13
Major project start-ups Atoll Phase 1, Egypt Thunder Horse Northwest Expansion, US We developed and delivered first gas from Atoll Phase 1 less than three years after its discovery. It supports our commitment to help realize Egypt’s oil and gas potential and meet the increasing demand from its growing population. Operator Pharaonic Petroleum Company Partners BP (100%) Project type Conventional gas 16 months from sanction to first oil Cairo We started up the Thunder Horse 110km Northwest Expansion project 16 months subsea tieback after it was sanctioned. The project is on our largest platform in the deepwater 6,400 Gulf of Mexico. metres Operator BP well depth, <3 years Partners BP (75%), ExxonMobil more than Mount to deliver (25%) Kilimanjaro Project type Deepwater oil Suez Clair Ridge, UK North Sea Clair Ridge is the second phase development of the Clair field – the largest in the UK continental shelf. Operator BP Partners BP (45.1%), Shell (28%), Chevron (19.4%), Conoco Phillips (7.5%), Project type Conventional oil 14 BP Annual Report and Form 20-F 2018
Strategic report – strategy 15 Turkey 2,760 metres the highest point of the pipeline, TANAP 1,850km Turkey eastern in Georgia 2 new compressor stations the approximately each of 20size football pitches Conventional oil and gas BP Annual Report and Form 20-F 2018 Conventional gas Taas Rosneft Oil India, (50.1%), Indian Oil, Bharat PetroResources (29.9%), BP (20%) BP BP (28.8%), SOCAR PETRONAS (16.7%), (15.5%), Lukoil NICO (10%), TPAO (19%) (10%), Partners type Project Taas-Yuryakh expansion, RussiaTaas-Yuryakh Led by our partner Rosneft, the Taas-Yuryakh expansion project in Eastern Siberia is an example of successful collaboration in the remote Russian region of Sakha (Yakutia). Operator 2 new bridge-2 new linked platforms constructed by 5,000+ workers and installed in Caspianthe Sea Azerbaijan Shah Deniz Stage was 2 our biggest major project start-up in 2018. It includes complex offshore and onshore projects with Southern the across Gas developments pipeline Corridor. Operator Partners type Project LNG Woodside BP, BHP, Chevron, WoodsideShell, and Japan LNG Australia (16.67% each) subsea wells 26 500km Photo credit: Woodside Energy Ltd. Shah Deniz Stage Azerbaijan 2, Operator Partners Located off the north-west coast of Australia, the Western Flank B project develops five fields via an eight subsea well tie back the to Goodwynplatform. A Project type Project Western Flank Australia B, of subsea flow lines
Measuring our progress We assess our performance Safer across a wide range of measures and indicators that ���� � ������� ������ ������� �������� ���������� ������ ���������� are consistent with our strategy ��� ��� ��� ��� and investor proposition. ���� �� ���� ���� 201� 18 201� 0�22 Our key performance indicators (KPIs) provide 201� 1� 201� 0�21 a balanced set of metrics that give emphasis 201� 20 201� 0�2� to both financial and non-financial measures. 201� 28 201� 0��1 These help the board and executive 10 20 �0 �0 0�1 0�2 0�� 0�� management assess performance against We report tier 1 process safety events which are losses of Reported recordable injury frequency (RIF) measures the number primary containment of greatest consequence – causing harm of reported work-related employee and contractor incidents our strategic priorities and business plans, to a member of the workforce, costly damage to equipment or that result in a fatality or injury per 200,000 hours worked. with non-financial metrics playing a useful role exceeding defined quantities. 2018 performance We have seen a decrease in our RIF as leading indicators of future performance. 2018 performance We have seen a slight decrease in tier 1 compared with 2017. Our goals stay the same – to have BP management uses these measures to process safety events. However there is always more we can no accidents, no harm to people and no damage to the do and we remain focused on achieving better results today environment. evaluate operating performance and make and in the future. financial, strategic and operating decisions. More information Focused on returns Strategy Underlying replacement cost profit Operating cash flow �� ��ll�on� Pages 10-13 ($ billion) REM REM REM REM 9.4 2018 22.9 Changes to KPIs 2018 12.7 201� 18�� In 2018 we introduced a target to achieve 3.4 2017 201� 10�� 3.5 million tonnes of sustainable GHG 6.2 0.1 201� 1��1 emissions reductions in our operations 2016 2.6 201� �2�8 worldwide by 2025. Progress towards this (6.5) 20 �0 �0 2015 target has now been incorporated into the 5.9 3.8 assessment of the group’s performance that 2014 12.1 is a factor in determining annual bonuses for 0 eligible BP employees worldwide. This will Profit (loss) for the year apply to our performance assessment in Underlying RC profit for the year (non-GAAP) 2019 and beyond. We are also changing Underlying RC profit is a useful measure for investors downstream refining availability to BP- because it is one of the profitability measures BP management Operating cash flow is net cash flow provided by operating uses to assess performance. It assists management activities, as reported in the group cash flow statement. operated downstream refining availability in understanding the underlying trends in operational Operating activities are the principal revenue-generating to more closely align with our BP-operated performance on a comparable year-on-year basis. activities of the group and other activities that are not investing or financing activities. upstream plant reliability measure. It reflects the replacement cost of inventories sold in the period and is arrived at by excluding inventory holding gains 2018 performance Operating cash flow was higher due to and losses from profit or loss. Adjustments are also made improved business results, including the benefit of higher Remuneration for non-operating items and fair value accounting effects . oil prices and lower Gulf of Mexico oil spill payments, which amounted to $3.2 billion in 2018, partly offset by higher To help align the focus of our board and 2018 performance The significant increase in both profit for working capital. executive management with the interests of the year and underlying RC profit was largely due to higher profits in Upstream, reflecting major project start-ups and our shareholders, certain measures are used higher prices, partly offset by higher taxes. for executive remuneration. REM Measures used for the remuneration policy ������ �� ������� ������� �������� ��� ����� ����������� ������ ��� approved by shareholders at the 2017 AGM. ��� ��� ��� Measures for the annual bonus are focused ���� ���� ����� ���� on safety, reliable operations and financial 201� ��8 ��� 20�0 performance. Measures for performance 201� 2�8 201� ��� shares are focused on shareholder value, 201� ��� 2��0 201� capital discipline and future growth. 201� ��� ���� �12�8� 201� �8��� These measures were used for executive Return on average capital employed (non-GAAP) gives an REM �1���� remuneration under the terms of our indication of a company’s capital efficiency, dividing the 201� �11��� discontinued 2014-16 policy. underlying RC profit after adding back net interest by average capital employed, excluding cash and goodwill. See page -20 0 20 �0 �0 321 for more information including the nearest equivalent A�� �a��� �rd�nar� ��are �a��� More information GAAP data. 2018 performance The increase reflects improved business Total shareholder return (TSR) represents the change in value Directors’ remuneration results, including the impact of higher prices and the benefit of of a BP shareholding over a calendar year. It assumes that Page 87 further upstream major project start-ups in the year. dividends are reinvested to purchase additional shares at the closing price on the ex-dividend date. Footnotes key We are committed to maintaining a progressive and a This represents reported incidents occurring within BP’s sustainable dividend policy. operational HSSE reporting boundary. That boundary includes BP’s own operated facilities and certain other 2018 performance Reduced TSR reflects a reduction in the locations or situations. share price in 2018 compared with share price growth in 2017, largely offset by higher dividend in 2018. b Relates to BP employees. 16 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – performance 17 �� �� �1 ���� ���� �� ���0 �� 12��� ���� activity and the 10��� is calculated as is ���� 8��� (%) ���� ��11 SeeGlossary The result was a record, reflecting our . We changed our survey questions in 2017 e �0 1� 018 performanc 018 ��� ��� ���� 201� 201� 201� 201� ���� 201� 201� 201� 201� 201� 201� 201� 20 ���� We conduct an annual employee survey to understand and understand to survey employee annual an conduct We monitor levels of employee engagement and identify areas for improvement. performance 2018 to reflect the new priorities set out in our refreshed strategy. The scores prior to 2017 are based on questions on priorities set out in 2012, so the numbers are not directly comparable. Theupstream unit production cost indicator shows how supply chain, headcount and scope optimization impact cost efficiency. 2018 performance compared costs, production unit Higher with were due 2017, to increased well-work impact of higher prices on production entitlements. production on prices higher of impact �������� ���������� �������� ���� ���������� ����� ����oe� ���� ���������� ����� �������� BP-operated reliability plant upstream by installed production capacity. production installed by 2 focus on efficiency of execution, and use of advanced new applications. digital and technologies 100% less the ratio of total unplanned plant deferrals divided �������� ����� ����������� ��� 8 0 � ���00 ��� � � ����� 2�20 �� �� 2� 2� ���00 � � ����� � 22 21 21 21 1� 18 ��� � � BP Annual Report and Form 20-F 2018 � 1� ��200 ��2�8 ��2�� 2 We started up six major projects in �on ����� ��1�1 � 10 �omen ��000 ���� 201� 201� 201� 201� ���� 201� 201� 201� 201� ���� 201� 201� 201� 201� P��������� �m�oe�d� P��������� Australia, Azerbaijan, Egypt, Russia, the UK and US. We monitor the progress of our major projects to gauge whether we are delivering our core pipeline of projects under time. on construction Projects take many years to complete, requiring differing amounts of resource, so a smooth or increasing trend should not be anticipated. Major projects are defined as those with a BP net investment of at least $250 million, or considered to be of strategic importance or of a high to BP, degree of complexity. performance 2018 Production is a useful measure for tracking how our major projects are helping to grow our business. We report production of crude oil, condensate, natural gas liquids (NGLs), natural bitumen and natural gas on a volume per day basis for equity-accounted and subsidiaries our is gas Natural entities. converted to barrels of oil equivalent at 5,800 standard cubic feet of natural gas = 1 boe. 2018 performance including production, reported total BP’s Upstream and Rosneft segments, was 2.4% higher than in This2017. was due to major project ramp-ups and improved reliability.plant Each year we report the percentage of women and individuals from countries other than the UK and the US among BP’s leaders. group 2018 performance While the percentage of our group leaders who are non-UK/US remained the same, the percentage of female group leaders rose. As a global business we are committed to increasing the diversity of our workforce and leadership. ��������� ��� ��������� ����� ������� �������� �0 �0 ��� ���� ���� 1�� �0�1 94.9 ���0 �8�� ���� ���� 1�0 1 ���� ���� 10� ��� �0 120 and methane. Our GHG 2 , other than BP’s share 100 e�u��alent� �� 2 �1 and equity-accounted and entities. 20 80 ever, lower than 2017reflecting increased how and associates and �0 �0 Fit for the future REM 2018 201� 201� 201� 201� 201� 201� 201� 201� ���� 201� 201� 201� ���� 201� This measure helps to demonstrate our success in accessing, resources. extracting and exploring 2018 performance The ratio of 100.4% was in line with our five-year average reserves replacement ratio, due to new projects. existing our in revisions and investments project maintenance, particularly at our Gelsenkirchen refinery. Gelsenkirchen particularly our maintenance, at Refining availability represents Solomon Associates’ Associates’ Solomon represents availability Refining operational availability. The measure shows the percentage of the year that a unit is available for processing after deducting the time spent on turnaround activity and all mechanical, process and regulatory downtime. operational the of indicator important an is availability Refining businesses. Downstream performance our of 2018 performance Refiningavailability remained strong, programmes. improvement reliability global our by underpinned The result was, Proved reserves replacement ratio is the extent to whichthe year’s production has been replaced by proved reserves added base. reserve our to Theratio is expressed in oil-equivalent terms and includes recovery and improved discoveries, from resulting changes extensions and revisions to previous estimates, but excludes disposals. acquisitions and The ratio from changes resulting subsidiaries both reflects We provide data on greenhouse gas (GHG) emissions material to our business on a carbon dioxide-equivalent basis. This comprises direct emissions of CO KPI comprises 100% emissions from subsidiaries and the percentage of emissions equivalent to our share of joint arrangements of Rosneft. 2018 performance The primary reasons for the overall decrease include actions taken by our businesses to reduce emissions in areas such as flaring, methane and energy increased gas as such changes operational and efficiency, being captured and exported to the liquefied natural gas facility Angola. in Refining availability ��� ���������� ��� ��������� �m�ll�on tonne� o� �� �������� ����������� ����� ��� �������� �����������
Global energy markets Average oil prices increased again in 2018, but remained well below the prices seen in 2011-13. Co-ordinated OPEC and non-OPEC production restraint early in the year and robust global demand growth were countered by record growth in US production. The world economy grew at 3% in 2018, reflecting slower growth in year average for much of the year. But with the reversal of production both advanced and emerging economies. This was slightly lower than restraint inventories began to rise, and by the end of December were the 3.1% seen in 2017, but around the average of nearly 3% over the slightly above the five-year average, standing at 2,858 million barrels. past 20 years. Growth in advanced economies slightly decelerated to 2.2% from 2.4% in 2017, reflecting temporary factors, such as natural Natural gas disasters in Japan, slowing net exports in Europe and the ongoing trade disputes. Emerging markets showed a similar broad-based deceleration, ������� ��� ������ ���mm�tu � �uarterl� a�era�e� �enr� �u� growing by 4.2% in 2018, compared with 4.3% in 2017. The slowdown 12 in emerging markets activity reflects softening global trade and 10 tightening monetary conditions. 8 Oil � � ����� ��� ������ �����l � �uarterl� a�era�e� �rent dated 2 1�0 0� 10 11 12 1� 1� 1� 1� 1� ���� 120 Prices Gas prices rebounded in all key markets in 2018. Asian and European �0 gas prices have increased to $9.76/mmBtu and 60.38 pence per therm respectively, up from $7.13/mmBtu and 44.95 pence per therm in 2017. �0 This was driven by higher oil, coal, and CO2 prices (in Europe) as well as a relatively tight liquefied natural gas (LNG) market. Asian prices 0� 10 11 12 1� 1� 1� 1� 1� ���� were strong at above $10/mmBtu during summer due to high Asian Prices LNG demand and a tight LNG market, but dropped below $9/mmBtu Dated Brent crude oil prices averaged $71.31 per barrel in 2018 – a in late 2018 due to warm weather in Asia and growing LNG supplies. second consecutive annual increase but still well below the average While LNG supply increased strongly, all of these incremental LNG of over $110 seen in 2011-13. Prices drifted higher over the first half of supplies were absorbed by Asia – with China accounting for around half the year as production restraint remained in place among OPEC and of that growth. US spot prices averaged $3.11/mmBtu – after being flat co-operating non-OPEC countries, then rose more rapidly to reach their at $3/mmBtu for most of the year, they rebounded during the last annual peak near $85 in October. In the face of rising prices, producers quarter due to low storage levels. relaxed their restraint at mid-year and prices fell sharply late in the year, Consumption ending 2018 at their annual low point of about $50. Global consumption is estimated to have increased more rapidly in Consumptiona 2018 than in 2017, driven by strong growth in the US and China. US Global consumption increased by 1.3 million barrels per day (mmb/d) to demand growth was largely driven by increasing gas use in the power 99.2mmb/d for the year (1.3%) – a fourth consecutive increase greater sector as power generation recovered and an estimated 14GW of coal than the 10-year average – due to continued lower than average oil capacity was retired in 2018. Chinese gas demand continued to grow at prices and stronger world economic growth. Demand once again grew a double-digit rate on the back of coal-to-gas switching in the industrial most rapidly in Asia’s emerging economies (+0.8mmb/d), but OECD and buildings sectors. demand also increased for a fourth consecutive year. Production Productiona Total gas production increased substantially in 2018. Significant Global oil production grew by a robust 2.6mmb/d (2.7%) to average production increases were achieved in the US and Australia – supported 100.0mmb/d, with non-OPEC countries (+2.7mmb/d) accounting for all by the start of new LNG trains – and Russia. Global LNG supply of the increase. The US saw record production growth of 2.2mmb/d. In capacity expanded slightly faster than in 2017, with around 28mtpa contrast OPEC production declined by 0.1mmb/d – the second consecutive of LNG capacity starting commercial operations. Several trains came annual decline – although it began to recover later in the year. online in Australia, Russia, the US and Cameroon. Inventoriesa These changes resulted in global supply significantly exceeding demand in 2018, especially later in the year. In the face of production a From IEA Oil Market Report, 13 restraint from OPEC and co-operating non-OPEC countries early in the February 2019 ©, OECD/IEA 2019 More information year, commercial oil inventories in the OECD were below the five- Prices and margins Pages 25 and 30 18 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – performance 19 25 20 15 Other businesses and corporate Page 37 Oil and gas disclosures for the group Page 285 SeeGlossary ax 10 (57) 115 2016 483 and t Group RC profit (loss) before interest and tax and interest before (loss) profit RC Group (430) (999) 6,746 2,467 2,585 (3,162) (1,597) (1,865) $ million $ 29.418 5 erest More information Upstream Page 22 Downstream Page 28 Rosneft Page 34 (79) 2017 225 (325) 40.0 40.0 (853) ore int neft 6,166 9,474 2,761 3,730 3,389 (3,712) (2,294) 30.979 except per share amounts Ros e (includes (5) 0 55) 55) 78 2018 801 (195) (198) 40.5 (643) 9,986 9,383 3,380 (7,145) (2,6 12,723 19,3 30.568 wnstream nt – UPII UPII – stment (10) Do nd corporat es and dju a RC profit (loss) bef tion siness u lida BP Annual Report and Form 20-F 2018 b t ent (15) ream nso her Co Ot costs related to the Gulf of Mexico oil spill) Upst 2018 2017 2016 ($ billion) Segm and fair value fair and ts operating cash flow (2017 $18.9 billion) $22.9bn fi , before tax e expense relating pensions to – pence nanc a fi , before tax t fi s) s) fors) the year t (los t fi t (loss) before interest and taxation t (los fi fi accounting effects accounting effects and other post-retirement bene post-retirement other and $9.4bn to attributable profit shareholders BP (2017 $3.4 billion) $12.7bn (RC) cost replacement underlying profit (2017 $6.2 billion) Profit (loss) attributable to BP shareholders. BP to attributable (loss) Profit Dr Brian Gilvary Group chief financial officer We saw significant growth in earnings, cash and returns. The and returns. in earnings, cash significant growth We saw balance cash flow growth underpins the continued strong more the BHP acquisition and deliver sheet as we absorb than $10 billion of divestments over the next two years. than $10 billion of Underlying RC pro Dividends paid per share – cents Taxation Taxation charge (credit) on inventory holding gains and losses pro RC Taxation charge (credit) on non-operating items and fair value Inventory holding (gains) losses (gains) holding Inventory Net (favourable) adverse impact of non-operating items a Non-controlling interests Pro Pro Financial and operating performance Finance costs and net Group performanceGroup
Results Adjusting for inventory holding impacts, non-operating items which Profit for the year ended 31 December 2018 was $9.4 billion, compared include the impact of the US tax rate change, fair value accounting with $3.4 billion in 2017. Including inventory holding losses, replacement effects and the deferred tax adjustments as a result of the reduction cost (RC) profit was $10.0 billion, compared with $2.8 billion in 2017. in the UK North Sea supplementary charge in 2016, the adjusted ETR After adjusting for a net charge for non-operating items of $2.8 billion on RC profit was 38% in 2018 (2017 38%, 2016 23%). The adjusted and net favourable fair value accounting effects of $68 million (both on ETR for 2017 was higher than 2016, predominantly due to changes a post-tax basis), underlying RC profit for the year ended 31 December in the geographical mix of profits, notably the impact of the renewal 2018 was $12.7 billion, an increase of $6.6 billion compared with 2017. of our interest in the Abu Dhabi onshore oil concession. In the current The increase was predominantly due to higher results in Upstream, environment the adjusted ETR in 2019 is expected to be around 40%. as well as Downstream and Rosneft segments, partly offset by Cash flow and net debt information higher taxes. The upstream result reflected higher oil prices, record plant reliability and the benefit of new major projects start-ups. The $ million 2018 2017 2016 downstream result reflected stronger refining margins and strong fuels Operating cash flow 22,873 18,931 10,691 marketing growth. The Rosneft segment result primarily reflected Net cash used in investing higher oil prices. activities (21,571) (14,077) (14,753) Profit for the year ended 31 December 2017 was $3.4 billion, compared Net cash provided by (used in) with $115 million in 2016. Excluding inventory holding gains, RC profit financing activities (4,079) (3,296) 1,977 was $2.8 billion, compared with a loss of $1.0 billion in 2016. After Cash and cash equivalents at end adjusting for a net charge for non-operating items of $3.3 billion and of year 22,468 25,586 23,484 net adverse fair value accounting effects of $96 million (both on a Capital expenditure post-tax basis), underlying RC profit for the year ended 31 December Organic capital expenditure (15,140) (16,501) (16,675) 2017 was $6.2 billion, an increase of $3.6 billion compared with 2016. Inorganic capital expenditure (9,948) (1,339) (777) The increase was predominantly due to higher results in both Upstream (25,088) (17,840) (17,452) and Downstream segments. The upstream result reflected higher oil and gas prices and increased production. The downstream result Gross debt 65,799 63,230 58,300 reflected strong refining performance, including an improved margin Net debt 44,144 37,819 35,513 environment and growth in fuels marketing. Gross debt ratio (%) 39.3% 38.6% 37.6% Net debt ratio (%) 30.3% 27.4% 26.8% Non-operating items The net charge for non-operating items was $2.8 billion post-tax in Operating cash flow 2018, mainly related to additional charges for the Gulf of Mexico oil spill, Net cash provided by operating activities for the year ended 31 environmental and other provisions, and further restructuring costs. December 2018 was $22.9 billion, $4.0 billion higher than the $18.9 The group restructuring programme originally announced in 2014 has billion reported in 2017. Operating cash flow in 2018 reflects $3.5 billion now been completed. of pre-tax cash outflows related to the Gulf of Mexico oil spill (2017 The net charge for non-operating items was $3.3 billion post-tax in $5.3 billion). Compared with 2017, operating cash flows in 2018 2017. This includes a charge of $1.7 billion recognized in the fourth reflected improved business results, including a more favourable price quarter relating to business economic loss and other claims associated environment and higher production, partly offset by working capital with the Gulf of Mexico oil spill and a $0.9 billion deferred tax charge effects, and a $1.7 billion increase in income taxes paid. following the change in the US tax rate enacted in December 2017. Movements in working capital adversely impacted cash flow in the In addition, the net charge also reflected an impairment charge year by $4.8 billion. There was an adverse impact on working capital in relation to upstream assets. from the Gulf of Mexico oil spill of $3.1 billion. Other working capital More information on non-operating items and fair value accounting effects, principally an increase in other current and non-current assets effects can be found on pages 276 and 320. See Financial statements – partially offset by a decrease in inventory, had an adverse effect of Note 2 for further information on the impact of the Gulf of Mexico $1.7 billion. BP actively manages its working capital balances to oil spill on BP’s financial results. optimize and reduce volatility in cash flow. Taxation There was an increase in net cash provided by operating activities of The charge for corporate income taxes was $7,145 million in 2018 $8.2 billion in 2017 compared with 2016, of which $1.7 billion related compared with $3,712 million in 2017. The increase mainly reflects the to lower pre-tax cash outflows related to the Gulf of Mexico oil spill. higher level of profit in 2018. In 2017 the charge for corporate income Compared with 2016, operating cash flows in 2017 were impacted taxes included a one-off deferred tax charge of $0.9 billion in respect by improved business results, including a more favourable price of the revaluation of deferred tax assets and liabilities following the environment and higher production, working capital effects, and reduction in the US federal corporate income tax rate. A further credit of a $2.5-billion increase in income taxes paid. $121 million following a clarification of the legislation has been included in 2018. The effective tax rate (ETR) on the profit or loss for the year was 43% in 2018, 52% in 2017 and 107% in 2016. The ETR for all three years was impacted by various one-off items. 20 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – performance 21 2016 a 1,329 1,939 8,679 3,268 2,048 17,810 10,333 43,368 supported by 2017 7,744 7,075 2,164 1,431 2,260 3,595 8,949 18,441 10,672 45,060 SeeGlossary 2018 2,191 9,757 1,355 3,683 8,659 2,328 11,456 19,945 49,239 b c (mmboe) (mmb) Equity-accounted entities (net of royalties) Subsidiaries Equity-accounted entities Because of rounding, some totals may not agree exactly with the sum of their component parts. Includes BP’s share of Rosneft. See Rosneft on page 34 and Supplementary information on oil and natural gas on page for 210 further information. Includes BP’s share of Rosneft. See Rosneft on page 34 and Oil and gas disclosures for the group on page 285 for further information. divestment proceeds, we expect gearing move to towards the middle of our targeted range of 20-30% in 2020. Net debt and the net debt ratio are non-GAAP measures. See Financial statements – Note 27 for gross debt, which is the nearest equivalent measure on an IFRS basis, and for further information on net debt. Cash and cash equivalents at the end of were For $3.12018 billion information lower than on 2017. financing the activities,group’s see Financial statements – Note 29 and Liquidity and capital resources on page 277. Group reserves and production (including Rosneft segment) Natural gas (bcf) Total hydrocarbons Total by 8% compared with The December 31 change includes 2017. net a acquisitionsincrease from disposals and 1,498mmboe of (increase of 993mmboe within our subsidiaries, increase of 505mmboe within equity-accountedour Acquisition activity entities). subsidiaries our in occurred in the US and the UK, and divestment activity in our subsidiaries was inthe US and the UK. In our equity-accounted acquisitionsentities, occurred Russia. in hydrocarbonTotal production for the group was higher 2% compared The increasewith comprised 2017. decrease an 8% increase (1% for liquids increase and for 17% gas) for subsidiaries and a 5% decrease (5% decrease for liquids decrease and 5% for gas) for equity-accounted entities. BP Annual Report and Form 20-F 2018 Liquids a b c hydrocarbonTotal proved reserves at December 31 2018, on an oil- equivalent basis including equity-accounted increased entities, Estimated net proved reserves Production (net of royalties) (mb/d)Liquids Of which: Debt Gross debt at the end increased of 2018 by $2.6 billion from the end of The gross debt ratio2017. at the end increased of 2018 Net by 0.7%. debt at the end increased of 2018 by $6.3 billion from year-end the 2017 position. The net debt ratio at the end increased of 2018 by 2.9%. At current oil prices, and in line with growing free cash flow Of which: Natural gas (mmcf/d) Total hydrocarbons (mboe/d) (mboe/d) hydrocarbons Total for 2018 were for $2.9 2018 billion $3.4 (2017 billion, . In addition, we received $0.8 billion in relation the to 2016 $2.62016 billion). In addition, we received a $0.6-billion loan repayment relating the to refinancingTrans Adriatic of Pipeline AG, andtotal divestment and other proceeds amounted for 2018 $3.5 to billion. In divestment2017 proceeds included amounts received for the disposal of our interest in the Shanghai SECCO Petrochemical Company Limited joint venture initial public offering of BP Midstream Partners LP’s common units, shown within financing activities in the group cash flow statement, and total divestment and other proceeds amounted for 2017 $4.3 to billion. BP intends complete to more than billion $10 of divestments over the next two years, which includes plans announced following theBHP transaction. activities financing in used cash Net Net cash used in financing activitiesfor theyear ended31 December was2018 $4.1 billion,compared with $3.3 billion used in financing activities This was mainly in 2017. the result of an increase of $0.9 billion in net proceeds from financing offset billion reductionby a of $1.1 in cash received in relation non-controlling to interests and an increase in dividend payments of $0.5 billion. the netIn cash 2017 used in financing activitiesreflected a reduction of $3.5 billion in net proceeds from financing. Thetotal dividend paid in cash was billion $1.5 in 2017 higher than in 2016. dividendsTotal distributed shareholders to were in 40.50 2018 cents per share, 0.50 cents This higher amounted than a total to distribution 2017. shareholdersto of $8.1 billion billion, billion), $7.9 (2017 $7.5 2016 of which shareholders elected receive to billion, billion $1.4 $1.7 (2017 $2.92016 billion) in shares under the scrip dividend programme. The total amount distributed in cash during the year amounted $6.7 to billion $6.2(2017 billion, $4.6 2016 billion). of which organic capital expenditure billion $16.5 (2017 was $15.1 billion). Sources of funding are fungible, but the majority of the group’s funding requirements for new investment comes from cash generated by existing operations. We expect organic capital expenditure be to in the range billion of $15-17 in 2019. Divestment proceeds of $6.7 billion in relation the to BHP acquisition and a reduction of $0.6 billion in net disposal proceeds. The decrease of $0.7 billion compared in 2017 with mainly 2016 reflected an increase of $0.8 billion in disposal proceeds. There were no significant cash flows in respect of acquisitions in2017 and 2016. capitalTotal expenditure billion), was for 2018 billion $25.1 $17.8 (2017 by $3.4billion. There was an adverse impact on working capital from the Gulf of Mexico oil spill$5.2 of billion. Other working capital effects, arising from variety a of different factors had a favourable effectof $1.8 billion. Receivables and inventories increased during the year principally due higher to oil prices. The effect of this on operating cash flow was more than offset by a corresponding increase in payables. Net cash used in investing activities Net cash used in investing activitiesfor the year ended December 31 increased2018 billion by $7.5 compared with 2017. The increase mainly reflected higher inorganic capitalexpenditure Movements in working capital adversely impacted cash flow in 2017
Upstream 2018 has been a good year for Upstream, where we increased confidence in 2021 delivery and underpinned our ability to continue growth well into the next decade. Bernard Looney Chief executive, Upstream 63,000km 2 95.7% 7 Upstream profitability ($ billion) 14.3 new exploration access BP-operated upstream successful completion 2018 14.6 plant reliability of turnarounds 5.2 2017 (2017 28,000km2) (2017 94.7%) (2017 6) 5.9 0.6 2016 -0.5 -0.9 2015 9 6 2.5 1.2 8.9 2014 final investment decisions major project start-ups million barrels of oil equivalent 15.2 per day – hydrocarbon production Replacement cost (RC) profit (loss) before interest and tax (2017 3) (2017 7) (2017 2.5mmboe/d) Underlying RC profit (loss) before interest and tax Business model The Upstream segment is responsible for our activities in oil and natural gas exploration, field development and production. We do this through five global technical and operating functions. Exploration Wells and projects Global operations organization The exploration function is responsible The global wells organization and The global operations organization is for renewing our resource base through the global projects organization are responsible for safe, reliable and compliant access, exploration and appraisal, while responsible for the safe, reliable and operations, including upstream production the reservoir development function is compliant execution of wells (drilling and assets and midstream transportation and responsible for the stewardship of our completions) and major projects. processing activities. resource portfolio over the life of each field. Strategy Our strategy has three parts and is enabled by: Quality execution Growing advantaged oil and gas Returns-led growth We want to be the best at what we do – We will manage our portfolio through We want to grow – but not at any cost. We everywhere we work. This starts with disciplined investment in many of the world’s always look to grow returns and value. We executing our activity safely. In every basin, great oil and gas basins. We plan to grow both believe this growth will come from many we will benchmark against the competition oil and gas production. Natural gas is a big lever sources – production growth, expanding and and aim to be the best – whether it be for reducing greenhouse gas emissions. This managing our margins, operational efficiency, operating facilities reliably and cost effectively, means taking a leadership role in tackling the unit cost reduction, and capital efficiency with with a focus on emissions, drilling wells, challenge of methane. Our gas portfolio will disciplined levels of capital reinvestment. managing our reservoirs, exploring, building be complemented by advantaged oil assets – projects, or deploying technology. Through oil we can produce at a lower cost or higher the quality of our execution, scale and margin, creating a portfolio that is flexible for infrastructure, we aim to be competitive in different price environments. every basin, and as a business, get more from a unit of capital than our peers. 22 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – performance 23 574 2016 1.90 2.46 2.84 (542) 17.31 (1,116) 43.73 28.24 38.27 39.99 34.63 43.34 $ million $ 33,188 14,344 $ per barrel $ per barrel pence per therm per pence 2017 644 3.11 3.19 2.36 51.71 54.19 50.79 5,221 26.00 49.92 35.38 5,865 44.95 13,763 45,440 $ per thousand cubic feet cubic thousand per $ $ per barrel of oil equivalent SeeGlossary $ per million British thermal units 2018 222 2.43 3.92 3.09 29.42 60.38 67.81 64.98 43.47 71.31 65.20 12,027 14,550 14,328 56,399 f b e and and c gas price d e a d marker prices fair value accounting value effectsfair revenues Point gas price interest and tax and interest of non-operating items Includes sales to other segments. A reconciliation to GAAP information at the group level is provided on page 275. Realizations are based on sales by consolidated subsidiaries only, which excludes equity-accounted entities. bitumen. and condensate Includes All traded days average. Henry Hub First of Month Index. US natural gas Liquids Natural gas liquids liquids gas Natural West Texas Intermediate Texas West Average natural gas gas natural Average Average Henry Hub Average UK NationalAverage Balancing a b c d e f Financial performance operatingSales other and oil Crude Natural gas hydrocarbons Total Brent Average oil marker prices Underlying RC profit (loss) before before (loss) profit RC Underlying BP averageBP realizations Net (favourable)adverse impact RC profit before interest and tax Organic capital expenditure BP Annual Report and Form 20-F 2018 bal technical ve glove fi on average than our than average on e, procurement and supply ural gas (LNG), power and natural nanc fi ed nat fi gas liquids (NGL). In our 2018 activities took place in 33 countries. The US Lower 48 business continues operate to as a separate, asset-focused, onshore business, and changed its name BPX to Energy in October. With the exception of BPX Energy, we deliver our exploration, development and production activities through in the Upstream. We believe in the potential of this agenda transform to the efficiency of our business, and we are deliveringreal valuetoday theto bottom line. In addition our to core Upstream exploration, development and production activities, the segment is responsible for midstream trade and market also We processing. and transportation, storage natural gas, including lique functions. operating and We optimize and integrate the delivery of our activities across regions,12 with support provided by global functions in specialist areas of expertise: technology, chain, human resources, information technology and legal. In we identified 2016 a future growth target of 900,000 barrels of oil equivalent per day of production from new major projects by 2021 and we remain on track deliver to that. We expect this production to operating higher cash margins 35% deliver at sustainably improving both performance and how it feels work to Underpinning our business model and strategy is our transformation modelUnderpinning our business strategy is our and agenda. We have around 1,000 projects across the Upstreamaimed 2015 upstream2015 assets, which supports our value over volume strategy. We see our scale and long history in many of the great basins in the world as a differentiator for BP and believe in the strength of our incumbent positions. We believe we are balanced and flexible – in terms of geography, hydrocarbon type and geology – and rather than being restricted by a traditional way of working, we have and will continue use to creative business models generate to value.
Growing advantaged oil and gas in the upstream 470,000 acres of access Transforming United States US onshore 194,000 Oklahoma ~720 ~85,000 BP is transforming its US New Mexico onshore oil and gas business Texas with our purchase of world-class Haynesville Permian Houston unconventional assets from BHP. Louisiana This acquisition gives us access Eagle Ford to some of the best basins in the 83,000 194,000 onshore US and positions BP as a top producer in the region. ~3,400 ~1,400 The transaction includes 470,000 acres ~29,000 ~83,000 of licences across a new position in the liquids-rich Permian-Delaware basin, and two premium positions in the Eagle Ford and Size Number of Current production Haynesville basins. Together these assets will (acres) drilling sites (boe/d) significantly increase the liquid hydrocarbon Permian • Delaware sub-basin of the Permian in proportion of our production and resources – West Texas. helping to upgrade and reposition BPX Energy, • 83,000 acres with around 3,400 drilling sites. which was previously known as the US Lower • Current production – around 29,000boe/d 48 business. (~70% liquids). BPX Energy has operated as a separate Eagle Ford • Karnes Trough and Eagle Ford in South Texas. business since 2015. Its innovative approach • 194,000 acres with 1,400 gross to using new technology such as big-data drilling locations. analytics, augmented reality, drones and • Current production – around 83,000boe/d advanced drilling techniques, have helped (~70% liquids). the business achieve significant improvements Haynesville • East Texas and Louisiana. in operational and financial performance. • 194,000 acres with 720 gross drilling locations. We plan to apply this approach to operations • Current production – around 85,000boe/d, at our newly acquired basins. all gas. As at 31 December 2018. 24 BP Annual Report and Form 20-F 2018
Strategic report – performance 25 SeeGlossary to be to higher than due 2018 to . ct underlying production ct oil prices will continue be to volatile in the near term. reamcapital investment is expected increase, to largely as resulta OPEC quotas and entitlement impacts in our production-sharing major projects. The actual reported outcome will depend on the exact timing of project start-ups, acquisitions and divestments, agreements Five new major projects expected start to up in 2019. We expe Upst of our increased presence in the onshore US. We expe lower exploration write-offs. exploration lower Compared with result the 2016 reflected 2017 higher liquidsrealizations, and higher production including the impact of the Abu Dhabi onshore concession renewal and major projects start-ups, partly offset by higher exploration higher and amortization, and depletion depreciation, write-offs. Organic capital expenditure billion. was $12.0 In total, disposal transactions generated billion $2.1 in proceeds in 2018, with a corresponding reduction in net proved reserves of 229mmboe subsidiaries. our Thewithin major disposal transactions 2018 during were the disposal of our interests in the Bruce, Keith and Rhum fields in the UK North Sea and our interest in the Greater Kuparuk Area in the US, the consideration for which was a 16.5% interest in the Clair field in North Sea. More information on disposals is provided in Upstream analysis by region on page 279 and Financial statements – Note 4. tax was significantly higher in compared2018 This primarily with 2017. reflected higher liquids and gasrealizations, higher production and Fair value accounting effects had an adverse impact of $39 million relative management’s to view of performance. The result included 2017 a net non-operating charge of $671 million, primarilyrelated impairment to charges associated with a number of assets, following changes in reserves estimates, and the decision to dispose of certain assets. Fair value accounting effects had a favourable impact of $27 million relative management’s to view of performance. The result 2016 included a net non-operating gain of $1,753 million, primarilyrelated the to reversal of impairment charges associated with a number of assets, following a reduction in the discount rate applied and changes future to price assumptions. Fair value accounting effects had an adverse impact of $637 million. non-operatingAfter for adjusting accounting value fair and items and interest before result cost underlyingeffects, replacement the following changes in reserves estimates, the decision dispose to of certain assets and the decision relinquish to a number of leases expiring in the near future, partially offset by reversals of prior year impairment charges. See Financial statements – Note 5 for further information. Outlook for 2019 • • Exploration The group explores for oil and natural gas under a wide range contractual agreements. other arrangement and licensing, joint of We may do this alone more frequently, or, with partners. Our exploration and new access teams work optimize to our resource base and provide us with a greater number of options. In the current environment, we are spending less on exploration and we will spend a material part of our exploration budget on lower-risk, shorter-cycle-time opportunities positions. incumbent our around • • BP Annual Report and Form 20-F 2018 �e� �e� F��e-�ear ran�e F��e-�ear ran�e prices. Asian spotprices rose $9.76/ to 2 201� 201� 201� 201� �mm�tu� �� ���l� �� 2018 2018 �an Fe� �ar Apr �a� �un �ul Au� �ep ��t �o� �an Fe� �ar Apr �a� �un �ul Au� �ep ��t �o� � � � 120 �0 �0 �0 1�0 Henry Hub prices decreased $3.09/mmBtu to from in 2018 $3.11/ The UK NationalmmBtu in 2017. Balancing Point hub price was 60.38 pence per therm in 2018, 34% higher than (44.95), in 2017 on the back of increasing coal, oil and CO of more than $110 seen in 2011-13. Prices drifted seen in 2011-13. of more than higher $110 over the first half then of the year, rose more rapidly reach to an annual peak near $85 in October, before falling sharply and ending the year at an annual low point of about $50. Oil demand recorded a fourth consecutive above-average increase, growing by 1.3mmb/d. Global production increased by an even more robust 2.6mmb/d, with all of the increase coming from non-OPEC countries (2.7mmb/d); the US recorded record production growth of 2.2mmb/d. OPEC production fell slightly (-0.1mmb/d) for a second consecutive year as the group engaged with co-operating non-OPEC countries in production restraint early in the althoughyear, OPEC production began recover to in the second half of the year as production restraint was eased. Dated Brent crude oil prices averaged $71.31 per barrel – a in 2018 second consecutive annual increase but still well below the average which a significant proportion of production is priced directly or indirectly. Market prices Market Brent remains an integral marker the to production portfolio, from higher production and higher gas marketing and trading revenues. Replacement cost profit before interest and taxfor the segment included a net non-operating charge of $183 million. This primarily relates impairment to charges associated with a number of assets, mmBtu supported in 2018, up from $7.13/mmBtu by higher coal, and oil prices as well as a relatively tight LNG market – except in the later part of 2018, where ample LNG supplies combined with warm weather caused Asian spot prices drop to below to $9/mmBtu. For more information on global energy markets see in 2018 page 18. Financial results Sales and other operating revenues increased for 2018 compared with primarily reflectingrealizations,higherliquids higher production 2017, and higher gas marketing and trading revenues. The increase in 2017 compared with primarily 2016 reflected higher liquidsrealizations, ����� ��� B����
New access in 2018 Estimated net proved reservesa (net of royalties) 2 We gained access to new acreage covering around 63,000km in 2018 2017 2016 10 countries – Australia, Azerbaijan, Brazil, Canada, Egypt, Madagascar, Liquids million barrels Mexico, São Tomé and Príncipe, the UK North Sea and the US Gulf Crude oilb of Mexico. Subsidiaries 4,378 4,129 3,778 Exploration success Equity-accounted entitiesc 794 674 771 We participated in three potentially commercial discoveries in 2018 – 5,172 4,803 4,549 Manuel and Nearly Headless Nick in the US Gulf of Mexico and Bongos Natural gas liquids in Trinidad. Subsidiaries 576 318 373 Exploration and appraisal costs Equity-accounted entitiesc 15 18 16 Excluding lease acquisitions, the costs for exploration and appraisal 590 336 389 were $1,298 million (2017 $1,655 million, 2016 $1,402 million). Total liquids These costs included exploration and appraisal activities, which were d capitalized within intangible fixed assets, and geological and geophysical Subsidiaries 4,954 4,447 4,151 c exploration costs, which were charged to income as incurred. Equity-accounted entities 808 692 787 5,762 5,139 4,938 Approximately 5% of exploration and appraisal costs were directed Natural gas billion cubic feet towards appraisal activity. We participated in 29 gross (19 net) e exploration and appraisal wells in eight countries. Subsidiaries 30,355 29,263 28,888 Equity-accounted entitiesc 4,559 2,274 2,580 Exploration expense 34,914 31,537 31,468 Total exploration expense of $1,445 million (2017 $2,080 million, Total hydrocarbons million barrels of oil equivalent 2016 $1,721 million) included the write-off of expenses related to Subsidiaries 10,188 9,492 9,131 unsuccessful drilling activities, lease expiration or uncertainties around c development in the Gulf of Mexico ($450 million), Egypt ($236 million), Equity-accounted entities 1,594 1,085 1,232 and others ($759 million), as well as geological and geophysical 11,782 10,577 10,363 exploration costs (see Financial statements – Note 8). a Because of rounding, some totals may not agree exactly with the sum of their component Reserves booking parts. b Reserves bookings from new discoveries will depend on the results Includes condensate and bitumen. c BP’s share of reserves of equity-accounted entities in the Upstream segment. During 2018 of ongoing technical and commercial evaluations, including appraisal upstream operations in Argentina, Bolivia, Mexico, Russia and Norway as well as some of drilling. The segment’s total hydrocarbon reserves on an oil-equivalent our operations in Angola were conducted through equity-accounted entities. d basis, including the segment’s equity-accounted entities at 31 Includes 12 million barrels (14 million barrels at 31 December 2017 and 16 million barrels at 31 December 2016) in respect of the 30% non-controlling interest in BP Trinidad & December 2018, increased by 11% (an increase of 7% for subsidiaries Tobago LLC. and an increase of 47% for equity-accounted entities) compared with e Includes 1,573 billion cubic feet of natural gas (1,860 billion cubic feet at 31 December 2017 proved reserves at 31 December 2017. and 2,026 billion cubic feet at 31 December 2016) in respect of the 30% non-controlling interest in BP Trinidad & Tobago LLC. Proved reserves replacement ratio The proved reserves replacement ratio for the segment in 2018 was Developments 69% for subsidiaries and equity-accounted entities (2017 127%), 66% We achieved six major project start-ups in 2018 – in Azerbaijan, for subsidiaries alone (2017 133%) and 106% for equity-accounted Australia, the Gulf of Mexico, Egypt, Russia and the UK North Sea. entities alone (2017 78%). For more information on proved reserves In addition to these, we made good progress on projects in Trinidad, replacement for the group see page 285. Egypt and the UK North Sea. • Trinidad – Work on the Angelin project progressed well after we �������� ������ ���������mm�oe� started the drilling programme in late 2018, and we announced first gas production in February 2019. ������� • Egypt – Raven, the third phase of the West Nile Delta development 1� �u���d�ar�e� ����� � project is on target to achieve first gas in second half of 2019 with well 2� ��u�t�-a��ounted ent�t�e� 808 commissioning activities underway. ����� ����� 1 • UK North Sea – At Culzean, perforation of wells on the Total-operated project is about to get underway after completion of trees installation. ��� Production is expected in the first half of 2019. �� �u���d�ar�e� ��2�� � �� ��u�t�-a��ounted ent�t�e� �8� Subsidiaries’ development expenditure incurred, excluding midstream ����� ����� 2 activities, was $9.9 billion (2017 $10.7 billion, 2016 $11.1 billion). 26 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – performance 27 82 86 2016 179 184 494 943 1,122 1,025 1,939 5,796 8 4 85 93 64 2017 2017 199 207 547 302 269 889 5,302 064 1,149 2,1 1,263 1,356 1,208 1, 2,466 2,208 6,436 5, thousand barrels per day per thousand barrels million cubic feet per day SeeGlossary 8 96 88 211 474 121 129 2018 1,172 1,139 7,374 1,051 1,268 2,328 6,900 2,539 thousand barrels of oil equivalent per day a c c c c c b y-accounted entities y-accounted entities y-accounted entities y-accounted entities y-accounted entities idiaries idiaries idiaries idiaries Subs Subsidiaries Subsidiaries Equit Subsidiaries Equit Subsidiaries Equit Subs Equit Equit Because of rounding, some totals may not agree exactly with the sum of their component parts. bitumen. and condensate Includes Includes BP’s share of production of equity-accounted entities in the Upstream segment. Total liquids Total Natural gas Production (net of royalties) of commodity derivative contracts. It also enhances margins and generates fee income from sourcessuch as the management of risk and creating incremental trading opportunities through the use price risk on behalf of third-party customers. Our trading financial risk governance framework is described in Financial statements – Note 29 and the range of contracts used is described in Glossary – commodity trading contracts on page 315. on production see Oil and gas disclosures for the group on page 285. In aggregate, underlying production increased versus 2017. The group and its equity-accounted entities have numerous long-term sales commitments in their various business activities, all of which are expected be to sourced from supplies available the to group that arenot subject priorities, to curtailments or other restrictions. No single contract or group of related contracts is material the to group. and compliance trading of set consistent one and markets trading gas risk management processes, systems and controls. We are expanding our LNG portfolio, which includes global partnerships with utility companies. gas and oil national and distributors gas companies, The activity primarily takes place in North America, Europe and price market managing LNG supports activities, Asia, and group a b c Our total hydrocarbon production for the segment was in 2018 3.0% higher compared The increase with comprised 2017. increase a 7.6% (0.9% decrease increase for liquids for gas) and for subsidiaries 17.2% and a 30.0% decrease for liquids (37.6% for gas) and 13.4% for equity-accounted entities compared For more information with 2017. Gas and power marketing and trading activities Our integrated supply and trading function markets and trades our own and third-party natural gas (including LNG), biogas, power and NGLs. This provides us with routes liquid into markets for the gas we produce and generates margins and fees from selling physical products parties, asset third with income from together derivatives to and optimization and trading. This means we have a single interface with Liquids oil Crude Natural gas liquids hydrocarbons Total BP Annual Report and Form 20-F 2018 Oil Gas Type . Location Trinidad Egypt US Gulf of Mexico Trinidad UK North Sea India India Oman Indonesia Egypt UK North Sea US Gulf of Mexico US Gulf of Mexico US Gulf of Mexico UK North Sea Angola Azerbaijan Australia Egypt UK North Sea Russia US Gulf of Mexico a a esource types: oil, conventional across split e of development types: brownfield to exploration from a raphic spread: across six of the seven continents. a mix of r unconventionals and gas conventional oil, deepwater and near-field.and geog a rang Production commenced in early 2019. a 2021 Beyond We have a deep hopper of projects that are currently under appraisal. Our focus here is ensure to we maximize value and select the optimum project concept before we move it forward design.into We do not expect progress to all of the projects – only the best. This includes: • Alligin* Phase 3 Atlantis Constellation Mad Dog Phase 2* Manuel* Vorlich* Zinia 2 KG D6KG R-Series D6KG Satellites Khazzan Phase 2* Expansion* Tangguh West Nile Delta Giza and Fayoum* West Nile Delta Raven* Expected start-ups 2019-2021 Expected start-ups Projects under construction currently Angelin* Compression* Cassia Culzean 2018 start-ups 2018 Shah Deniz Stage 2* Western Flank B Atoll Phase 1* Ridge* Clair ExpansionTaas Thunder Horse North West Expansion* *BP operated Project • • Our project pipeline Production Our offshore and onshore oil and natural gas production assets include wells, gathering centres, in-field flow lines,processing facilities,storage facilities, offshore platforms, export systems (e.g. transit lines), pipelines and LNG plant facilities. These includeproduction from conventional and unconventional assets. Our principal areas of production are Angola, Argentina, Australia, Azerbaijan, Egypt, Oman, Trinidad, the UAE, the UK and the US. With BP-operated plant reliability increasing from around 96% to 86% in 2018, in 2011 efficient delivery of turnarounds and strong infill drilling performance, we have maintained base decline at less than on 3% average over thelast fiveyears. Our long-term expectation for managed base decline remains at the 3-5% per annum guidance we have previously given.
Downstream In 2018 we have continued to demonstrate, through the execution of our strategy, that we have a competitively advantaged business. Our strategy is fit for now and fit for the future. Tufan Erginbilgic Chief executive, Downstream 10% 1,400 46% Downstream profitability ($ billion) fuels marketing earnings convenience of lubricant sales 6.9 2018 7.6 growth (17% on an partnership sites were premium grade 7.2 underlying RC profit basis) 2017 7.0 5.2 (2017 >10%) (2017 1,100) (2017 44%) 2016 5.6 7.1 2015 7.5 3.7 94.9% 1.7 11.9 2014 4.4 refining availability million barrels of oil million tonnes of refined per day petrochemicals produced Replacement cost (RC) profit before interest and tax Underlying RC profit before interest and tax (2017 95.3%) (2017 1.7mmb/d) (2017 15.3mmte) Business model The Downstream segment has global marketing and manufacturing operations. It is the product and service-led arm of BP, made up of three businesses Fuels Lubricants Petrochemicals Includes refineries, logistic networks and Manufactures and markets lubricants and Manufactures and markets products that are fuels marketing businesses, which together related products and services to the produced using industry-leading proprietary with global oil supply and trading activities, automotive, industrial, marine and energy BP technology, and are then used by others make up our integrated fuels value chains markets globally. We add value through to make essential consumer products such (FVCs). We sell refined petroleum products brand, technology and relationships, such as food packaging, textiles and building including gasoline, diesel and aviation fuel, as collaboration with original equipment materials. We also license our technologies and have a significant presence in the manufacturing partners. to third parties. convenience retail sector and a growing presence in the advanced mobility and low carbon sectors. Strategy We aim to run safe and reliable operations across all our businesses, supported by leading brands and technologies, to deliver high-quality products and services that meet our customers’ needs. Our strategy is to deliver underlying earnings growth and build competitively advantaged businesses. It is fit for now and fit for the future. The execution of our strategy in 2018 has continued to deliver, with underlying replacement cost profit growing to $7.6 billion in the year. Safe and reliable operations Advantaged manufacturing Simplification and efficiency This remains our core value and first priority We aim to have a competitively advantaged This remains central to what we do to support and we continue to drive improvements in refining and petrochemicals portfolio performance improvement and make our personal and process safety performance. underpinned by operational excellence and businesses even more competitive. to grow earnings potential, making the businesses more resilient to margin volatility. Profitable marketing growth Transition to a lower carbon We invest in higher-returning fuels marketing and digitally enabled future and lubricants businesses with growth We are delivering and developing new potential and reliable cash flows. products, offers and business models that support the transition to a lower carbon and digitally enabled future. 28 See Glossary BP Annual Report and Form 20-F 2018
Market-led growth in the downstream Strategic report – performance Convenience partnerships Throughout 2018 BP continued We increased the number of convenience to transform its global retail partnership sites by over 25% in 2018 – taking the total to around 1,400 sites across our business. We’ve refreshed our network. Much of this growth was in Germany, We have rolled out our forecourts, rolled out more BP where our strategic partnership with REWE fuels with ACTIVE technology and to Go® is expanding rapidly. Since opening Ultimate fuel to forecourts further enhanced our customer our first site in 2014, we now have over 460 in China. offers. And that’s not all, we’re in the country, and around half of those opened in 2018. Our REWE to Go® sites also rapidly expanding our deliver substantially higher returns than convenience partnerships. an industry average site, driven by our Global markets differentiated customer offer including fresh, Our footprint in Mexico is growing and we quality food and drink. now have 440 BP-operated sites, more than We also continue to grow our convenience 300 of which were opened in 2018. We are partnership model in established markets also continuing to progress our plans for >25% such as the UK with M&S Simply Food® and growth in China, and in Indonesia we opened increase in convenience in October we opened our first partnership our first sites at the end of the year. partnership sites site in Luxembourg with MyAuchan®. BP Annual Report and Form 20-F 2018 29
Financial performance Our fuels business $ million Our fuels strategy focuses primarily on fuels value chains (FVCs). This 2018 2017 2016 includes building an advantaged refining portfolio through operating Sale of crude oil through spot reliability and efficiency, location advantage and feedstock flexibility, as and term contracts 62,484 47,702 31,569 well as commercial optimization opportunities. We believe that having Marketing, spot and term sales a quality refining portfolio connected to strong marketing positions is of refined products 195,020 159,475 126,419 core to our integrated FVC businesses as this provides optimization Other sales and operating opportunities in highly competitive markets. revenues 13,185 12,676 9,695 Our fuels marketing business comprises retail, business-to-business Sales and other operating and aviation fuels. It is a material part of Downstream with a strong revenuesa 270,689 219,853 167,683 track record of growth. We have an advantaged portfolio of assets with b RC profit before interest and tax good growth potential, attractive returns and reliable cash flows. We Fuels 5,261 4,679 3,337 continue to grow our fuels marketing business through our differentiated Lubricants 1,065 1,457 1,439 marketing offers and strategic convenience partnerships. We also Petrochemicals 614 1,085 386 partner with leading retailers, creating distinctive retail offers that aim 6,940 7,221 5,162 to deliver good returns and reliable profit growth and cash generation. Net (favourable) adverse impact Underlying RC profit before interest and tax for our fuels business of non-operating items and was higher compared with 2017, reflecting continued growth in fuels fair value accounting effects marketing and refining despite 2018 having one of the highest levels Fuels 381 193 390 of turnaround activity in our history. This was partially offset by a weaker Lubricants 227 22 84 contribution from supply and trading. Compared with 2016, the 2017 Petrochemicals 13 (469) (2) result was higher, reflecting stronger refining performance and growth 621 (254) 472 in fuels marketing, partially offset by a weaker contribution from supply Underlying RC profit before and trading. interest and taxb Refining marker margin Fuels 5,642 4,872 3,727 We track the refining margin environment using a global refining marker Lubricants 1,292 1,479 1,523 margin (RMM). Refining margins are a measure of the difference Petrochemicals 627 616 384 between the price a refinery pays for its inputs (crude oil) and the market 7,561 6,967 5,634 price of its products. Although refineries produce a variety of petroleum Organic capital expenditure c 2,781 2,399 2,102 products, we track the margin environment using a simplified indicator that reflects the margins achieved on gasoline and diesel only. The a Includes sales to other segments. b Income from petrochemicals produced at our Gelsenkirchen and Mülheim sites in Germany RMM may not be representative of the margin achieved by BP in any is reported in the fuels business. Segment-level overhead expenses are included in the fuels period because of BP’s particular refinery configurations and crude and business result. product slates. In addition, the RMM does not include estimates of c A reconciliation to GAAP information at the group level is provided on page 275. energy or other variable costs. Financial results Sales and other operating revenues in 2018 were higher due to higher $ per barrel Region Crude marker 2018 2017 2016 crude and product prices. Sales and other operating revenues in 2017 Alaska North were higher than 2016 due to higher crude and product prices as well US North West Slope 16.2 18.8 16.9 as higher sales volumes. West Texas Replacement cost (RC) profit before interest and tax for 2018 included US Midwest Intermediate 16.0 16.9 13.2 a net non-operating charge of $716 million, primarily reflecting Northwest Europe Brent 11.1 11.7 10.0 restructuring costs. The 2017 result included a net non-operating gain Mediterranean Azeri Light 9.8 10.4 9.0 of $389 million, primarily reflecting the gain on disposal of our share in Australia Brent 11.5 12.9 10.9 the Shanghai SECCO Petrochemical Company Limited (SECCO) joint BP RMM 13.1 14.1 11.8 venture in petrochemicals, while the 2016 result included a net non-operating charge of $24 million, mainly relating to a gain on disposal in our fuels business which was more than offset by restructuring and The global RMM averaged $13.1/bbl in 2018, $1/bbl lower than in 2017. other charges. In addition fair value accounting effects had a favourable The RMM was lower mainly due to weaker gasoline margins as a result impact of $95 million, compared with an adverse impact of $135 million of lower demand growth and higher inventory levels in the US. in 2017 and $448 million in 2016. BP refining marker margin �����l� After adjusting for non-operating items and fair value accounting effects, �2 underlying RC profit before interest and tax in 2018 was $7,561 million. Outlook for 2019 2� We anticipate lower industry refining margins, narrower North American heavy crude oil discounts and a lower level of turnaround activity than 1� in 2018. 8 2018 201� 201� F��e-�ear ran�e �an Fe� �ar Apr �a� �un �ul Au� �ep ��t �o� �e� 30 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – performance 31 SeeGlossary in operational and transactional processes and deliver compelling compelling deliver and processes transactional and operational in customer offers in the various markets where we operate. Through our retail business, we supply fuel and convenience retail services partnerships, convenience technology retail our of strength the by such as our advanced fuels and use of digital technology, as well as our enables growth This our differentiation in relationships. customer existing markets and supports our growth plans in new material markets such as Mexico, India, Indonesia and China. During we continued 2018 our expansion in Mexico with 440 BP-branded sites operational at the end In the of the fourth year. quarter we also of 2018 opened our first retail sites in Indonesia. Fuels marketing and logistics Across our fuels marketing businesses, we operate an advantaged storage pipelines, includes that network logistics and infrastructure terminals and tankers for road and rail. seek We drive to excellence consumersto through company-owned and franchised retail sites, as well as other channels, including dealers and jobbers. We also transport the supply in commercial customers industrial sectors. and Retail is the most material part of our fuels marketing business and a significant source of earnings growth through our strong market underpinned is This offers. customer distinctive and brands positions, BP Annual Report and Form 20-F 2018 % 2016 236 803 646 a 5.3 95.3 713 216 2017 773 9 1,702 1,685 thousand barrels per day per thousand barrels 241 781 2018 703 94.9 1,725 rates at 91% (2017 90%). (2017 As a result rates at 91% ab , a measure of the competitiveness of our refinery portfolio, ning availability nery throughputs fi fi This does not include BP’s interest in Pan American Energy Group, which is reported through segment. Upstream the volumes. feedstock other and oil reflect crude Refinerythroughputs Total Re a b Re US Europe Rest of world Refining DecemberAt31 we owned 2018 refineries or had a share in 11 and extended lower carbon bio-processing more into of our refineries. The refiningresult was higher reflecting in compared2018 with 2017, in which operations, strong and optimization commercial increased North America allowed us capture to the benefits from higher North American heavy crude oil discounts, partially offset by lower industry refining margins and a higher level of turnaround activity. Compared with 2016, refining performance capturingcontinuedto improve in 2017, efficiency industryhigher and margins refining well as benefits as increased commercial optimization including the benefits of higher levels of advantaged feedstock. This was, partially however, offset by a higher level of planned turnaround activity. producing refined petroleum products that we supplyretailto and commercial customers. For a summary of our interests in refineries and average daily crude distillation capacities see page 284. Underlying growth in our refining business is underpinned by our multi-year business improvement plans, which comprise globally efficiency, and reliability operating on focused programmes consistent Operating optimization. commercial and feedstocks advantaged reliability is a core foundation of our refining business and in 2018 operations remained strong, with refining availability of 94.9% (2017 refinery utilization 95.3%) and we achieved record levels of refining throughput on a current portfolio basis despite high turnaround activity. Our refinery portfolio – along with our supply capability – enables us processto advantaged crudes. For example, in the US, our three location-advantaged crudes to have Canadian all access refineries In we delivered 2018 continued improvement in our net cash margin per barrel which are typically cheaper than other crudes. Our commercial optimization programme aims maximize to value from our refineries by capturing opportunities in every step of the value chain, from crude selection through yield to optimization and utilization improvements.
We have a clear strategy and focused activity set for the transition to a Aviation lower carbon and digitally enabled future. We are actively implementing Our Air BP business is one of the world’s largest suppliers of aviation and developing new offers and business models centred around digital fuels and services, selling fuel to commercial airlines, the military and advanced mobility trends. In 2018 we acquired Chargemaster, the and general aviation customers at around 800 locations across more operator of the UK’s largest electric vehicle charging network and than 50 countries. We have marketing sales of more than 430,000 invested in StoreDot, a leading developer of ultra-fast charging battery barrels per day. Air BP’s services include the design, build and operation technology and FreeWire, a manufacturer of mobile rapid charging of fuelling facilities, technical consultancy and training, supporting systems for electric vehicles. Our ambition is to roll out more than 2,000 customers to meet their lower carbon goals and digital fuelling solutions additional charging points in the UK, bringing the total to around 9,000 to increase efficiency and reduce risk. Our Air BP business is by 2021, including more than 400 new ultra-fast chargers at our retail differentiated through its strong market positions, brand strength, forecourts – see page 42. These investments and our differentiated partnerships, technology and customer relationships. Our strategy is fuels and convenience offers support BP’s aim to become the leading to maintain a strong presence in our core geographies of Australia, fuel provider for both conventional and electric vehicles. New Zealand, Europe, the Middle East and the US, while expanding into major growth markets that offer long-term competitive advantages, Fuels marketing performance in 2018 was significantly higher compared such as Asia, Africa and Latin America. with 2017, reflecting the benefits from our strategic improvement programmes, enabling improved margin capture and supply chain In 2018 we continued to develop new offers and solutions in response optimization. Our convenience partnership model is now in around to the needs of our customers. This included a collaboration with Neste, 1,400 sites across our network, with more than 460 sites in Germany a leading producer of renewable products, to advance the supply with our REWE to Go® offer. Compared with 2016, fuels marketing of sustainable aviation fuels. We also launched the world’s first performance in 2017 was higher, reflecting continued earnings growth commercially deployed airfield automation system that actively supported by higher premium fuel volumes, and the continued roll out of helps prevent misfuelling. This digital platform for operators and airports our convenience partnership model. provides an integrated, real-time, global solution to strengthen safety barriers and mitigate risks during the fuelling process. thousand barrels per day Sales volumes 2018 2017 2016 Oil supply and trading Marketing salesa 2,736 2,799 2,825 Our integrated supply and trading function is responsible for delivering Trading/supply salesb 3,194 3,149 2,775 value across the overall crude and oil products supply chain. This Total refined product sales 5,930 5,948 5,600 structure enables our downstream businesses to maintain a single interface with oil trading markets and operate with one set of trading Crude oilc 2,624 2,616 2,169 compliance and risk management processes, systems and controls. Total 8,554 8,564 7,769 It has a two-fold purpose: a Marketing sales include branded and unbranded sales of refined fuel products and lubricants First, it seeks to identify the best markets and prices for our crude oil, to both business-to-business and business-to-consumer customers, including service station dealers, jobbers, airlines, small and large resellers such as hypermarkets as well source optimal raw materials for our refineries and provide competitive as the military. supply for our marketing businesses. We will often sell our own crude b Trading/supply sales are fuel sales to large unbranded resellers and other oil companies. and purchase alternative crudes from third parties for our refineries c Crude oil sales relate to transactions executed by our integrated supply and trading function, primarily for optimizing crude oil supplies to our refineries and in other trading. 2018 includes where this will provide incremental margin. 102 thousand barrels per day relating to revenues reported by the Upstream segment. Second, it aims to create and capture incremental trading opportunities Number of BP-branded retail sites by entering into a full range of exchange-traded commodity derivatives, Retail sitesd 2018 2017 2016 over-the-counter contracts and spot and term contracts. In combination US 7,200 7,200 7,100 with rights to access storage and transportation capacity, it seeks to Europe 8,200 8,100 8,100 access advantageous price differences between locations and time periods, and to arbitrage between markets. Rest of world 3,300 3,000 2,800 Total 18,700 18,300 18,000 The function has trading offices in Europe, North America and Asia. Our presence in the more actively traded regions of the global oil markets d Reported to the nearest 100. Includes sites not operated by BP but instead operated by dealers, jobbers, franchisees or brand licensees under a BP brand. These may move to supports overall understanding of the supply and demand forces across or from the BP brand as their fuel supply or brand licence agreements expire and are these markets. renegotiated in the normal course of business. Retail sites are primarily branded BP, ARCO and Aral. Our trading financial risk governance framework is described in Financial statements – Note 29 and the range of contracts used is described in Glossary – commodity trading contracts on page 315. 32 BP Annual Report and Form 20-F 2018
Strategic report – performance 33 SeeGlossary in Asia, where our partners are leading a number of joint arrangements Our petrochemicals business main three markets and Our petrochemicals manufactures business product lines: purifiedterephthalic acid (PTA), paraxylene (PX) and acetic acid. These have a large range of uses including polyester fibre,food packaging and building materials. We also produce a number of other specialty petrochemicals products. In addition, we manufacture olefins Germany, in Mülheim at solvents and Gelsenkirchen derivatives at and the income fromwhich is reported in our fuels business. Along with the assets we own and operate, we have also invested in and PX licences announced globally. In we also 2018 signed a heads of agreement with SOCAR evaluate to the creation of a joint venture build to and operate a world-scale petrochemicals This complex facility in Turkey. would be the largest We do this through the executionof our business improvement our deploying efficiency, operational include which programmes and optimization commercial industry-leading technology, proprietary competitive feedstocksourcing. We also aim grow to our third-party technology licensing income create to additional value. We continue work to on reducing our carbon footprint through the application of our proprietary technologies, and are assessing further opportunities advance to the circular economy in the chemicals and plastics sector. In the 2018 petrochemicals business delivered an underlying RC profit before interest and tax that was higher compared with– 2017 which in turn was higher than 2016. The result 2018 reflected an improved margin environment, increased margin optimization and continued cost management focus, partially offset by a higher level of turnaround activity and the divestment of our 50% shareholding in the SECCO joint venture, which completed in the fourth quarter of 2017. Compared with 2016, the higher result reflected in 2017 an improved margin environment, higher margin optimization, the benefits from our efficiency programmes and a lower level of turnaround activity. This was partially offset by the impact of the divestment of our interest lower and than 15.3mmte, (2017 2016 2017 14.2mmte) 2016 due to interest activity our turnaround of of divestment the levels and higher in the SECCO joint venture in 2017. Our technology remains a significant source of competitive advantage. In we secured 2018 six new licensing agreements out PTA of the 10 and most competitive integrated PTA, PX and aromatics complex hemisphere. western the in companies in their domestic market. market. domestic their companies in Our strategy is grow to our underlying earnings and ensure the business is resilient margin to volatility, positioning ourselves capture to growth opportunities attractive market. an investment and in growing and in the SECCO joint venture. Our petrochemicals production million tonnes was in 2018 of 11.9 BP Annual Report and Form 20-F 2018 is a Castrol . and Aral BP , into China, into an engine oil that uses plant-derived 25% Our lubricants business We manufacture and market lubricants and related products and energy markets industrial, and marine services automotive, the to across the world. Our brands key are Castrol our expertise create to differentiated, premium lubricants and high- performance fluidsfor customers in on-road, off-road, sea and industrial applications. In we extended 2018 the roll out of Castrol EDGE BIO-SYNTHETIC oil compounds while delivering a high level of performance. The lubricants business delivered an underlying RC profit before interest and tax The that results was 2018 lower reflected than 2017. continued premium brand growth, more than offset by the adverse lag impact of increasing base oil prices, as well as adverse foreign exchange rate movements. The results 2017 reflected growth in premium brands recognized brand worldwide that we believe provides us with significant competitive advantage. We are one of the largest purchasers of base oil in the market but have chosen not produce to it or manufacture additives at scale. Our participation choices in the value chain are focused on strength. and competitive differentiation can leverage we where areas Our strategy is focus to on our premium lubricants and growth markets customer and technology brands, strong our leveraging while relationships – all of which are sources of differentiation for our business. With 65% of profit generated from growth markets and 46%of our sales from premium grade lubricants, we have a strong base for further expansion and sustained profit growth. significantly Renaultwith relationship we strengthened our 2018 In through the continuation of our Renault Formula 1 sponsorship with Renault SportRacing, and are exploring new opportunities work to globally with the Renault-Nissan-Mitsubishi Alliance.This includes collaborating innumber a of areas including fuel andlubricants supply and the joint development of advanced mobility solutions and new technologies. We have a robust pipeline of technology development through which we seek respond to engine to developments and evolving consumer apply We carbon options. lower including preferences, and needs and growth markets, offset by the adverse lag impact of increasing base oil prices.
Rosneft Rosneft is the largest oil company in Russia, with a strong portfolio of current and future opportunities. Russia has one of the largest and lowest-cost hydrocarbon resource bases in the world and its resources play an important role in long-term energy supply to the global economy. BP ����� �� ������� �������� 19.75% 8,163 1.1 �� m�ll�on�� BP’s shareholding in Rosneft million barrels of oil equivalent million barrels of oil equivalent – BP share of Rosneft proved per day – BP share of Rosneft ���� ��� ��� reserves hydrocarbon production 201� 12� 1�0 (2017 7,864mmboe) (2017 1.1mmboe/d) 201� ��2 18 2.33 >2,960 201� 2�1 201� ��� refineries – owned million barrels of oil retail service stations, or hold a stake in refined per day in Russia and abroad �nter�m Annual �or pre��ou� �ear� le�� �nter�m (2017 18) (2017 2.29mmb/d) (2017 >2,960) ��et o� ��t��old�n� ta�e�� Rosneft is the largest oil company in Russia and the largest publicly traded oil company in the world, based on hydrocarbon production New fuels volume. Rosneft has a major resource base of hydrocarbons onshore and offshore, with assets in all Russia’s key hydrocarbon regions. Rosneft is the leading Russian refining company based on throughput. It owns and operates 13 refineries in Russia, and also holds stakes in three refineries in Germany, one in India and one in Belarus. Downstream operations include jet fuel, bunkering, bitumen and lubricants. Rosneft also owns and operates Rosneft-branded retail service stations, as well as BP-branded sites operating under a licensing agreement. Rosneft’s largest shareholder is Rosneftegaz JSC (Rosneftegaz), which is wholly owned by the Russian government. Rosneftegaz’s shareholding in Rosneft is 50% plus one share. 2018 summary • BP received $620 million, net of withholding taxes, (2017 $314 million, 2016 $332 million), representing its share of Rosneft’s dividends. • Rosneft implemented a new dividend policy in 2017, which provides for a target level of dividends of no less than 50% of IFRS net profit, and a target frequency of dividend payments of at least twice a year. • Rosneft and BP launched a new range of fuels featuring ACTIVE technology at all BP retail service stations in Russia. • BP remains committed to our strategic investment in Rosneft, while complying with all relevant sanctions. 34 BP Annual Report and Form 20-F 2018
Strategic report – performance 35 t-ups 2018 in SeeGlossary 6 major project star Taas – one of BP’sTaas llaborates on the provision of technical, HSE and See Innovation in BP on page 41. See Innovation in BP on page Collaboration BP co non-technical services on a contractual basis improve to functional asset performance.functional asset BP Annual Report and Form 20-F 2018 started up ember Rosneft 2017 and BP announced an ds a 20% interest in Taas-Yuryakh Neftegazodobycha eft (51%) and BP (49%)eft jointly (51%) own Neftegaz Yermak rtners with Rosneft generate to incremental value from Rosn in 2018. The project was delivered under budget and on schedule. In BP 2018 received the first dividends from of $48Taas million, net of withholding taxes. BP’s interest is reportedin Taas through the Upstream segment. BP hol In Dec is reported through the Upstream segment. LLC (Yermak). This joint venture conducts onshore exploration in the West Siberian andYenisei-Khatanga basins and currently holds seven exploration and production licences. The venture has also carried out further appraisal work on the Baikalovskoye field,existing an Rosneft discovery in the Yenisei-Khatanga area of mutual interest. In September Rosneft and BP also agreed jointly to explore two additional oil and gas licence areas located in Sakha (Yakutia) republic of the Russian Federation via Yermak. Completion of the deal, subject external to approvals, is expected in 2019. BP’s interest in Yermak This was the second of six BP major projects (Taas), together with and a consortium Rosneft (50.1%) Corporation Limited Oil Indian Limited, India Oil comprising and Bharat PetroResources Limited (29.9%). Taas completed commissioning of the main project facilities for the Srednebotuobinskoye oil and gas condensate field. agreement to develop resources within the Kharampurskoe the within resources develop to agreement Yamalo-Nenets in licence areas Festivalnoye and in northern Russia. In the second quarter BP of 2018 acquired a 49% stake in LLC Kharampurneftegaz and in December the2018 licence transfer was completed. BP’s interest is reported through the Upstream segment. Joint ventures s a 19.75% shareholdings a 19.75% and two directors on the 11-person • BP pa joint ventures and associates that are separate from BP’s core shareholding. 19.75% • • Rosneft Board of Directors BP ha board. Bob Dudley and Guillermo Quintero are currently elected to roles. those BP’s strategy Russia in Our strategy is work to in co-operation with Rosneft increase to total shareholder return. This comprises support for our shareholding and partnering with Rosneft in building a material business in addition to the shareholding. This strategy is implemented through our activities in the following areas.
Rosneft segment performance Balance sheet $ million BP’s investment in Rosneft is managed and reported as a separate 2018 2017 2016 segment under IFRS. The segment result includes equity-accounted Investments in associates c earnings, representing BP’s 19.75% share of the profit or loss of (as at 31 December) 10,074 10,059 8,243 Rosneft, as adjusted for the accounting required under IFRS relating to BP’s purchase of its interest in Rosneft and the amortization of the Production and reserves deferred gain relating to the disposal of BP’s interest in TNK-BP. 2018 2017 2016 See Financial statements – Note 17 for further information. Production (net of royalties) (BP share) $ million Liquids (mb/d) 2018 2017 2016 Crude oild 919 900 836 Profit before interest and taxa b 2,288 923 643 Natural gas liquids 4 4 4 Inventory holding (gains) losses (67) (87) (53) Total liquids 923 904 840 RC profit before interest and tax 2,221 836 590 Natural gas (mmcf/d) 1,285 1,308 1,279 Net charge (credit) for non-operating items 95 – (23) Total hydrocarbons (mboe/d) 1,144 1,129 1,060 Underlying RC profit before interest and tax 2,316 836 567 Estimated net proved reservese Average oil marker prices $ per barrel (net of royalties) (BP share) Urals (Northwest Europe – CIF) 69.89 52.84 41.68 Liquids (million barrels) a BP’s share of Rosneft’s earnings after finance costs, taxation and non-controlling interests Crude oild 5,539 5,402 5,330 is included in the BP group income statement within profit before interest and taxation. Natural gas liquids 154 131 65 b Includes $(5) million (2017 $(2) million, 2016 $3 million) of foreign exchange (gain)/losses arising on the dividend received. Total liquidsf 5,693 5,533 5,395 Natural gas (billion cubic feet)g 14,325 13,522 11,900 Market price The price of Urals delivered in North West Europe (Rotterdam) averaged Total hydrocarbons (mmboe) 8,163 7,864 7,447 $69.89/bbl in 2018. The discount to dated Brent was $1.42/bbl, similar c See Financial statements – Note 17 for further information. to 2017 ($1.35/bbl). d Includes condensate. e Because of rounding, some totals may not agree exactly with the sum of their component parts. f Includes 356 million barrels of liquids (338 million barrels at 31 December 2017 and 347 Financial results million barrels at 31 December 2016) in respect of the 6.32% non-controlling interest Replacement cost (RC) profit before interest and tax for the segment (6.31% at 31 December 2017 and 6.58% at 31 December 2016) in Rosneft held assets in Russia including 24 million barrels (6 million barrels at 31 December 2017 and 6 million included a non-operating charge of $95 million for 2018 and a non- barrels at 31 December 2016) held through BP’s interests in Russia other than Rosneft. operating gain of $23 million for 2016, whereas the 2017 results did g Includes 1,211 billion cubic feet of natural gas (306 billion cubic feet at 31 December 2017 not include any non-operating items. and 300 billion cubic feet at 31 December 2016) in respect of the 8.60% non-controlling interest (2.30% at 31 December 2017 and 2.53% at 31 December 2016) in Rosneft held After adjusting for non-operating items, the increase in the underlying assets in Russia including 480 billion cubic feet (2 billion cubic feet at 31 December 2017 and 1 billion cubic feet at 31 December 2016) held through BP’s interests in Russia other RC profit before interest and tax compared with 2017 primarily reflected than Rosneft. higher oil prices and favourable foreign exchange, partially offset by adverse duty lag effects. Compared with 2016, the 2017 result was affected by higher oil prices partially offset by adverse foreign exchange effects. The 2017 result also benefited from a $163-million gain representing the BP share of a voluntary out-of-court settlement between Sistema, Sistema-Invest and the Rosneft subsidiary, Bashneft. See also Financial statements – Notes 17 and 32 for other foreign exchange effects. 36 See Glossary BP Annual Report and Form 20-F 2018
Other businesses and corporate Strategic report – performance Comprises our alternative energy business, shipping, treasury and corporate activities, including centralized functions and the costs of the Gulf of Mexico oil spill. $ million 2018 2017 2016 Sales and other operating revenuesa 1,678 1,469 1,667 RC profit (loss) before interest and tax Gulf of Mexico oil spill (714) (2,687) (6,640) Other (2,807) (1,758) (1,517) RC profit (loss) before interest and tax (3,521) (4,445) (8,157) Net adverse impact of non-operating items Gulf of Mexico oil spill 714 2,687 6,640 Other 1,249 160 279 Net charge (credit) for non-operating items 1,963 2,847 6,919 Underlying RC profit (loss) before interest and tax (1,558) (1,598) (1,238) Organic capital expenditure b 332 339 229 a Includes sales to other segments. b A reconciliation to GAAP information at the group level is provided on page 275. The replacement cost (RC) loss before interest and tax for the year Treasury ended 31 December 2018 was $3,521 million (2017 $4,445 million, Treasury manages the financing of the group centrally, with 2016 $8,157 million). The 2018 result included a net charge for non- responsibility for managing the group’s debt profile, share buyback operating items of $1,963 million, including Gulf of Mexico oil spill programmes and dividend payments, while ensuring liquidity is related costs of $714 million (non-operating items in 2017 $2,847 sufficient to meet group requirements. It also manages key financial million, 2016 $6,919 million). For further information, see Financial risks including interest rate, foreign exchange, pension funding and statements – Note 2. investment, and financial institution credit risk. From locations in the UK, US and Singapore, treasury provides the interface between BP and After adjusting for these non-operating items, the underlying RC the international financial markets and supports the financing of BP’s loss before interest and tax for the year ended 31 December 2018 projects around the world. Treasury holds foreign exchange and interest was $1,558 million, similar to prior year (2017 $1,598 million, 2016 rate products in the financial markets to hedge group exposures. In $1,238 million). addition, treasury generates incremental value through optimizing and Outlook managing cash flows and the short-term investment of operational cash Other businesses and corporate annual charges, excluding non- balances. For further information, see Financial statements – Note 29. operating items, are expected to be around $1.4 billion in 2019. Insurance Shipping The group generally restricts its purchase of insurance to situations BP’s shipping and chartering activities help to ensure the safe where this is required for legal or contractual reasons. Some risks are transportation of our hydrocarbon products using a combination insured with third parties and reinsured by group insurance companies. of BP-operated, time-chartered and spot-chartered vessels. At This approach is reviewed on a regular basis or if specific circumstances 31 December 2018 BP had three time-chartered vessels to support require such a review. operations in Alaska and 34 BP-operated and 22 time-chartered vessels for our international oil and gas shipping operations. In 2018 three new technically advanced LNG tankers were delivered into the BP-operated fleet, with a further three to be delivered in 2019. All vessels conducting BP shipping activities are required to meet BP approved health, safety, security and environmental standards. BP Annual Report and Form 20-F 2018 See Glossary 37
Alternative energy 2.8 million tonnes of CO2 equivalent avoided in 2018. BP has been in the renewable energy business for more than 20 years. Biofuels We remain one of the largest operators among our peers and we’re We believe that biofuels offer one of the best large-scale solutions expanding in areas where we see opportunities for growth. to reduce emissions in the transportation system. Renewables are the fastest-growing energy source in the world today We produce ethanol from sugar cane in Brazil, which has life-cycle and we estimate that they could provide at least 15% of the global greenhouse gas emissions around 70% lower than conventional energy mix by 2040. transport fuels. In 2018 our three sites produced 765 million litres of ethanol equivalent. As part of our approach to building our alternative energy business, we aim to grow our existing businesses and to develop new businesses Brazil is one of the world’s largest markets for ethanol fuel. In order and partnerships to deliver competitive value in the fastest-growing to better connect our ethanol production with the country’s main fuels energy sector. markets, we established a joint venture in 2018 with Copersucar – one of the world’s leading ethanol and sugar traders. This includes operating Solar energy a major ethanol storage terminal in Brazil’s main fuels distribution hub. Solar could generate 12% of total global power by 2040, in a scenario based on recent trends. That could grow to 21% in a scenario consistent Our Tropical and Ituiutaba biofuels sites are certified to Bonsucro, an with the Paris climate goals. independent standard for sustainable sugar cane production. We are working towards certification for Itumbiara in 2019. We have a 43% share in Lightsource BP and plan to invest $200 million over a three-year period. Lightsource BP aims to play a vital role in Our strategy is enabled by: shaping the future of global energy delivery by developing substantial • Safe and reliable operations – continuing to drive improvements solar capacity around the world, and we are working with Lightsource in safety performance. BP to expand its global presence. • Driving quality and improved efficiency in our feedstock – Lightsource BP has doubled the number of countries where it has concentrating our efforts in Brazil, which has one of the most a presence since December 2017 – see Climate change on page 45. cost-competitive biofuel sources in the world. • Domestic and international markets – selling ethanol and sugar domestically in Brazil and to international markets such as the US. Renewable products Butamax®, our 50/50 joint venture with DuPont, has developed technology that converts sugars from corn into bio-isobutanol, an energy-rich bio product. Bio-isobutanol has a wide variety of applications. For example, it can be used in the production of paints, coatings and lubricant components. It can also be blended with gasoline at higher concentrations than ethanol, which can be transported through existing fuel pipelines and infrastructure. Butamax® has upgraded its ethanol facility in Kansas to produce bio-isobutanol. 38 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – performance 39 see SeeGlossary More information Low carbon ambitions to reduce emissions in our operations, improve We have set targets and aims reduce their emissions and create low carbon our products to help customers businesses – see pages 46-48. BP Annual Report and Form 20-F 2018 Harnessing battery power on page 42. In we divested 2018 three wind energy operations as part in Texas, At our Titan 1 wind energy site in South Dakota, partnered we’ve testwith to how effectively Tesla wind energy canbe stored – of a broader restructuring programme designed optimize to our US long-term portfoliowind growth. for travelled a day 45,000km of just emitted from 2 absorbed by sugar cane during 2 martLog programme is helping improve Using technology in biofuels Our S performance across our three biofuels sites in Brazil. SmartLog is designed increase to efficiency across sugar cane cutting, loading and – transportation operations and consequently reduces the costs involved. Every day across our sites we make around 800 trips covering 45,000 kilometres. This takes place in remote locations with coverage. communications and poor network Using a combination of mobile satellite technology, sensors and radios we can connect our people and their vehicles a to central control room. Here we receive 24-hour real-time information about what’s happening in the fieldto help manage activitiesremotely, as well as monitoring and analysing behaviours and giving advice or intervening about safety or efficiency. improvements on workers guides Automation such as how prioritize to harvest activities and indicates the optimum speed for harvesters runto at based on prevailing conditions. Since introducing SmartLog in 2018, we’ve reduced equipment needed by 20% and our remote monitoring is helping reinforce to our safety culture in the field. It has also helped lowerto emissions as the reduction in equipment means we use less diesel. Biopower We create biopower from bagasse, the fibre thatremains after crushing sugar cane stalks. In our 2018 three biofuels manufacturing facilities produced around 892GWh of electricity – enough renewable energy power to all of these sites, with the remaining 70% exported theto local electricity grid. This is a low carbon power source, with part of the CO its growth.its energy Wind BP has significant interests in onshore wind energy in the US. We operate sites in 10 seven states and hold an interest in another facility in Hawaii. they Together have a net generating capacity over 1,000MW. burning bagasse offset by the CO
Innovation in BP Across the business we face the dual challenge of meeting society’s need for more energy, while at the same time working to reduce carbon emissions. Our industry is changing rapidly, and the energy mix is shifting towards lower carbon sources, driven by technological advances and growing environmental concerns. Technology is ever-present in all that we do – from safely discovering and recovering oil and gas, to renewable energy and lower carbon fuels and products. And digital, big data and advanced technologies, as well BPme available in as an innovative mindset, are driving rapid > retail sites development of new ways to tackle emissions 6,000 and improve efficiency at BP. We also invest in high-tech companies A new way to pay to help accelerate and commercialize new Customers in six countries now have the technologies, products and business models. option to pay for fuel from their vehicle using BPme. And since its launch our smartphone app has been downloaded more than one million times. Using a phone’s GPS signal BPme locates the nearest BP site and provides details of opening times and facilities. Customers can use the app to activate their fuel pump and pay from inside their car. BPme is designed to appeal to people who don’t want to leave children, pets or valuables 8 major alone while they go to pay for fuel, and it saves time queuing at the checkout. Over the coming technology months we plan to roll it out to new markets centres and introduce the option to order coffee and in the US, UK, receive offers and discounts from the app. Asia and Germany Group highlights $429 million invested in research and development ~$200 million used to develop options for new lower carbon businesses Collaborations with innovative academic programmes 24 hours to 20 minutes with APEX >4,000 granted and pending patent applications held by BP and its subsidiaries throughout 150 million+ the world data points a day with POA bp.com/technology 40 BP Annual Report and Form 20-F 2018
Strategic report – performance 41 to hours hour 23 1 Robot inspections Robot Inspection robots are helping us deliver against our strategic priority of modernizing and Attransforming our Cherry BP. Point refinery in the adapted US we’ve a robotic solution that allows us inspect to equipment such as the hydrocracker reactor. The robot uses ultrasound technology spot to microscopic cracks in its walls by crawling along the reactor. This process would have previously taken more than 23 work hours, with engineers working inside the hydrocracker unit during a planned shutdown. Now they can gather the same information in just one hour with robots. and vehicles needed as well as a simplified derigging process – which is otherwise very consumingtime and challenging. The new node is the lightest, smallest and the world, and the lowest-cost in system project is on course help to change how future seismic is acquired. Its development will be completed with a large-scale field trial in early 2019. Soon after this we plan begin to the first commercial survey. 01 1101 10 BP Annual Report and Form 20-F 2018 10101010101 01010101010101010101 01010101010101010101 01010101010101010101 01010101010101010101 0101010101010 01010101010101010101 01010101 0101010101 01010101 Wolfspar ~1,000km of data acquired in 143 hours and Schlumberger. The project aims move to beyond the existing limitations of bulky, heavy and expensive equipment, seismic onshore and at the same time provide better images of the reservoir. Following successful initial field trials in Norway and Abu the Dhabi in 2017, ‘nimble node‘ system was used safely to acquire 3D seismic data in the challenging climate of West Siberia in 2018. Early images show better data quality compared to people equipment, with fewer conventional And following our successful pilot in the Atlantis field, we are now using Plant Operations Advisor (POA), which was developed in partnership with BHGE, on all four BP-operated platforms in the US Gulf of Mexico. The cloud-based tool gives performance 1,200 important around on information pieces of process equipment – with more than 150 million data points analysed every If theday. system identifies an issue with any of the equipment, it sends an alert to our engineers so they can respond quickly. operations in anomalies pinpointing By and identifyingand causes, the problems that might once have taken hours for engineers to workto through manually can be diagnosed in minutes. Following its success in the Gulf of Mexico, we now plan use to the tool at more than 30 upstream locations worldwide by the end of 2019. . The. ultra-low-frequency system New technologies are helping us build operations business. our throughout intelligent Across all our upstream-operatedassets, we are creating ‘virtual copies’ of our production systems using APEX – our highly sophisticated simulation, surveillance and optimization toolkit. The technology recreates every element of a well network in digital ‘twin’ Intelligent operations form, and works in near real time gather to data about every well across our business. It can pinpoint where efficiency can be improved and helps our production engineers run simulations in seconds. With APEX, a full-field optimization that usedto hourstake now takes minutes. a few Engineers from proactively their sharing are world the around know-how and expertise across our global operations, as they embed the use of APEX it. startfrom and benefiting and conditions, BP’s developments in seismic seismic in developments BP’s conditions, and technology are allowing us see to deeper earth the with better accuracyinto ever than before. And the better we can see, the easier and safer it is find to oil and gas and unlock more of it from our existing assets. One of the big challenges for conventional seismic sources when surveying offshore in the Gulf of Mexico is the ability look to deep theinto earth without the thick horizontal salt layers above distorting the images captured. help tackleTo this we designed and built Wolfspar advanced other with our recordingworks technologies help to overcome the subsalt imaging challenge. We believe the clearer view will help reduce uncertainty about where the resources are, resulting in more drillable targets in the region. Having completed a series of successful proof-of-concept tests, BP plans move industrialize to to the technology with our strategic seismic partners, so that it can be used across our global subsurface portfolio. We also reached a major milestone in the development of an innovative land seismic recording system, in partnership with Rosneft Below land and sea, in challenging terrains terrains challenging in sea, and land Below A clearer view below view A clearer theearth
Venturing and low carbon across multiple fronts >6,500 UK charging points with BP Chargemaster in 2018 12 million electric vehicles projected on UK roads by 2040 in the BP Energy Outlook . Harnessing battery power As we support the transition to We also invested $20 million in StoreDot, a lower carbon future and to help a company that develops ultra-fast charging battery technology for mobile and industrial meet our customers’ changing markets. We anticipate the technology will Storing wind energy needs, we’re making investments be used in mobile devices by 2020 and BP We’ve partnered with Tesla to test in electric vehicle technology and will be working with them to help transfer this how effectively wind energy can be infrastructure. Our work aims to technology to electric vehicles. StoreDot aims stored at our Titan 1 wind energy site support electric vehicle adoption to bring recharging times down to five minutes, in South Dakota. The electricity captured making the time it takes to charge an electric is then available for the site to use by tackling issues such as poor vehicle similar to that of filling a tank. battery life and slow charging whenever we need it – even when the wind isn’t blowing. times. BP now has more than 6,500 charging points in the UK, through BP Chargemaster. The The pilot will help develop valuable To allow us to respond rapidly to demand business combines the complementary insights for energy storage applications for charging facilities at our forecourts, we expertise, experience and assets of BP and across our diverse portfolio. invested $5 million in FreeWire. The US-based Chargemaster and is an important step company manufactures mobile rapid charging towards offering widened access to fast and systems, which we successfully piloted at a ultra-fast charging at BP sites across the UK. BP retail site in the UK, and are now exploring The chargers will start to become available options to offer FreeWire’s innovative charging across our UK forecourts throughout 2019. StoreDot – aim to reduce services across the retail networks. electric vehicle recharging time to five minutes. 42 BP Annual Report and Form 20-F 2018
Sustainability Strategic report – performance BP Sustainability Report 2018 We aim to create long-term value for our publishes April shareholders, partners and society by helping to meet growing energy demand in a safe and responsible way. > > Our 2018 sustainability focus areas Safety and security Value to society > Climate change > Ethical conduct These sustainability issues are the ones that could impact our business the most and that are of greatest interest to > Managing our impacts > Our people our stakeholders. Safety and security P������ ������ ������ ������� �� ���������� Safety is our number one priority and a core value. Our aim is to have no accidents, no harm to people and no damage to the environment. 1�0 We are working to continuously embed and improve personal and process safety and operational risk management across BP and to 100 strengthen our safety management. Our approach builds on our experience, including learning from �0 incidents, operations audits, annual risk reviews and sharing lessons learned with our industry peers. �01� �01� �01� �01� ���� Managing safety ���� 1 ���� � BP-operated businesses are responsible for identifying and managing operating risks and bringing together people with the right skills and competencies to address them. Our safety and operational risk team ���������� ������ ��������� works alongside BP-operated businesses to provide oversight and ���������� ��������� ��� �00�000 ����� ������� technical guidance, while our group audit team visits sites on a risk-prioritized basis to check how they are managing risks. 0�� Our operating management system 0�� Our operating management system (OMS) is a group-wide framework designed to help us manage risks in our operating activities and drive 0�� performance improvements. It brings together BP requirements on 0�� health, safety, security, the environment, social responsibility and operational reliability, as well as related issues, such as maintenance, �01� �01� �01� �01� ���� contractor relations and organizational learning, into a common ��������� 0��1 0��� 0��1 0��� ���� management system. ��������� 0��� 0��0 0�1� 0��0 ���� ����������� 0��� 0��� 0��� 0��� ���� Our OMS also helps us improve the quality of our activities by setting �������� ��������� ��������� �� ���������� a common framework that our operations must work to. We review ������������� ����������� �� ��� � ��� ��������� ���������� and amend these requirements from time to time to reflect our ���� ��� ���� �01� ���� ������� ��� ��� ��������� ����� ��� �01�� priorities. Any variations in the application of OMS, in order to meet local regulations or circumstances, are subject to a governance process. Recently acquired operations need to transition to our OMS. See page 44 for information about contractors and joint arrangements . Preventing incidents We carefully plan our operations, with the aim of identifying potential hazards and having rigorous operating and maintenance practices applied by capable people to manage risks at every stage. We design our new facilities in line with process safety – the application of good design and engineering principles. We track our safety performance using industry metrics such as the American Petroleum Institute recommended practice 754 and the International Association of Oil & Gas Producers recommended practice 456. BP Annual Report and Form 20-F 2018 See Glossary 43
2018 2017 2016 Cyber threats Tier 1 process safety events a 16 18 16 Cyber attacks are on the rise and our industry is subject to evolving risks Tier 2 process safety eventsb 56 61 84 from a variety of cyber threat actors, including nation states, criminals, Oil spills – numberc 124 139 149 terrorists, hacktivists and insiders. We have experienced threats to the Oil spills contained 63 81 91 security of our digital infrastructure, but none of these had a significant impact on our business in 2018. Oil spills reaching land and water 57 58 58 Oil spilled – volume (thousand litres) 538 886 677 We have a range of measures to manage this risk, including the use Oil unrecovered (thousand litres) 131 265 311 of cyber security policies and procedures, security protection tools, ongoing detection and monitoring of threats, and testing of response a Tier 1 process safety events are losses of primary containment of greater consequence – such as causing harm to a member of the workforce, costly damage to equipment or and recovery procedures. exceeding defined quantities. To encourage vigilance among our employees, our cyber security b Tier 2 events are those of lesser consequence. c Number of spills greater than or equal to one barrel (159 litres, 42 US gallons). training programme covers topics such as email phishing and the correct classification and handling of our information. We collaborate closely In 2018 we saw a reduction in the number of tier 1 and tier 2 process with governments, law enforcement and industry peers to understand safety events. We investigate incidents including near misses. And we and respond to new and emerging threats. use leading indicators, such as inspections and equipment tests, to monitor the strength of controls to prevent incidents. We also use Security and response techniques that help teams to analyse and redesign tasks to reduce the We monitor for hostile actions that could harm our people or disrupt chance of mistakes occurring. our operations, focusing on areas affected by political and social unrest, Keeping people safe terrorism, armed conflict or criminal activity. We take steps to help All our employees and contractors have the responsibility and the people stay safe when they are travelling on business. Our 24-hour authority to stop unsafe work. Our safety rules guide our workers on response information centre monitors global events and related staying safe while performing tasks with the potential to cause most developments which means we can assess the safety of our people harm. The rules are aligned with our OMS and focus on areas such as and provide timely advice if there is an emergency. working at heights, lifting operations and driving safety. We run exercises and drills to test our procedures to help ensure our We monitor and report on key workforce personal safety metrics in line people are prepared in the event of an emergency. We conducted a with industry standards. We include both employees and contractors in two-day oil spill response drill in the UK North Sea involving more than our data. 200 people, including regulators. This was designed to test plans as part of our annual crisis and continuity management programme. We also Tragically we suffered one fatality in 2018. In our lubricants business a held a number of large-scale exercises in the US. heavy goods driver working for one of our contractors in the US was struck by a passing vehicle while checking a tyre. We are deeply Working with contractors and partners saddened by this loss and are working closely with our contractors to More than half of the hours worked by BP are carried out by contractors. continue to improve safety and to seek to prevent injuries in our work Through bridging and other documents, we define the way our safety together. management system co-exists with those of our contractors to manage risk on a site. For our contractors facing the most serious risks, we 2018 2017 2016 conduct quality, technical, health, safety and security audits before Recordable injury frequencyd 0.20 0.22 0.21 awarding contracts. Once they start work, we continue to monitor their Day away from work case safety performance. frequencye 0.048 0.055 0.051 Severe vehicle accident rate 0.04 0.03 0.05 Our OMS includes requirements and practices for working with contractors. Our standard model contracts include health, safety and d Incidents that result in a fatality or injury per 200,000 hours worked. security requirements. We expect and encourage our contractors and e Incidents that result in an injury where a person is unable to work for a day (shift) or more per 200,000 hours worked. their employees to act in a way that is consistent with our code of conduct and take appropriate action if those expectations, or their We saw an overall decrease in our recordable injury frequency and day contractual obligations, are not met. away from work case frequency. Our goals stay the same – to have no accidents, no harm to people and no damage to the environment. There Our partners in joint arrangements is always more we can do and we remain focused on achieving better In joint arrangements where we are the operator, our OMS, code results today and in the future. of conduct and other policies apply. We aim to report on aspects of our business where we are the operator – as we directly manage the Technology performance of these operations. We monitor performance and how New technologies are helping us increase the amount and quality of data risk is managed in our joint arrangements, whether we are the operator we gather from our operations and speed up our analysis, allowing us to or not. act more quickly. For example, our Brazilian biofuels business is spread across geographically remote locations, so we introduced a digital Where we are not the operator, our OMS is available as a reference platform to connect our people and vehicles to a central control room. point for BP businesses when engaging with operators and This provides 24-hour, real-time information about what’s happening, co-venturers. We have a group framework to assess and manage helps us monitor and analyse behaviour and aids improvements around BP’s exposure related to safety, operational and bribery and corruption learning and safety. We also use in-vehicle monitoring systems and risk from our participation in these types of arrangements. Where cameras to improve transportation safety. appropriate, we may seek to influence how risk is managed in arrangements where we are not the operator. Emergency preparedness The scale and spread of BP’s operations means we must be prepared to respond to a range of possible disruptions and emergency events. We maintain disaster recovery, crisis and business continuity management plans and work to build day-to-day response capabilities to support local management of incidents. 44 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – performance consistent with the Paris goals. Subject to shareholder approval at our annual general meeting, we will provide more information on this in Climate change future reports. Risk management The world needs more energy but with fewer carbon We recognize the significance of the energy transition and the risks and emissions. BP is playing an active role in meeting opportunities it presents. As part of their review of BP’s strategy, the this dual challenge. board and executive team considered risks and opportunities associated with climate change and the energy transition, in the context of different The Taskforce for Climate-related Financial Disclosures (TCFD) was paths expressed in the BP Energy Outlook – which looks at long-term established by the Financial Stability Board with the aim of improving the trends and develops projections for world energy markets over the next reporting of climate-related risks and opportunities. We support this aim. two decades. Our reporting provides information supporting the principles of the Under BP’s risk management policy and the associated risk TCFD recommended disclosures. management procedures, our operating businesses are responsible for See bp.com/tcfd. identifying and managing their risks. Risks which may be identified include potential effects on operations at the asset level, performance at Strategy the business level and developments at the regional level from extreme Our strategy is designed to grow shareholder value while also helping weather or the transition to a lower carbon economy. to meet the dual challenge. We believe it is consistent with the climate goals of the Paris Agreement, which calls for the world to rapidly reduce As part of our annual planning process we review the group’s principal greenhouse gas emissions in the context of sustainable development risks and uncertainties. Climate change and the transition to a lower and eradicating poverty. carbon economy has been identified as a principal risk (see page 55). This covers various aspects of how risks associated with the energy A key element of our strategy is our ‘reduce, improve, create’ transition could manifest such as in the policy, legal and regulatory framework, where we have set measurable, near-term targets for environment, technological developments and market changes. reducing greenhouse gas emissions in our own operations and Similarly, physical climate-related risks such as extreme weather ambitions for improving products to help our customers and are covered in our principal risks related to safety and operations. consumers lower their emissions, and creating low carbon businesses. See page 46. See page 53 for more information on how we manage risk. In 2019 we are supporting a resolution from a group of institutional investors to describe in our corporate reporting how our strategy is Climate governance BP’s governance framework applies equally to the management and committees in BP bring together cross-segment and of the various aspects of climate change and the transition to a cross-functional expertise of relevance to this area, including lower carbon economy. In addition to the oversight provided by the those set out below. executive team, the board and relevant committees, various groups BP governance framework See page 69 Renewal committee Reviews strategic, commercial and investment decisions outside of core activity and related to new lines of business. Chaired by our deputy chief executive. New energy frontiers steering committee Oversees strategy and development of growth opportunities in low carbon business models that can be scaled up to create new businesses for BP. Chaired by our deputy chief executive. Carbon steering group Focuses on strategy, policy, performance oversight and collaboration relating to carbon management activities across the group. Chaired by our vice president of carbon management. Upstream carbon Downstream advancing the steering committee energy transition committee Focuses on the delivery of lower carbon plans in the Upstream. Develops and drives the implementation of advancing the energy Chaired by our chief operating officer of production, transformation transition in the Downstream. Chaired by our head of technology, and carbon, Upstream. Downstream and BP chief scientist. Key: Executive-level committee Cross-functional committee Business and segment committee BP Annual Report and Form 20-F 2018 45
Our low carbon ambitions We have set targets and aims to reduce emissions in our operations, improve our products to help customers reduce their emissions and We aim to advance a low carbon future through what create low carbon businesses. We are already in action and have made we call our ‘reduce, improve, create’ framework. good progress in 2018 against these ambitions. See bp.com/sustainability for more information on the actions we are taking and bp.com/targets for specifics on our goals. Reducing Improving emissions in our operations our products We are targeting zero net growth in our operational emissions out We are continuing to innovate with fuels, lubricants and chemicals that to 2025. We aim to deliver this through sustainable greenhouse gas can help our customers and consumers lower their emissions. (GHG) emissions reductions totalling 3.5Mte by 2025, by targeting a methane intensity of 0.2% and, as necessary, with offsets to keep net emissions growth to zero. 2018 progress 2018 progress • Zero net growth in operational emissions. • Collaborated with Neste to explore opportunities to • 2.5Mte of sustainable GHG emissions reductions increase supply of sustainable aviation fuel. since the beginning of 2016. This includes actions • Launched Castrol GTX ECO, made using a base oil to improve energy efficiency and reduce methane blend of at least 50% re-refined base oil, in the US. emissions and flaring. • Gave UK drivers the option to offset the CO2 • Methane intensity of 0.2%. emissions from the fuel they buy from us, through our BPme fuel payment app. From waste to fuel We’ve invested in Fulcrum BioEnergy®, which is constructing the first commercial scale waste-to-fuels plant in the US. The facility aims to use technology, developed by BP and Johnson Matthey, to help convert household rubbish that would otherwise be sent to landfill, into fuel for transport. Fulcrum, in which BP owns an 8% interest, estimates that when it begins commercial operations, the plant will be able to convert around 175,000 tons of waste into about 11 million gallons of fuel each year. 175,000 tons of waste to 11 million gallons of fuel Detecting methane As a colourless and odourless gas – detecting leaks of methane can be challenging. For several years we’ve used hand-held infrared cameras to detect small leaks before they become larger ones. Improvements in technology now make it possible to quantify the emissions that these cameras detect, helping us to better target and prioritize our responses. We piloted this technology in Azerbaijan and the US in 2018 and plan to deploy the cameras more widely in 2019. 46 BP Annual Report and Form 20-F 2018
Strategic report – performance 2018 progress Creating low carbon businesses • Invested $500 million in low carbon activities, such as FreeWire – which supports development of rapid mobile electric vehicle charging. We are building up our renewable energy portfolio – focusing on biofuels, biopower, wind and solar. And together with our dynamic • Worked with OGCI to help progress the Clean Gas venturing arm we are working on multiple fronts – through joint Project, see page 48. ventures, creative collaborations and new business models. As at 31 December 2018 Advancing solar Lightsource BP has doubled the number of countries UK Australia where it has a presence since December 2017. Completed the UK’s biggest- Awarded the project to provide ever unsubsidized solar power 105MW of solar power to Belfast Lightsource BP sites deal to supply AB InBev, the Snowy Hydro, the country’s Budweiser brewer, with fourth-largest national energy Wales 100MW of solar power at its retailer, through a 15-year UK operations in South Wales power purchase agreement. London Bath and Lancashire. US Agreed to bring 25MW of locally generated solar power to western US, Dublin and through new collaborations Limerick Amsterdam in California and New Mexico San Francisco Milan over 20+ year terms. Philadelphia Madrid Cairo Brazil Mumbai Announced plans to develop solar and smart energy storage Chennai solutions for Brazil’s domestic, commercial and industrial sectors. São Paulo Sydney Melbourne India 5 new Egypt Established EverSource Capital Formed a joint venture with Everstone to manage the countries Europe with Hassan Allam Green Growth Equity Fund in 2018 Extended operations into Utilities to develop and aiming to raise up to $700 million of the Italian and Iberian operate utility scale investment in low carbon energy renewable energy sectors. solar projects in Egypt. infrastructure projects across India. BP Annual Report and Form 20-F 2018 47
Metrics part of the project. This is currently $40 per tonne of CO2 equivalent, We report direct and indirect greenhouse gas (GHG) emissions on a with a stress test at a carbon price of $80 per tonne. Until late January carbon dioxide equivalent (CO2e) basis. Direct emissions include CO2 2019 we used these specific prices in industrialized countries, but have and methane from the combustion of fuel and the operation of facilities, now expanded this to apply globally. and indirect emissions include those resulting from the purchase of Working with others electricity and steam we import into our operations. We work with peers, non-governmental organizations and academic There was a decrease in our direct GHG emissions in 2018. The primary institutions to address the climate challenge. reasons for this include actions taken by our businesses to reduce The Oil and Gas Climate Initiative (OGCI) – currently chaired by our emissions in areas such as flaring, methane and energy efficiency as group chief executive Bob Dudley – brings together 13 oil and gas well as operational changes, such as increased gas being captured and companies to increase the ambition, speed and scale of the initiatives exported to the liquefied natural gas facility in Angola. undertaken by its individual companies to help reduce manmade GHG a Greenhouse gas emissions (MteCO2e) emissions. OGCI announced a collective methane intensity target 2018 2017 2016 for member companies in 2018. The target aims to reduce the collective Operational controlb average methane intensity of the group’s aggregated upstream oil and gas operations to below 0.25% by 2025, compared with the baseline of Direct emissions 48.8 50.5 51.4 0.32% in 2017. See page 46 for information on BP’s methane intensity. Indirect emissions 5.4 6.1 6.2 BP equity sharec BP is working with OGCI Climate Investments to help progress the Direct emissions 46.5 49.4 50.1 UK’s first commercial full-chain carbon capture, use and storage project. The Clean Gas Project plans to capture CO from new efficient gas-fired Indirect emissions 5.7 6.8 6.2 2 power generation and transport it by pipeline to be stored in a formation a Our approach to reporting GHG emissions broadly follows the IPIECA/API/IOGP Petroleum under the southern North Sea. The infrastructure would also allow other Industry Guidelines for Reporting GHG Emissions. We calculate CO2 emissions based on the industries in Teesside to store CO2 captured from their processes. The fuel consumption and fuel properties for major sources. We report CO2 and methane. We do not include nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride as project, which is currently undergoing a feasibility study, could be in they are not material to our operations and it is not practical to collect this data. operation by the mid-2020s. b Operational control data comprises 100% of emissions from activities that are operated by BP, going beyond the IPIECA guidelines by including emissions from certain other activities such as contracted drilling activities. c BP equity share data comprises 100% of emissions from subsidiaries and the percentage of emissions equivalent to our share of joint arrangements and associates , other than BP’s share of Rosneft. Managing our impacts The ratio of our total GHG emissions reported on an operational control We work hard to avoid, mitigate and manage our basis to gross production was 0.22teCO e/te production in 2018 (2017 2 environmental and social impacts over the life of 0.24teCO2e/te, 2016 0.24teCO2e/te). Gross production comprises upstream production, refining throughput and petrochemicals produced. our operations. Accrediting our lower carbon activities The way our businesses around the world understand and manage To reinforce our ambitions, we implemented our Advancing Low Carbon their environmental and social impacts is set out in our operating accreditation programme, which aims to inspire every part of BP to management system. This includes requirements on engaging with identify lower carbon opportunities. stakeholders who may be affected by our activities. To gain accreditation by BP, each activity must meet certain criteria, In planning our projects, we identify potential impacts from our activities including delivering what we call a better carbon outcome. This means in areas such as land rights, water use and protected areas. We use the either reducing GHG emissions, producing less carbon than competitor results of this analysis to identify actions and mitigation measures and or industry benchmarks, providing renewable energy, offsetting carbon implement these in project design, construction and operations. For produced, furthering research and technology to advance low carbon or example, as part of our exploration activities in São Tomé and Príncipe, enabling BP or others to meet their low carbon objectives. we are using underwater sound recorders and an autonomous vehicle to help understand the distribution and movement of marine mammals. Deloitte conducts independent assurance on the Advancing Low The outcomes of this will inform our approach to planning for potential Carbon activities, including assessing the application of BP’s process future activities. and criteria for accrediting activities, and GHG emissions offset and saved within the programme. Every year our major operating sites review their performance and set local improvement targets. These can include measures on flaring, A total of 52 activities met the criteria for accreditation or reaccreditation greenhouse gas emissions and the use of water. in 2019, up from 33 in 2018. These include emission reductions in our operations, carbon neutral products, more efficient ships, investments See page 44 for information on our oil spill performance. in electrification and support for low carbon technologies. Water See bp.com/advancinglowcarbon for details on the programme We review risks related to management of water in our portfolio and Deloitte’s assurance statement. each year, considering the local availability, quantity, quality and Calling for a price on carbon regulatory requirements. In our gas operations in Oman – an area BP believes that well-designed carbon pricing by governments provides where the availability of fresh water is extremely scarce – we withdraw the right incentives for everyone – energy producers and consumers brackish water under permit from a local underground aquifer that is only alike – to play their part in reducing emissions. It makes energy used for industrial purposes. We desalinate the water and use it for efficiency more attractive and makes lower carbon solutions, such drilling and hydraulic fracturing. We completed a modelling study in 2018 as renewables and carbon capture, use and storage, more cost to assess the sustainability of this water supply. The results of the study competitive. have been incorporated into a long-term water management plan to reduce water demand. We use a carbon price when evaluating our plans for certain large new projects and also those for which emissions costs would be a material Air quality We put measures in place to manage our air emissions, in line with regulations and industry guidelines designed to protect the health 48 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – performance of local communities and the environment. In our shipping business, we We disclose information on payments to governments for our upstream introduced three new liquefied natural gas carriers to our fleet in 2018. activities on a country-by-country and project basis under national The carriers are designed to use approximately 25% less fuel and emit reporting regulations such as those in effect in the UK. We also make less nitrogen oxides than our older ships. payments to governments in connection with other parts of our business – such as the transporting, trading, manufacturing and Hydraulic fracturing marketing of oil and gas. We aim to apply responsible practices to the design of our wells to mitigate potential risks associated with hydraulic fracturing. For example, We support transparency in the flow of revenue from oil and gas we install multiple layers of steel into each well and cement above and activities to governments. This helps citizens hold public authorities below any freshwater aquifers. We then test the integrity of each well to account for the way they use funds received through taxes and before we begin the fracturing process and again at completion. other agreements. Hydraulic fracturing creates very small earth tremors that are rarely felt We are a founding member of the Extractive Industries Transparency at the surface. Before we start work we assess the likelihood of our Initiative (EITI), which requires disclosure of payments made to and operations causing such activity. For example, we work to identify received by governments in relation to oil, gas and mining activity. natural faults in the rock. This analysis informs our development plans As part of the EITI, we work with governments, non-governmental for drilling and hydraulic fracturing activity, and we seek to mitigate this organizations and international agencies to improve the transparency risk through the design of our operations. of payments to governments. In 2018 we continued to support EITI implementation in a number of countries where we operate, including See bp.com/environment for more information. Iraq and Trinidad & Tobago. See bp.com/tax for our approach to tax and our payments to governments report. Value to society We aim to have a positive and enduring impact on the communities in which we operate. Human rights In supplying energy, we contribute to economies around the world We are committed to respecting the rights and by employing local staff, helping to develop national and local suppliers, dignity of all people when conducting our business. and through the funds we pay to governments from taxes and other agreements. We respect internationally recognized human rights as set out in the International Bill of Human Rights and the International Labour Additionally, our social investments support community efforts to Organization’s Declaration on Fundamental Principles and Rights at increase incomes and improve standards of living. We contributed Work. These include the rights of our workforce and those living in $114.2 million in social investment in 2018 (2017 $89.5 million, 2016 communities potentially affected by our activities. $61.1 million). In India we developed a training programme to help motorcycle mechanics working in small enterprises develop additional We set out our commitments in our human rights policy and our code skills in business management and customer service. Since it began in of conduct. Our operating management system contains guidance 2009, the programme has trained more than 200,000 mechanics. on respecting the rights of workers and community members. We aim to recruit our workforce from the community or country in We are incorporating the UN Guiding Principles on Business and which we operate. We also run programmes to build the skills of Human Rights, which set out how companies should prevent, address businesses and develop the local supply chain in a number of and remedy human rights impacts, into our business processes. Our locations. For example, in 2018 we launched an initiative with oil focus areas include the ethical recruitment and working conditions of and gas peers in Senegal to support local company efforts to achieve contracted workforces at our sites, responsible security, community international standards and improve their ability to bid for work with health and livelihoods, and mechanisms for workers and communities to companies like BP. raise their concerns. Nationals employed In 2018 our actions included: • Reviewing the risk of modern slavery in prioritized locations, including on-site assessments in some cases and addressing findings. • Working with a number of our peers to create an oil and gas industry framework for human rights supplier assessments with a particular Azerbaijan 91% focus on labour rights. Egypt 78% Trinidad Oman 77% • Developing clear expectations on labour rights and a systematic & Tobago 96% approach to modern slavery risk management to build into business Indonesia 96% systems and processes. Angola 87% • Continuing to develop capability on modern slavery and labour rights for our employees and selected contractors, as well as taking steps to raise worker awareness of their rights. • Assessing the practices of private security contractors and the way we See bp.com/society for more information on how we generate value to society. work with public security forces in our operations in Georgia, in line with our continued implementation of the Voluntary Principles on Tax and transparency Security and Human Rights. We are committed to complying with tax laws in a responsible manner See bp.com/humanrights for more information about our approach to and having open and constructive relationships with tax authorities. human rights. We paid $7.5 billion in income and production taxes to governments in 2018 (2017 $5.8 billion, 2016 $2.2 billion). BP Annual Report and Form 20-F 2018 49
Anti-bribery and corruption BP operates in parts of the world where bribery and corruption present Ethical conduct a high risk. We have a responsibility to our employees, our shareholders and to the countries and communities in which we do business to be We are committed to conducting our business in an ethical and lawful in all our work. Our code of conduct explicitly prohibits ethical, transparent way, using our values and code engaging in bribery or corruption in any form. of conduct to guide us. Our group-wide anti-bribery and corruption policy and procedures include measures and guidance to assess risks, understand relevant Our values laws and report concerns. They apply to all BP-operated businesses. We provide training to employees appropriate to the nature or location of their role. A total of 10,957 employees completed anti-bribery and corruption training in 2018 (2017 12,500, 2016 13,000). We assess any exposure to bribery and corruption risk when working with suppliers and business partners. Where appropriate, we put in place a risk mitigation plan or we reject them if we conclude that risks are too high. We also conduct anti-bribery compliance audits on selected suppliers when contracts are in place. For example, our upstream business conducts audits for a number of suppliers in higher-risk regions to assess their conformance with our anti-bribery and corruption Our values represent the qualities and actions we wish to see in BP. contractual requirements. Potential areas for improvement are shared They inform the way we do business and the decisions we make. We with our suppliers and where necessary, this enables us to work with use these values as part of our recruitment, promotion and individual them to find ways to strengthen their procedures. We issued a total of performance management processes. 27 audit reports in 2018 (2017 36, 2016 25). We take corrective action with suppliers and business partners who fail to meet our expectations, See bp.com/values for more information. which may include terminating contracts. The BP code of conduct Lobbying and political donations Our code of conduct is based on our values and sets clear expectations We prohibit the use of BP funds or resources to support any political for how we work at BP. It applies to all BP employees and members of candidate or party. the board. We recognize the rights of our employees to participate in the political Employees, contractors or other third parties who have a question process and these rights are governed by the applicable laws in the about our code of conduct or see something that they feel is unethical or countries in which we operate. For example, in the US we provide unsafe can discuss these with their managers, supporting teams, works administrative support for the BP employee political action committee councils (where relevant) or through OpenTalk, a confidential helpline (PAC), which is a non-partisan committee that encourages voluntary operated by an independent company. employee participation in the political process. All BP employee PAC A total of 1,712 concerns or enquiries were recorded in 2018 (2017 contributions are reviewed for compliance with federal and state law 1,612, 2016 1,701) through these channels. The most commonly raised and are publicly reported in accordance with US election laws. concerns were about fair treatment of people, workplace harassment We work with governments on a range of issues that are relevant and protecting BP’s assets. to our business, from regulatory compliance, to understanding our tax We take steps to identify and correct areas of non-conformance and liabilities, to collaborating on community initiatives. The way in which we take disciplinary action where appropriate. In 2018 our businesses interact with those governments depends on the legal and regulatory dismissed 50 employees for non-conformance with our code of conduct framework in each country. or unethical behaviour (2017 70, 2016 109). This excludes dismissals of We are members of multiple industry associations that offer staff employed at our retail service stations. opportunities to share good practices and collaborate on issues of importance to our sector. We aim for alignment between our policies See bp.com/codeofconduct for more information. and those of trade associations, but understand that associations’ positions reflect a compromise of the assorted views of the Gulf of Mexico oil spill membership. The term of appointment of the ethics monitor, who was appointed under the administrative agreement with the US Environmental Protection Agency, came to an end in March 2019. In his final report the ethics monitor confirmed that BP had successfully completed the recommendations he had made. 50 BP Annual Report and Form 20-F 2018
At the end of 2018 we had five female directors (2017 3, 2016 3) on our Strategic report – performance board. Our nomination committee remains mindful of diversity when Our people considering potential candidates. For more information on the composition of our board, see page 58. BP’s success depends on the wholehearted Workforce by gender contribution of a talented and diverse workforce. Members as at 31 December Male Female Female % Board directors 9 5 36 Executive team 11 2 15 Group leaders 286 89 24 Subsidiary directors 1,161 233 17 All employees 47,171 25,824 35 A total of 24% of our group leaders came from countries other than the UK and the US in 2018 (2017 24%, 2016 23%). Inclusion BP is committed to creating a positive and empowering workplace in which all employees feel valued for the work they do and the impact they make. Our goal is to create an environment of inclusion and acceptance, where everyone is treated equally and without BP employees discrimination. Number of employees at 31 Decembera 2018 2017 2016 To promote an inclusive culture we provide leadership training and Upstream 16,900 17,700 18,700 support employee-run advocacy groups in areas such as gender, Downstream 42,700 42,100 41,800 ethnicity, sexual orientation and disability. As well as bringing employees Other businesses and corporate 13,400 14,200 14,000 together, these groups support our recruitment programmes and Total 73,000 74,000 74,500 provide feedback on the potential impact of policy changes. Each group is sponsored by a senior executive. Service station staff 17,400 16,800 16,200 Agricultural, operational and We made progress in a number of important areas in 2018. For example, seasonal workers in Brazil 3,400 4,300 4,600 we worked with MyPlus, a disability consultancy, to increase our Total excluding service station understanding of the needs of disabled candidates in our application and staff and workers in Brazil 52,200 52,900 53,700 hiring processes. And we launched our gender transition guidelines to support employees who are transitioning, or helping someone who is. a Reported to the nearest 100. For more information see Financial statements – Note 35. We aim to ensure equal opportunity in recruitment, career development, Our industry relies on creative and scientific thinking to solve some of promotion, training and reward for all employees – regardless of the world’s biggest energy problems. We focus on attracting and ethnicity, national origin, religion, gender, age, sexual orientation, marital developing innovative and capable individuals, while also maintaining status, disability, or any other characteristic protected by applicable laws. safe and reliable operations. Where existing employees become disabled, our policy is to provide The group people committee helps facilitate the group chief executive’s continued employment, training and occupational assistance oversight of policies relating to employees. In 2018 the committee where needed. discussed remuneration policy, progress in our diversity and inclusion Employee engagement programme, modernizing and strengthening our attractiveness as an Managers hold regular team and one-to-one meetings with their staff, employer, our talent and learning programmes and long-term people complemented by formal processes through works councils in parts of priorities. Europe. We regularly communicate with employees on factors that Attraction and retention affect BP’s performance, and seek to maintain constructive relationships A total of 296 graduates joined BP in 2018 (2017 314, 2016 231). We with labour unions formally representing our employees. were named the UK’s highest-ranking recruiter in the oil and gas sector To better understand how employees feel about BP, we conduct an in The Times newspaper’s Top 100 Graduate Employer rankings in 2018. annual survey. The overall employee engagement score in 2018 was We invest in employee development – with an average spend of around 66%. Pride in working for BP was at the highest level $3,200 per person. This includes online and classroom-based courses in a decade at 76% in 2018. and resources, supported by a wide range of on-the-job learning and mentoring programmes. The area where our employees scored us as needing attention was in the efficiency of our processes and ways of working. We know we still Diversity have work to do to streamline our processes and drive the benefits of We are committed to making our workplaces reflect the communities digitization throughout BP. in which we are based. Share ownership The gender balance across BP as a whole is steadily improving, with We encourage employee share ownership and have a number of women representing 35% of BP’s total population (2017 34%, 2016 employee share plans in place. For example, we operate a ShareMatch 33%). We are working to improve these numbers further by, for plan in more than 50 countries, matching BP shares purchased by our example, developing mentoring, sponsorship and coaching programmes employees. We also operate a group-wide discretionary share plan, to help more women advance. But we still have work to do at the which allows employee participation at different levels globally and is executive and senior levels. linked to the company’s performance. See bp.com/ukgenderpaygap for data and more information on our gender pay gap in the UK. BP Annual Report and Form 20-F 2018 See Glossary 51
Modernizing the whole group Smart glasses used across BPX Energy Using wearable technologies New technologies are helping We are using augmented reality (AR) to modernize our operations devices such as ‘smart glasses’ across BPX Energy. Technicians can use the and improve safety, performance glasses to transmit real-time video to experts and efficiency right across our anywhere in the business and they can then Digital vests business. And we are testing a return AR-enabled instruction back to the range of wearable technologies to technician – all while keeping their hands In Oman, where temperatures can reach 55°C, we are testing technologies such understand how they can support free. We are now using the mobile platform to troubleshoot equipment, conduct safety as biometric vests to protect our people our people in a variety of roles. verifications and deliver remote training. working in high temperatures. Working in extreme heat can trigger fatigue, This is helping increase productivity and dehydration and stress – and this can contributing to improvements in the safety affect safety and effective performance. and efficiency of our operations. The lightweight vest is designed to prevent this by monitoring location and core body temperature and transmitting data about heart and respiratory rates. It sends an alert if there is a potential concern or a real emergency. As technologies like these evolve, we will continue to trial them in our operations, so that we can roll out those that are the best fit. Temperatures in Oman can reach 55°C 52 BP Annual Report and Form 20-F 2018
Strategic report – performance 53 e, treasury, trading l reporting risks. l isks and associated risk nanc f nancia cant r f f 75-86. ial risk committee – for nanc rd. f olitical committee. wal committee – for strategic, commercial and investment committee. urce commitment meeting – for investment decision risks. utive team meeting – for strategic and commercial risks. p operations risk committee – for health, safety, security, p p ethics and compliance committee – for legal and regulatory p disclosure committee – for for – committee disclosure p risks. employee for – people committee p ty, ethics and environment assurance committee. environment and ethics ty, rt risks and their management the to appropriate levels blish a common understanding of risks on a like-for-like basis, rm prioritization of specific risk management activities and Exec Grou risks. integrity operations and environment Grou Reso Rene and cyber risks. Grou Grou Grou risks. ethics and compliance decision risks related new to lines of business. BP boa Audit Safe Geop See BP governance framework on page 69, Board activity in 2018 on page See BP governance framework on page 69, Board 70 and committee reports on pages Executive committeesExecutive Board and its committees of the organization. Esta Repo Info taking account into potential impact and likelihood. resource allocation. resource • • • • • • • • • • • • • help to processes business key with alignment activitiesmanagement in enable decisions key be to risk informed. As part of BP’s annual planning process, the executive team and board review the principal group’s risks and uncertainties. These may be updated during the year in response changes to in internal and circumstances.external risk profile Our The nature of our business operations is long term, resulting in many of our risks being enduring in nature. Nonetheless, risks can develop and evolve over time and their potential impact or likelihood may vary in response internal to and external events. BP Annual Report and Form 20-F 2018 processes management Risk We aim for a consistent basis of measuring risk to: • Risk oversight and governance Key risk oversight and governance committees include thefollowing: • BP’s group risk team analyses the risk group’s profile and maintains the provides team audit group Our system. management risk group independent assurance the to group chief executive and board as to whether the system group’s of internal control is adequately designed and operating effectively respond to appropriately the to risks that are significant BP. to Businesses and functions review signi Board Set policy and principal monitor risks Oversight and governance functions corporate Executive andExecutive Plan, manage manage Plan, performance assure and Business and and Business strategic risk management Business functions segments and segments the identified risks in appropriate ways. appropriate in risks identified the rstand the risk environment, identify the specificrisks and assess rt up the management chain and the to board on a periodic basis tor and seek assurance of the effectiveness of the management rmine how best deal to with these risks manage to overall Moni Repo Unde Dete potential exposure. Manage of these risks and intervene for improvement where necessary. on how significant risks are being managed, monitored, assured and the improvements that are being made. the potential exposure for BP. Facilities, and assets operations Day-to-day risk management Identify, manage and risks report Day-to-day risk management – management and staff at our facilities, assets and functions seek identify to and manage risk, promoting safe, compliant and reliable operations. BP requirements, which take into account applicable laws and regulations, underpin the practical plans developed help to reduce risk and deliver safe, compliant and reliable operations as well as greater efficiency and sustainable financial results. Business and strategic risk management – our businesses and functions integrate risk management business key into processes such planning, performance capital strategy, and management,as resource allocation, and project appraisal. We do this by using a standard framework for collating risk data, assessing risk management activities, making further improvements and in connection with planning new activities. Oversight and governance – throughout the year functional committees board relevant and the team, executive leadership, the provide oversight of how significant risks BP to areidentified, assessed and managed. They help ensure to that risks are governed by relevant appropriately. managed are and policies Our risk managementOur activities • • • • BP’s risk management system management risk BP’s BP’s risk management system and policy is designed be to a consistent and clear framework for managing and reporting risks from the group’s operations management to and the to board. The system seeks avoid to incidents and maximize business outcomes by allowing us to: • BP manages, monitors and reports on the principal risks and uncertainties that can impact our abilitydeliver to our strategy. These risks are described in the Risk factors on page 55. processes, structures, organizational systems, management Our standards, code of conduct and behaviours together form a system of internal control that governs how we conduct the business of BP and risks. associated manage How we manage How we risk
We identify high priority risks for particular oversight by the board and We seek to manage this risk through a range of measures, which its various committees in the coming year. Those identified for 2019 include cyber security standards, security protection tools, ongoing are listed in this section. These may be updated throughout the year detection and monitoring of threats and testing of cyber response and in response to changes in internal and external circumstances. The recovery procedures. We collaborate closely with governments, law oversight and management of other risks, for example technological enforcement agencies and industry peers to understand and respond to change or the transition to a lower carbon economy, is undertaken in new and emerging cyber threats. We build awareness with our staff, the normal course of business and in the executive team, the board share information on incidents with leadership for continuous learning and relevant committees. and conduct regular exercises including with the executive team to test response and recovery procedures. There can be no certainty that our risk management activities will mitigate or prevent these, or other risks, from occurring. Safety and operational risks Further details of the principal risks and uncertainties we face are set Process safety, personal safety and environmental risks out in Risk factors on page 55. The nature of the group’s operating activities exposes us to a wide range of significant health, safety and environmental risks such as incidents Risks for particular oversight by the board and its associated with releases of hydrocarbons when drilling wells, operating committees in 2019 facilities and transporting hydrocarbons. The risks for particular oversight by the board and its committees in Our operating management system helps us manage these risks and 2019 have been reviewed. These risks remain the same as for 2018. drive performance improvements. It sets out the rules and principles which govern key risk management activities such as inspection, Strategic and commercial risks maintenance, testing, business continuity and crisis response planning Financial liquidity and competency development. In addition, we conduct our drilling External market conditions can impact our financial performance. Supply activity through a global wells organization in order to promote a and demand and the prices achieved for our products can be affected by consistent approach for designing, constructing and managing wells. a wide range of factors including political developments, global economic conditions and the influence of OPEC. Security Hostile acts such as terrorism or piracy could harm our people and We seek to manage this risk through BP’s diversified portfolio, our disrupt our operations. We monitor for emerging threats and financial framework, liquidity stress testing, maintaining a significant vulnerabilities to manage our physical and information security. cash buffer, regular reviews of market conditions and our planning and investment processes. Our central security team provides guidance and support to our businesses through a network of regional security advisers who advise Geopolitical and conduct assurance activities with respect to the management of The diverse locations of our operations around the world expose us to a security risks affecting our people and operations. We continue to wide range of political developments and consequent changes to the monitor threats globally and maintain disaster recovery, crisis and economic and operating environment. Geopolitical risk is inherent to many business continuity management plans. regions in which we operate, and heightened political or social tensions or changes in key relationships could adversely affect the group. Compliance and control risks We seek to manage this risk through development and maintenance Ethical misconduct and legal or regulatory non-compliance of relationships with governments and stakeholders and by becoming Ethical misconduct or breaches of applicable laws or regulations could trusted partners in each country and region. In addition, we closely damage our reputation, adversely affect operational results and monitor events and implement risk mitigation plans where appropriate. shareholder value, and potentially affect our licence to operate. Our code of conduct and our values and behaviours, applicable to all employees, are central to managing this risk. Additionally, we have The impact of the UK’s exit from the EU various group requirements and training covering areas such as Following the referendum in 2016, we have been assessing the anti-bribery and corruption, anti-money laundering, competition/ potential impact of Brexit on BP. We have been preparing for anti-trust law and international trade regulations. We seek to keep different scenarios for the UK’s exit from the EU but do not believe abreast of new regulations and legislation and plan our response to any of these scenarios will pose a significant risk to our business. them. We offer an independent confidential helpline, OpenTalk, for The board’s geopolitical committee discussed this, most recently employees, contractors and other third parties. in January 2019. Trading non-compliance We continue to monitor developments in this area in line with our In the normal course of business, we are subject to risks around our risk management processes and procedures. trading activities which could arise from shortcomings or failures in our systems, risk management methodology, internal control processes or employee conduct. Cyber security The targeted and indiscriminate threats to the security of our digital We have specific operating standards and control processes to manage infrastructure continue to evolve rapidly and are increasingly prevalent these risks, including guidelines specific to trading, and seek to monitor across industries worldwide. The oil and gas industry is subject to compliance through our dedicated compliance teams. We also seek to evolving risks from a variety of cyber threat actors, including nation maintain a positive and collaborative relationship with regulators and the states, criminals, terrorists, hacktivists and insiders. A cyber security industry at large. breach could disrupt our business, injure people, harm the environment or our assets, or result in legal or regulatory breaches. 54 See Glossary BP Annual Report and Form 20-F 2018
Strategic report – performance 55 , ing costs ing, we could ctivities, could nanc fi nanc ial framework ial loss. Trade fi cant a fi ial, operational or nanc nanc ial performance. In the fi SeeGlossary fi nanc – breach of our digital l, including credit,l, ial framework could impact fi nanc fi – varying levels of control ial loss. nanc fi nancia fi nanc fi perational incident, legal proceedings or cant o ing or engagement in our trading activities on fi ial framework oroverwhelm our ability meet to e and control over the performance of such osts including the cost of remediation or nanc l capacity l and fi nanc fi uenc cant c fl fi or with contractors and sub-contractors may and we contractors where with or nancia fi – failure work to within our reputational consequences. reputational Climate change and the transition to a lower carbon economy – policy, legal, regulatory, technology and market change related the to issue of climate change could increase costs, reduce demand for our products, reduce revenue and limit certain growth opportunities. Changes in laws, regulations, policies, obligations, social attitudes and carbon lower a to transition the to relating preferences customer increasing including business, our on impact cost a have could economy Such strategy. our impact could and costs, litigation and compliance changes could lead constraints to on production and supply and access newto reserves. Technological improvements or innovations that customer and carbon economy, lower a to support transition the preferences or regulatory incentives related such to changes that alter fuel or power choices, such as towards low emission energy sources, could impact demand for oil and gas. Depending on the nature and speed of any such changes and our response, this could adversely affect exposure security or failure of our digital infrastructure including loss or misuse of sensitive information could damage our operations, increase costs and reputation. damage our The oil and gas industry is subject fast-evolving to risks from cyber threat hacktivists and terrorists, criminals, states, nation including actors, insiders. A breach or failure of our digital infrastructure – including control systems – due breaches to of our cyber defences, or those of third parties, misconduct negligence, reasons, could intentional other or seriously disrupt our operations. This could result in the loss or misuse of data or sensitive information, injury people, to disruption our to business, harm the to environment or our assets, legal or regulatory breaches and legal liability. Furthermore, the rapid detection of attempts gain to unauthorized access our to digital infrastructure, often through the use of sophisticated and co-ordinated means, is a challenge and any delay or failure detect to could compound these potential harms. These could result in signi Liquidity, Liquidity, have limited in the for responsible are contractors partners Our and operations. adequacy of the resources and capabilities they bring a project. to If these are found be to lacking, there may be Shouldsafety risks an incident for BP. occur in an operation that BP participates in, our partners and contractors may be unable or unwilling fullyto compensate us against costs we may incur on their behalf or on behalf of the arrangement. Where we do not have operational control of a venture, we may still be pursued by regulators or claimants in the event of an incident. cyber security and infrastructure Digital BP Annual Report and Form 20-F 2018 our ability operate to and result in could impact our ability operate to and result in obligations. our An event such as a signi a geopolitical event in an area where wehave signi reduce our credit ratings. This could potentially increase and limit access to event of extended constraints on our ability obtain to Failure accurately to forecast or work within our and other receivables, including overdue receivables, may not be recovered and a substantial and unexpected cash call or funding request could disrupt our acceptable terms, which could put pressure on the liquidity. group’s Credit rating downgrades could also trigger a requirement for the company review to its funding arrangements with the BP pension trustees and may cause other impacts on be required reduce to capital expenditure or increase asset disposals in order provide to additional liquidity. See Liquidity and capital resources on page 277 and Financial statements – Note 29. contractors and arrangements Joint standards, the operations compliance partners, and our over of and liability legal sub-contractors in and contractors result could damage. reputational We conduct many of our activities through joint arrangements associates ial lity nanc nd tabi fi ows, fi fl and ability to ning a fi inability to access, to inability n and more onerous ations in demand. atio lity of our re fl uctu oducts, technological change, ital expenditure fl tabi fi e of OPEC can impact supply and t, cap ned pr fi fi ial performance is impacted by uenc ro ake, costake, in fl r for a prolonged period, we may have to ydrocarbon located, are basins nanc fi failure invest to in the best opportunities or scal t ows, p fi apital expenditure required. cant o fl our cant h cant fi fi ations can create currency exposures and impact ations, and the general macroeconomic outlook. macroeconomic general the and ations, ations against the US dollar. cant c fi f signi al performance.al al performance, results of operations, cash cash operations, of performance, results al uctu uctu cy or delivery, or operational challenges at any major fl uctu fl fl – exposure a range to of political developments and nanci nanci cien al performance.al ows. I fi fi fi fl ating prices oil, of gas and re nanci fi uctu iquidity, prospects, shareholder value and returns and reputation. and cash could also be adversely impacted. Events in or relating Russia, to including trade restrictions and other sanctions, could adversely impact our income and investment in or relating Russia. to Our ability pursue to business objectives and to recognize production and reserves relating these to investments Geopolitical performance. We face challenges in developing major projects, particularly in geographically and technically challenging areas. Poor investment choice, ef adversely could growth production or production underpins that project affect our consequent changes the to operating and regulatory environment in turn cause production decline, to limit our ability pursue to new opportunities, affect the recoverability of our assets or cause us incur to additional costs, particularly due the to long-term nature of many of our projects and signi Access, renewal and reserves progression – renew and progress upstream resources in a timely manner could adversely affect our long-term replacement of reserves. Delivering our group strategy depends on our ability continually to replenish a strong exploration pipeline of future opportunities access to and produce oil and natural gas. Competition for access investment to opportunities, political heightened economic and certain in risks signi where countries could cause business disruption. We operate and may seek new opportunities in countries and regions where political, economic and social transition may take place. Political instability, changes the to regulatory environment or taxation, property, of nationalization or expropriation sanctions, international civil strife, strikes, insurrections, acts of terrorism and acts of war may disrupt or curtail our operations or development activities. These may terms for access resources. to The pro Exchange rate underlying costs and revenues. Crude oil prices are generally set in US dollars, while products vary in currency. Many of our major project demand and prices for our products. Decreases in oil, gas or product prices could have an adverse effect on revenue, margins, pro a material adverse effect on the implementation of our strategy, our business, l fl rate exchange write down assets and re-assess the viability of certain projects, which may impact future cash Strategic and commercial risks Prices and markets – The risks discussed below, separatelyor in combination, could have Oil, gas and product prices are subject international to supply and demand and margins can be volatile. Political developments, increased supply from new oil and gas sources, technological change, global economic conditions and the in deliver major projects successfully could adversely affect our be subject to development costs are denominated in local currencies, which may maintain our long-term investment programme. Conversely, an increase an long-term our Conversely, programme. maintain investment in oil, gas and product prices may not improve margin performance as there could be increased petrochemicals activities can be volatile, with periodic over-supply or supply tightness in regional markets and unsuccessful exploration activity and increasing technical challenges challenges technical activity increasing and exploration unsuccessful and capital commitments may adversely affect our strategic progress. This, and our ability progress to upstream resources and sustain long-term reserves replacement, could impact our future production and Major project delivery – Risk factors Risk
the demand for our products, investor sentiment, our financial Security – hostile acts against our staff and activities could cause harm performance and our competitiveness. See Climate change on page 45. to people and disrupt our operations. Competition – inability to remain efficient, maintain a high quality Acts of terrorism, piracy, sabotage and similar activities directed against portfolio of assets, innovate and retain an appropriately skilled our operations and facilities, pipelines, transportation or digital workforce could negatively impact delivery of our strategy in a highly infrastructure could cause harm to people and severely disrupt competitive market. operations. Our activities could also be severely affected by conflict, civil strife or political unrest. Our strategic progress and performance could be impeded if we are unable to control our development and operating costs and margins, Product quality – supplying customers with off-specification products or to sustain, develop and operate a high quality portfolio of assets could damage our reputation, lead to regulatory action and legal liability, efficiently. We could be adversely affected if competitors offer superior and impact our financial performance. terms for access rights or licences, or if our innovation in areas such as Failure to meet product quality standards could cause harm to people exploration, production, refining, manufacturing, renewable energy or and the environment, damage our reputation, result in regulatory action new technologies lags the industry. Our performance could also be and legal liability, and impact financial performance. negatively impacted if we fail to protect our intellectual property. Our industry faces increasing challenge to recruit and retain diverse, Compliance and control risks skilled and experienced people in the fields of science, technology, engineering and mathematics. Successful recruitment, development Regulation – changes in the regulatory and legislative environment and retention of specialist staff is essential to our plans. could increase the cost of compliance, affect our provisions and limit our access to new growth opportunities. Crisis management and business continuity – failure to address an incident effectively could potentially disrupt our business. Governments that award exploration and production interests may impose specific drilling obligations, environmental, health and safety Our business activities could be disrupted if we do not respond, or are controls, controls over the development and decommissioning of a field perceived not to respond, in an appropriate manner to any major crisis and possibly, nationalization, expropriation, cancellation or non-renewal or if we are not able to restore or replace critical operational capacity. of contract rights. Royalties and taxes tend to be high compared Insurance – our insurance strategy could expose the group to material with those imposed on similar commercial activities, and in certain uninsured losses. jurisdictions there is a degree of uncertainty relating to tax law interpretation and changes. Governments may change their fiscal and BP generally purchases insurance only in situations where this is legally regulatory frameworks in response to public pressure on finances, and contractually required. Some risks are insured with third parties and resulting in increased amounts payable to them or their agencies. reinsured by group insurance companies. Uninsured losses could have a material adverse effect on our financial position, particularly if they arise Such factors could increase the cost of compliance, reduce our at a time when we are facing material costs as a result of a significant profitability in certain jurisdictions, limit our opportunities for new operational event which could put pressure on our liquidity and cash flows. access, require us to divest or write down certain assets or curtail or cease certain operations, or affect the adequacy of our provisions Safety and operational risks for pensions, tax, decommissioning, environmental and legal liabilities. Potential changes to pension or financial market regulation could also Process safety, personal safety, and environmental risks – impact funding requirements of the group. Following the Gulf of Mexico exposure to a wide range of health, safety, security and environmental oil spill, we may be subjected to a higher level of fines or penalties risks could cause harm to people, the environment and our assets and imposed in relation to any alleged breaches of laws or regulations, result in regulatory action, legal liability, business interruption, increased which could result in increased costs. costs, damage to our reputation and potentially denial of our licence Ethical misconduct and non-compliance – ethical misconduct or to operate. breaches of applicable laws by our businesses or our employees could Technical integrity failure, natural disasters, extreme weather or a be damaging to our reputation, and could result in litigation, regulatory change in its frequency or severity, human error and other adverse action and penalties. events or conditions could lead to loss of containment of hydrocarbons Incidents of ethical misconduct or non-compliance with applicable laws or other hazardous materials or constrained availability of resources and regulations, including anti-bribery and corruption and anti-fraud laws, used in our operating activities, as well as fires, explosions or other trade restrictions or other sanctions, could damage our reputation, result personal and process safety incidents, including when drilling wells, in litigation, regulatory action and penalties. operating facilities and those associated with transportation by road, sea or pipeline. Treasury and trading activities – ineffective oversight of treasury and trading activities could lead to business disruption, financial loss, There can be no certainty that our operating management system or regulatory intervention or damage to our reputation. other policies and procedures will adequately identify all process safety, personal safety and environmental risks or that all our operating activities We are subject to operational risk around our treasury and trading will be conducted in conformance with these systems. See Safety and activities in financial and commodity markets, some of which are security on page 43. regulated. Failure to process, manage and monitor a large number of complex transactions across many markets and currencies while Such events or conditions, including a marine incident, or inability to complying with all regulatory requirements could hinder profitable provide safe environments for our workforce and the public while at our trading opportunities. There is a risk that a single trader or a group facilities, premises or during transportation, could lead to injuries, loss of traders could act outside of our delegations and controls, leading of life or environmental damage. As a result we could face regulatory to regulatory intervention and resulting in financial loss, fines and action and legal liability, including penalties and remediation obligations, potentially damaging our reputation. See Financial statements – increased costs and potentially denial of our licence to operate. Note 29. Our activities are sometimes conducted in hazardous, remote or environmentally sensitive locations, where the consequences of Reporting – failure to accurately report our data could lead to regulatory such events or conditions could be greater than in other locations. action, legal liability and reputational damage. Drilling and production – challenging operational environments and External reporting of financial and non-financial data, including reserves other uncertainties could impact drilling and production activities. estimates, relies on the integrity of systems and people. Failure to report data accurately and in compliance with applicable standards could result Our activities require high levels of investment and are sometimes in regulatory action, legal liability and damage to our reputation. conducted in challenging environments such as those prone to natural disasters and extreme weather, which heightens the risks of technical integrity failure. The physical characteristics of an oil or natural gas field, and cost of drilling, completing or operating wells is often uncertain. We may be required to curtail, delay or cancel drilling operations or stop production because of a variety of factors, including unexpected drilling conditions, pressure or irregularities in geological formations, equipment failures or accidents, adverse weather conditions and compliance with The Strategic report was approved by the board and signed on its behalf governmental requirements. by Jens Bertelsen, company secretary on 29 March 2019. 56 See Glossary BP Annual Report and Form 20-F 2018
Corporate governance 57 BP Annual Report and Form 20-F 2018 he board isclosures porate Governance Code compliance Governance porate erformance and pay outcomes ation and governance committee governance and ation nnual bonus outcome xecutive director outcomes and interests and outcomes director xecutive neration committee neration nance framework ttee reports isits olitical committee intment and time commitment time and intment r workforce in 2018 committee ardship and executive director interests director executive and ardship -18 performance-18 share plan outcome ment with strategy with ment executive director remuneration policy for 2019 utional investors utional utive director remuneration policy and implementation for 2019 utive directors’ pay for 2018 utive management teams utive ing and induction and ing d and committee attendance committee and d d evaluation il investors ty, ethics and environment assurance committee environment and ethics ty, pendence rman’s committeerman’s ls and expertise and ls ersity utive team utive 2018 p 2018 a 2018 2016 Align Exec Wide Stew Non-e Other d Exec Non- Exec Gover Boar Role of t Skil Div Instit Reta AGM Audit Safe Remu Geop Chai Nomin Inde CorUK Appo Train Boar Site v International advisory board Commi report remuneration Directors’ Board of directors Exec Introduction from thechairman Board activity 2018 in Shareholder engagement 75 90 91 92 94 95 97 100 102 104 105 109 66 69 69 70 71 71 74 74 74 81 83 84 85 86 71 74 71 72 72 73 75 87 74 74 63 68 70 58 governance Corporate
See BP’s board governance principles relating Board of directors to director independence on page 300. As at 29 March 2019 Helge Lund Bob Dudley Brian Gilvary Nils Andersen Alan Boeckmann Admiral Frank Dame Alison Pamela Daley Ian Davis Professor Dame Bowman Carnwath Ann Dowling Melody Meyer Brendan Nelson Paula Rosput Sir John Sawers Jens Bertelsen Reynolds Prior to Statoil, he was president and chief He has a degree in business economics from Helge Lund executive officer of Aker Kvaerner, an industrial the Norwegian School of Economics and Chairman conglomerate with operations in oil and gas, Business Administration in Bergen and a engineering and construction, pulp and paper Master of Business Administration from Tenure and shipbuilding. He has also held executive INSEAD business school in France. Appointed 26 July 2018 positions in Aker RGI, a Norwegian industrial Relevant skills and experience Board and committee activities holding company, and Hafslund Nycomed, an Helge Lund was appointed chair of the BP industrial group with business activities in Chair of the chairman’s committee and board following a detailed process involving all pharmaceuticals and energy. nomination and governance committee, members of the board. Helge has an regularly attends the safety, ethics and He has worked as a consultant with McKinsey impressive track record of leadership in the oil environment assurance, audit, remuneration & Company and has served as a political and gas industry. His open-minded and and geopolitical committees adviser for the parliamentary group of the forward-looking approach will be vital as the Conservative party in Norway. industry focuses on the transition to a lower Outside interests carbon world. He has deep industry • Chairman of Novo Nordisk AS Helge is chairman of the board of Novo Nordisk knowledge and global business experience – • Operating Advisor to Clayton Dubilier & Rice AS, a global healthcare company. Prior to not only in the oil and gas industry but also in • Member of the Board of Trustees of the joining BP, he was a non-executive director of pharmaceuticals, healthcare and construction. International Crisis Group the oil service group Schlumberger from 2016 to 2018, and Nokia from 2011 to 2014. Age 56 Nationality Norwegian He is an operating adviser to Clayton Dubilier & Career Rice, a US investment firm. He is a member of Helge Lund became a board director on the Board of Trustees of the International Crisis 26 July 2018 and chairman of the BP board Group and served as a member on the United on 1 January 2019. Nations Secretary-General’s Advisory Group on Sustainable Energy from 2011 to 2014. Helge served as chief executive of BG Group from 2015 to 2016, when the company merged with Shell. He joined BG Group from Statoil where he served as president and chief executive officer for 10 years from 2004. 58 BP Annual Report and Form 20-F 2018
Corporate governance 59 Danish executive director of Unilever Plc and rman of Salling Group A/S rman of Færch Plast A/S rman of Akzo Nobel N.V. rman of WWF Denmark 60 Nationality Unilever NV Chai Chai Nils AndersenNils non-executiveIndependent director Non- Chai Chai the Gulf Mexico, of and leadingthe 2015 settlement negotiations US with the government and states resolve to the outstanding federal and state claims. Brian also played a leadrole in the negotiations around the exit of TNK-BP and investment into Rosneft and led the recent acquisition the of BHP onshore Lower 48 assets. Brian has also been at the centre of the workgroup’s on cyber securityrisk. addressing Brian Gilvary’s performance been has evaluated by the group chief executive and considered by the chairman’s committee. Tenure 2016 October 31 Appointed Board and committee activities Member of the safety, ethics and environment geopoliticalassurance, chairman’s and committees interests Outside • • • • • Age Career Nils Andersen was group chief executive of Møller-MærskA.P. from 2007 June to 2016. Prior this to he was executive vice president of Carlsberg A/S A/S Carlsberg and Breweries from 1999 2001, to becoming president and chief executive officer from 2001to 2007. Previous roles include non-executive director of Inditex S.A. and William Demant A/S. He has also served as managing director of Union Cervecera, chief and Hannen Brauerei executive officer of the drinks division of the Hero Group. Nils was elected as a member and chairman of the supervisory board of Akzo Nobel N.V. in April and 2018 was recently appointed as chairman of WWF Denmark. Nils received his graduate degree from the University of Aarhus. Relevant skills and experience Andersen experienceNils in extensive has having logistics, and goods, retail consumer integrated with corporations global led operations worldwide. He has substantial skill, knowledge and experience in marketing, brand shipping broad has He issues. reputation and energy industry upstream and experience which aligns with BP’s shipping business. His leadership earlier in his career focused leaner businesses, of transformation the on competitiveness, increasing and organizations transparency and increasing as well as communication has with stakeholders. Nils recently moved from the audit committee to assurance environment and ethics safety, the BP Annual Report and Form 20-F 2018 British er Commission of Trilateral rary professor at Manchester University executive director of Air Liquide executive director of (Royal) Navy Board executive director of The Francis Crick t Britain Age Group Triathlete rman The of 100 Group 57 Nationality Institute Grea Brian Gilvary officer financial Chief Non- Non- Non- Chai Memb Hono transition to a lower carbon economy. Under carbon economy. lower a to transition his leadership, BP successfully acquired the lower 48 assets of BHP and in 2018 delivered six major projects as planned. been has performance Dudley’s Bob considered and evaluated by the chairman’s committee. Career Brian Gilvary was appointed chief financial officer on 1 January Therole 2012. includes tax,treasury, finance, for responsibility relations, investor acquisitions, and mergers services, information business global audit, technology and procurement. Healso has accountability for both integrated supply and responsible division shipping the and trading, for BP’s tanker fleet. Brian joined BP in 1986 after obtaining a PhD in mathematics from the University of Manchester. Following a broadrange of roles trading in and downstream upstream, in Europe and the US, he became downstream’s commercial director from 2002 2005. to From 2005 until 2009 he was chief executive of the BP’s function, trading and supply integrated commodity trading arm. In he 2010 was appointed deputy group chief financial officer function. finance the for responsibility with He was a director of TNK-BP over two periods, from 2003 2005 to and from until 2010 the sale of the business and BP’s acquisition of Rosneft equity in 2013. He served on the HM Treasury Financial Management Review Board from 2017. to 2014 Relevant skills and experience with career Brian Gilvary entire his spent has with broad experienceBP, of working across all facets of the group. This has provided him with deep insight BP’s into assets and businesses. Brian has been player a key as BP has implemented its strategy transform to a into ‘value over volume’ based business where trading creator is a key of value throughout the business.integrated In addition underpinning to his role as chief financial officer, his deep understanding of finance and trading has been vital in adjusting capital structures and operational costs while ensuring the group continues be to capable of opportunities. new meeting He played a major role in overseeing the financial consequences of the oil 2010 spill in • • • Age Tenure Appointed the to board 1 January 2012 interests Outside • • • • American British and r of the BritishAmerican the of r Business er of the UAE/UK CEO Forum er of the Emirates Foundation er of the World Economic Forum er of the Management Tsinghua er of the US Business Council er of the US Business Roundtable executive director of Rosneft r of the Oil and Gas Climate Initiative ow of the Royal Academy of Engineering 63 Nationality (WEF) Council Business International (OGCI) Memb Chai University Advisory Board, Beijing, China Membe AdvisoryInternational Board Memb Memb Memb Memb Board of Trustees Group chief executive Fell Non- Memb Bob Dudley Career Bob Dudley became group chief executiveon 2010. October 1 Amoco 1979, joined Bob Corporation in working in a variety of engineering and commercial posts. Between 1994 and 1997 he Russia. in development corporate on worked In 1997 he became general manager for strategy for Amoco and in 1999, following the merger between BP and Amoco, was appointed a similar to role in BP. Between 1999 and 2000 he was executive assistant the to group chief executive, president vice group becoming subsequently for BP’s renewables and alternative energy activities. In 2002 he became group vice president responsible for BP’s upstream businesses in Russia, the Caspianregion, Angola, Egypt. Algeria and From 2003 2008 to he was president and chief executive officer of TNK-BP. On hisreturn to BP in 2009, he was appointed the to BP board and oversaw the activities group’s in the Americas and Asia. During he 2010 served as the president and chief executive officer of BP’s Gulf Coast Restoration Organization in theUS. He wasappointed directora Rosneftof in March following 2013 BP’s acquisition of a stake in Rosneft. Since 2016, he has chaired the Oil and Gas Community of the World Economic Forum and is chair of the Oil and Gas Climate Initiative (OGCI). Relevant skills and experience Bob Dudley has spent his whole career in the oil and gas industry. As group chief executive, the board believes Bob has demonstrated has and vision and leadership outstanding transformed stronger BP a safer, into and simpler business. Over the past eight years, Bob has based this transformation on a consistent set of values and behaviours. BP is now more resilient and is able continue to delivering results in an uncertain economic environment. Bob continues lead to the development of the strategy, group’s as BP adapts the to challenges of the advancing • Age • • • • • • • • Tenure Appointed the to board 6 April 2009 interests Outside •
committee where he will shortly take the chair. His broad business experience and his Admiral Frank Bowman Dame Alison Carnwath knowledge of safe operations in our industry Independent non-executive director Independent non-executive director makes him very well qualified for that role. Tenure Tenure Appointed 8 November 2010 Appointed 21 May 2018 Alan Boeckmann Board and committee activities Board and committee activities Independent non-executive director Member of the safety, ethics and environment Member of the audit and chairman’s Tenure assurance, geopolitical and chairman’s committees Appointed 24 July 2014 committees Outside interests Board and committee activities Outside interests • Member of Supervisory Board and Audit Chair of the safety, ethics and environment • President of Strategic Decisions, LLC Committee chair of BASF SE assurance committee; member of the • Director of Morgan Stanley Mutual Funds • Director and Audit Committee chair of Zurich remuneration, nomination and governance • Director of Naval and Nuclear Technologies, Insurance Group and chairman’s committees LLP • Independent director of PACCAR Inc • Member of UK Panel on Takeovers and Outside interests Age 74 Nationality American Mergers • Non-executive director of Sempra Energy • Trustee of The Economist Group • Non-executive director of Archer Daniels Career Midland Frank Bowman served for more than Age 66 Nationality British 38 years in the US Navy, rising to the rank Age 70 Nationality American of Admiral. He commanded the nuclear Career submarine USS City of Corpus Christi and Dame Alison Carnwath qualified as a chartered Career the submarine tender USS Holland. After accountant before going on to hold a number Alan Boeckmann retired as non-executive promotion to flag officer, he served on the of senior financial advisory roles in London and chairman of Fluor Corporation in February joint staff as director of political-military affairs New York. 2012, ending a 35-year career with the and as the chief of naval personnel. He served company. Between 2002 and 2011 he held For more than 15 years, Dame Alison’s career, over eight years as director of the Naval the post of chairman and chief executive in her capacities as senior adviser, director and Nuclear Propulsion Program where he was officer, having previously been president chairman, has enabled her to demonstrate her responsible for the operations of more than and chief operating officer from 2001 to expertise on financial, strategic and good 100 reactors aboard the US Navy’s aircraft 2002. His tenure with the company included governance matters both in and outside of carriers and submarines. responsibility for global operations. As the board room. Her current roles include chairman and chief executive officer, he After his retirement as an Admiral in 2004, independent director of PACCAR Inc, director refocused the company on engineering, he was president and chief executive officer and audit committee chair of Zurich Insurance procurement, construction and maintenance of the Nuclear Energy Institute until 2008. Group and supervisory board member services. He served on the BP Independent Safety and audit committee chair BASF SE. Review Panel and was a member of the BP After graduating from the University of Previous roles of note include chairmanship America External Advisory Council. He holds Arizona with a degree in electrical engineering, of Land Securities Group plc as well as two masters degrees in engineering from he joined Fluor in 1974 as an engineer non-executive directorships of Barclays plc the Massachusetts Institute of Technology. and worked in a variety of domestic and and Man Group plc. He was appointed Honorary Knight international locations, including South Africa Dame Alison is a chartered accountant, holds Commander of the British Empire in 2005. and Venezuela. an undergraduate degree, has two honorary He was elected to the US National Academy degrees and in 2014 was appointed to the order Alan was previously a non-executive director of Engineering in 2009. of BHP Billiton and the Burlington Santa Fe of Dame Commander of the Most Excellent Frank is a member of the US CNA military Corporation, and has served on the boards Order of the British Empire for her services advisory board and has participated in studies of the American Petroleum Institute, the to business and diversity. of climate change and its impact on national National Petroleum Council, the Eisenhower Relevant skills and experience security, and on future global energy solutions Medical Center and the advisory board of Dame Alison has extensive financial and water scarcity. Additionally, he was Southern Methodist University’s Cox School experience both as an executive and non- co-chair of a National Academies study of Business. executive director. Dame Alison has chaired investigating the implications of climate significant boards and has deep experience He led the formation of the World Economic change for naval forces. Forum’s ‘Partnering Against Corruption’ of the workings of investors and the finance Relevant skills and experience initiative in 2004. industry in the City of London. She has Frank Bowman’s exemplary safety record in worked with global organizations and brings Relevant skills and experience running the US Navy’s nuclear submarine this broad range of skills to the BP board Alan Boeckmann has worked in a wide range program indicates his deep understanding and to the audit committee. of industries including engineering, of process safety and its implementation. construction, chemicals and the energy sector. Frank makes a substantial contribution to the He has been involved in delivering very large safety culture within BP. Combined with his projects particularly in the energy industry. In specific knowledge of BP’s safety goals his senior roles he directed the focus of global from his work on the BP Independent Safety corporations towards the advanced technology Review Panel and his special interest in needed to remain competitive in response to climate change, he brings an important the growth of the internet, e-commerce and perspective to the board and the safety, the globalization of the workforce. At the same ethics and environment assurance committee. time, he actively promoted fairness, He has led the oversight of BP’s compliance transparency, accountability and responsibility with the agreements with the US government in business dealings through the ‘Partnering stemming from the Deepwater Horizon Against Corruption’ initiative. oil spill. 60 BP Annual Report and Form 20-F 2018
Corporate governance 61 Nationality American executive director of AbbVie Inc. ident of Melody Meyer Energy LLC or Advisor Cairn to India Limited tee of Trinity University ctor of the National Bureau of Asian ctor of National Oilwell Varco, Inc. 61 Research Melody Meyer Melody non-executiveIndependent director Pres Dire Trus Non- Seni Dire and the Royal Academy of Engineering and a foreign associate of the US National Academy of Engineering, the Chinese Academy of Engineering andthe French Academy of 18 from honorary has degrees She Sciences. universities, including the University of Oxford, Imperial College London and theKTH Royal Institute of Technology, Stockholm. She was elected President of the Royal Academy of Engineering in September and 2014 in December was 2015 appointed the to Order of Merit. Relevant skills and experience Dame Ann is an internationally respected leader in engineering research and the practical application of new technology in industry. Her contribution in these fields has been widely recognized by universities around the world. Her academic backgroundprovides balance to the board andbrings different a perspective to assurance environment and ethics safety, the committee, particularly in developments as technology accelerate. Her work in this area is supplemented by her chairing the company’s technology advisory council. Dame Ann was chair of the remuneration committee from and 2015 stood down from that committee after the AGM. 2018 Dame Ann is a fellow the of Royal Society in Houston. Gulf Oil later merged with Chevron Melodywhere retirement her until remained • • Age Career Melody Meyer started her career with Gulf Oil in 2016. Melody with career Chevron, During her had Tenure Appointed May 2017 17 Board and committee activities Member of the safety, ethics and environment geopoliticalassurance, chairman’s and committees. interests Outside • • • leadershipkey roles in global exploration and projects international on working production, and operational assignments. In 2004 Melody became vice president for the Gulf of Mexico business unit, and in 2008 became president of the Chevron Energy Technology Company. MelodyFrom 2011 was president of Asia Pacific the for responsible Production, Exploration and financial and operating performance theof upstream assets in nine countries in Chevron’s Asia Pacificregion. Melody was executivethe Network and Women’s Chevron the of sponsor continues as a mentor and advocate for the advancement of women in the industry. She was recognized as a 2009 Trinity Distinguished • BP Annual Report and Form 20-F 2018 vice-chancellor of professor and er of the Prime Minister’s Council for g LLC g Nationality British Nationality British executive directorJohnson of & executive director for All of Teach executive director of Smiths Group plc ident of the Royal Academy of 68 66 Non-executive director Majid of Al Futtaim Holdin Non- Inc. Johnson, Non- Science and Technology Technology and Science Mechanical Engineering at the University Cambridge of Memb Non- Professor Dame Ann Dowling non-executiveIndependent director Pres Engineering Deputy • • • Age Career Ian Davis is senior partner emeritus of McKinsey & Company. He was a partner at McKinsey for years31 until and 2010 served as chairman and managing director between 2003 and 2009. Ian has a MA in Politics, Philosophy and Economics from Balliol College, University of Oxford. Relevant skills and experience Ian Davis brings global financial and strategic experience the to board. He has worked with and organizations global advised and companies in a wide variety of sectors including oil and gas and the public sector. in the Gulf of Mexico and chaired the Gulf of Mexico committee from its formation in 2010 until it was stood down in 2016. He was previously a non-executive director in the Cabinet Office, giving him an important perspective on government affairs which is an asset both to the board and the geopolitical committee. In his role as the senior independent director, Ian is responsible for the annual evaluation of performance search led the and chairman’s the for a successor Carl-Henric to Svanberg as chairman, resulting in the appointment of Helge Lund. He isable draw to on knowledge of diverse issues and outcomes assist to the board and committees.its Ian led the board’s oversight of the response • Career Dame Ann Dowling is a deputy vice-chancellor at the University of Cambridge where she was appointed a professor of mechanical engineering in the department of engineering in 1993. She was head of the department of engineering at the university from 2009 2014. Her to research is in fluid mechanics, acoustics and combustion, and she has held visiting posts at MIT and at advisory technical BP’s chairs She Caltech. council. • Age Tenure Appointed 3 February 2012 Board and committee activities Member of the safety, ethics and environment committees chairman’s assurance and interests Outside • • Nationality American rman of Rolls-Royce Holdings plc ctor of BlackRock, Inc ctor of SecureWorks, Inc 66 Chai Ian Davis director independent Senior Dire Dire Independent non-executive Independent director Pamela Daley Pamela Tenure Appointed 2 April 2010 Board and committee activities geopolitical,Member remuneration, the of nomination and governance and chairman’s committees interests Outside • the General Electric Company. She joined GE in 1989 as tax counsel and held a number of senior executive roles in the company, serving most recently as senior vice president and senior advisor the to chairman from April to December 2013, when she retired from GE. Between 2004 and she 2013 was senior vice president of corporate business development at GE, where she was responsible for GE’s mergers, acquisitions activities divestiture and worldwide, and prior that, to from 1991 2004, to counsel senior served and vice president as transactions. for Pamela Daley has served as a director of BlackRock since and2014 of SecureWorks since 2016. She was a director of BG Group plc until 2016 from to its 2014 acquisition by Shell, a director from 2017 of Patheon to 2016 N.V. and its acquisition Thermountil by Fisher, was previously a partner at Morgan, Lewis & Bockius, a major US law firm, where she specialized in domestic and cross-border tax-oriented financings and commercial transactions. Pamela Daley is a qualified lawyer, she worked in highly regulated industries, holding senior roles on other boards including chair of the at committee nominating and governance SecureWorks and chair of the audit committee BlackRock.at Relevant skills and experience Pamela Daley has deep experience of global business through her executive role at GE. She has also served on a UK board in the oil and gas industry which gave her further insight into that Pamela sector. has joined the audit committee which to she brings deep financial experience expertise. and joined She has also committee, remuneration herthe where points investor and employee of understanding of view will provide important input. Career Pamela Daley spent most of her career with • Age Tenure Appointed 26 July 2018 Board and committee activities Member of the audit, remuneration and committeeschairman’s interests Outside •
Alumni, with the BioHouston Women in Science insight into the challenges faced by global Award, was the ASME Rhodes Petroleum businesses by regulatory frameworks. He Sir John Sawers Industry Leadership Award recipient and in 2018 recently joined the remuneration committee. Independent non-executive director as an Influential Woman in Energy. Tenure Relevant skills and experience Paula Rosput Reynolds Appointed 14 May 2015 Melody Meyer has spent her entire career in Independent non-executive director the oil and gas industry. The breadth, variety Board and committee activities and geographic scope of her experience is Tenure Chair of the geopolitical committee; member of distinctive. Her career has been marked by a Appointed 14 May 2015 the safety, ethics and environment assurance, focus on excellence, safety and performance Board and committee activities nomination and governance and chairman’s improvement. She has expertise in the Chair of the remuneration committee; member committees execution of major capital projects, creation of of the audit, nomination and governance and Outside interests businesses in new countries, strategic and chairman’s committees • Chairman and partner of Macro Advisory business planning, merger integration and safe Outside interests Partners LLP and reliable operations. • Non-executive director of BAE Systems plc • Visiting professor at King’s College London Melody brings a world-class operational • Non-executive director of TransCanada • Governor of the Ditchley Foundation perspective to the board, with a deep Corporation (until May 2019) • Trustee of the Bilderberg Association, UK understanding of the factors influencing safe, • Non-executive director of CBRE Group (until Age 63 Nationality British efficient and commercially high-performing May 2019) projects in a global organization. • Non-executive director of General Electric Career Company Sir John Sawers spent 36 years in public service Brendan Nelson Age 62 Nationality American in the UK, working on foreign policy, international security and intelligence. Independent non-executive director Career Sir John was chief of the Secret Intelligence Tenure Paula Rosput Reynolds is the former chairman, Service, MI6, from 2009 to 2014 – a period of Appointed 8 November 2010 president and chief executive officer of Safeco international upheaval and growing security Board and committee activities Corporation, a Fortune 500 property and threats, as well as closer public scrutiny of the Chair of the audit committee; member of the casualty insurance company that was acquired intelligence agencies. Prior to that, the bulk of his chairman’s, nomination and governance and by Liberty Mutual Insurance Group in 2008. She career was in diplomacy, representing the British remuneration committees also served as vice chair and chief restructuring government around the world and leading officer for American International Group (AIG) for negotiations at the UN, in the European Union Outside interests a period after the US government became the and in the G8. He was the UK ambassador to • Non-executive director and chairman of the financial sponsor from 2008 to 2009. the United Nations from 2007 to 2009, political group audit committee of The Royal Bank of director and main board member of the Foreign Scotland Group plc Previously Paula was an executive in the energy Office from 2003 to 2007, special representative • Member of the Financial Reporting Review industry. She was chairman, president and chief in Iraq during 2003, ambassador to Egypt from Panel executive officer of AGL Resources Inc., an operator of natural gas infrastructure in the US, 2001 to 2003 and foreign policy adviser to the Age 69 Nationality British now a subsidiary of Southern Company. Prior Prime Minister from 1999 to 2001. Earlier in his to this, she led a subsidiary of Duke Energy career, he was posted to Washington, South Career Corporation that was a merchant operator of Africa, Syria and Yemen. Brendan Nelson is a chartered accountant. electricity generation. She commenced her Sir John is now chairman of Macro Advisory He was made a partner of KPMG in 1984. He energy career at PG&E Corp. Partners, a firm that advises clients on the served as a member of the UK board of KPMG intersection of policy, politics and markets. from 2000 to 2006, subsequently being Paula was awarded the National Association of appointed vice chairman until his retirement in Corporate Directors (US) Lifetime Achievement Relevant skills and experience 2010. At KPMG International he held a number Award in 2014. Sir John’s deep experience of international of senior positions including global chairman, Relevant skills and experience political and commercial matters is an asset to banking and global chairman, financial services. Paula Rosput Reynolds has had a long career the board in navigating the geopolitical issues faced by a modern global company. Sir John He served for six years as a member of the leading global companies in the energy and brings a unique perspective and broad Financial Services Practitioner Panel and in 2013 financial sectors. Her financial background and experience which makes him ideal to lead the was the president of the Institute of Chartered deep experience of trading makes her ideally geopolitical committee. His knowledge and Accountants of Scotland. suited to serve on the audit committee. skills gained in government, diplomacy and Her experience with international and US Relevant skills and experience policy analysis and advice are invaluable to companies, including several restructuring Brendan Nelson has completed a wide variety both the board and the safety, ethics and processes and mergers, gives her insight into of audit, regulatory and due-diligence environment assurance committee. engagements over the course of his career. strategic and regulatory issues, which is an asset to the board. He played a significant role in the development Jens Bertelsen of the profession’s approach to the audit of Paula currently serves as the chair of the banks in the UK, with particular emphasis on remuneration committee of BAE Systems plc. Company secretary establishing auditing standards. He continues Her experience there and her wider business Tenure to contribute in his role as a member of the experience and understanding of the views of Appointed 1 January 2019 Financial Reporting Review Panel. investors are well suited to her being the chair Jens Bertelsen is a solicitor and formerly This wide experience makes him ideally suited of the BP remuneration committee. deputy secretary. to chair the audit committee and to act as its financial expert. He brings related input from his role as the chair of the audit committee of a major bank. His specialism in the financial services industry allows him to contribute 62 BP Annual Report and Form 20-F 2018
Corporate governance 63 Bernard Looney Bernard British tee of the John Foundation Lyons ow of the UK Royal Academy of ow of the Institute of Materials, Minerals ow of the Institute of Directors 58 Nationality David Eyton Group head of technology Fell Engineering Fell and Mining Fell Trus Executive team tenure Appointed 1 September 2018 interests Outside • Career As group head of technology, David Eyton is accountable for technology strategy and its implementation This includes across BP. and capital investments corporate venture areas in development conducting and research of corporate renewal. In this role, David sits on the Oil & Gas Climate Initiative Climate Board. Investments David joined BP in 1982 from Cambridge University engineering degree. with an • • • Age Andy Hopwood Andy Strank Angela Dame BP Annual Report and Form 20-F 2018 Bob Fryar Schuster Helmut The executive team represents theprincipal executive leadership of the BP group. Its members include BP’s executive directors (Bob Dudley and Brian Gilvary whose biographies appear on pages 58-62) and the senior management listed on these pages. er of the Turkish-British Chamber of er of the Strategic Advisory Board of Nationality Turkish British and 59 Commerce & Industry Board of Directors the University of Surrey Tufan Erginbilgic Tufan Chief executive, Downstream Memb Memb Career ErginbilgicTufan was appointed chief executive, Downstream on 1 October 2014. Prior was this, to the chief Tufan operating officer of the fuels business, accountablefor BP’s fuels value chains worldwide, the global fuels businesses and the refining, sales and commercial fuels. optimization functions for joinedTufan Mobil in 1990 and BP in 1997 and has held a wide variety of roles in refining various European Turkey, in marketing and UK. the and countries He became head of the European fuels business in 2004 and took up leadership of BP’s lubricant business in 2006, before moving headto the group chief office. executive’s In 2009 he became chief operating officerfor the chains and value fuels eastern hemisphere businesses. lubricants Outside BP, SusanOutside is a member BP, of the Board andAmerican Institute Petroleum Executive Committee, the Greater Houston Partnership Executive Committee, the and Ford’s Theatre Board Executive Trustees of Committee. • Age Executive team tenure 2014 October 1 Appointed interests Outside • Dev Sanyal David Eyton Eric Nitcher Eric Tufan Erginbilgic Tufan 2019 American er of the American Petroleum Institute Partnership Houston Greater the of er er of the Ford’s Theatre Board of Nationality 58 Board and Executive Committee Executive and Board Committee Executive Memb Committee Executive Trustees Memb Memb Susan Dio Chairman and president of BP America Susan Dio Susan As at 29 March Executive team Lamar McKay • • Age Career Susan Dio is chairman and president of BP oversight and leadership America, providing Executive team tenure Appointed 1 September2018 interests Outside • BP’sto US businesses, which employ around 14,000 people. These businesses include oil refining, production, and exploration gas and pipeline trading, and supply petrochemicals, alternative and retail, shipping, operations, energy. Since joining the company in 1984, she has held operational key and executive positions in the US, UK, and Australia. Before assuming Susan served role, chief as current her executive officer of BP shipping, where she managed the fleet of BP-operated and chartered vessels that move more than 200 million tonnes of products across the globe year. each She also previously served as head of audit for unit business segment, downstream as BP’s leader of the Bulwer Island refinery, and as plant manager City of Texas chemicals.
Most recently, Andy was appointed chief where he led BP’s efforts to restructure the Bob Fryar operating officer, upstream strategy in April governance framework for TNK-BP. In 2009 Executive vice president, safety 2018. Lamar was appointed chairman and president and operational risk of BP America, serving as BP’s chief Bernard Looney representative in the US. In January 2013, he Executive team tenure became chief executive, upstream, Appointed 1 October 2010 Chief executive, Upstream responsible for exploration, development and Outside interests Executive team tenure production, serving in the role until April 2016. No external appointments Appointed 1 November 2010 Age 55 Nationality American Outside interests Eric Nitcher • Fellow of the Royal Academy of Engineering Group general counsel Career • Fellow of the Energy Institute Bob Fryar is responsible for strengthening Executive team tenure Age 48 Nationality Irish safety, operational risk management and the Appointed 1 January 2017 systematic management of operations across Career Outside interests the BP group. He is group head of safety and Bernard Looney is responsible for the No external appointments operational risk, with accountability for Upstream segment which consists of Age 56 Nationality American group-level disciplines including engineering, exploration, development and production. health, safety, security, remediation Career management and the environment. In this Bernard joined BP in 1991 as a drilling Eric Nitcher is responsible for legal matters capacity, he looks after the group-wide engineer, working in the North Sea, Vietnam across the BP group. operating management system and the Gulf of Mexico. In 2005 he became implementation and capability programmes. senior vice president for BP Alaska before Eric began his career in the late 1980s working becoming head of the group chief executive’s as a litigation and regulatory lawyer in Wichita, Bob has over 30 years’ experience in the office in 2007. Kansas. He joined Amoco in 1990 and over the oil and gas industry, having joined Amoco years has held a wide variety of roles, both Production Company in 1985. Between 2010 In 2009 he became the managing director within and outside the US. and 2013 Bob was executive vice president of of BP’s North Sea business in the UK and the production division, accountable for safe Norway. At the same time, Bernard became In 2000, Eric moved to London to work in the and compliant exploration and production a member of the Oil & Gas UK Board. He mergers and acquisitions legal team where operations and stewardship of resources became executive vice president, he played a key role in the formation of the across all regions. developments in October 2010, and in Russian joint venture TNK-BP. Eric returned to February 2013 became chief operating officer, Houston in 2007 where he served as special Prior to this, Bob was chief executive of BP production, serving in the role until April 2016. counsel and chief of staff to BP America’s Angola and also held several management chairman and president. positions in Trinidad, including chief operating officer for Atlantic LNG and vice president of Lamar McKay Most recently he played a leading role in operations. Bob has also served in a variety of Deputy group chief executive the settlement of the Deepwater Horizon US engineering and management positions in government claims and resolution of many of onshore US and the deepwater Gulf of Mexico. Executive team tenure the remaining private claims. Appointed 16 June 2008 Andy Hopwood Outside interests Dev Sanyal No external appointments Executive vice-president, chief operating Chief executive, alternative energy and officer, upstream strategy Age 60 Nationality American executive vice president, regions Executive team tenure Career Executive team tenure Appointed 1 November 2010 Lamar McKay is accountable for group Appointed 1 January 2012 Outside interests strategy and long-term planning, group Outside interests No external appointments economics, safety and operational risk, group • Independent non-executive director Age 61 Nationality British technology and the legal function. In addition of Man Group plc to supporting the group chief executive, he • Member of the Accenture Global Career also focuses on various corporate governance Energy Board Andy Hopwood is responsible for BP’s upstream activities including ethics and compliance. • Member of the Board of Advisors of strategy. Lamar started his career in 1980 with Amoco The Fletcher School of Law and Diplomacy, Tufts University Andy joined BP in 1980, spending his first 10 and held a range of technical and leadership • Member, International Advisory Board of the years in operations in the North Sea, Wytch Farm roles. Ministry of Petroleum and Natural Gas, and Indonesia. In 1989 Andy joined the corporate During 1998 to 2000, he worked on the Government of India planning team formulating BP’s upstream BP-Amoco merger and served as head of • Member of the Advisory Board of the Centre strategy and subsequent portfolio rationalization. strategy and planning for the exploration and for European Reform Andy held commercial leadership positions in production business. In 2000 he became Age 53 Nationality British and Indian Mexico and Venezuela before becoming the business unit leader for the central North Sea. upstream’s planning manager. In 2001 he became chief of staff for Career exploration and production, and subsequently Following the BP-Amoco merger, Andy spent Dev Sanyal is responsible for alternative for BP’s deputy group chief executive. Lamar time leading BP’s businesses in Azerbaijan, energy globally and for the group’s interests in became group vice president, Russia and Trinidad & Tobago and onshore North America. In the Europe and Asia regions. 2009 he joined the upstream executive team as Kazakhstan in 2003. He served as a member head of portfolio and technology and in 2010 was of the board of directors of TNK-BP between Dev joined BP in 1989 and has held a variety of appointed executive vice president, exploration February 2004 and May 2007. international roles in London, Athens, Istanbul, Vienna and Dubai. He was general manager, and production. In 2007 he was appointed executive vice former Soviet Union and Eastern Europe, prior president, BP America. In 2008 he became to being appointed chief executive, BP Eastern executive vice president, special projects 64 BP Annual Report and Form 20-F 2018
Corporate governance 65 BP Annual Report and Form 20-F 2018 Nationality British rary Fellow of the Energy Institute rary Professor of Earth Sciences, executive director plc of Severn Trent ow of the Royal Society ow of the Royal Academy of Engineering 66 Non- Fell Fell Hono Hono Dame Angela Strank Angela Dame BP chief scientist and head of downstreamtechnology, University Manchester of • • Executive team tenure Appointed 1 September 2018 interests Outside • • Age Career Dame Angela Strank is responsible for petrochemicals, BP’s across technology refining, fuels and lubricants businesses. As BP’s chief scientist sheis accountable for in advances from insights strategic developing capability in technology managing and science BP. Dame Angela joined BP in 1982 as a geologist in exploration and has held various technical across roles leadership commercial and chief including: downstream and upstream BP/ officer lubricants financial (Americas), business Nigeria, manager alliance Statoil Angola, technology manager development vice president, and head of the BP group chief office.executive’s In Dame 2010 Angela won the UK First AwardWomen’s in Science and Technology, and was in 2018 the first womanreceiveto the UK Energy Institute’s Cadman Award. DameIn 2017 Angela was awarded a Dame Commander of the Order of the British Empire in Her Majesty the Queen’s Birthday Honours List for services the to oil industry and women and engineering technology, science, in mathematics (STEM). Angela from honoraryDame holds degrees Royal Holloway University, London (DSc) and the University of Bradford. • Nationality British Austrian and executive director of Ivoclar 58 Non- Helmut SchusterHelmut Executive vice president, group human director resources Vivadent AG, Germany Mediterranean in1999. In November 2003 he was appointed chief executive, Air BP Internationaland in June 2006 was appointed head of the group chief office. executive’s In 2007, he assumed the role of group vice During this treasurer. group and president period he wasalso chairman of BP investment accountablemanagement was the and for aluminiumgroup’s interests. Until April 2016, Dev was executive vice president, strategy and regions. Executive team tenure Appointed 1 March 2011 interests Outside • Age Career became Schuster Helmut human group resources (HR) director In this in March 2011. role he is accountable for the BP human function. resources He completed his post graduate diploma in international relations and his PhD in economics at the University of Vienna and then began his career working for Henkel in a marketing capacity. Since joining BP in 1989 Helmut has held a number of leadership roles. He has worked in BP in theUS, UK and continental Europe and within most parts of power. and gas and trading marketing, refining, Before taking on his current role, his portfolio of responsibilitiesas vice president, HR included the refining and marketing segment of BP and corporate and functions. That role saw him leading the people agenda for roughly 60,000 people across the globe that included petrochemicals,businesses as such fuels value chains, lubricants and functional experts group. the across Outside of his role, Helmut is a non-executive director of Ivoclar Vivadent. Additionally, he is an alumni and advocate of AFS, which is an NGO that promotes intercultural learning.
Executive management teams Upstream 1. David Campbell 3. Murray Auchincloss 6. Nigel Jones 9. Tony Brock President, BP Russia Chief financial officer Associate general counsel Head of safety and operational risk 2. William Lin 4. Gordon Birrell 7. Andy Hopwood Chief operating officer, Chief operating officer, production, Chief operating officer, 10. James Dupree upstream regions transformation and carbon upstream strategy Chief operating officer, developments and technology 5. Kerry Dryburgh 8. Bernard Looney Head of human resources Chief executive 8 10 1 6 3 5 4 2 7 9 Other business and functions leaders 1. Steve Fortune 4. Geoff Morrell 7. Nick Wayth 10. Joan Wales Chief information officer, information Group head of communications Chief development officer, Head of safety and operational technology and services and external affairs alternative energy risk, other businesses and corporate 2. Craig Marshall 5. David Anderson 8. David Jardine 11. Jan Lyons Group head of investor relations Chief financial officer, Group head of audit Group head of tax alternative energy 3. Camille Drummond 9. David Bucknall Vice president of global 6. Trudi Charles Group controller and chief financial business services Associate general counsel, officer, other businesses and corporate integrated supply and trading and BP shipping 3 9 4 7 2 8 11 6 1 5 5 10 66 BP Annual Report and Form 20-F 2018
Corporate governance 67 22 23 9 21. Spencer21. Dale Group chief economist Saxena Rahul 22. compliance and officer ethics Group Thomson Kate 23. treasurer Group 10 9. Andy Holmes Holmes Andy 9. Chief operating officer, fuels ASPAC and Air BP Strank Angela 10. Head of technology and scientist chief BP 21 20 8 and disciplinesthat support our executive team’s work. These include experts in fields such as renewable energy, finance, trading, technology and digital, and tax and treasury. Job titles correct as at 1 January 2019. Our diverse and talented leaders have a wide range of skills 18 19 7 17 18. Alan Haywood Chief executive officer, integrated trading and supply 19. Robert Lawson Global head of mergers acquisitionsand 20. Laura Folse Chief executive officer, energywind, alternative BP Annual Report and Form 20-F 2018 6. Rita Griffin Chief operating officer, petrochemicals Michael7. Sosso Associate counsel, general shipping BP and downstream 8. Mike O’Sullivan Chief financial officer 6 5 16 4 15 3 strategic planning strategic Lindenhayn Mario 16. Chief executive officer, biofuels, energyalternative Knight Lucy 17. president, vice resources Human corporate activities business functions and 15. Dominic Emery Vice president, group 3. Tufan Erginbilgic Tufan 3. executive Chief Gardiner Evelyn 4. Head of human resources Sparkman Doug 5. Chief operating officer, fuels, Northfuels, America 14 2 13 1 12 Other business and functions leaders lubricants 2. Guy Moeyens Chief operating officer, fuels, Southern and AfricaEurope Downstream Mandhir Singh 1. Chief operating officer, 12. David Windle Head of solar and renewable products, energyalternative Howle Carol 13. Chief executive officer, BP shipping and chief operatingofficer, global oil, trading and supply integrated Pillai Ashok 14. Vice president, group reward
Introduction from the chairman engagement it has with both our people and with our wider community of stakeholders. As a board, we fully support this – it builds on the work we already do, and we will continue to evolve and enhance this engagement and provide more detail next year. Our oversight of the significant risks (such as operational, compliance and cyber security) facing BP continues. Both the audit committee and the safety, ethics and environmental assurance committee (SEEAC) continue to review these in depth and receive assurance from manage- ment as to how they are understood and mitigated to the level of risk acceptable to the board. In this regard, I want to once again pay tribute to the exceptional service over many years of Alan Boeckmann and Admiral Frank Bowman on the SEEAC and welcome Nils Andersen to the role of SEEAC chair. Brendan Nelson continues to chair the audit committee and brings enormous financial and regulatory experience and expertise to the role. I also want to thank Sir John Sawers for all his work chairing the geopolitical committee. John brings unique insight and experience to BP’s culture is well grounded with the right his role and the committee does important work overseeing significant values and behaviours embedded by the political and related risks in key geographies where BP operates. board and the senior leadership. The nomination and governance committee continues to review the skills that we need while always considering diversity and the need for independent thinking and challenge. The committee will also continue to review the size of the board to confirm that it is appropriate with a good mix of skills, experience and knowledge and the ability to maintain It is now nine months since I joined BP, initially as a non-executive appropriate oversight of the executive team and provide constructive director. In that time, my experience has confirmed the very positive challenge and support. impression of BP’s culture and values I arrived with. Based on my time spent in the business, the values of safety, respect, excellence, courage Executive remuneration remains a significant issue and we appreciated and one team are clearly embedded and genuinely lived. I see a culture the strong support that was given to our remuneration report at last that is grounded, responsible and humble – by which I mean one where year’s AGM. This was the second year in which our three-year policy, people have confidence in their capabilities and the strategy, but not developed following extensive engagement with shareholders, was in complacency or arrogance, and with a strong desire to learn and develop. effect. Paula Reynolds is working with the remuneration committee in I firmly believe that is the right combination for maintaining safe implementing that policy this year and to develop the new three-year operations, earning the trust of stakeholders and embracing the policy for which shareholder approval will be sought in 2020. Paula is challenges and opportunities the energy transition presents. A priority for currently in the process of reducing her directorship commitments my chairmanship is to see that the board continues to help sustain and with other companies during 2019 to ensure that she can retain her evolve this positive culture by having the right capability around the table strong focus on chairing the remuneration committee. and the right engagement with stakeholders outside the boardroom. You will see from Paula’s report on page 83 that the committee continues to exercise appropriate discretion in relation to executive Board capability remuneration. From 2019 we are linking BP’s progress towards one BP’s board has evolved considerably during Carl-Henric Svanberg’s of our emissions reduction targets to the remuneration of a significant tenure. Together we will look to continue its development and find number of our employees, including executive directors. the right balance of continuity and renewal. In my letter on page 6, I mentioned Dame Alison Carnwath and Pamela Daley joining the board Engaging with stakeholders in 2018, and that this year we are losing the distinguished services of Remuneration is just one issue where I believe dialogue is invaluable, Admiral Frank Bowman and Alan Boeckmann. and I will continue to encourage the board to meet with a range of Ian Davis is now in his 10th year as a director and continues as our senior stakeholders, including investors, partners, and our people, and gain independent director, having held this role since 2017. I have huge first-hand experience of BP’s businesses and operations around the respect and regard for Ian’s skills and experience and, to provide the world. Over the past year, board members visited BP operations in the continuity that I believe is critical I have asked him to extend his service US, UK and Oman and individual members also took opportunities to to at least the AGM in 2020. Ian continues to demonstrate constructive visit BP sites when travelling and pursuing their other interests and challenge and engagement both in the board and with executive business activities. Personally, I have already visited our operations in management. The board therefore retains complete confidence in Ian’s several countries including in the UK, the US, China, Oman and the independence and supports his re-election in this capacity. Netherlands. I look forward to making many more visits this year and sharing my observations and reflections in due course. Governance and remuneration processes Finally, I am grateful to Bob, the executive team, our employees and my We have spent considerable time evaluating the work of the board and colleagues on the board for all of their hard work, their commitment to its committees, for which we also brought in external expertise to BP and for the way that they have so warmly welcomed me into the facilitate our discussions. This was a very valuable exercise and resulted company. I am excited for our future. in a number of recommendations that I am considering with the board, and certain changes to our ways of working have already been made. Details of these changes will be included in a revised set of board governance principles to be published later this year. Looking outwards, there were changes to UK legislation and governance requirements during 2018 that have now come into effect. Helge Lund In particular, the board is required to understand more deeply the Chairman 68 BP Annual Report and Form 20-F 2018
Corporate governance 69 utive gation ernance 64 4 6 4 21 6 2 6 1 6 6 6 Chairman’s Chairman’s committee Gov Dele Exec limitations process model Delegation ofDelegation through authority policy with monitoring Accountability Assurance through and monitoring reporting BP boardBP governance principles: • BP goal • • • Accountability 3 3 6 4 32 33 1 2 1 6 1 6 6 6 3 3 6 6 iance Nomination governance and committee (if More information putation surance p ethics rnal market ty and ness arch compl rational rational risk ependent ependent ependent ependent for the board for the board See bp.com/governance governance principles. ormation equested) integrity auditor adviser (if relevant) Ind advice r Ind (asassurance needed) Safe ope Grou and Busi Exte re and rese Ind Ind Monitoring, inf • • • • • • and as and • Group audit Finance • • • 21 2 4 1 4 4 4 4 4 3 3 6 6 Geopolitical committee ttee Group renewal renewal Group committee Audit Audit commi See page 75 7 7 4 4 3 3 6 6 Remuneration Remuneration committee CM) (R ng mitments mitments mittee meeti Resource com Geopolitical com See page 84 31 2 1 44 4 3 7 7 7 7 Paula Reynolds missed a board meeting due to a pre-existing external commitment. John Sawers missed a board meeting due to other commitments. BP Annual Report and Form 20-F 2018 Joint audit/Joint SEEAC Group ethics compliance and committee (GECC) Safety, ethics and environment assurance committee See page 81 266 2 4 1 6 4 4 1 6 2 3 76 6 4 5 66 4 4 3 6 4 4 3 4 SEEAC ittee BP board Group people people Group comm (GPC) Audit Audit committee Owners/shareholders Group chief executive Executive management Executive mittee ttee ttee Strategy/group risks/annual plan Strategy/group B B A B A B A B A B A B A B A B ) Group chief executive’s delegations executive’s chief Group losure Chairman’s Chairman’s com See page 85 Group disc commi (GDC 499 4 5 7 4 9 9 59 3 54 9 29 9 4 9 4 2 9 8 9 9 8 9 8 9 9 8 99 9 8 7 6 1 1 4 4 9 9 9 9 A A Board ttee nancial fi ) C k k committee Remuneration See page 87 commi Group Group ris (GFR C) governance Group operations risk committee (GOR See page 86 Nomination and committee Delegation Paul AndersonPaul Alan Boeckmann+ Frank Bowman Alison Carnwath Pamela Daley Ian Davis Ann Dowling Helge Lund+ Meyer Melody Brendan Nelson+ Paula Reynolds+ John Sawers+ Executive directors Bob Dudley Nils AndersenNils Non-executive directors Carl-Heneric Svanberg Brian Gilvary A = Total number of meetings the director was eligibleto attend. B = Total number of meetings the director did attend. + Committee chair. Nils Andersen missed a board meeting due to a pre-existing external commitment. personal circumstances. unforeseen to due board the of Alan meetings Boeckmann missed Pamela Daley missed a board meeting due to a pre-existing external commitment. Melody Meyer missed a board meeting due to other commitments. Board and committee and Board attendance BP governance framework The board operates within a system of governance that is set out in the BPboard governance principles. These principles define therole of the board, its processes and itsrelationship withexecutive management. This system is reflected in the governance of the subsidiaries. group’s
Board activity in 2018 Role of the board The board is responsible for the overall conduct of the group’s business. Directors have duties under both UK company law and BP’s Articles of Association. The primary tasks of the board in 2018 included: 1Active consideration and direction Monitoring of BP’s Ensuring that the principal risks and Board and executive of long-term strategy and approval performance against the uncertainties to BP are identified and that management of the annual plan strategy and plan systems of risk management and control succession are in place Strategy Performance and monitoring During the year the board It received regular reports on The board reviews financial • Quarterly and full-year results. provided input on the group’s the progress and implementation and operational performance • Shareholder distributions. strategy to senior management. of the strategy – through updates at each meeting. It receives The board reviews the quarterly This included a two-day strategy from management and by means regular updates on the group’s and full-year results, including session in September where it of a strategic performance performance for the year across the shareholder distribution examined developments in the scorecard which is discussed a range of metrics as well as the policy. The 2018 annual report wider environment and debated at each board meeting. latest view on expected full-year was assessed in terms of the strategic themes relating to delivery against external BP’s segments, key functions The board monitored the directors’ obligations and scorecard measures. Updates and the impact of the lower company’s performance against appropriate regulatory are also given on various carbon transition on the group’s the annual plan for 2018 and requirements. components of value delivery for business model. The board approved the forward framework discussed the transition to a for the annual plan for 2019. BP’s business. Regular reports The board monitors employee lower carbon world frequently presented to the board include: opinion via an annual ‘pulse’ The board reviewed the BP survey which includes during the year. • Chief executive’s report. Energy Outlook, updated measurement of how the BP • Group performance report. The board also held several in February 2018, which looks values are incorporated into long-term strategy sessions at long-term energy trends and • Group financial outlook. culture around our global covering upstream, downstream projections for world energy • Effectiveness of investment operations. and the future plans for the markets. review. integrated supply and trading function that supports them. Risk Succession The board, either directly The board reviewed the group The board, in conjunction with • Paul Anderson stood down or through its monitoring risk of cyber security in 2017 – the nomination and governance from the board at the 2018 committees, regularly reviews with the audit committee and and chairman’s committees, AGM. the processes whereby risks SEEAC assessing elements of reviews succession plans for • Alison Carnwath was elected are identified, evaluated and cyber security risk in their work executive and non-executive as a director at the 2018 AGM. managed. programme for the year. The directors on a regular basis. allocation of the group cyber The board needs to ensure • Helge Lund and Pamela Activities include: security risk to the board (with that potential candidates are Daley joined the board in • Assessing the effectiveness of additional monitoring by the audit identified and evaluated as July 2018 as non-executive the group’s system of internal and SEEA committees) remains current directors reach the director and chairman control and risk management unchanged for 2019. The group end of their recommended designate, and non-executive as part of the review of the risks allocated to the committees term of office, including in the director, respectively. BP Annual Report and Form for review over the year are event of a director leaving 20-F 2017. • Carl-Henric Svanberg stepped outlined in the reports of the unexpectedly. down as non-executive • Identification and subsequent committees on pages 75-86. The board employs executive director and chairman of the allocation of risks to the board Further information on BP’s search firms when it concludes board effective 31 December and monitoring committees system of risk management is that this is an effective way of 2018, succeeded by Helge (the audit, SEEA and outlined in How we manage risk finding suitable candidates. In Lund with effect from geopolitical committees) for on page 53. 2018 Egon Zehnder assisted 1 January 2019. 2018, and confirmation of the in the search for non-executive schedule for oversight. • Alan Boeckmann and directors. Egon Zehnder has no Frank Bowman will stand other connection with the down from the board at company or individual directors. the 2019 AGM. 70 BP Annual Report and Form 20-F 2018
Corporate governance 71