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 December 31, 2002
                                       OR
[   ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to

                          Commission file number 1-6262
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                                    BP p.l.c.
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             (Exact name of Registrant as specified in its charter)
                                ENGLAND and WALES
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                 (Jurisdiction of incorporation or organization)

                               1 St James's Square
                                     London
                                    SW1Y 4PD
                                     England
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                    (Address of principal executive offices)

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                Chicago Stock Exchange*
                                               New York Stock Exchange*
                                                Pacific Exchange, Inc.*
   --------------------------------         -----------------------------

                                     *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
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     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                            22,378,650,865
    Cumulative First Preference Shares of(pound)1 each          7,232,838
    Cumulative Second Preference Shares of(pound)1 each         5,473,414

     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 which  financial  statement  item the Registrant has
elected to follow.

Item 17                                     Item 18     x
             -----                                   -----

Page 1

                                TABLE OF CONTENTS
                                                                            Page
                 Certain Definitions.......................................    3
Part I   Item 1  Identity of Directors, Senior Management and Advisors.....    5
         Item 2  Offer Statistics and Expected Timetable...................    5
         Item 3  Key Information...........................................    5
                      Selected Financial Information.......................    5
                      Risk Factors.........................................   10
                      Forward Looking Statements...........................   11
                      Statements Regarding Competitive Position............   11
         Item 4  Information on the Company................................   12
                      General..............................................   12
                      Segmental Information................................   17
                      Exploration and Production...........................   19
                      Gas, Power and Renewables............................   40
                      Refining and Marketing...............................   44
                      Chemicals............................................   53
                      Other Businesses and Corporate.......................   59
                      Regulation of the Group's Business...................   61
                      Environmental Protection.............................   62
                      Property, Plants and Equipment.......................   68
                      Organizational  Structure............................   69
         Item 5  Operating and Financial Review and Prospects..............   71
                      Group Operating Results..............................   71
                      Liquidity and Capital Resources......................   88
                      Critical Accounting Policies
                        and New Accounting Standards.......................   92
         Item 6  Directors, Senior Management and Employees................  100
                      Directors and Senior Management......................  100
                      Compensation.........................................  103
                      Board Practices......................................  116
                      Employees............................................  121
                      Share Ownership......................................  122
         Item 7  Major Shareholders and Related Party Transactions.........  125
                      Major Shareholders...................................  125
                      Related Party Transactions...........................  125
         Item 8  Financial Information.....................................  125
                      Consolidated Statements and Other
                        Financial Information..............................  125
                      Significant Changes..................................  126
         Item 9  The Offer and Listing.....................................  126
         Item 10 Additional Information....................................  129
                      Memorandum and Articles of Association...............  129
                      Material Contracts...................................  133
                      Exchange Controls and Other Limitations
                        Affecting Security Holders.........................  133
                      Taxation.............................................  134
                      Documents on Display.................................  137
         Item 11 Quantitative and Qualitative Disclosures
                   about Market Risk.......................................  138
         Item 12 Description of Securities Other Than Equity Securities....  146
Part II  Item 13 Defaults, Dividend Arrearages and Delinquencies...........  147
         Item 14 Material Modifications to the Rights of Security Holders
                   and Use of Proceeds.....................................  147
         Item 15 Controls and Procedures...................................  147
         Item 16 Reserved..................................................
Part III Item 17 Financial Statements......................................  148
         Item 18 Financial Statements......................................  148
         Item 19 Exhibits..................................................  148

Page 2

                               CERTAIN DEFINITIONS

     Unless  the  context  indicates  otherwise,  the  following  terms have the
meanings shown below:

Oil and natural gas reserves

     'Proved reserves' -- Estimated quantities of crude oil or natural gas which
geological and engineering data demonstrate,  with reasonable  certainty,  to be
recoverable in future years from known  reservoirs  under existing  economic and
operating conditions, i.e. prices and costs as of the date the estimate is made.

     'Proved  developed  reserves'  --  Reserves  that  can  be  expected  to be
recovered through existing wells with existing  equipment and operating methods.
Additional oil and natural gas expected to be obtained  through the  application
of fluid  injection or other  improved  recovery  techniques  for  supplementing
natural  forces and  mechanisms  of primary  recovery  are  included  as 'proved
developed reserves' only after testing by a pilot project or after the operation
of an  installed  programme  has  confirmed  through  production  response  that
increased recovery will be achieved.

     'Proved undeveloped reserves' -- Reserves that are expected to be recovered
from new wells on undrilled  acreage,  or from existing wells where a relatively
major  expenditure is required for  recompletion.  Reserves on undrilled acreage
are  limited  to those  drilling  units  offsetting  productive  units  that are
reasonably  certain  of  production  when  drilled.  Proved  reserves  for other
undrilled  units are claimed only where it can be  demonstrated  with  certainty
that there is continuity of production from the existing  productive  formation.
Under no circumstances are estimates of proved undeveloped reserves attributable
to  acreage  for  which an  application  of fluid  injection  or other  improved
recovery  technique is  contemplated,  unless such  techniques  have been proved
effective by actual tests in the area and in the same reservoir.

Miscellaneous terms

'ADR' -- American Depositary Receipt.

'ADS' -- American Depositary Share.

'Amoco' -- The former Amoco Corporation and its subsidiaries.

'ARCO' -- Atlantic Richfield Company and its subsidiaries.

'Associated  undertaking'  --  An  undertaking  in  which  the  BP  Group  has a
participating  interest and over whose  operating  and  financial  policy the BP
Group  exercises a significant  influence  (presumed to be the case where 20% or
more of the voting rights are held) and which is not a subsidiary undertaking.

'Barrel' -- 42 US gallons.

'Billion' -- 1,000,000,000.

'BP', 'BP Group' or the 'Group'-- BP p.l.c. and its subsidiaries.

'Burmah Castrol' -- Burmah Castrol plc and its subsidiaries.

'Cent' or 'c' -- One hundredth of the US dollar.

The `Company' -- BP p.l.c.

'Crude oil' or 'Oil' -- Crude oil, condensate and natural gas liquids.

'Dollar' or '$' -- The US dollar.

'FSA' -- Financial Services Authority.

'Gas' -- Natural Gas.

'LNG' -- Liquefied Natural Gas.

Page 3

'London Stock Exchange' or `LSE'-- London Stock Exchange Limited.

'LPG' -- Liquefied Petroleum Gas.

'MTBE' -- Methyl Tertiary Butyl Ether

'NGL' -- Natural Gas Liquid.

'Noon Buying Rate' -- The noon buying rate in New York City for cable  transfers
in pounds as certified for customs  purposes by the Federal  Reserve Bank of New
York.

'OECD' -- Organization for Economic Cooperation and Development.

'OPEC'-- The Organization of Petroleum Exporting Countries.

'Ordinary Shares'-- Ordinary fully paid shares in BP p.l.c. of 25c each.

'Pence' or 'p' -- One hundredth of a pound.

'Pound', `sterling' or `(pound)' -- The pound sterling.

'Preference  Shares' -- Cumulative First Preference Shares and Cumulative Second
Preference Shares in BP p.l.c. of (pound)1 each.

'Subsidiary  undertaking'  -- An  undertaking  in  which  the BP  Group  holds a
majority of the voting rights.

'Tonne' or 'metric ton' -- 2,204.6 pounds.

'Trillion' -- 1,000,000,000,000.

'UK'-- United Kingdom of Great Britain and Northern Ireland.

'UK GAAP' -- Generally Accepted Accounting Practice in the UK.

'Undertaking' -- A body corporate, partnership or an unincorporated association,
carrying on a trade or business.

'US' or 'USA' -- United States of America.

'US GAAP' -- Generally Accepted Accounting Principles in the USA.

'Vastar'-- Vastar Resources Inc. and its subsidiaries.


Page 4

                                     PART I

ITEM 1 -- IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

     Not applicable.

ITEM 2 -- OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3 -- KEY INFORMATION

                         SELECTED FINANCIAL INFORMATION
Summary

     This  information has been extracted or derived from the audited  financial
statements of the BP Group presented elsewhere herein or otherwise included with
BP p.l.c.'s  Annual  Reports on Form 20-F for the relevant years which have been
filed with the Securities and Exchange  Commission,  as  reclassified to conform
with the accounting presentation adopted in this annual report. With effect from
January 1, 2002, BP has adopted  Financial  Reporting  Standard No. 19 `Deferred
Tax' (FRS 19).  Comparative  information for 2001,  2000, 1999 and 1998 has been
restated to reflect the change in accounting policy.



                                                                          Years ended December 31,
                                                            --------------------------------------------------
                                                             2002       2001       2000        1999       1998
                                                            -----      -----      -----       -----      -----

                                                                    ($ million except per share amounts)
                                                                                         
UK GAAP
Income statement data
Turnover.............................................     180,186    175,389    161,826     101,180     83,732
Less: joint ventures.................................       1,465      1,171     13,764      17,614     15,428
                                                           ------     ------     ------      ------     ------
Group turnover.......................................     178,721    174,218    148,062      83,566     68,304

Total replacement cost operating profit (a)..........      10,246     16,027     17,679       8,894      6,521
Replacement cost profit before
  exceptional items (b)..............................       4,698      8,291      9,314       4,662      3,479
Historical cost profit for the year..................       6,845      6,556     10,120       4,566      2,651
Per ordinary share (c): (cents)
  Profit for the year:
  Basic..............................................       30.55      29.21      46.77       23.55      13.82
  Diluted............................................       30.41      29.04      46.46       23.42      13.76
  Dividends (d)......................................       24.00      22.00      20.50       20.00      19.75
  Average number outstanding of 25 cents
     ordinary shares (shares million)................      22,397     22,436     21,638      19,386     19,192
Balance sheet data
Total assets.........................................     159,125    141,970    144,862      89,481     84,835
Net assets...........................................      70,047     65,759     66,152      38,092     37,693
Share capital........................................       5,616      5,629      5,653       4,892      4,863
BP shareholders' interest............................      69,409     65,161     65,584      37,031     36,621
Finance debt due after more than one year............      11,922     12,327     14,772       9,644      9,641
Debt to borrowed and invested capital (e)............         15%        16%        18%         20%        20%
Other data
Per ordinary share (c): (cents)
  Replacement cost profit before
    exceptional items................................       20.97      36.95      41.15       24.05      18.14
Net cash inflow from operating activities (f)........      19,342     22,409     20,416      10,290      9,586
Net cash outflow from capital expenditure
  acquisitions and disposals.........................      10,983     11,604      6,207       5,142      6,520



Page 5



                                                                            Years ended December 31,
                                                               -----------------------------------------------
                                                             2002       2001       2000        1999       1998
                                                            -----      -----      -----       -----      -----

                                                                      ($ million except per share amounts)
                                                                                         
US GAAP
Income statement data
Revenues.............................................     178,721    174,218    148,062      83,566     68,304
Profit for the year..................................       8,397      4,164     10,183       4,596      2,826
Comprehensive income.................................      10,422      2,649      7,730       3,674      2,848
Profit per ordinary share (c): (cents)
  Basic..............................................       37.48      18.55      47.05       23.70      14.72
  Diluted............................................       37.30      18.44      46.74       23.56      14.66
Profit per American Depositary Share (c): (cents)
  Basic..............................................      224.88     111.30     282.30      142.20      88.32
  Diluted............................................      223.80     110.64     280.44      141.36      87.96
Balance sheet data
Total assets.........................................     164,090    145,990    151,966      90,262     85,458
BP shareholders' interest............................      66,999     62,322     65,554      37,838     37,334
Other data
Net cash used in investing activities................      11,083     11,685      6,326       4,922      6,861
Net cash used in financing activities................       5,123      5,853      7,852       3,332      2,161

----------

(a)  Operating profit is a UK GAAP measure of trading  performance.  It excludes
     profits  and  losses  on  the  sale  of  fixed  assets  and  businesses  or
     termination  of operations and  businesses  and  fundamental  restructuring
     costs, interest expense and taxation.

     BP  determines   operating  profit  on  a  replacement  cost  basis,  which
     eliminates  the effect of inventory  holding gains and losses.  For the oil
     and gas industry, the price of crude oil can vary significantly from period
     to period;  hence the value of crude oil (and products)  also varies.  As a
     consequence,  the  amount  that  would  be  charged  to cost of  sales on a
     first-in,  first-out (FIFO) basis of inventory  valuation would include the
     effect  of oil  price  fluctuations  on oil and  products  inventories.  BP
     therefore  charges cost of sales with the average cost of supplies incurred
     during the period  rather  than the  historical  cost of supplies on a FIFO
     basis. For this purpose, inventories at the beginning and end of the period
     are  valued at the  average  cost of  supplies  incurred  during the period
     rather than at their  historical  cost. These valuations are made quarterly
     by each  business  unit,  based  on local  oil and  product  price  indices
     applicable to their specific  inventory  holdings,  following a methodology
     that has been consistently  applied by BP for many years.  Operating profit
     on the  replacement  cost basis and a derivative  measure,  that is, profit
     adjusted for  depreciation  and  amortization  arising from the fixed asset
     revaluation  adjustment  and goodwill  consequent  upon the ARCO and Burmah
     Castrol  acquisitions,  and adjusted for special items (charges and credits
     that are not  classified  as  exceptional  under UK  GAAP),  are used by BP
     management as the primary measures of business unit trading performance and
     BP management  believes that these measures assist investors to assess BP's
     trading performance from period to period.

     Replacement cost is not a US GAAP measure. The major US oil companies apply
     the last-in,  first-out (LIFO) basis of inventory valuation. The LIFO basis
     is not permitted  under UK GAAP.  The LIFO basis  eliminates  the effect of
     price  fluctuations  on crude oil and  product  inventory  except  where an
     inventory  drawdown occurs in a period.  BP management  believes that where
     inventory volumes remain constant or increase in a period, operating profit
     on the LIFO basis will not differ  materially from operating profit on BP's
     replacement cost basis.

Page 6

     Where an  inventory  drawdown  occurs in a period,  cost of sales on a LIFO
     basis will be charged with the historical cost of the inventory drawn down,
     whereas BP's  replacement  cost basis  charges cost of sales at the average
     cost of supplies for the period.  To the extent that the historical cost on
     the LIFO basis of the  inventory  drawn down is lower than the current cost
     of  supplies  in the  period,  operating  profit on the LIFO  basis will be
     greater than operating profit on BP's replacement cost basis. To the extent
     that the  historical  cost on the LIFO basis of the  inventory  drawdown is
     greater than the current cost of supplies in the period,  operating  profit
     on the LIFO basis will be lower than operating  profit on BP's  replacement
     cost basis.

(b)  Replacement  cost profit  before  exceptional  items  excludes  profits and
     losses  on the sale of fixed  assets  and  businesses  and  termination  of
     operations and  fundamental  restructuring  costs,  which are defined by UK
     GAAP. This measure and a derivative  measure,  that is, profit adjusted for
     depreciation  and  amortization  arising  from the fixed asset  revaluation
     adjustment  and  goodwill  consequent  upon  the ARCO  and  Burmah  Castrol
     acquisitions,  and adjusted for special items (charges and credits that are
     not classified as exceptional  under UK GAAP),  are used by the BP board in
     setting  targets  for and  monitoring  performance  within the Group.  BP's
     management  believes these indicators  provide the most relevant and useful
     measures  for  investors  because  they  most  accurately  reflect  trading
     performance.

(c)  With  effect from  October 4, 1999 BP split (or  subdivided)  its  ordinary
     share capital. As a result, the number of Ordinary Shares held at the close
     of  business  on Friday  October  1,  1999,  doubled,  and  holders of ADSs
     received a two-for-one stock split.  Comparative figures for 1998 have been
     changed accordingly.

(d)  BP dividends per share represent historical dividends per share paid by The
     British Petroleum Company p.l.c., for 1998.

(e)  Finance debt due after more than one year,  compared with such debt plus BP
     and minority shareholders' interests.

(f)  The net cash inflows from operating  activities are presented in accordance
     with the requirements of Financial  Reporting Standard No. 1 (Revised 1996)
     issued by the UK  Accounting  Standards  Board.  For a cash flow  statement
     prepared on a US GAAP basis see Item 18 -- Financial Statements -- Note 50.

(g)  The  Group  adopted  Financial   Reporting   Standard  No. 12  `Provisions,
     Contingent  Liabilities and Contingent  Assets' with effect from January 1,
     1999. Comparative figures for 1998 have been changed accordingly.


Page 7

Exchange Rates

     The  following  table sets  forth,  for the  periods  and dates  indicated,
certain  information  concerning  the Noon Buying Rate for the pound in New York
City for cable  transfers  in pounds as  certified  for customs  purposes by the
Federal Reserve Bank of New York. This is expressed in dollars per (pound)1.



                                                 At period end      Average (a)     High          Low
                                                 -------------      -------        -----        -----
                                                                                     
Year ended December 31,
1998........................................              1.66         1.66         1.72         1.61
1999 .......................................              1.62         1.61         1.68         1.55
2000 .......................................              1.50         1.51         1.65         1.40
2001........................................              1.45         1.44         1.65         1.40
2002........................................              1.61         1.50         1.61         1.41

Month of
September 2002..............................              1.57         1.56         1.57         1.53
October 2002................................              1.56         1.56         1.57         1.54
November 2002...............................              1.56         1.57         1.59         1.54
December 2002...............................              1.61         1.59         1.60         1.56
January 2003................................              1.64         1.62         1.65         1.60
February 2003...............................              1.57         1.61         1.65         1.57
March 2003 (through March 19)...............              1.56         1.59         1.61         1.56


----------

(a)  The average of the Noon Buying Rates on the last day of each month during
     the calendar year or, in the case of monthly averages, the average of all
     days in the month.

(b)  The Noon Buying Rate on March 19, 2003 was $1.56 = (pound)1.

Dividends

     BP has paid  dividends on its Ordinary  Shares in each year since 1917.  In
2000 and  thereafter,  dividends  were, and are expected to continue to be, paid
quarterly in March, June, September and December.

     At least until  December 31, 2003, BP will announce  dividends for Ordinary
Shares in US dollars and state an equivalent pounds sterling dividend. Dividends
on Ordinary Shares will be paid in pounds sterling and on BP ADSs in US dollars.
Prior to the fourth  quarterly  dividend of 1998 The British  Petroleum  Company
p.l.c.  announced  dividends  in  sterling.  Foreign  exchange  rates may affect
dividends paid.

     The following  table shows  dividends  announced by the Company per ADS for
each of the past five years,  together with the `refund' but before deduction of
withholding taxes as described in Item 10 -- Additional  Information - Taxation.
Refund  means  an  amount  equal  to the  tax  credit  available  to  individual
shareholders resident in the UK in respect of such dividend,  less a withholding
tax equal to 15% (but limited to the amount of the tax credit) of the  aggregate
of such tax credit and such dividend. Dividends have been translated from pounds
per ADS up to and  including  the third  quarterly  dividend for 1998,  and from
dollars per ADS for the fourth quarterly dividend of 1998 and thereafter,  at an
exchange rate  determined  in London on the business day last  preceding the day
when the directors  announced their intention to pay the quarterly dividends for
those years.

Page 8




                                                                              Quarterly
                                                        ---------------------------------------------------
Dividends per American Depositary Share (a)              First     Second      Third      Fourth      Total
                                                        ------    -------     ------      ------     ------

                                                                                        
1998................................   UK pence           21.5       22.5       22.5        23.0       89.5
                                       US cents           36.0       36.5       37.5        33.4      143.4
                                       Can. cents         51.4       55.3       57.8        50.0      214.5
1999................................   UK pence           20.5       20.8       20.2        20.8       82.3
                                       US cents           33.3       33.3       33.3        33.4      133.3
                                       Can. cents         48.7       50.1       48.6        48.5      195.9
2000................................   UK pence           21.5       22.3       24.0        24.1       91.9
                                       US cents           33.3       33.3       35.0        35.0      136.6
                                       Can. cents         49.7       49.8       53.6        53.2      206.3
2001................................   UK pence           24.4       26.1       25.4        27.0      102.9
                                       US cents           35.0       36.7       36.7        38.3      146.7
                                       Can. cents         53.7       56.0       58.5        61.0      229.2
2002................................   UK pence           27.0       25.8       26.0        25.4      104.2
                                       US cents           38.3       40.0       40.0        41.7      160.0
                                       Can. cents         60.1       63.0       62.3        63.8      249.2


----------

(a)  With effect from  October 4, 1999,  BP split (or  subdivided)  its ordinary
     share capital.  As a result,  the number of BP ordinary  shares held at the
     close of business on Friday October 1, 1999,  doubled,  and holders of ADSs
     received a two-for-one stock split.  Comparative figures for 1998 have been
     changed accordingly.

     The share dividend plan,  whereby holders of Ordinary Shares could elect to
receive new shares (out of unissued share capital)  instead of cash dividends at
a rate  equivalent  to the sum of the net cash  dividend and related tax credit,
was withdrawn following the third quarterly 1998 dividend.

     A dividend  reinvestment  plan was  introduced  with effect from the fourth
quarterly  1998  dividend,  whereby  holders of BP ordinary  shares can elect to
reinvest the net cash dividend in shares purchased on the London Stock Exchange.
This plan is not  available to any person  resident in the USA or Canada,  or in
any jurisdiction  outside the UK where such an offer requires  compliance by the
Company  with  any   governmental  or  regulatory   procedures  or  any  similar
formalities.

     A dividend  reinvestment  plan is,  however,  available for holders of ADSs
through JPMorgan Chase Bank.

     Future  dividends  will be dependent  upon future  earnings,  the financial
condition of the Group,  the Risk Factors set out below, and other matters which
may  affect  the  business  of the  Group  set  out in Item 5 --  Operating  and
Financial Review and Prospects.

Page 9

                                  RISK FACTORS

     There is strong  competition,  both within the oil  industry and with other
industries, in supplying the fuel needs of commerce, industry and the home.

     The oil industry is particularly  subject to regulation and intervention by
governments throughout the world in such matters as the award of exploration and
production   interests,   the  imposition  of  specific  drilling   obligations,
environmental   protection   controls,   control   over  the   development   and
decommissioning of a field (including restrictions on production) and, possibly,
nationalization, expropriation or cancellation of contract rights.

     The oil industry is also subject to the payment of royalties  and taxation,
which tend to be high compared with those payable in respect of other commercial
activities.

     Investment  and business  activities in emerging  markets  present a higher
degree of business risk due to volatile economic conditions,  less developed and
predictable legal systems,  political  instability,  local security concerns and
the  increased  possibility  of civil  strife,  war and various types of adverse
governmental action.

     Exploration  and  production  require  high levels of  investment  and have
particular economic risks and opportunities. They are subject to natural hazards
and other uncertainties including those relating to the physical characteristics
of an oil or natural gas field. Operations are subject to delays, curtailment or
suspension due to adverse weather conditions or natural disasters.

     Oil  prices are  subject to  international  supply  and  demand.  Political
developments (especially in the Middle East) and the outcome of meetings of OPEC
can particularly affect world oil supply and oil prices.

     Natural gas prices are subject to  regional  supply and demand.  Prices can
fluctuate significantly.

     Refining  profitability  can be volatile with both  oversupply and periodic
supply tightness in various regional markets.

     The  marketing  of petroleum  and related  products,  especially  to retail
customers,   can  be  affected  by  intense  competition  and  general  economic
conditions.

     Crude oil  prices  are  generally  set in  dollars  while  sales of refined
products may be in a variety of  currencies.  Fluctuation  in exchange rates can
therefore give rise to foreign exchange exposures.

     Sectors of the  chemicals  industry  are also  subject to  fluctuations  in
supply and demand within the chemicals market,  with consequent effect on prices
and  profitability,  and to  governmental  regulation and  intervention  in such
matters as safety and environmental controls.

     In addition to the adverse  effect on revenues,  margins and  profitability
from any future fall in oil and natural  gas prices,  a prolonged  period of low
prices or other  indicators would lead to a review for impairment of the Group's
oil and natural gas properties.  This review would reflect  management's view of
long-term oil and natural gas prices. Such a review could result in a charge for
impairment  which  could have a  significant  effect on the  Group's  results of
operations in the period in which it occurs.

Page 10

                           FORWARD LOOKING STATEMENTS

     In order to utilize  the 'Safe  Harbor'  provisions  of the  United  States
Private Securities  Litigation Reform Act of 1995, BP is providing the following
cautionary statement. This document contains certain forward-looking  statements
with respect to the financial  condition,  results of operations and business of
BP and certain of the plans and  objectives  of BP with  respect to these items.
These  statements  may  generally,  but not always,  be identified by the use of
words such as 'will',  'expects', 'is expected to', 'should',  'may', 'is likely
to', 'intends',  'believes' or similar expressions.  In particular,  among other
statements,  (i) certain  statements in Item 4 -- Information on the Company and
Item 5 -- Operating and Financial Review and Prospects with regard to management
aims and objectives,  planned expansion,  investment or other projects, expected
or targeted hydrocarbon production volume,  capacity or rate, the date or period
in which  production  is scheduled or expected to come on stream or a project or
action is scheduled or expected to be completed,  (ii) the  statements in Item 4
-- Information on the Company -- Strategy and Financial  Targets with respect to
the Group's ratio of net debt to net debt plus equity,  dividend  payments,  the
manner in which we use cash  surpluses,  the target to reduce the cost structure
of the Group,  hydrocarbon production growth, targeted performance  improvements
and effect on pre tax results,  and levels of annual  investment,  and (iii) the
statements in Item 5 -- Operating and Financial  Review and Prospects  including
the statements under 'Outlook' with regard to trends in the trading environment,
the  outlook  for  economic  recovery,  oil and  gas  prices  and  realizations,
refining,  marketing and  chemicals  margins,  inventory  and product  inventory
levels, supply capacity,  profitability,  results of operation, working capital,
liquidity or  financial  position are all  forward-looking  in nature.  By their
nature,  forward-looking  statements  involve risk and uncertainty  because they
relate to events and depend on  circumstances  that will occur in the future and
are outside the control of BP. Actual results may differ  materially  from those
expressed in such statements,  depending on a variety of factors,  including the
specific factors identified in the discussions accompanying such forward-looking
statements;  the  timing of  bringing  new fields on  stream;  future  levels of
industry  product  supply,  demand and pricing;  operational  problems;  general
economic  conditions;  political stability and economic growth in relevant areas
of the world;  changes in governmental  regulation;  exchange rate fluctuations;
development and use of new technology and successful partnering;  the actions of
competitors;  natural  disasters  and  other  changes  to  business  conditions;
prolonged  adverse weather  conditions;  wars and acts of terrorism or sabotage;
and other factors discussed elsewhere in this report. In addition to factors set
forth  elsewhere  in this  report,  the factors  set forth  above are  important
factors, although not exhaustive, that may cause actual results and developments
to differ  materially from those  expressed or implied by these  forward-looking
statements.

                    STATEMENTS REGARDING COMPETITIVE POSITION

     Statements made in Item 4 -- Information on the Company,  referring to BP's
competitive  position are based on the Company's belief,  and in some cases rely
on a range of  sources,  including  investment  analysts'  reports,  independent
market  studies and BP's internal  assessments of market share based on publicly
available  information  about the financial  results and  performance  of market
participants.



Page 11

ITEM 4 -- INFORMATION ON THE COMPANY

                                     GENERAL

     Unless otherwise  indicated,  information in this Item reflects 100% of the
assets  and  operations  of  the  Company  and  its   subsidiaries   which  were
consolidated  at the  date  or for the  periods  indicated,  including  minority
interests.  Also,  unless  otherwise  indicated,  figures for business  turnover
include sales between BP businesses.

     BP was created on December 31, 1998 by the merger of Amoco  Corporation  of
the USA and The British  Petroleum  Company  p.l.c.  of the UK.  Following  this
merger,  Amoco  Corporation  became a wholly  owned  subsidiary  of The  British
Petroleum Company p.l.c. and was renamed BP Amoco  Corporation,  and The British
Petroleum  Company  p.l.c.  was renamed BP Amoco p.l.c.  Amoco  Corporation  was
incorporated in Indiana,  USA, in 1889 and The British  Petroleum Company p.l.c.
was incorporated in 1909 in England. On April 14, 2000, we acquired the Atlantic
Richfield Company (ARCO) and on July 7, 2000, we completed our successful tender
offer for Burmah  Castrol plc of England.  To signify the single entity that has
successfully  been created through these  combinations,  the name of the company
was changed to BP p.l.c. with effect from May 1, 2001.

     BP is one of the  world's  leading  oil  companies  on the  basis of market
capitalization  and proved  reserves.  Our worldwide  headquarters is located in
London, UK. Our registered address is:

                                    BP p.l.c.
                               1 St James's Square
                                 London SW1Y 4PD
                                 United Kingdom

                             Tel: +44(0)20 7496 4000

                          Internet address: www.bp.com

Business Overview and Strategy

     Our  main  businesses  are  Exploration  and  Production;  Gas,  Power  and
Renewables; Refining and Marketing; and Chemicals.  Exploration and Production's
activities  include oil and natural gas  exploration  and field  development and
production  (upstream  activities),  together with pipeline  transportation  and
natural  gas  processing  (midstream  activities).  Gas,  Power  and  Renewables
activities  include  marketing  and  trading of  natural  gas,  NGL,  new market
development,  LNG and solar and  renewables.  The  activities  of  Refining  and
Marketing  include  oil supply and  trading as well as  refining  and  marketing
(downstream    activities).    Chemicals   activities   include   petrochemicals
manufacturing  and  marketing.  The Group  provides  high quality  technological
support for all its businesses through its research and engineering activities.

     We have well  established  operations  in Europe,  the USA,  Canada,  South
America,  Australasia  and  parts of  Africa.  Currently,  more  than 70% of the
Group's  capital is  invested  in  Organization  for  Economic  Cooperation  and
Development  (OECD)  countries  with just  under  one half of our  fixed  assets
located  in the USA,  and  around  one third  located  in the UK and the Rest of
Europe.

     Our strategy is to create value from a  distinctive  set of  opportunities,
biased towards the upstream, through a disciplined approach to investment within
our established financial framework. Consistent with this strategy, and based on
a thorough  review of our assets and  opportunities,  we intend to increase  our
investment,  excluding  acquisitions,  to $14 billion to $14.5  billion in 2003,
focusing on creating five material new upstream profit centres,  while divesting
$3 billion to $6  billion.  We expect our  annual  investment  level,  excluding
acquisitions, to move toward the $12 billion to $13 billion range by 2005.

     The  information  disclosed  above for 2003 and beyond are forward  looking
statements and as such are subject to numerous risks and uncertainties  that may
cause  actual  results to differ as  described  under Item 3 -- Risk Factors and
Item 3 -- Forward Looking Statements.


Page 12

     We  believe  that BP has a strong  portfolio  of assets in each of its four
main businesses:

     --   In  Exploration  and  Production  we  have  upstream  interests  in 28
          countries.  In  addition  to our  drive to  maximize  the value of our
          existing  portfolio  we are  creating  five new profit  centres in the
          Deepwater  Gulf of  Mexico,  Trinidad,  Angola,  Azerbaijan,  and Asia
          Pacific LNG in which we have  competitive  advantage and which provide
          the foundation  for volume growth and improved  margins in the future.
          We also have significant  midstream activities to support our upstream
          interests.

     --   In Gas, Power and Renewables,  we have established  growing  marketing
          and trading  businesses in North America (USA and Canada),  the UK and
          Europe. Our marketing and trading activities include natural gas, LNG,
          NGL and power.  Our  international  gas  monetization  activities  are
          focused on growing gas markets  including the USA,  Canada,  Spain and
          many of the  emerging  markets  of the Asia  Pacific  region,  notably
          China.  We are  involved  in power  projects in the USA, UK and Spain.
          Effective  January  1, 2001,  BP's North  American  NGL  business  was
          transferred  from Refining and Marketing to Gas and Power.  On January
          1,  2002,  the  solar,   renewables  and  alternative  fuels  business
          activities  were  transferred to the Gas and Power business from Other
          Businesses and Corporate.  To reflect this transfer, Gas and Power has
          been renamed Gas, Power and Renewables from the same date.

     --   In Refining  and  Marketing  we have a strong  presence in the USA. We
          market  under  the  Amoco and BP  brands  in the  Midwest,  East,  and
          Southeast,  and under the ARCO brand on the West  Coast.  In Europe we
          have a strong  retail  position and  increased our presence in 2000 by
          buying  out  ExxonMobil's  interest  in the  BP/Mobil  European  fuels
          business  and  in  2002  by  acquiring  Veba  Oil  (Veba).   The  Veba
          transaction   expanded  our  refining  position  in  Germany  and  our
          marketing  position  in  Germany  and  Central  Europe.  Veba  markets
          gasoline under the Aral brand, which is now our principal retail brand
          in Germany and in the Czech  Republic.  In 2000,  we purchased  Burmah
          Castrol,  which  significantly  increased  our  lubricants  activities
          throughout the world.  In addition we have  established or are growing
          businesses elsewhere in the world under the BP brand.

     --   In Chemicals,  we are the world's third largest petrochemical company,
          by capacity,  with strong manufacturing and marketing bases in the USA
          and Europe.  We continue to grow in the Asia Pacific region,  where we
          already  have  interests  in a number of  production  facilities.  Our
          portfolio  is  focused  on  seven  core  products.   We  have  leading
          technology  in each of these  products -- purified  terephthalic  acid
          (PTA),  acetic  acid,  acrylonitrile,  paraxylene  (PX),  high density
          polyethylene  (HDPE),   polypropylene,   ethylene.   During  2002,  we
          strengthened our market positions through the Veba acquisition  whilst
          also building new and expanding existing capacity.

     The  combination  of BP and  ARCO was  completed  on April  18,  2000.  The
combination  excluded  ARCO's  Alaskan  businesses,  which were sold to Phillips
Petroleum  Company   (Phillips)  for   approximately   $6.8  billion  cash.  The
combination  has been  accounted  for as an  acquisition  under UK GAAP and as a
purchase  under US GAAP. The results of ARCO have been included with effect from
April  14,  2000,  the  day  following  the  approval  by the US  Federal  Trade
Commission of the acquisition. ARCO stockholders received for each share of ARCO
common stock held as of April 17, 2000, 9.84 Ordinary Shares.

     BP  acquired  Burmah  Castrol of the UK on July 7, 2000,  for $4.8  billion
through a cash offer to shareholders of (pound)16.75 per share.



Page 13

     In 2000, BP and ExxonMobil dissolved the BP/Mobil European joint venture in
response to the  conditions of the European  Commission's  authorization  of the
Exxon and Mobil  merger.  BP  purchased  ExxonMobil's  30% interest in the fuels
business for $1.5 billion with effect from August 1, 2000. In addition,  the two
companies  divided the assets of the  lubricants  business  broadly in line with
their equity  stakes (Mobil 51%, BP 49%).  This  dissolution  was  substantially
completed in 2000, thus increasing BP's share of all European  markets where the
fuels joint venture was active.

     On September 15, 2000, we acquired  through ARCO the common stock of Vastar
held  by  minority  shareholders  at a  price  of  $83  per  share  for a  total
consideration  of $1.6 billion.  Vastar became a wholly owned  subsidiary of the
Company.

     During 2000 BP made two strategic  investments in China, one of the world's
fastest growing  economies.  BP invested $416 million in the China Petroleum and
Chemical  Corporation  (Sinopec)  and $578 million in  PetroChina in the initial
public  offerings  of both  companies.  BP has an  interest of around 2% in each
company.  Separately, BP has formed a joint venture with PetroChina in Guangdong
province  which had 320 service  stations at the end of 2002,  and has agreed to
form a joint venture with Sinopec to acquire,  revamp or build service  stations
in the  Zhehang  Province.  PetroChina  and  Sinopec  are two of  China's  major
companies in the oil and chemicals businesses.

     With effect from February 1, 2002, BP acquired a majority stake in Veba Oil
from E.ON. Veba owns Aral,  Germany's biggest fuels retailer.  BP paid E.ON $1.6
billion  in cash and  assumed  some $1.0  billion  of debt in return for 51% and
operational  control  of Veba.  Under the terms of the  agreement,  E.ON had the
option to require BP to buy the remaining 49% of Veba.

     On June 30, 2002,  BP purchased the remaining 49% of Veba Oil from E.ON for
$2.4 billion. Separately, E.ON acquired BP's wholly-owned subsidiary Gelsenberg,
which held a 25.5% stake in Germany's  largest natural gas distributor,  Ruhrgas
for $2.3 billion.

     As a  condition  of  regulatory  approval  of the deal BP was  required  to
dispose  of 4% of the  combined  26.5%  retail  market  share  of BP and Aral in
Germany,  45% of  its  stake  in  the  Bayernoil  refinery,  two  of  its  three
shareholdings  in the ARG ethylene  pipeline,  and to make it possible for a new
entrant to supply  aviation  fuel on  competitive  terms at  Frankfurt  airport.
During 2003, BP expects to fully comply with the conditions imposed.

     Separately,  BP and E.ON  reached  agreement to sell Veba's oil and natural
gas exploration and production  business to  Petro-Canada  for $2.1 billion,  of
which  $1.6  billion  was  received  in 2002 and the  remainder  is  subject  to
preemption rights.

Recent Developments

     BP and the Alfa Group and  Access-Renova  (AAR)  announced  on February 11,
2003,  that they have agreed in principle to combine most of their  interests in
Russia to create the country's  third  biggest oil business,  in which they will
each have a 50% stake.

     BP  intends  to  contribute  its  holding  in  Sidanco,  its stake in Rusia
Petroleum, its interest in the Sakhalin V exploration licence and its holding in
the BP Moscow retail network.

     AAR intends to  contribute  its holdings in TNK and  Sidanco,  its share of
Rusia  Petroleum,  its stake in the  Rospan  gasfield  in West  Siberia  and its
interest in the Sakhalin IV and V exploration licence. Neither AAR's association
with  Slavneft,  nor BP's  interest in LukArco or the  Russian  elements of BP's
international  businesses such as lubricants,  marine and aviation, are included
in the transaction.

     The transaction, which will be effective from January 1, 2003, is scheduled
for completion in the summer of 2003.


Page 14

     For its 50% stake in the new  company BP will pay AAR $3 billion in cash on
completion  of the deal,  adjusted  to take  account of the period  between  the
effective date and the completion  date. BP will  subsequently  pay three annual
tranches of $1.25  billion in BP shares,  valued at market  prices prior to each
annual payment.

     The new  company  will be called  TNK-BP.  We  believe  it should  generate
sufficient  cash to finance its  investment  programme and it is not expected to
need additional funding from its shareholders.

Financial and Operating Information

     The following table  summarizes the Group's  turnover,  results and capital
expenditure for the last five years and total assets at the end of each of those
years.



                                                                      Years ended December 31,
                                                     ----------------------------------------------------
                                                        2002       2001       2000         1999      1998
                                                       -----      -----      -----        -----     -----
                                                                          ($ million)

                                                                                    
Turnover........................................     180,186    175,389    161,826      101,180    83,732
Less: joint ventures............................       1,465      1,171     13,764       17,614    15,428
                                                       -----      -----      -----        -----     -----
Group turnover (sales to third parties).........     178,721    174,218    148,062       83,566    68,304
Total replacement cost operating profit.........      10,246     16,027     17,679        8,894     6,521
Profit for the year*............................       6,845      6,556     10,120        4,566     2,651
Capital expenditure and acquisitions............      19,111(a)  14,124     47,613(a)     7,345(b) 10,362
Total assets....................................     159,125    141,970    144,862       89,481    84,835


--------

*    After minority shareholders' interest

(a)  Capital  expenditure and  acquisitions for 2002 includes $5,038 million for
     the  acquisition  of Veba,  and for 2000 includes  $27,506  million for the
     acquisition of ARCO and $8,936 million for other  significant  one-off cash
     investments.

(b)  Capital  expenditure and acquisitions in 1999 reflected reduced  investment
     following the merger of BP and Amoco.

     With the exception of the ARCO  acquisition,  all capital  expenditure  and
acquisitions  have  been  financed  from cash  flow  from  operations,  disposal
proceeds and external financing.

     Information  for 2002,  2001 and 2000  concerning  the  profits  and assets
attributable to the businesses and to the geographical  areas in which the Group
operates is set forth in Item 18 -- Financial Statements -- Note 49.


Page 15

     The following  table shows our  production  for the last five years and the
estimated proved oil and natural gas reserves at the end of each of those years.



                                                                            Years ended December 31,
                                                            --------------------------------------------------
                                                             2002       2001       2000         1999      1998
                                                            -----      -----      -----        -----     -----
                                                                                          
Total crude oil production (thousand barrels
 per day) (a)........................................       2,018      1,931      1,928        2,061     2,049
Total natural gas production (million cubic
 feet per day) (a)...................................       8,707      8,632      7,609        6,067     5,808
Total estimated net proved crude oil reserves
 (million barrels) (b)...............................       7,762      7,217      6,508        6,535     7,304
Total estimated net proved natural gas
 reserves (billion cubic feet) (b)...................      45,844     42,959     41,100       33,802    31,001


----------

(a)  Includes BP's share of equity-accounted entities.

(b)  Net  proved  reserves  of crude  oil and  natural  gas  exclude  production
     royalties due to others and reserves of equity-accounted entities.

     During  2002,  2,016  million  barrels of oil and  natural  gas,  on an oil
equivalent*  basis  (mmboe),  were  added  to BP's  proved  reserves  (excluding
purchases,  sales and equity accounted entities), more than replacing the volume
produced.  After allowing for  production,  which amounted to 1,154 mmboe,  BP's
proved  reserves  increased to 15,666  mmboe.  These proved  reserves are mainly
located in the USA (39%), Trinidad and Tobago (19%) and the UK (11%).



----------

*    Natural gas is converted to oil  equivalent  at 5.8 billion  cubic feet = 1
     million barrels.



Page 16

                             SEGMENTAL INFORMATION

     The following  tables show turnover and replacement cost profit by business
and by geographical area, for the years ended December 31, 2002, 2001 and 2000.



                                                              Years ended December 31,
                            -------------------------------------------------------------------------------------

                                         2002                            2001(c)                         2000(c)
                            ---------------------------     ------------------------      -----------------------

                                        Sales  Sales to                 Sales  Sales to                 Sales  Sales to
                            Total     between     third     Total     between     third     Total     between     third
Turnover (a)                sales  businesses   parties     sales  businesses   parties     sales  businesses   parties
                            -----  ----------   -------     -----  ----------   -------     -----  ----------  --------
                                     ($ million)                    ($ million)                    ($ million)
                                                                                     
By business
Exploration and
   Production.........     25,753      18,556     7,197    28,229      19,660     8,569    30,942      16,787    14,155
Gas, Power and
  Renewables..........     37,357       1,320    36,037    39,442       2,954    36,488    21,203         346    20,857
Refining and
  Marketing...........    125,836       3,366   122,470   120,233       2,903   117,330   107,883       5,923   101,960
Chemicals.............     13,064         557    12,507    11,515         233    11,282    11,247         216    11,031
Other businesses
   and corporate......        510          --       510       549          --       549        59          --        59
                          -------      ------   -------   -------      ------   -------    ------      ------    ------
Group turnover........    202,520      23,799   178,721   199,968      25,750   174,218   171,334      23,272   148,062
                          =======      ======             =======      ======             =======      ======
Share of joint
   venture sales......                            1,465                           1,171                          13,764
                                                -------                         -------                        -------
                                                180,186                         175,389                         161,826
                                                =======                         =======                         =======

                                        Sales  Sales to                 Sales  Sales to                 Sales  Sales to
                            Total     between     third     Total     between     third     Total     between     third
                            sales  businesses   parties     sales  businesses   parties     sales  businesses   parties
                            -----  ----------   -------     -----  ----------   -------     -----  ----------  --------
                                     ($ million)                    ($ million)                    ($ million)
By geographical area
UK (b)................     48,748      14,673    34,075    47,618      13,467    34,151    45,400      10,970    34,430
Rest of Europe........     46,518       7,980    38,538    36,701       7,603    29,098    20,553       1,911    18,642
USA...................     80,381       2,099    78,282    84,696         939    83,757    71,084         829    70,255
Rest of World.........     34,401       6,575    27,826    33,911       6,699    27,212    31,014       6,279    24,735
                          -------     -------   -------   -------     -------   -------   -------      ------   -------
                          210,048      31,327   178,721   202,926      28,708   174,218   168,051      19,989   148,062
                          =======     =======   =======   =======     =======   =======   =======      ======   =======
Share of joint venture
   sales
UK                                                  129                              13                           3,314
Rest of Europe                                      298                              30                          12,316
USA                                                 236                             318                             270
Rest of World                                       802                             810                             686
                                                -------                         -------                         -------
                                                  1,465                           1,171                          16,586
Sales between areas                                  --                              --                           2,822
                                                -------                         -------                         -------
                                                  1,465                           1,171                          13,764
                                                =======                         =======                         =======


------------

(a)  Turnover  to third  parties  is stated by  origin  which is not  materially
     different from turnover by destination.  Transfers  between Group companies
     are made at market prices taking into account the volumes involved.
(b)  UK area  includes the  UK-based  international  activities  of Refining and
     Marketing.
(c)  2000 and 2001 have been  restated  to reflect  the  transfer  of the solar,
     renewables  and  alternative  fuels  activities  from Other  Businesses and
     Corporate to Gas, Power and Renewables.

Page 17



                                                Group                                   Total                  Replacement
                                          replacement                             replacement                  cost profit
                                                 cost                                    cost                       before
                                            operating        Joint    Associated    operating   Exceptional       interest
Analysis of replacement cost profit            profit(a)  ventures  undertakings       profit(a)      items(b)     and tax
                                           ----------     --------  ------------  -----------   -----------    -----------
                                                                           ($ million)
                                                                                                   
Year ended December 31, 2002
By business
Exploration and Production..................    8,595          343           268        9,206          (726)         8,480
Gas, Power & Renewables.....................      247           --           107          354         1,551          1,905
Refining and Marketing......................      668           24           180          872           613          1,485
Chemicals...................................      527          (21)            9          515          (256)           259
Other businesses and corporate..............     (753)          --            52         (701)          (14)          (715)
                                               ------       ------        ------       ------        ------         ------
                                                9,284          346           616       10,246         1,168         11,414
                                               ======       ======        ======       ======        ======         ======
By geographical area
UK (c)......................................    1,701          (15)           10        1,696           (88)         1,608
Rest of Europe..............................    1,572           (1)          132        1,703         1,817          3,520
USA.........................................    2,665           16           209        2,890          (242)         2,648
Rest of World...............................    3,346          346           265        3,957          (319)         3,638
                                               ------       ------        ------       ------        ------         ------
                                                9,284          346           616       10,246         1,168         11,414
                                               ======       ======        ======       ======        ======         ======
Year ended December 31, 2001(d)
By business
Exploration and Production..................   11,802          373           186       12,361           195         12,556
Gas, Power & Renewables.....................      304           --           184          488            --            488
Refining and Marketing......................    3,295           83           195        3,573           471          4,044
Chemicals...................................       21          (13)          120          128          (297)          (169)
Other businesses and corporate..............     (598)          --            75         (523)          166           (357)
                                               ------       ------        ------       ------        ------         ------
                                               14,824          443           760       16,027           535         16,562
                                               ======       ======        ======       ======        ======         ======
By geographical area
UK (c)......................................    2,657           (3)           14        2,668          (319)         2,349
Rest of Europe..............................    1,579           (1)          236        1,814            33          1,847
USA.........................................    6,632           76           233        6,941           289          7,230
Rest of World...............................    3,956          371           277        4,604           532          5,136
                                               ------       ------        ------       ------        ------         ------
                                               14,824          443           760       16,027           535         16,562
                                               ======       ======        ======       ======        ======         ======
Year ended December 31, 2000 (d)
By business
Exploration and Production..................   13,359          384           229       13,972           119         14,091
Gas, Power & Renewables.....................      370           --           162          532             2            534
Refining and Marketing......................    2,887          433           166        3,486            98          3,584
Chemicals...................................      576           (9)          193          760          (212)           548
Other businesses and corporate..............   (1,113)          --            42       (1,071)          213           (858)
                                               ------       ------        ------       ------        ------         ------
                                               16,079          808           792       17,679           220         17,899
                                               ======       ======        ======       ======        ======         ======
By geographical area
UK (c)......................................    3,629          106            38        3,773            12          3,785
Rest of Europe..............................    1,488          264           261        2,013           (19)         1,994
USA.........................................    6,929           44           246        7,219           459          7,678
Rest of World...............................    4,033          394           247        4,674          (232)         4,442
                                               ------       ------        ------       ------        ------         ------
                                               16,079          808           792       17,679           220         17,899
                                               ======       ======        ======       ======        ======         ======


------------

(a)  Replacement  cost operating  profit is before  inventory  holding gains and
     losses  and  interest  expense,  which  is  attributable  to the  corporate
     function.  Transfers  between  Group  companies  are made at market  prices
     taking into account the volumes involved.
(b)  Exceptional  items comprise  profit or loss on the sale of fixed assets and
     businesses and termination of operations.
(c)  UK area  includes the  UK-based  international  activities  of Refining and
     Marketing.
(d)  2000 and 2001 have been  restated to reflect the adoption of FRS 19 and the
     transfer of the solar,  renewables and  alternative  fuels  activities from
     Other Businesses and Corporate to Gas, Power and Renewables.

Page 18

                           EXPLORATION AND PRODUCTION

     The activities of our Exploration and Production  business  include oil and
natural gas  exploration  and field  development  and production -- the upstream
activities -- as well as the  management of crude oil and natural gas pipelines,
processing and export  terminals and LNG processing  facilities -- the midstream
activities. We have Exploration and Production interests in 28 countries.  Areas
of activity  include the USA, UK, Norway,  Canada,  South America,  Africa,  the
Middle East, and Asia.  Production during 2002 came from 23 countries.  Our most
significant  midstream  activities  are in three  major  pipelines  -- the Trans
Alaska Pipeline System (BP 46.9%); the Forties Pipeline System (BP 100%) and the
Central Area  Transmission  System  pipeline (BP 29.5%) both in the UK sector of
the North Sea;  three major LNG plants -- the Atlantic LNG plant in Trinidad (BP
34% in Train 1 and 42% in  Trains  2 and 3),  in  Indonesia  through  the  joint
venture  operating  company  Virginia  Indonesia  Co.  (VICO)  (BP  50%)  and in
Australia  through  our  share of LNG from the  North  West  Shelf  natural  gas
development (BP 16.7%).



                                                                           Years ended December 31,
                                                                      ---------------------------------
                                                                         2002         2001         2000
                                                                      -------       ------       ------
                                                                                  ($ million)

                                                                                        
Turnover (a)....................................................       25,753       28,229       30,942
Total replacement cost operating profit.........................        9,206       12,361       13,972
Total assets....................................................       72,801       70,017       66,405
Capital expenditure and acquisitions............................        9,699        8,861        6,383
                                                                                ($ per barrel)
Average BP crude oil realizations...............................        22.69        22.50        26.63
Average West Texas Intermediate oil price.......................        26.14        25.89        30.38
Average Brent oil price.........................................        25.03        24.44        28.44
                                                                          ($ per thousand cubic feet)
Average BP natural gas realizations.............................         2.46         3.30         2.91
Average BP US natural gas realizations..........................         2.63         3.99         3.72
                                                                                 ($ per mmbtu)
Average Henry Hub gas price (b).................................         3.22         4.26         3.90


----------

(a)  Excludes BP's share of joint venture turnover of $539 million in 2002, $666
     million in 2001, and $585 million in 2000.

(b)  Henry Hub First of Month Index.

Strategy and Overview

     Our strategy is to deliver a competitive  combination of production  growth
and returns over the long-term.  Simply stated, our strategy is to create, build
and  produce  material   businesses  in  some  of  the  world's  most  promising
hydrocarbon  provinces.  It is  underpinned by a focus on creating value through
four stages in the basin lifecycle: creating new profit centers by accessing the
right basins;  building projects of the highest quality and value through choice
amongst  a  portfolio  of  opportunities;  maximizing  the  productivity  of the
existing  profit  centers by managing the relevant  assets for cash and returns;
and by understanding  when our best option is to stop investing in opportunities
that others may find more valuable. In all phases of the lifecycle, the strategy
has two basic principles:  focus to build material businesses,  that is pursuing
only those  opportunities  that are of sufficient  size to enable higher returns
through cost efficiency, and choice of investments to drive quality.

Page 19

     The first element  underpinning our Exploration and Production  strategy is
to access  the right  basin  opportunities.  We aim to do this  through  focused
exploration  projects in both proved and emerging basins and selective satellite
projects adjacent to existing hubs, taking advantage of existing infrastructure.
Our exploration  programme  today is focused  primarily on the Deepwater Gulf of
Mexico, Trinidad and Angola.

     The second element underpinning our strategy is to build new profit centers
through the choice of the best  projects.  We are  currently  building  five new
profit centers in Deepwater Gulf of Mexico, Trinidad,  Angola,  Azerbaijan,  and
Asia Pacific LNG. In these areas,  several key projects  provide the  foundation
for volume growth and improved  margins over the next several years. In 2002, we
approved  $5.2 billion of new projects in these five areas.  Combined with other
projects in these areas, we currently have $15.9 billion of major projects under
construction and another  estimated $8.5 billion of additional  opportunities in
various appraisal stages.

     The third element underpinning our strategy is to maximize the value of our
existing profit center portfolio.  We accomplish this through focused pursuit of
production  optimization  and  cost  efficiencies.  Production  optimization  is
delivered through reservoir  management,  improved facility runtime and enhanced
recovery  technologies  to  mitigate  volume  decline  and  increasing  ultimate
recoveries in mature fields. Continuous improvement in cost efficiency is also a
critical element.  We drive cost efficiencies  through  leveraging  economies of
scale in key  producing  basins;  and through  the  application  of  technology,
focused on improving system efficiency and operational reliability.

     The fourth element  underpinning our strategy is to understand when to stop
investing.  We have a rigorous  process for  evaluating  the economic  merit and
strategic fit of all investment  opportunities.  With our sizeable  portfolio of
opportunities in the profit centers we are building, we are afforded the benefit
of choosing the best projects for funding.  In the existing profit  centers,  we
globally rank the attractiveness of investment opportunities and choose the best
for funding.  Both in the new profit centers and in the existing profit centers,
we are  disposing  of  investments  that do not fit our  criteria,  but in which
others may see value.

Recent Developments

     As part of our aim to focus  on  retention  of a  greater  share of  large,
low-cost  oil  and  gas  fields,  the  sale of our  interests  in the  Arbroath,
Arkwright  and Montrose  fields to Paladin  Resources  plc for $80.5 million was
announced in December  2002.  It is  anticipated  that this will complete in the
second quarter of 2003.

     As part of implementing our strategy,  a number of other portfolio  changes
have been announced or completed post December 31, 2002.

     In addition to the recent  transaction in Russia which is described in this
item under General - Business Overview and Strategy, these activities include:

     --   In October  2002,  Repsol-YPF  notified us of their intent to exercise
          their  option to acquire a further 20% of our  upstream  interests  in
          Trinidad and on January 2, 2003, we completed this transaction. Repsol
          now has a 30% interest in BP Trinidad and Tobago LLC. This transaction
          gives  leverage  for our  upstream  position in Trinidad to access gas
          markets and growth  opportunities  in Spain,  thus providing a further
          platform for BP's future gas growth in Trinidad.

     --   In January 2003, we announced the divestment of our 96.14% interest in
          the North Sea Forties  oilfield  along with some 61 mature,  primarily
          gas-producing  assets  in the  shallow  water of the Gulf of Mexico to
          Apache for $1.3 billion.

Page 20


     --   On February  26, 2003,  we  completed  an exchange of  interests  with
          Amerada  Hess under which we will swap our 25%  interest in block A-18
          of the Malaysia  Thailand Joint  Development  Area (JDA),  for Amerada
          Hess's  interests in Colombia and $10 million in cash.  The  Colombian
          interests  include  a 12%  stake  in the  Santiago  de  las  Atalayas,
          Tauramena and Rio Chitamena contracts;  10% in the Recetor Association
          contract;  and a 9.6% stake in the OCENSA  pipeline.  This transaction
          adds some 58 million  barrels  of proven  reserves  to BP's  Colombian
          portfolio.

     --   As  part of  building  our  competitive  position  in LNG in the  Asia
          Pacific  region we announced,  in February  2003, the sale of 12.5 per
          cent of our  Tangguh  LNG  project  to  China  National  Offshore  Oil
          Corporation  (CNOOC) for $275  million.  This  completed  the Heads of
          Agreement,  which was signed in  September  2002  concurrent  with the
          signing of the LNG supply  agreement  to Fujian.  The  involvement  of
          CNOOC in this  project  should  afford  greater  access to the growing
          Chinese LNG market.

     --   Other  restructuring  activities have included the agreement to sell a
          package of assets primarily in North America. The sale is scheduled to
          be completed in April 2003.

     --   In February 2003, we announced the sale to Perenco of certain Southern
          North Sea gas interests for $162 million, and Venezuelan interests for
          $160 million.

     --   In February 2003, we redeemed our 3% five year  Exchangeable  Bond for
          Lukoil ADRs. This transaction  completed the monetization of our stake
          in the Russian Oil company  Lukoil with proceeds of $420 million being
          received.  The stake in Lukoil was obtained through the acquisition of
          ARCO.

Upstream Activities

Exploration

     The Group explores for oil and natural gas under a wide range of licensing,
joint venture and other  contractual  agreements.  We may do this alone or, more
frequently, with partners. BP acts as operator for many of these ventures.

     Our exploration and appraisal costs in 2002 were $1,108 million compared to
$1,102 million in 2001. About 55% of 2002 exploration and appraisal  capital was
directed towards appraisal activity as we delineated the discoveries made during
1999, 2000, and 2001. In 2002, we participated in 110 gross (52 net) exploration
and  appraisal  wells in 18  countries.  The  principal  areas of activity  were
Angola, Egypt, Norway, Trinidad, and the USA.

     In 2002, we obtained  upstream rights in several new tracts,  which include
the following:

     --   In Norway's 17th License Round,  BP gained a 20% interest in the 'Grip
          High'  block,  which  lies  immediately  due north of the Ormen  Lange
          field.

     --   In Russia,  a five-year  exploration  license for part of the offshore
          Sakhalin  V block was  awarded  to Rosneft  and  through  an  alliance
          agreement,      the     joint     venture     with     Rosneft     and
          Rosneft-Sakhalinmorneftegas  in  which BP  holds a 49%  interest  will
          carry out the exploration on behalf of the licence holder.

     --   In the Gulf of Mexico,  BP was  successful  in the OCS Lease Sales 182
          and 184 with bids on 58 blocks,  of which 40 were won,  for an overall
          success rate of 69%.

     --   In deepwater  Brazil, we extended our offshore Foz do Amazonas licence
          in  Block  BM-FZA-1  (BP  30%  and  operator)  for 3  years  following
          encouraging exploration activity during 2002.

Page 21


     In 2002, we were involved in discoveries in Angola,  Egypt,  Trinidad,  and
the USA. In most cases,  reserve  bookings  from these fields will depend on the
results of ongoing  technical and commercial  evaluations,  including  appraisal
drilling. Our 2002 discoveries included the following:

     --   In Angola,  BP made the country's  first  discovery in the 'ultra deep
          water'  (greater  than 1,500  metres)  acreage with the Plutao well in
          Block 31 (BP 26.7% and operator). Continued success was experienced in
          the established  partner operated  deepwater  blocks;  in Block 15 (BP
          26.7%) the Reco-Reco, Mondo North, and Marimba South discoveries, and,
          in Block 17 (BP 16.7%), the Zinia discovery.

     --   In Egypt,  BP was involved in seven gas discoveries in the Nile Delta.
          Four of these; El Max, El Bahig, Abu Sir and El King, were made in the
          West Med  Concession  under an  arrangement  in which we  reduced  our
          interest from 16.7% to 10%. In the West Med Deep  Concession,  BP made
          the Ruby  discovery  (BP 80%).  Viper-1  (BP 30%) in North  Idku,  and
          Tenin-1 (BP 50%) in East Deep Delta Marine were also  successful.  Oil
          exploration  close  to  established  production  in the  Gulf  of Suez
          resulted in the Luli discovery (BP 100%).

     --   In Trinidad new gas reservoirs  were  discovered in the Red Mango No.2
          and Iron Horse wells off the east coast of the island. These interests
          are held in a fully consolidated subsidiary in which in 2002 there was
          a 10%  minority  interest.  In the fourth  quarter we  determined  the
          Catfish well was a dry hole and consequently the cost was written off.

     --   In  the   Deepwater   Gulf  of   Mexico,   discoveries   include   the
          partner-operated  Great White (BP 33.3%) in the Alaminos  Canyon area,
          and the  partner  operated  Shenzi  well (BP 28%) in the Green  Canyon
          area,  seven miles north west of BP's Atlantis  development  (BP 56%).
          Infrastructure-led   efforts  in  the  Mississippi  Canyon  area  were
          successful  with the King West  discovery  (BP 100%),  adjacent to the
          King  Development  (BP 100%),  the Dorado  discovery,  adjacent to the
          Marlin  TLP (BP 75%) and the Deimos  discovery  (BP 28.5%) in the Mars
          basin.  The  deepwater  prospect  Neptune  was  relinquished  after we
          concluded  that the  discovered  volumes did not rank highly enough in
          our portfolio of investment opportunities.

Reserves and Production

     We annually review our total reserves of crude oil, condensate, natural gas
liquids and natural gas to take account of production, field reassessments,  the
application of improved recovery  techniques,  the addition of new reserves from
discoveries and economic  factors.  We also conduct  selective  periodic reserve
reviews for individual fields.

     Details of our net proved  reserves of crude oil,  condensate,  natural gas
liquids and  natural  gas at December  31,  2002,  2001,  and 2000 and  reserves
changes for each of the three years then ended are set out in the  Supplementary
Oil and Gas Information section in Item 18 -- Financial Statements.

     Total hydrocarbon proved reserves, on an oil equivalent basis and excluding
equity-accounted  entities,  comprised  15,666 mmboe at December  31,  2002,  an
increase of 7.1% compared with December 31, 2001.  Natural gas represents  about
50% of these reserves.  Reserve  replacement  through  extensions,  discoveries,
revisions  and  improved  recovery,  for the Group  excluding  equity  accounted
entities,  exceeded  production for the tenth  consecutive  year with a ratio of
175%.

     In  2002,  total  additions  to  the  Group's  proved  reserves  (excluding
purchases  and sales and  equity-accounted  entities)  amounted to 2,016  mmboe,
mostly through  extensions to existing fields and discoveries of new fields. The
principal reserve additions were in Algeria (In Amenas Train 3), Angola (Kizomba
B),  Azerbaijan  (Azeri-Chirag-Gunashli  Phase 2),  Gulf of Mexico (Mad Dog) and
Trinidad (reserves to support the 4th train of the Atlantic LNG project).

Page 22


     Our total  hydrocarbon  production  (including  equity-accounted  entities)
during 2002 averaged 3,519 thousand  barrels of oil equivalent per day (mboe/d),
an increase of 100 mboe/d, or 2.9% compared with 2001, as production declines in
mature fields were more than offset by production  start-ups,  build-ups to full
production and acquisitions. 39% of our production was in the USA, 21% in the UK
and 9% from equity-accounted entities, of which 23% is from Sidanco.

Page 23


     The following tables show BP's production by major field for 2002, 2001 and
2000, and BP's aggregate estimated net proved reserves as at December 31, 2002:

Crude oil (a)



                                                                                         Net production
                                                                               -------------------------------
Production                     Field or Area                Interest            2002         2001         2000
                               -------------                --------           -----        -----        -----
                                                               (%)                (thousand barrels per day)

                                                                                            
Alaska (b)                     Prudhoe Bay*                     26.3             113          123          146
                               Kuparuk                          39.2              74           76           81
                               Milne Point*                    100.0              44           45           40
                               Northstar*                       98.8              36            3           --
                               Endicott*                        67.9              15           19           21
                               Point McIntyre                   26.4               9           10           16
                               Other                         Various              18           12           10
                                                                              ------       ------       ------
Total Alaska                                                                     309          288          314
                                                                              ------       ------       ------
Lower 48 States onshore        Total                         Various             192          213          218
                                                                              ------       ------       ------
Gulf of Mexico (b)             Mars                             28.5              41           42           38
                               Troika                           33.3              20           25           28
                               Pompano*                         75.0              23           21           26
                               Ursa                             22.7              20           23           19
                               Crosby                           50.0              19           --           --
                               Marlin*                          86.3              19           19            1
                               Other                         Various             122          113           85
                                                                              ------       ------       ------
Total Gulf of Mexico                                                             264          243          197
                                                                              ------       ------       ------
Total USA                                                                        765          744          729
                                                                              ------       ------       ------

UK offshore (b)                Foinaven*                        72.0              72           60           64
                               ETAP+                         Various              61           80           85
                               Forties*(c)                      96.1              50           51           53
                               Schiehallion/Loyal*           Various              43           40           44
                               Harding*                         70.0              42           42           57
                               Magnus*                          85.0              31           37           47
                               Andrew*                          62.8              23           25           33
                               Miller*                          52.0              11           15           22
                               Other                         Various              96           99           89
                                                                              ------       ------       ------
Total UK offshore                                                                429          449          494
Onshore                        Wytch Farm*                      67.8              32           36           40
                                                                              ------       ------       ------
Total UK                                                                         461          485          534
                                                                              ------       ------       ------
Norway                         Draugen                          18.4              37           40           38
                               Valhall*                         28.1              21           22           23
                               Ula*                             80.0              18           18           16
                               Gyda*                            61.0               8           12           12
Other including Netherlands    Various                       Various              20            8            1
                                                                              ------       ------       ------
Total Rest of Europe           Various                                           104          100           90
                                                                              ------       ------       ------


---------------

*    BP  operated.

+    BP operates the majority of the fields in this area.



Page 24




                                                                                         Net production
                                                                                  ----------------------------
Production                     Field or Area                Interest            2002         2001         2000
                               -------------                --------           -----        -----        -----
                                                               (%)                (thousand barrels per day)

                                                                                           
Angola                         Girassol                         16.7              29            1           --
Australia                      Various                          16.7              43           40           37
Azerbaijan                     Azeri-Chirag-Gunashli*           34.1              38           35           30
Canada (b)                     Various                       Various              16           18           19
Colombia                       Various                       Various              46           48           52
Egypt                          October                          50.0              16           22           30
                               Other                         Various              69           69           78
Trinidad                       Various                         100.0              67           48           47
Venezuela                      Various                       Various              51           54           46
Other (b)                      Various                       Various              61           59           51
                                                                              ------       ------       ------
Total Rest of World                                                              436          394          390
                                                                              ------       ------       ------
Total Group                                                                    1,766        1,723        1,743
                                                                              ======       ======       ======

Equity-accounted entities
Abu Dhabi (d)                  Various                       Various             113          126          127
Russia                         Various                       Various              73           20           11
Argentina                      Various                       Various              53           50           40
Other                          Various                       Various              13           12            7
                                                                              ------       ------       ------
Total equity-accounted entities                                                  252          208          185
                                                                              ------       ------       ------
Total Group and BP share
  of equity-accounted entities (e)                                             2,018        1,931        1,928
                                                                              ======       ======       ======


---------------

*    BP operated.




                                                                     December 31, 2002
                                             -----------------------------------------------------------------
                                                          Rest of                       Rest of
Estimated net proved reserves (a)                UK        Europe            USA          World          Total
                                             ------        ------         ------         ------         ------
                                                                  (millions of barrels)
                                                                                          
Subsidiary undertakings
Developed...............................        858           250          2,225          1,002          4,335
Undeveloped.............................        269            99          1,336          1,723          3,427
                                             ------        ------         ------         ------         ------
                                              1,127           349          3,561          2,725          7,762
                                             ======        ======         ======         ======         ======
Equity-accounted entities                                                                                1,403
                                                                                                        ------
Total Group and BP share
  of equity-accounted entities                                                                           9,165
                                                                                                        ======


------

Page 25


Natural gas (a)(f)



                                                                                         Net production
                                                                               -------------------------------
Production                     Field or Area                Interest            2002         2001         2000
                               -------------                --------           -----        -----        -----
                                                               (%)               (million cubic feet per day)

                                                                                         
Lower 48 States onshore (b)    San Juan Coal*                Various             601          615          563
                               Arkoma                        Various             206          219           94
                               San Juan Conventional +       Various             196          217          185
                               Hugoton +                     Various             169          180          170
                               Tuscaloosa +                  Various             138          187          171
                               Jonah*                           75.2             113          109           77
                               Wamsutter*                       70.5             108          100          100
                               Whitney Canyon +              Various              50           50           47
                               Anschutz Ranch East*          Various              28           45           55
                               Moxa Arch*                       41.0              54           43           52
                               Other                         Various             583          595          647
                                                                              ------       ------       ------
Total Lower 48 States onshore                                                  2,246        2,360        2,161
                                                                              ------       ------       ------
Alaska                         Various                       Various              52           11            9
                                                                              ------       ------       ------
Gulf of Mexico (b)             Marlin*                         100.0             106           79            3
                               Pompano*                         73.7              63           35           45
                               Mica                             50.0              58           27           --
                               Ram Powell (VK 912)              31.0              54           58           60
                               Matagorda Island 623*            43.5              48           76           78
                               Matagorda Island 519*            82.3              47           40           56
                               Mars                             28.5              38           41           33
                               Other                         Various             771          827          609
                                                                              ------       ------       ------
Total Gulf of Mexico                                                           1,185        1,183          884
                                                                              ------       ------       ------
Total USA                                                                      3,483        3,554        3,054
                                                                              ------       ------       ------
UK offshore (b)                Bruce*                           37.0             221          256          201
                               Marnock*                         62.0             135          125          148
                               Braes                         Various             116          100           99
                               West Sole*                      100.0              72           81           89
                               Armada                           18.2              71           71           75
                               Ravenspurn South*               100.0              56           66           77
                               Britannia                         9.0              56           65           41
                               Amethyst*                        59.5              52           68           56
                               East Leman*                      48.4              44           59           58
                               Viking Complex                   50.0              42           54           81
                               Vulcan                           50.0              34           33           44
                               Other                         Various             646          730          678
Onshore                        Wytch Farm                       67.8               5            5            5
                                                                              ------       ------       ------
Total UK                                                                       1,550        1,713        1,652
                                                                              ------       ------       ------
Netherlands                    P/18-2*                          48.7              41           47           52
                               Other                         Various              46           52           43
Norway                         Various                       Various              60           48           41
                                                                              ------       ------       ------
Total Rest of Europe                                                             147          147          136
                                                                              ------       ------       ------


---------------

*    BP operated.

+    BP operates the majority of the fields in this area.

Page 26




                                                                                         Net production
                                                                               -------------------------------
Production                     Field or Area                Interest            2002         2001         2000
                               -------------                --------           -----        -----        -----
                                                               (%)               (million cubic feet per day)

Rest of World
                                                                                            
Australia                      Various                          16.7             295          237          205
Canada (b)                     Kirby*                           95.0              66           72           69
                               Ricinus*                         47.2              54           61           52
                               Brazeau River Gas*               66.9              53           71           63
                               Marten Hills*                    93.5              32           45           47
                               Other                         Various             309          335          351
China                          Yacheng*                         34.0             102          108           77
Egypt                          Temsah                           50.0              84           26           --
                               Ha'py                            50.0              74           66           63
                               Other                         Various              98           98           86
Indonesia                      Pagerungan*                     100.0             189          242          199
                               Sanga-Sanga (direct)             26.3             174          164          120
                               Other*                           46.0              94           95           54
Sharjah                        Sajaa*                           40.0             110          125          145
                               Other                         Various              24           35           39
Trinidad                       Mahogany*                       100.0             521          529          530
                               Amherstia*                      100.0             492          244           17
                               Immortelle*                     100.0             154          128          232
                               Flamboyant*                     100.0              40           52           69
                               Other*                          100.0              31           58           37
Other (b)                      Various                       Various             148           82           49
                                                                              ------       ------       ------
Total Rest of World                                                            3,144        2,873        2,504
                                                                              ------       ------       ------
Total Group                                                                    8,324        8,287        7,346
                                                                              ======       ======       ======
Equity-accounted entities
Argentina                      Various                       Various             251          236          187
Other                          Various                       Various             132          109           76
                                                                              ------       ------       ------
Total equity-accounted entities                                                  383          345          263
                                                                              ------       ------       ------
Total Group and BP share
 of equity-accounted entities                                                  8,707        8,632        7,609
                                                                              ======       ======       ======





                                                                     December 31, 2002
                                             -----------------------------------------------------------------
                                                          Rest of                       Rest of
Estimated net proved reserves (a)                UK        Europe            USA          World          Total
                                             ------       -------         ------        -------         ------
                                                                  (millions of barrels)
                                                                                         
Subsidiary undertakings
Developed...............................      3,215           216         12,102          8,240         23,773
Undeveloped.............................        651            44          2,259         19,117         22,071
                                             ------        ------         ------         ------         ------
                                              3,866           260         14,361         27,357         45,844
                                             ======        ======         ======         ======         ======
Equity-accounted entities                                                                                2,945
                                                                                                        ------
Total Group and BP share
  of equity-accounted entities                                                                          48,789
                                                                                                        ======



Page 27


----------

(a)  Net proved reserves of crude oil and natural gas, stated as of December 31,
     2002,  exclude  production  royalties due to others,  and include  minority
     interests in consolidated operations.

(b)  In 2002,  BP acquired  additional  working  interest  in the Badin  acreage
     (Pakistan)  from the  government  and  disposed  of its  interest in the Al
     Rayyan field (Qatar),  Qadirpur field (Pakistan) and  Elgin/Franklin  field
     (UK). In 2001, BP purchased part of the interests of Statoil in Vietnam and
     the interest of Inaquimicas in  Cusiana/Cupiagua  in Colombia.  In 2000, BP
     acquired the interests of ARCO outside Alaska. At the same time, a deal was
     concluded  (primarily with Exxon and Phillips) in which the oil and natural
     gas  interests  in Prudhoe  Bay (and some of the  associated  fields)  were
     realigned.  We also disposed of our interest in Altura Energy.  In addition
     to portfolio  management  in the USA and Canada,  we disposed of certain of
     our interests in Venezuela, Colombia and the UK and acquired an interest in
     Pakistan as part of the Burmah Castrol acquisition.

(c)  The sale of BP's  interest in the Forties  field was  announced  in January
     2003.

(d)  The  BP   Group   holds   proportionate   interests,   through   associated
     undertakings,  in onshore and offshore concessions in Abu Dhabi expiring in
     2014 and 2018, respectively.

(e)  Includes NGLs from processing plants in which an interest is held of 69, 78
     and 41 thousand barrels per day for 2002, 2001, and 2000 respectively.

(f)  Natural gas production  volumes  exclude gas consumed in operations  within
     the lease boundaries of the producing field.



Page 28

United States

     We are the  largest  producer of both crude oil and natural gas in the USA.
2002 crude oil  production at 765 thousand  barrels per day (mb/d)  increased 3%
from 2001,  while  natural gas  production  at 3,483  million cubic feet per day
(mmcf/d) decreased 2% over 2001.

     During 2002, BP operations experienced significant reductions in production
due to adverse weather and natural events. Hurricanes and tropical storms in the
Gulf of Mexico  during  September and October  resulted in multiple  shut-ins of
Gulf of Mexico  production  and some Gulf Coast  production,  which reduced full
year production by 24 mboe/d.  In October 2002, an earthquake forced the shut-in
of the Trans Alaska Pipeline for 3 days while  inspection and immediate  repairs
were made. No oil was spilled,  however, a 3-mboe/d reduction in 2002 production
resulted from the shutdown.

     Development  expenditure in the USA (excluding  pipelines)  during 2002 was
$3,618 million, compared with $3,723 million in 2001, a decrease of 3%.

     Our  activities  within the United  States  take place in four main  areas.
Significant events during 2002 within each of these are indicated below.

Deepwater Gulf of Mexico

     Deepwater  Gulf of Mexico  is one of our five new  profit  centres  and our
largest area of growth in the USA. In 2002,  our Deepwater  Gulf of Mexico crude
oil  production  was 205 mb/d, up 15% from 2001 levels.  Gas  production was 511
mmcf/d, up over 26% from 2001 levels.

     Growth in 2002 was driven by new field start-up activity, as well as strong
performance from the existing major facility hubs. Key events include:

     --   The  King  MC85  subsea  tieback  (BP  100%)  started  production  via
          facilities on the Marlin platform in April 2002.

     --   The  King's  Peak  development,  3 subsea  wells,  (BP  100%)  started
          production in September 2002.

     --   Production  started from the Horn Mountain field (BP 67% and operator)
          in November 2002.

     --   The Princess  development  (BP 23%),  drilled from the Ursa  platform,
          started producing in November 2002.

     --   Aspen (BP 40% and operator), a subsea development to the non-operated
          Bullwinkle platform, commenced production in December 2002.

     Development of five major  projects  continued in the Gulf of Mexico during
2002 -- Na Kika (BP 50% and operator  post  construction),  Holstein (BP 50% and
operator), Mad Dog (BP 60.5% and operator),  Thunder Horse (BP 75% and operator)
and Atlantis (BP 56% and operator).

Gulf of Mexico Shelf

     The Shelf is a mature basin,  with high decline  rates that average  30-40%
per year. In 2002, BP's gas production from Gulf of Mexico Shelf  operations was
674 mmcf/d, which was down 13% compared to 2001. BP produced 7% of total Gulf of
Mexico Shelf gas production,  which, in turn, supplies 15% of the US gas demand.
Crude oil and NGL production  was 59 mb/d,  down 8% compared to 2001. We operate
more than 200  platforms  and 700 wells on the Shelf,  in water up to 1,500 feet
deep.  We  operated 8 rigs and drilled 32  operated  wells in 2002.  The sale to
Apache announced in January 2003 included 61 small,  mainly gas producing fields
on the Shelf, which accounted for approximately 40% of 2002 production.


Page 29

Lower 48 States

     In the Lower 48 States,  we remain the  largest  producer  of natural  gas,
accounting  for  approximately  6% of total US onshore  natural gas  production.
Production  comes from more than 11,000  operated wells, in over 900 oil and gas
fields, situated principally in the states of Colorado,  Kansas,  Louisiana, New
Mexico, Oklahoma, Texas and Wyoming.

     In 2002,  crude oil  production  was 192 mb/d,  down 10% from 2001  levels.
Natural gas production was 2,246 mmcf/d in 2002,  down 5% from 2001  production.
This is a mature region and reduced production is driven by natural decline.  In
2002,  we operated 76 drilling and service  rigs and drilled 400 wells,  finding
and developing additional reserves to replace 78% of production. More than 3,000
well workovers and maintenance interventions were performed.

     Our  production in the onshore Lower 48 States was derived  primarily  from
the following areas:

     --   In the mid-continent  states (Texas,  Oklahoma,  Kansas and Louisiana)
          our  operations  produced 915 mmcf/d of natural gas and 54 mb/d of oil
          and NGL's in 2002. Improved efficiency to maintain the production rate
          in  mature  areas is the key to  continued  success  in these  assets.
          Examples of improved efficiency include:

          --   Texas Panhandle (Anadarko Basin) - BP's application of horizontal
               drilling in the Courson Ranch field in 2002 has raised production
               from 2 mmcf/d  to 8 mmcf/d  by year end with the  possibility  of
               further   development  in  2003.  The  switch  from  conventional
               vertical  wells to horizontal  completions  has resulted in a 33%
               improvement in reserves/spend efficiency.

          --   Eastern   Oklahoma  (Red  Oak  field)  -  Red  Oak  field's  2002
               production exceeded 1997 levels in what was previously thought to
               be a fully developed reservoir.  This was accomplished through an
               ongoing successful  infill-drilling programme based on the use of
               3D seismic.

          --   Southwest  Kansas  (Hugoton and Panoma  fields) - We continued to
               manage the decline of the  Hugoton  field,  down 4% for 2002.  We
               achieved   this  through  an  active   wellwork  and   facilities
               maintenance programme, installation of additional compression and
               development  drilling.  Optimization of the entire work programme
               was  facilitated  by  implementation  of an innovative  multiwell
               visualisation  tool, which was developed by the Hugoton team. The
               80-year-old Hugoton field is the largest natural gas field in the
               Lower 48 States and has  previously  experienced  annual  decline
               rates as high as 20%.

          --   Louisiana  (Tuscaloosa  Trend)  - BP is  now  delivering  initial
               production  rates of 50 to 60 mmcf/d per well from the Tuscaloosa
               asset,  significantly  higher  than  the  historical  rates of 20
               mmcf/d.  BP's  development  strategy  in the trend is to look for
               deeper gas  producing  horizons  in areas that are also likely to
               have shallower secondary gas producing horizons. BP has optimized
               well design and  improved the time from  completion  to first gas
               sale by 60% compared with 2001. This  achievement  resulted in an
               average of 20 additional days per well of production  delivery to
               the market.

     --   The Southern  Wyoming  (Overthrust  Belt,  Greater  Green River Basin)
          operations produced 371 mmcf/d of natural gas and 39 mb/d of crude oil
          in 2002 with both the  Wamsutter  and Jonah  fields  achieving  record
          production.   Drilling  activity  in  2002  continued  as  part  of  a
          multi-year  drilling  programme  comprising  both extension and infill
          wells in the Jonah and Wamsutter fields. In 2002, BP drilled 123 wells
          with 6 rigs in Wamsutter.  The previous drilling time benchmark for BP
          in the basin was beaten by 40% of the wells drilled in 2002,  reducing
          the asset's overall drilling time by 20%.

Page 30

     --   Colorado  and New Mexico  (San Juan Basin  Coal and  Conventional  Gas
          fields)  operations  produced  807  mmcf/d  of  natural  gas in  2002,
          maintaining  BP's position as the largest coalbed methane  producer in
          the  largest  coalbed  methane  region in the USA.  In 2002,  the unit
          reduced   overall   well  costs  by  10%  to  15%  by  reducing   site
          construction,  drilling and completion  costs,  while at the same time
          increasing  initial production rates from new wells and reducing cycle
          time from well spud to gas sales.

Alaska

     In Alaska,  crude oil  production  in 2002 was 309 mb/d,  an increase of 7%
from 2001, due  principally to the start-up of Northstar and the  performance of
satellite fields around Prudhoe Bay.

     Key activities during 2002 in Alaska included:

     --   As part of maximising the productivity of our existing profit centers,
          active  reservoir  management  at Alaska's  largest  producing  field,
          Prudhoe Bay (BP 26.4% and operator)  included an ongoing active infill
          drilling  programme  with 111 new  sidetracked  wells,  plus continued
          development of the Greater Prudhoe Bay Satellite  fields,  which added
          31 wells and production of 3 mboe/d in 2002.

     --   The Northstar  oil field (BP 98.8% and  operator)  completed its first
          full year of  production.  We  undertook  remedial  action to  resolve
          initial compressor start-up problems.

     --   We are  continuing  to  evaluate  options to  commercialize  the Point
          Thomson  natural gas  condensate  field (BP 32%) on the Eastern  North
          Slope.

     --   On August 16, 2002,  an explosion  and fire took place on the A Pad in
          the  Prudhoe  Bay field  resulting  in an injury to an  employee.  The
          explosion  was caused by  thermal  expansion,  which  caused the outer
          annulus pressure in the well to exceed normal operating pressures,  as
          opposed to being caused by corrosion  or other  damage.  A third party
          expert  examined the casing and determined the pressure  reached to be
          about 7,700 pounds per square inch (psi),  which exceeded the casing's
          original  rating of 5,380 psi. As a precautionary  measure,  137 wells
          with high annular pressures were taken out of production, and were not
          brought back on line until  enhanced  procedures  were  developed  and
          implemented.  Over 90 wells have been  returned  to  production  after
          passing  inspection.  The  remainder  have  not yet been  returned  to
          production  pending  further  engineering  review.  We  paid a fine of
          $6,300 to the US  Occupational  Safety  and Health  Administration  on
          February 21, 2003.

United Kingdom

     We are the largest producer of both oil and natural gas in the UK. In 2002,
total  crude  oil  production  was 461  mb/d,  a 5%  decrease  on 2001,  and gas
production was 1,550 mmcf/d,  a 9.5% decrease on 2001. The North Sea is a mature
basin and this  reduction  was  driven  by  natural  decline.  In  addition,  an
operational  problem  on  the  Schiehallion   Floating  Production  Storage  and
Offloading  (FP50) vessel  resulted in a 27 day  production  outage in the third
quarter of 2002.  Our  activities  in the North Sea are  focused  on  production
optimization  and  cost  efficiencies.   This  is  delivered  through  proactive
reservoir  management,   including  progression  of  new  developments  and  new
production  start-ups,   the  majority  of  which  are  tie  backs  to  existing
infrastructure,  and  application  of new  technology  to existing  fields.  Our
development  expenditure  in the UK was $895 million in 2002  compared with $930
million in 2001.

     Significant activities in 2002 included the following:

Page 31

New Developments

     --   In 2002, all major  construction  contracts were awarded for the Clair
          field Phase 1 development  (BP 28.6% and operator) and fabrication was
          initiated.  Clair is currently one of the largest undeveloped field on
          the UK Continental Shelf (UKCS), with start-up scheduled in 2004.

New Production

     New fields which started production in 2002 included:

     --   The Juno Project  comprises the  development of 5 offshore gas fields;
          BP has an interest in two of these -- Wollaston  and Whittle (BP 35.5%
          and operator).  The Wollaston well was drilled and completed in record
          time for the region and the Whittle well exceeded the production  rate
          forecast by  optimization  of  drilling  location  and fluid  systems.
          Production commenced in December 2002.

     New production from subsea wells tied back to existing facilities included:

     --   The Mirren (BP 46%) and Madoes (BP 38%) fields began production in the
          fourth quarter following tie-backs to the ETAP platform.

     --   The Maclure field (BP 33.3% and operator) tie-back to the non-operated
          Gryphon field started production in July 2002.

     --   The Alba Extreme South  development (BP 16%) was tied back to the Alba
          North platform and came on stream in September 2002.

     --   The Boyle  field  (BP 22% and  operator)  was  developed  through  the
          existing  Davy field  facilities  and  achieved  first  production  in
          October 2002.

New Technology

     New and innovative  applications  of technology were applied to many of our
existing  fields in the North Sea,  to  mitigate  volume  decline  and  increase
ultimate recoveries, examples of which include:

     --   Foinaven is the largest BP net  producing  field in the UKCS.  In 2002
          production  increased  by 30% on  2001,  from  Foinaven  (BP  72%  and
          operator) and East Foinaven (BP 43%) fields.  This followed completion
          of the 2nd phase of development drilling and debottlenecking activity.
          In addition,  a new integrated  system model was developed to optimize
          all production, gas lift and water injection.

     --   A new yearly total  production  record of 43 mboe/d (BP net share) was
          achieved  from  West  of  Shetland  fields  Schiehallion  (BP  33% and
          operator)  and  Loyal  (BP  50% and  operator)  due to  completion  of
          development  drilling  in  Schiehallion  and 2 new  wells in the Loyal
          field.  During 2002, the gross production through the FPSO grew by 33%
          on 2001 to 160 mb/d  following the tie-in of the new wells.  Export of
          natural gas from Foinaven,  East Foinaven,  and Schiehallion to Magnus
          through BP's newly  constructed West of Shetland Pipeline System began
          in the third quarter.

     --   A Mid Life Compression  Project was completed on the Everest field (BP
          21%  and  operator)  to  extend   plateau   production   and  increase
          recoverable reserves.  The additional compression should enhance gross
          export capability by 20 mmscfd.

     --   The Enhanced Oil  Recovery  (EOR)  project on the Magnus field (BP 85%
          and  operator)  was  completed  and  successful  injection  of West of
          Shetland gas into the Magnus oil reservoir  began in October,  thereby
          improving recovery of un-swept oil.


Page 32

     --   In 2002, Bruce field (BP 37% and operator)  successfully completed the
          two longest reach (17,402 feet and 17,560 feet) Through  Tubing Rotary
          Drilled  wells in the BP  portfolio.  A new ocean bottom cable seismic
          survey  was shot over part of the field to assist the  development  of
          future drilling.

     --   The Shearwater  Project (BP 27.5%) saw the completion of remedial work
          on three wells. As a result of the  difficulties  encountered,  a full
          field  technical  review was undertaken and a reserve write down taken
          during the year.  This,  together  with other works on the topsides to
          overcome pipework cracking and flare tip issues,  allowed the field to
          produce at rates close to design  capacity  through the second half of
          2002.

     To further  maximize  the value  from our  existing  mature  fields we have
completed the following activities:

     --   In the fourth quarter of 2002, BP completed a partial renegotiation of
          the gas sale from the Sean field,  (BP 50%) which was otherwise solely
          dedicated to Centrica until 2011.

     --   In 2002, a series of small asset swaps were  completed to realign BP's
          interest in the  non-operated  Braes  complex of fields.  This brought
          BP's equity up to 30%.  During  2002,  the  agreements  governing  the
          offtake of gas from the Braes fields were renegotiated.

     --   The NW Hutton  field (BP 25.8% and  operator)  began  preparation  for
          decommissioning in July 2002,  following cessation of production.  The
          well decommissioning  programme is ongoing,  combined with engineering
          studies to determine the best method to remove the facility.

     --   All but 1% of BP's  working  interest  was sold and  operatorship  was
          transferred  in the Thistle field (BP 81.7% and  operator)  effective
          January 1, 2003. Upon economic depletion, the operator will return the
          field to BP for decommissioning.

Rest of Europe

     Norwegian  production  increased in 2002, mainly as a result of a full year
production from the Tambar field (BP 55% and operator),  which came on stream in
July 2001.  During the year BP acquired a further 5%  interest in Gyda  bringing
BP's share to 61%. The  Draugen  field (BP 18.4%)  experienced  initial  water
breakthrough  although new wells in Garn West and Rogn South have  mitigated the
decline.

     Our operations in the Netherlands  primarily  comprise gas storage services
delivered  from the Peak Gas  Installation  to assist  in  meeting  peak  demand
requirements.  This installation has a capacity of 17,000 mmcf and is capable of
withdrawing 1,270 mmcf/d.

Rest of World

     In the Rest of  World,  areas of oil  production  in 2002  were Abu  Dhabi,
Algeria,  Angola,  Argentina,  Australia,  Azerbaijan,  Bolivia,  Canada, China,
Colombia, Egypt, Indonesia,  Pakistan, Russia, Sharjah, Trinidad,  Venezuela and
Qatar.

     The largest  part of our share of natural gas  production  in 2002,  in the
Rest of World,  came from  Trinidad  and  Tobago  and from  Indonesia,  with the
remainder from Argentina,  Australia,  Bolivia, Canada, China, Colombia,  Egypt,
Pakistan, Vietnam and Sharjah.

Page 33

Significant activity in Rest of World during 2002, included:

Canada

     --   In Canada our  2002  production  was 105  mboe/d,  down 12% from 2001,
          mainly  due to natural  field  declines.  Natural  gas makes up 85% of
          Canada's  production.  During 2002, we drilled 50 wells (gross), 39 of
          which  were  operated  by BP.  In late  2002 we  started  up our  Ojay
          production in Northeastern  British  Columbia,  which was producing 15
          mmcf/d of natural gas at year end.

Caribbean and Latin America:

     --   In  Trinidad,  gas sales  increased  by 22% and  crude oil  production
          increased  by  nearly  40%.  The  increase  in  natural  gas sales was
          principally  driven by the  successful  commissioning  of Atlantic LNG
          Train  2 (50%  BP  supply)  in the  third  quarter  2002,  as  well as
          expansion of the domestic sales contract with the National Gas Company
          of Trinidad and Tobago. During the year, BP completed the construction
          of the  48-inch  offshore  'Bombax'  gas  pipeline,  and  successfully
          installed and commissioned the Kapok facility in anticipation of Train
          3 commissioning (75% BP supply) in 2003.

     --   In Venezuela our four base assets are reactivation projects consisting
          of two  operated  properties  and two  non-operated  properties  under
          operating  fee  agreements  to produce oil for the state oil  company,
          Petroleos de Venezuela S.A.  (PDVSA).  During the year, as a result of
          the  Veba  transaction,  the  Cerro  Negro  asset  was  added  to  the
          portfolio.  As part of this  transaction  we have entered into a sales
          agreement with Petro-Canada for the Cerro Negro asset and we have been
          seeking  resolution of the outstanding  approvals in order to complete
          the sale. As a result of a loss of reservoir  pressure,  reserve write
          downs in LL652 and Boqueron were taken during the year. The Venezuelan
          National  strike  action  began to impact  production  by mid-December
          2002. In January 2003,  PDVSA started to slowly ramp up production and
          by mid-March 2003, BP's production was approaching pre-strike levels.

     --   The  Colombian   activity  is  made  up  of  mature  producing  assets
          (Cusiana/Cupiagua fields, BP 19%), assets under  appraisal/development
          (Recetor (BP 40%) and Florena/Pauto  (BP 50%) fields).  Decline in the
          mature  producing  assets  has been  compensated  by well work and new
          production  coming  from the  appraisal/development  areas  which  now
          account for 40% of the  production.  A facility  expansion  will allow
          Florena and Pauto to further increase  production during 2003. Phase I
          development   of  the  Recetor   extension   of  Cupiagua   field  was
          successfully completed and Phase II has commenced.

     --   In Argentina and Bolivia,  activity is conducted via our participation
          in Pan American  Energy (PAE) (BP 60%). In addition,  PAE in turn owns
          50.001% of Empresa Petrolera Chaco, a Bolivian oil and gas company.

          In 2002, oil production  increased by around 7% over  2001, largely as
          a result  of a major  drilling  programme  in  Golfo  San  Jorge.  Gas
          production  increased by 6%  over 2001. The significant increase arose
          in Cerro Dragon and in the Northwest Basin, where new treatment plants
          were completed and extended respectively.

          Despite a severely depressed economy in Argentina,  PAE was successful
          in  increasing  its  natural  gas market  share from 12% to 13% during
          2002.  PAE also has  interests  in NGL  plants,  oil and  natural  gas
          pipelines,   electricity   generation   plants,  and  other  midstream
          infrastructure.

Page 34

Africa

     Angola

     Angola is one of our five new profit  centers where  progression of several
key projects  provides the foundation for volume growth over the next few years.
These projects include the following activities:

     --   The  ramp  up of  the  Girassol  field  in  Block  17 (BP  16.7%)  was
          successful,  achieving plateau production within three months of field
          start-up.  The  Jasmim  project,  a  tie-back  to  the  Girassol  hub,
          commenced construction in the first quarter of 2002.

     --   In Block 15 (BP 26.7%),  development  activities progressed on Kizomba
          A,  expected  to start up by late 2004.  During the year  Xikomba  and
          Kizomba B development projects commenced.

     --   In Block 18 (BP 50% and  operator),  work has continued on the Greater
          Plutonio development,  with front-end engineering and design completed
          in the fourth quarter of 2002.

     --   BP is participating  in studies to evaluate gas solutions,  as part of
          the Angola LNG project. (BP 12%).

     Egypt

     --   In  Egypt,  the  Gulf  of  Suez  Petroleum  Company  (GUPCO),  a joint
          operating   company  with  BP  and  the  Egyptian  General   Petroleum
          Corporation, carries out our oil production operations. GUPCO operates
          seven  production-sharing  contracts  in the Gulf of Suez and  Western
          Desert,  encompassing more than forty fields.  New start-ups  included
          Esma, North Razzak and Edfu.

     --   Gas  production  in Egypt  grew 35% with Ha'py (BP 50%) and Baltim (BP
          50%) and Temsah (BP 50%)  fields  ramping up and Akhen  field (BP 50%)
          contributing from the third quarter of 2002. In 2002, BP's entitlement
          gas production reached 256 mmscfd, underpinned by agreements to supply
          to the  domestic  Egyptian  market  from  these and other  Nile  Delta
          fields.

     --   BP has a 33% interest in a joint venture United Gas Derivatives, which
          operates the Med NGL project. The project involves the construction of
          a 1.1 bcf/d NGL plant, progressed in 2002.

     Algeria

     --   In Algeria, BP and the Algerian state company, Sonatrach, continued to
          progress the  development  of the In Salah project (BP 65%). The first
          stage  comprises  the  development  of four of the seven deep  Saharan
          natural  gas fields  expected  to supply the  fast-growing  markets of
          Southern Europe.

     --   In November 2002, BP and Sonatrach  reached agreement to expand the In
          Amenas (BP 100%) project  scope,  enhancing the plant size from two to
          three trains in the  development of the gas condensate  field.  The In
          Amenas  Engineering,  Procurement and  Construction  contract was been
          awarded to KBR/JGC engineering company.

     --   Following completion of a technical  reassessment in September 2002, a
          reserve write down was made on Rhourde El Baguel (BP 60%).

Page 35

Middle East and Pakistan

     --   Production  in  the  Gulf  States  was  dominated  by  the  production
          entitlement  of  associated  undertakings  in Abu Dhabi  where we have
          equity   interests   of  9.5%  and  14.7%  in  onshore  and   offshore
          concessions.  In 2002  production in Abu Dhabi was down from 2001 as a
          result of OPEC cuts.

     --   Sharjah  natural gas  production  was down 16% on 2001,  although  the
          decline in 2002 was moderated by plant  modifications  and  successful
          drilling activities in 2001.

     --   In Qatar, BP divested its interest in the Al Rayaan development.

     --   The operator  continues to progress  negotiations on Core Venture 1 in
          Saudi Arabia, in which BP has a 25% stake.

     --   In Iran we continue to  evaluate a number of  potential  opportunities
          including  the  Ahwaz  Bangestan  redevelopment  and a South  Pars LNG
          project.  At this stage,  no agreements  have yet been  concluded that
          commit BP to any significant investments in Iran.

     --   In Pakistan,  BP is the largest foreign operator  producing 47% of the
          country's  oil and 8.5% of its natural gas on a gross basis.  In 2002,
          production was up 42% compared to 2001 as the Company has deepened its
          interest in the Badin  field.  During 2002 we disposed of our interest
          in the Qadirpur field to KUFPEC, for $80.6 million.

Azerbaijan and Russia

     Azerbaijan

     --   BP, as  operator of the  Azerbaijan  International  Operating  Company
          (AIOC), manages and has a 34.1% interest in the  Azeri-Chirag-Gunashli
          (ACG) oil fields under the Caspian Sea, offshore Azerbaijan.  In 2002,
          ACG production grew from the Chirag 1 platform. The staged development
          of the full field made good progress  with  execution of Central Azeri
          projects  (previously referred to as ACG Phase 1). The second phase of
          development  on West and East Azeri  commenced on 1 September 2002 for
          which the following contracts were awarded:

          --   CWP Topsides to AMEC and Tekfen Azfen
          --   West Azeri/East Azeri Topsides to McDermott
          --   West Azeri/East Azeri Accommodation to Emtunga

          The  Engineering  Procurement  Contract for ACG Phase 3 was awarded to
          AMEC in September 2002.

     --   A staged plan has been  developed for the Shah Deniz natural gas field
          (BP 25.5% and  operator).  Progress  was made on partner,  government,
          transportation and related agreements.

     Russia

     --   In Russia,  we acquired  an  additional  15% plus 1 share  interest in
          Sidanco in April 2002, raising our equity to 25% plus 1 share, in line
          with our previous voting rights.  BP seconded  personnel hold a number
          of the senior management positions and a BP executive acts as Chairman
          of the Sidanco  Board of  Directors.  Production  growth  exceeded the
          equity  increase,  rising  270% to 74 mb/d  compared  with  2001.  The
          interest in Sidanco will become part of our new Russian joint venture,
          TNK-BP.


Page 36

     Far East and Australia

     --   In  Indonesia,  BP is the largest  supplier of natural gas to Java. In
          addition,  BP  participates  in  Indonesia's  LNG exports  through its
          Sanga-Sanga  Production  Sharing  Contract  (PSC) holding (38% BP). BP
          holds 26% directly and 12% via its associate company VICO. Sanga-Sanga
          delivers 30% of the total gas feed to the Bontang LNG plant.

     --   In China, the Yacheng field (BP 34% and operator) supplies 100% of the
          natural  gas  supply for power  generation  into Hong Kong where it is
          sold to Castle Peak Power  Company  under a long-term  contract.  Some
          natural gas and all the crude oil is piped to Hainan  Island where the
          natural  gas is sold to the Fuel and  Chemical  Company of Hainan also
          under a long-term contract.  In 2002 the remaining four platforms (out
          of a total of six  platforms)  on the QHD oil  field (BP  24.5%)  were
          installed and commissioned allowing the field to reach plateau late in
          2002.

     --   In  Vietnam,  construction,  installation  and  commissioning  of  the
          onshore/offshore  production and  transportation  system was completed
          for the Lan Tay Platform (BP 35% and operator). In November 2002 first
          gas was produced.  Lan Tay gas is sold under a long-term agreement for
          electricity generation in Southern Vietnam.

Midstream Activities

Oil and Natural Gas Transportation

     The  Group  has  direct  or  indirect   interests  in  certain   crude  oil
transportation  systems,  the  principal  ones of  which  are the  Trans  Alaska
Pipeline System (TAPS) in the USA and the Forties  Pipelines System (FPS) in the
UK sector of the North Sea. We also operate the Central Area Transmission System
(CATS) for natural gas in the UK sector of the North Sea.

     BP,  as  AIOC  operator,   manages  and  holds  a  30.1%  interest  in  the
Baku-Tbilisi-Ceyhan  (BTC)  oil  pipeline  currently  under  construction.  AIOC
operates the Western  Export Route  Pipeline  between  Azerbaijan  and Black Sea
coast of Georgia and the Azeri leg of the Northern Export Route Pipeline between
Azerbaijan and Russia.

     Our onshore US crude oil and product  pipelines and related  transportation
assets are included  under  'Refining and  Marketing'  in this item.  Revenue is
earned on pipelines  through  charging  tariffs.  Our gas marketing  business is
described under 'Gas, Power and Renewables' in this item.

     Significant  activity  in oil and natural  gas  transportation  during 2002
included:

Alaska

     --   BP owns a 46.9% interest in TAPS, with the balance owned by five other
          companies.  TAPS transported production from Prudhoe Bay and the other
          North Slope fields  averaging  1,004 mb/d.

          There are a number of unresolved  protests  regarding  tariffs charged
          for  shipping  oil  through  the  Northstar  Pipeline  (BP  98.8%  and
          operator)  and TAPS.  These  protests were filed between 1994 and 2002
          with the  Federal  Energy  Regulatory  Commission  and the  Regulatory
          Commission of Alaska (RCA). The RCA recently issued an Order requiring
          refunds to be made to shippers of intra-state  crude oil through TAPS.
          BP has appealed this Order to the Alaska Superior Court.

          The use of US-built and US-flagged ships is required when transporting
          Alaskan oil to markets in the USA. In accordance with this, BP America
          Inc.  has a  chartered  fleet of 10  US-flagged  tankers to  transport

Page 37

          Alaskan  crude oil to  markets.  Over the next few  years,  we plan to
          begin replacing our US-flagged  fleet as existing ships are retired in
          accordance  with the Oil Pollution Act of 1990.  For discussion of the
          Oil Pollution Act of 1990, see Environmental  Protection -- Marine Oil
          Spill Regulations within Item 4. BP has contracted for the delivery of
          four  1.3  million-barrel-capacity,  double-hull  tankers  for  use in
          transporting  North Slope oil to West Coast refineries.  The ships are
          being  constructed  by NASSCO in San Diego  with  deliveries  in years
          2004, 2005 and 2006.

North Sea

     --   FPS in the UK (BP 100%) is an  integrated  oil and NGL  transportation
          and processing  system that handles  production from over 40 fields in
          the Central North Sea. The system has a capacity of more than 1 mmb/d,
          with average throughput in 2002 at 820 mb/d.

     --   BP operates and has a 29.5% interest in CATS, a 400-kilometre  natural
          gas  pipeline  system in the  central UK sector of the North Sea.  The
          pipeline has a  transportation  capacity of 1.7 bcf/d to a natural gas
          terminal at  Teesside,  Northeast  England.  CATS  offers  natural gas
          transportation  services or transportation  and processing via two 600
          mmcf/d processing trains. In 2002, throughput was 1.7 bcf/d.

Asia (including the former Soviet Union)

     --   For the BTC oil pipeline,  detailed  engineering  was completed in mid
          2002 and the project was  approved for  construction  by partners on 1
          August.  BP  diluted  its  equity  in the  project  to  30.1% in 2002,
          consistent  with  its  upstream  throughput  requirements.   Extensive
          consultations have been carried out with landowners along the pipeline
          corridor, affected communities,  national government institutions, and
          other  interested  parties during 2002 to gain input into the project.
          Environmental  and Social  Impact  Assessments  have been  approved in
          Azerbaijan,  Georgia and Turkey. Land acquisition has commenced in all
          three countries and follows World Bank Policy guidelines. The pipeline
          crosses no IUCN  category  I-IV reserves and the route avoids the need
          for any resettlement of population.

     --   Through the  LukArco  Joint  Venture BP holds a 5.75%  interest in the
          Caspian Pipeline  Consortium (CPC) pipeline.  CPC is a 1,510-kilometre
          pipeline  from  Kazakhstan  to the Russian port of  Novorossiysk.  The
          pipeline has an initial capacity of 28.2 million tonnes (approximately
          225  mmboe) a year and  carries  crude oil from the  Tengiz  field (BP
          2.3%).  In  addition to our  interest  in LukArco,  we hold a separate
          0.87% interest in CPC.

Gulf of Mexico

     --   Construction   continued  on  the  Mardi  Gras  pipeline   system  (BP
          approximately  65%  and  operator).  When  complete,  the  network  of
          pipelines  will  extend,  in total,  more than 450  miles,  and lie in
          waters  of  greater  than  7,000  feet  deep.  It will be the  largest
          capacity deepwater pipeline ever built.

Liquefied Natural Gas

     Within BP,  Exploration and Production is responsible for the supply of LNG
and Gas, Power and Renewables is  responsible  for the subsequent  marketing and
distribution of LNG (see details under 'Gas,  Power and Renewables -- New Market
Development and LNG' in this item).

     Significant activity during 2002 included the following:

     --   We have a 10% equity  shareholding  in the Abu Dhabi Gas  Liquefaction
          Company,  which in 2002 supplied 5.3 million tonnes of LNG, down 3% on
          2001.

Page 38

     --   In Australia the North West Shelf Venture (BP 16.7%) was successful in
          securing  a  long-term  LNG supply  contract,  to supply the first 3.2
          mmtpa  for  Guangdong  terminal  commencing  in 2006.  LNG  Train 4 is
          progressing both on schedule and budget.

     --   In Indonesia,  VICO is a jointly owned operating company held 50:50 by
          BP and ENI/Lasmo.  It operates the  Sanga-Sanga PSC in East Kalimantan
          on behalf of BP (38%) and  ENI/Lasmo,  as well as CPC  (Taiwan)  and a
          consortium of JAPEX, Osaka Gas, JNOC, Nippon Mining, and Nissho Iwai.

          In addition,  we have  interests in the Wiriagar (BP 38% and operator,
          post-CNOOC  sale),  Berau (BP 48% and  operator)  and  Muturi  (BP 1%,
          post-CNOOC sale) PSC's in Northwest Papua. These PSCs will provide the
          natural  gas feed to the  Tangguh  LNG  project,  which is expected to
          become the third LNG centre in Indonesia.

          In  September  2002,  an  agreement  was  signed for the supply of 2.6
          million tonnes per year of LNG to Fujian.  Concurrent with the signing
          of the LNG supply agreement, BP entered into a Heads of Agreement with
          CNOOC to sell 12.5% of BP's 49.7% interest in Tangguh.  The government
          of Indonesia  approved the project's  environmental  and social impact
          assessment in October 2002.  Evaluation of the technical  bids for the
          LNG  Plant was also  completed  in  October.  In  addition,  front-end
          engineering  and  design  work was  completed  for the  pipelines  and
          platforms in the fourth quarter of 2002.

     --   In  Trinidad,  Atlantic   LNG  Train  2  (BP  42%)  was   successfully
          commissioned  in the third quarter,  with first LNG sales taking place
          in  August.  Front-end  engineering  and  design  for LNG Train 4 (4.8
          million  tonnes  per  annum)  was  completed,  and  negotiations  with
          partners and the government of Trinidad and Tobago are progressing.

     --   In  Trinidad,  we  announced  our  agreement to own a 37% share in the
          Atlas methanol plant, with Methanex,  the Canadian  operator,  holding
          the  remainder.  BP, through its customer NGC, will supply 100% of the
          natural gas demand for the plant.  Plant  construction  continues with
          first sales planned in first quarter of 2004.

Page 39

                            GAS, POWER AND RENEWABLES


     The  strategic  purpose  of the Gas,  Power and  Renewables  segment  is to
maximize the value of BP's gas through  marketing,  to enhance the value of BP's
natural gas liquids production and to build a profitable renewables business. On
January 1, 2002, the solar, renewables and alternative fuels business activities
were  transferred  to the Gas and  Power  business  from  Other  Businesses  and
Corporate.  To reflect this  transfer,  Gas and Power was renamed Gas, Power and
Renewables  from the same date and the financial  information  for 2000 and 2001
has been restated.

     The segment is organized into four main activities:  marketing and trading;
natural  gas  liquids  (NGL);  new  market  development  and LNG;  and solar and
renewables.



                                                                         Years ended December 31,
                                                                     --------------------------------
                                                                       2002         2001         2000
                                                                     ------       ------      -------
                                                                                ($ million)
                                                                                      
Turnover .......................................................     37,357       39,442       21,203
Total replacement cost operating profit ........................        354          488          532
Total assets....................................................      6,927        5,775        6,997
Capital expenditure and acquisitions............................        408          492          376


     We seek to maximize the value of our gas by targeting higher value customer
segments in selected  markets and to optimize  supply  around our  physical  and
contractual  assets.  Marketing  and  trading  activities  are  focused  on  the
relatively open and liberalized  natural gas and power markets of North America,
the United  Kingdom and certain parts of  continental  Europe.  Some elements of
long-term  natural gas  contracting  activity are also still included within the
Exploration and Production business segment.

     During 2002 we sold our 25.5% interest in Ruhrgas, which had been announced
in 2001 as part of the Veba deal.

     Our NGLs business is engaged in the processing, fractionation and marketing
of ethane,  propane,  butanes and pentanes  extracted  from natural gas. Our NGL
activity is  underpinned  by our upstream asset base and serves markets for both
chemicals  and  clean  fuels  and also  supplies  BP's  chemicals  and  refining
activities.

     New market development and LNG activities involve developing  opportunities
to capture sales for our upstream  natural gas  resources,  and are conducted in
close collaboration with the Exploration and Production  business.  Our strategy
is to capture a disproportionate share of growth in the international demand for
natural gas and is focused on markets  which  offer  significant  prospects  for
growth. These include the USA, Canada, Spain and many of the emerging markets of
the Asia  Pacific  region,  notably  China,  where  we  believe  there  could be
substantial  growth in demand. For our undeveloped gas, we believe the key is to
gain markets ahead of supply with a longer-term aim of allowing gas resources to
move into the market with the same ease that oil does today.  Our LNG activities
involve the marketing of BP and third party LNG.

     Our solar and  renewables  business  activities  include  the  development,
production  and marketing of solar panels and the  development  of wind farms on
specific company sites.

     Our other activities  include several gas-fired power generation  projects,
where our principal  focus is on projects  that monetize our equity  natural gas
and/or reduce Group power costs and reduce overall emissions.

Page 40

Marketing and Trading Activities

     Our gas marketing and trading activities are concentrated in the markets of
North America and the United Kingdom. Gas sales volumes have increased from 18.8
bcf/d in 2001 to 21.6 bcf/d in 2002. Most of this growth was realized in the USA
and Canada. Canada volumes are reported in the Rest of World volumes.



                                                                          Years ended December 31,
                                                                      --------------------------------
Gas sales volumes (a)                                                   2002         2001         2000
                                                                      ------       ------       ------
                                                                        (million cubic feet per day)
                                                                                        
UK.............................................................        2,372        2,641        2,526
Rest of Europe.................................................          399          213          178
USA............................................................        9,315        8,327        6,524
Rest of World..................................................        9,535        7,613        5,243
                                                                      ------       ------       ------
Total..........................................................       21,621       18,794       14,471
                                                                      ======       ======       ======

----------

(a)  Includes marketing, trading and supply sales.

     Our  policy  toward  natural  gas  price  risk is  described  in Item 11 --
Quantitative and Qualitative Disclosures about Market Risk.

North America

     BP is one of the  leading  marketers  and  traders of natural  gas in North
America, the world's largest natural gas market, a business which has been built
on the foundation of our position as the  continent's  leading  producer of gas.
Our North  American total natural gas sales volumes have grown from 9.7 bcf/d in
2000 to 13.4 bcf/d in 2001 and to 16.1 bcf/d in 2002.  Of these  sales  volumes,
3.6 bcf/d was supplied from BP upstream producing operations in 2000, increasing
to 4.1 bcf/d in 2001 and 4.0 bcf/d in 2002.

     Our North  American  natural gas  marketing and trading  strategy  seeks to
provide  unconstrained  market access for BP's equity gas, increase gross margin
through  targeting  higher value  customer  segments and  optimizing  around our
network of  connected  assets to reduce cost of goods sold.  These  assets could
include those owned by BP and those  contractually  accessed through  agreements
with third parties.

United Kingdom

     The natural gas market in the UK is  significant  in size and is one of the
most  progressive  in terms of  deregulation  when compared with other  European
markets.  BP is one of the largest producers of natural gas in the UK. Our total
natural  gas sales  volumes in the UK were 2.4 bcf/d in 2002,  2.6 bcf/d in 2001
and 2.5 bcf/d in 2000.  Of these  volumes 1.6 bcf/d (2001 1.7 bcf/d and 2000 1.7
bcf/d)  were  supplied  from BP's  upstream  producing  operations.  Some of the
natural gas is sold under  long-term  natural gas supply  contracts to customers
such  as  Centrica,  the  largest  distributor  of gas in the UK.  However,  the
majority of natural gas sales are to commercial and industrial customers,  power
generation  companies and via long-term supply deals with other gas wholesalers.
We also sell physical natural gas on the UK spot market.

     We have a 10% interest in the Interconnector,  a 1.9-bcf/d,  240-kilometre,
40-inch  diameter  sub-sea  natural gas  pipeline  between  Bacton in the UK and
Zeebrugge in Belgium,  which effectively links the natural gas markets of the UK
and continental Europe.

     In June 2002 we sold our contract energy management business to Elyo.

Page 41

Rest of Europe

     We are building a natural gas and power  marketing and trading  business in
Europe.  Our  interest in the  European  market is driven by the size and growth
potential  of the  market,  deregulation  and the  proximity  of BP natural  gas
supplies.

     In Europe our main marketing  activities are in Spain.  The Spanish natural
gas market  has  continued  to grow and has  liberalized  at a faster  rate than
required by European  law,  with full market  opening  effective as from January
2003. Over the last two and a half years in Spain we have continued to build our
position as the  leading new  entrant,  maintaining  our  position as number two
behind the incumbent Gas Natural.  In July 2002 we purchased 5% of the shares in
Enagas,  the owner and  operator of the majority of the Spanish grid and Spain's
three existing regas terminals.

Natural Gas Liquids



                                                                  Years ended December 31,
                                                              --------------------------------
NGL sales volumes                                               2002         2001         2000
                                                              ------       ------       ------
                                                                  (thousand barrels per day)
                                                                                  
UK.....................................................           --           --           --
Rest of Europe.........................................           --           --           --
USA....................................................          208          221          154
Rest of World..........................................          202          189          195
                                                              ------       ------       ------
Total..................................................          410          410          349
                                                              ======       ======       ======


     BP is one of the largest  marketers of NGLs in North  America and considers
NGLs as an integral part of the overall  natural gas value chain.  A significant
portion of BP's NGLs are  marketed on a  wholesale  basis  under  annual  supply
contracts  that provide for price  redetermination  based on  prevailing  market
prices.

     NGLs are also supplied to our chemical and refining activities.  We operate
natural gas processing  facilities across North America with a total capacity of
8.3 bcf/d. We own or have an interest in fractionation  plants in Canada and the
United States.

New Market Development and LNG

     Our new market  development  and LNG  activities  are focused on developing
worldwide  opportunities  to  capture  international  natural  gas sales for our
upstream natural gas resources.

     BP's major existing LNG supplies are from Trinidad and Tobago, ADGAS in Abu
Dhabi and the North West Shelf in  Australia.  We also supply gas (from VICO) to
the  Bontang  LNG  project  in  Indonesia.   Additional  LNG  supplies  and  gas
monetization  are being  pursued  through  expansions  of existing LNG plants in
Trinidad  and  Tobago,  the  North  West  Shelf  in  Australia,  and  greenfield
developments such as Tangguh in Indonesia.

     In Trinidad,  a second LNG train commenced  operations in August 2002, with
initial  deliveries  to Lake Charles,  Louisiana.  A third train is scheduled to
start-up  in  2003.  In  the  Spanish  market,  construction  continued  on  the
integrated LNG regasification and power generation  facility at Bilbao (BP 25%),
which should start-up in 2003. BP has secured 250 mmcf/d regasification capacity
in Cove Point,  Maryland  that should  commence  operations  in 2003. We plan to
deliver  LNG  from  Trinidad  to the Cove  Point  regasification  facility  upon
start-up.  Short-term  contracts for LNG supply were signed with ADGAS and Qatar
in October  2002.  These LNG  supplies  will allow us to  further  optimize  our
Atlantic LNG marketing business.

Page 42

     In the  rapidly  growing  South China  market,  BP  continued  to develop a
leading gas supply  position.  Development  of the  Guangdong  LNG  Terminal and
Trunkline  project (BP 30%)  continued  and bids were  solicited  for gas supply
totalling 3.3 million  tonnes per annum of LNG. The  Australia  North West Shelf
consortium (BP 16.7%) was selected as the winner of this initial sales contract,
which was signed in October, 2002 and is due to commence delivery in 2006.

     The Chinese government announced plans for a second LNG terminal, in Fujian
province,  and an agreement  was signed in September  2002 to supply 2.6 million
tonnes per annum to the terminal from  Indonesia's  Tangguh  natural gas project
(BP 37.2% from January 1, 2003).

     In  November  2002,  BP took  delivery of the first of three new leased LNG
ships from  Samsung  Heavy  Industries  in Korea.  Two more LNG ships  should be
delivered  during  2003.  These ships will be employed in the  Asia-Pacific  and
Atlantic trades,  delivering from LNG suppliers to market positions  established
by BP and others.

Solar and Renewables

     Global market trends  demonstrate a move towards  greener  energy  sources,
including  solar and wind.  BP intends to shape and  develop  this market from a
base  as one of the  world's  leading  solar  companies.  In  November  2002  BP
announced  it would  concentrate  on its key  markets  supported  by  growth  in
worldwide  manufacturing  of its  crystalline-based  products,  and would  cease
manufacturing its thin film solar modules.

     Our solar energy  business in 2002 grew in excess of 20% as sales reached a
total of 67 megawatts (MW) of solar panels generating capacity (2001, 55 MW). To
expand the market for solar,  we  initiated  plans to extend the brand  directly
into  residential  and  consumer  markets  with a  launch  in  January  2003  in
California.

     Major projects in 2002 included the completion of a $10 million  project to
power 1,852 schools in remote areas of Brazil and a $3 million  project to power
telecommunication  systems in remote areas of Peru, benefiting 3 million people.
BP and partners have also been selected to supply an on-grid, solar power system
to  China's  Shenzhen  Citizen  Center,  a  new  building  providing   municipal
facilities.

     We are building  expertise in wind energy and implementing wind projects on
selected BP sites.  In 2002 we announced  the start-up of our 22.5 megawatt wind
farm at the Nerefco oil refinery in the Netherlands,  which provides electricity
to the refinery  and the local grid.  The refinery and the wind farm are jointly
owned with ChevronTexaco (BP 69%).

Other Activities

     We participate in power projects that support the marketing and sale of our
natural gas and in  cogeneration  projects on certain BP refining  and  chemical
manufacturing  sites. We currently have two major power generation  construction
projects  underway:  the LNG  regasification  and power  generation  facility at
Bilbao (BP 25%) and a 570 MW cogeneration plant as part of a 50:50 joint venture
with Cinergy Solutions, Inc. at Texas City,Texas, which is BP's largest refining
and  petrochemical  complex.  BP will supply natural gas to the Texas City plant
and will use the excess  generation  capacity  to support  power  marketing  and
trading activities.

     During the year our 400 MW gas-fired  power plant at Great  Yarmouth in the
UK completed its  performance  and grid  connection  tests. We are operating the
plant and  selling  electric  power,  with BP  providing  the natural gas to the
plant.

     In alternative  fuels, we are exploring market  opportunities  for hydrogen
fuel cells through  participation in various industry projects and organisations
promoting fuel cells for transport and stationary power.

Page 43


                             REFINING AND MARKETING

     Our  Refining  and  Marketing  business is  responsible  for the supply and
trading,  refining,  marketing  and  transportation  of crude oil and  petroleum
products to wholesale and retail customers.  BP markets our products in over 100
countries. We operate primarily in Europe and North America, but also market our
products across  Australasia and in parts of South East Asia, Africa and Central
and South America.



                                                                                  Years ended December 31,
                                                                             --------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                         ($ million)

                                                                                              
Turnover (a)...........................................................      125,836      120,233      107,883
Total replacement cost operating profit................................          872        3,573        3,486
Total assets...........................................................       55,815       43,553       46,288
Capital expenditure and acquisitions...................................        7,753        2,415        8,693

                                                                                       ($ per barrel)
Global Indicator Refining Margin (b)...................................         2.11         4.06         4.22


----------

(a)  Excludes BP's share of joint venture turnover of $415 million in 2002, $403
     million in 2001 and $13,112 million in 2000.

(b)  The Global  Indicator  Refining  Margin is the  average  of seven  regional
     indicator margins weighted for BP's crude refining capacity in each region.
     Each regional  indicator margin is based on a single  representative  crude
     with  product  yields  characteristic  of the  typical  level of  upgrading
     complexity.

     There are four areas of  business  in  Refining  and  Marketing:  Refining,
Retail,  Lubricants and Business to Business Marketing.  Our strategy is to grow
through focused  investment in key assets and market positions.  In all areas we
aim for greater operational efficiency and, at the same time, we seek to improve
our asset portfolio. The acquisition of Veba's marketing and refining operations
provides an important addition of high quality assets to our operations.

     Refining  and  Marketing  manages a portfolio of assets that we believe are
competitively  advantaged  across  the  chain  of  downstream  activities.  Such
advantage may derive from several factors,  including  location,  operating cost
and physical asset quality.

     We are one of the leading refiners of gasoline and hydrocarbon  products in
the USA,  Europe and  Australia.  We have  significant  retail and  business  to
business  market  positions  in the USA,  UK,  Germany  and the rest of  Europe,
Australasia,  Africa and South East Asia and we are  enhancing  our  presence in
China and Mexico.

     BP acquired Veba's retail and refining assets in Germany and Central Europe
in 2002. The Veba  acquisition  makes BP the retail market leader in Germany and
Austria,  and  substantially  strengthens BP's position in Poland and in several
other Central European countries. Veba's retail stations are branded Aral and BP
is in the process of rebranding  its BP branded  stations in Germany to the Aral
brand.  Veba has interests in five refineries in Germany.  As a condition of the
approval of the acquisition of Veba, BP was,  amongst other things,  required to
divest  approximately 4% of its retail market share in Germany and a significant
portion of its Bayernoil refining interests. The $146 million sale of 494 retail
sites in the northern and northeastern  part of Germany to PKN Orlen,  announced
in December  2002 and the $394  million  sale of retail and  refinery  assets in
Germany and Central  Europe to OMV  announced in February 2003 will complete the
divestments required.

Page 44


     BP  continues  to  optimize  its  Downstream  portfolio  through  selective
dispositions.  In 2002 BP divested its Yorktown,  Virginia refinery, BP's equity
interest  in the  Colonial  Pipeline,  BP's  Cyprus and Oman  retail  assets and
various small retail assets throughout the USA and Europe.

     The number of  employees  at December  31, 2002 was 73,350,  an increase of
approximately 8,750 from year-end 2001.

Refining

     The  Company's  global  refining  strategy  is to own  interests  in and to
operate advantaged refineries that provide supplies for its marketing operations
and/or are integrated with other parts of the Group's business. Refining's focus
remains  continuing  safe,  reliable,  and efficient  operations of the refining
system and income growth.

     For  BP,  advantaged  refinery  characteristics  relate  to the  refinery's
position in relation to the market,  the refinery's ability to support our clean
fuels strategy,  and the value created through the integration  with other parts
of the Group's  business.  Efficient  operations  are measured  primarily  using
regional refining surveys.  The surveys assess our competitive  position against
benchmarked  industry  measures  such as costs  per  barrel.  Investment  in our
refineries is focused on maintaining our competitive position and developing the
capability to produce the cleaner fuels and the enhanced  quality  products that
meet our customers and the communities' requirements.

     In line with the Company's global refining strategy,  we completed the sale
of the Yorktown, Virginia refinery to Giant Industries, Inc. on May 13, 2002. We
have  also  announced  our  intention  to sell our 33%  equity  interest  in the
Singapore  Refining  Company (SRC). In February 2003 we announced the divestment
of a 45% interest in our Bayernoil refinery,  as required in connection with the
acquisition of Veba.


Page 45


     The  following   table   summarizes  the  BP  Group   interests  and  crude
distillation capacities (at December 31, 2002):




                                                                                          Crude distillation
                                                                                            capacities (a)
                                                         Group interest(b)                                BP
                           Refinery                             %                         Total        Share(c)
                           --------                      --------------                  ------       ------
                                                                                             
UK                         Coryton*                              100.00                     172          172
                           Grangemouth*                          100.00                     205          205
                                                                                          -----        -----
Total UK                                                                                    377          377
                                                                                          -----        -----
Rest of Europe
France                     Lavera*                               100.00                     218          218
                           Reichstett                             17.00                      84           14
Germany                    Bayernoil*                             67.50                     267          180
                           Gelsenkirchen*                         50.00                     266          133
                           Karlsruhe                              12.00                     308           37
                           Lingen*                               100.00                      87           87
                           Neuhof*+                              100.00                      --           --
                           Schwedt                                18.75                     221           41
Netherlands                Nerefco*                               69.00                     400          276
Spain                      Castellon*                            100.00                     110          110
Turkey                     Mersin*                                68.00                     100           68
                                                                                          -----        -----
Total Rest of Europe                                                                      2,061        1,164
                                                                                          -----        -----
USA
Califonia                  Carson*                               100.00                     260          260
Washington                 Cherry Point*                         100.00                     232          232
Indiana                    Whiting*                              100.00                     420          420
Ohio                       Toledo*                               100.00                     155          155
Texas                      Texas City*                           100.00                     470          470
                                                                                          -----        -----
Total USA                                                                                 1,537        1,537
                                                                                          -----        -----
Rest of World
Australia                  Bulwer*                               100.00                      90           90
                           Kwinana*                              100.00                     139          139
New Zealand                Whangerei                              23.66                     109           26
Singapore                  SRC*                                   33.00                     288           95
Kenya                      Mombasa                                17.00                      90           15
South Africa               Durban                                 50.00                     182           91
                                                                                          -----        -----
Total Rest of World                                                                         898          456
                                                                                          -----        -----
Total                                                                                     4,873        3,534
                                                                                          =====        =====


----------

*    Indicates refineries operated by BP.
+    Indicates  lubricants  refinery  which  does  not have  crude  distillation
     capacity.

(a)  Gross rated  capacity is defined as the maximum  achievable  utilization of
     capacity (24-hour assessment) based on standard feed.

(b)  BP  share  of  equity,  which  is not  necessarily  the same as BP share of
     processing entitlements.

(c)  These are shown as BP share of capacities.

Page 46


     The  following  table  outlines  by  region  the  volume  of crude  oil and
feedstock processed by BP for its own account and for third parties, and for the
Group by other refiners under processing  agreements.  Corresponding BP refinery
capacity utilization data are summarized.



                                                                                Years ended December 31,
                                                                            ---------------------------------
Refinery throughputs (a)                                                        2002         2001         2000
                                                                            --------     --------    ---------

                                                                                 (thousand barrels per day)

                                                                                                  
UK (b).................................................................          389          364          324
Rest of Europe (b).....................................................          918          663          602
USA....................................................................        1,439        1,526        1,625
Rest of World..........................................................          357          376          365
                                                                               -----        -----        -----
                                                                               3,103        2,929        2,916
For BP by others.......................................................           14           14           12
                                                                               -----        -----        -----

Total..................................................................        3,117        2,943        2,928
                                                                               =====        =====        =====

Refinery capacity utilization
Crude distillation capacity at December 31, (b) (c)....................        3,534        3,259        3,165
Crude distillation capacity utilization (d)............................           91%          94%          95%
  United States........................................................           93%          95%          97%
  Europe...............................................................           91%          94%          96%
  Rest of World........................................................           85%          93%          87%


----------

(a)  Refinery throughput reflects crude and other feedstock volumes.

(b)  Includes the BP share of the BP/Mobil joint venture until August 1, 2000.

(c)  Gross rated  capacity is defined as the maximum  achievable  utilization of
     capacity (24 hour assessment) based on standard feed.

(d)  Crude  distillation  capacity  utilization  is  defined  as the  percentage
     utilization  of  capacity  per  calendar  day over the  year  after  making
     allowances  for average annual  shutdowns at BP refineries  (i.e. net rated
     capacity).

     BP's 2002 refinery throughput increased in the rest of Europe compared with
2001,  primarily due to the Veba  acquisition.  The decrease in the USA over the
same period is mainly due to the sale of the Yorktown, Virginia refinery.

Marketing

     Marketing comprises three business areas:  Retail,  Lubricants and Business
to Business  Marketing.  We market a comprehensive range of refined oil products
worldwide.  These products include gasoline,  gasoil, marine and aviation fuels,
heating fuels, LPG, lubricants and bitumen.


Page 47

     The following  table sets out refined  product sales by area. A significant
increase in sales was achieved in 2002 as a result of the Veba acquisition.



                                                                                 Years ended December 31,
                                                                            ---------------------------------
Sales of refined products (a)                                                   2002         2001         2000
                                                                            --------     --------    ---------
                                                                                 (thousand barrels per day)
                                                                                                  
Marketing sales:
  UK(b)(c).............................................................          253          266          256
  Rest of Europe (b)...................................................        1,467        1,062          901
  USA..................................................................        1,874        1,866        1,783
  Rest of World........................................................          586          603          480
                                                                               -----        -----        -----
Total marketing sales (d)..............................................        4,180        3,797        3,420
Trading/supply sales (d)...............................................        2,383        2,409        2,103
                                                                               -----        -----        -----
Total refined products.................................................        6,563        6,206        5,523
                                                                               =====        =====        =====
                                                                                         ($ million)
Proceeds from sale of refined products (b).............................       87,520       82,241       74,239


----------

(a)  Excludes sales to other BP businesses.

(b)  Includes the BP share of the BP/Mobil  European  joint venture until August
     1, 2000.

(c)  UK area  includes the  UK-based  international  activities  of Refining and
     Marketing.

(d)  Marketing sales are sales to service stations,  end-consumers, bulk buyers,
     jobbers and small  resellers.  Trading/supply  sales are to large unbranded
     resellers and other oil companies.

     The following table sets out marketing sales by major product group:



                                                                                 Years ended December 31,
                                                                            ---------------------------------
Marketing sales by product                                                      2002         2001         2000
                                                                            --------     --------    ---------
                                                                                 (thousand barrels per day)
                                                                                                  
Aviation fuel..........................................................          529          515          474
Gasolines..............................................................        1,744        1,659        1,512
Middle distillates.....................................................        1,232        1,077          945
Fuel oil...............................................................          451          351          338
Other products.........................................................          224          195          151
                                                                               -----        -----        -----
Total marketing sales .................................................        4,180        3,797        3,420
                                                                               =====        =====        =====


     In  marketing  our aim is to grow gross  margin by focusing on both volumes
and unit gross margin. We do this by growing our customer base, both in existing
and new markets,  by attracting new customers and by covering a wider geographic
area. We also work to improve the efficiency of our operations  through reducing
the cost of goods sold and improving our product mix. In addition,  we recognize
that our  customers are  demanding a wider choice of fuels,  particularly  fuels
that are  cleaner  and more  efficient.  Through  our  integrated  refining  and
marketing operations we believe we are able to meet these customer needs.

     During 2002 we continued  implementation  of our clean fuels initiative and
became the largest retailer in California to eliminate MTBE in all the gasolines
we sell.

Page 48

Retail

     In retail, we differentiate  between two distinct segments: a fuels segment
in which we supply fuel to retail customers  through dealers and jobbers,  and a
convenience  segment,  incorporating  an integrated fuel and  convenience  store
offering,  the operation of which will either be directly managed or franchised.
The  strategic  focus in this  segment is to  underpin  or expand  gross  margin
through  selective  investment in fast growing  convenience and emerging markets
and by driving  efficiency  in mature fuels  markets.  In order to achieve above
market  growth,  we plan to concentrate  our investment  primarily in additional
store  space  on  existing  real  estate  in our core  metropolitan  convenience
markets.  During 2002,  our retail  sales grew 7% in stores we also  operated in
2001,  a similar  rate to the  previous  year.  Retail fuel volumes grew by 10%,
including the effect of the Veba acquisition.



                                                                                  Years ended December 31,
                                                                             --------------------------------
Shop sales (a)                                                                  2002         2001         2000
                                                                            --------     --------    ---------
                                                                                         ($ million)
                                                                                                  
UK.....................................................................          527          458          357
Rest of Europe.........................................................        2,638          904          663
USA....................................................................        1,585        1,510        1,251
Rest of World..........................................................          421          362          353
                                                                               -----        -----        -----
Total..................................................................        5,171        3,234        2,624
                                                                               =====        =====        =====
Direct-- managed.......................................................        1,869        1,650        1,397
Franchise..............................................................        3,216        1,504        1,154
Shop alliances.........................................................           86           80           73
                                                                               -----        -----        -----
Total..................................................................        5,171        3,234        2,624
                                                                               =====        =====        =====

----------

(a)  Shop sales reported are sales through direct-managed  stations,  franchises
     and the BP  share of shop  alliances  and  joint  ventures.  Sales  figures
     exclude sales taxes and lottery sales but include quick service  restaurant
     sales.  The sales  include the BP share of the  relevant  sales  within the
     BP/Mobil European joint venture until August 1, 2000.

     Our retail network is concentrated in Europe and the USA, with  established
operations in  Australasia,  South East Asia and Southern Africa as well. We are
developing networks in China, Mexico and Russia.

     In 2002,  we added  approximately  3,200  service  stations  in Germany and
Central  Europe as a result of the Veba  acquisition  to increase BP's worldwide
network to approximately 29,200 stations,  most of them BP, Amoco, ARCO and Aral
branded.  BP expects its total  number of service  stations to decline in future
years  reflecting  the continued  optimization  of the  efficiency of our retail
network  and  the  mandated  divestments  required  for  approval  of  the  Veba
acquisition.  The mandated  divestments,  which have been  announced in December
2002 and  February  2003,  will result in the sale of about 800 retail  sites in
Germany and Central Europe.

     In 2002, we continued  our rollout of BP Connect sites  primarily in the UK
and USA as part of our retail strategy that builds on our advantaged  locations,
strong  market  positions  and brand.  The BP Connect  sites offer our customers
cleaner fuels, a wider range of services and a distinctive  food offer.  The new
BP Connects include new sites, razed and rebuilt sites, and extensive  upgrading
and remodelling of some existing  stations.  At December 31, 2002 486 BP Connect
stations  were open.  In addition the number of stations  with the new BP Helios
design increased by about 5,500 during 2002.

Page 49

     We also  continue to improve the  efficiency  of our retail  asset  network
through a process of regular  review.  Actions  taken during 2002 have  included
divesting  sites and networks.  Alongside  this  activity,  we have continued to
upgrade existing sites and invest in new sites,  principally in markets where we
believe there is growing demand for our full convenience offer.

     At  December  31,  2002,   BP's  retail   network  in  the  USA   comprised
approximately  14,900 service stations of which approximately 10,500 were jobber
owned.  Developments in the USA during 2002 included the strategic divestment of
349 service  stations to  concentrate  our  ownership  of real estate in markets
designated for development of the convenience offer. In the USA, we opened 80 BP
Connect sites and increased the number of stations with the new BP Helios design
by approximately 2,100.

     In the UK and the Rest of  Europe,  BP's  network  comprised  about  10,500
service  stations at December 31, 2002. In 2002 we opened 57 BP Connect sites in
Europe with the majority  being in the  metropolitan  London area. The number of
stations  throughout  Europe  which use the new BP Helios  design  grew by about
3,200. The Veba acquisition has  significantly  strengthened our retail position
in Germany and Central Europe making BP the market leader in Germany and Austria
by adding over 2,800 stations in Germany and 155 stations in Austria. In Central
Europe,  the Veba  deal has  added  over 130  stations  in the  Czech  Republic,
Slovakia and Hungary. The combination of the BP and Veba network in Poland makes
BP the largest foreign oil company in Poland with over 275 stations.  In Russia,
we continued to expand our retail  network by adding 5 stations in 2002.  Our 39
stations in the Moscow  metropolitan area are expected to be part of TNK-BP, our
Russian joint  venture.  In 2002 we sold our network of 70 service  stations and
several other assets in Cyprus to Hellenic Petroleum.

     At December 31, 2002 BP's retail network in the rest of the world comprised
some  3,800  service  stations.   Our  established  networks  are  primarily  in
Australia,  New Zealand,  Southern  Africa and South East Asia. BP is growing in
China through two  strategic  alliances.  BP's joint venture with  PetroChina in
Guangdong  Province in the coastal  region of China had 320 stations at December
31,  2002.  BP has agreed in principle  with  Sinopec to form a second  alliance
through a joint venture to acquire,  revamp or build 500 fuels service  stations
in the Zhejang Province, East China. The dual-branded service stations will sell
gasoline produced by Sinopec and sell other petroleum  products supplied by each
partner.  The Sinopec joint venture is expected to start development of sites in
2003. In addition,  BP has 112 stations in Venezuela  and 29 retail  stations in
Mexico.

     In March 2002, BP completed the sale of its 21 service stations in Japan to
Japan Energy.  BP's exit from retail  marketing in Japan is not expected to have
any impact on its other business activities there. In December 2002, BP sold its
49% stake in BP Oman SAOG to the state-owned  Oman Oil Co. Ltd. This resulted in
the disposal of 74 retail service  stations and some aviation and other business
to  business  activities.  BP will  continue  to have a strong  presence in Oman
through its  downstream  aviation,  lubricants  and marine  businesses and other
activities.  In Malaysia,  BP sold 16 service  stations and a small  business to
business activity to Petronas; the transaction was completed in December 2002.

Lubricants

     We  manufacture  and market  lubricant  products  and also  supply  related
products  and  services  to  business  customers  and  end-consumers  in over 60
countries directly, and to the rest of the world through local distributors. Our
business is concentrated on the higher margin sectors of automotive  lubricants,
especially in the consumer  sector,  but also has a strong  presence in business
markets such as commercial  vehicle fleets,  marine and  specialized  industrial
segments.

     We aim to achieve growth by further focusing our resources and capabilities
on selected market spaces.  Relentless  customer focus,  distinctive  brands and
superior technology remain the cornerstone of our long-term strategy.


Page 50

     BP markets  through  its two major  brands,  Castrol  and BP,  and  several
secondary   brands   including   Duckhams  and  Veedol.   The  Veba  acquisition
strengthened  our lubricants  position in Germany and in Central Europe with the
addition of the Aral brand to the BP Lubricants portfolio.

     Our  lubricants  business is  organized  around the  automotive  segment as
follows:

     Consumer markets: We supply lubricants, other products and related business
services to  intermediate  customers (for example  retailers,  workshops) who in
turn serve end-consumers (car,  motorcycle,  leisure craft owners) in the mature
markets of Western Europe and North America and also in the fast growing markets
of the developing world (e.g. Russia,  China,  India, Middle East, South America
and  Africa).  The  Castrol  brand is  recognized  worldwide  and we  believe it
provides us with a significant competitive advantage.

     Commercial vehicle and general industrial markets: We supply lubricants and
lubricant-related  services to the  transportation  industry  and to  automotive
manufacturers.

Business to Business Marketing

     Our Business to Business  Marketing  encompasses  marketing a comprehensive
range of products to other businesses. This business aims to build relationships
with  customers  that not only  purchase  a wide  variety of  products  in large
quantities but also additional services.  Logistics plays a crucial role in this
business.  We aim to attract more customers through  innovation in multi-product
offers and cleaner  fuels,  packaged  with a range of  value-added  services and
solutions.

     Our aviation  business  sells fuels and  lubricants to airlines and general
aviation  customers  as well as  providing  technical  services to airlines  and
airports.  During the last few years, our aviation business has strengthened its
position in  established  markets and pursued  opportunities  in new or emerging
markets. The business now markets in approximately 95 countries and is the third
largest jet fuel  supplier  globally.

     Our LPG businesses sell bulk, bottled, automotive and wholesale products to
a wide range of customers in over 20 countries.  During the past few years,  our
LPG  business has  strengthened  its position in  established  markets,  pursued
opportunities  in new and  emerging  markets and  rationalized  its  operations.
During 2002, we successfully  commissioned  China's largest  underground  Cavern
complex for the storage of LPG.

     In our marine  business we supply  lubricants and fuels, on a global basis,
to major shipping companies as well as to small fishing vessel operators. We are
the leading  global  participant in the marine  lubricants  market and operate a
network of offices and supply points in more than 900 ports across 90 countries.

     In our specialized  industrial  segment we supply  metalworking  fluids and
lubricants alongside a range of business services, such as fluid management,  to
the  metal  component  manufacturing  sector.  We also have a  significant  high
performance industrial lubricants business in some key markets.

Supply and Trading

     We are one of the world's major traders of crude oil and refined  products,
dealing extensively in physical and futures markets.  Our portfolio of purchases
and sales is spread  among spot,  term,  exchange  and other  arrangements,  and
covers a range of  sources  and  customers  to match the  location  and  quality
requirements of the Group's refineries and the various markets, while seeking to
ensure   flexibility  and   cost-competitiveness.   In  addition,   the  Group's
oil-trading  function  undertakes trading in physical and paper markets in order
to contribute to the Group's income.

     Refer to Item 11 -- Quantitative and Qualitative  Disclosures  About Market
Risk for further information.


Page 51

Transportation

     Our Refining and Marketing  business  owns,  operates or has an interest in
extensive  transportation   facilities  for  crude  oil,  refined  products  and
petrochemical  feedstock in the USA. It also has  interests in a number of crude
oil and product pipelines in the UK and the Rest of Europe.

     We transport  crude oil to our  refineries  principally by ship and through
pipelines from our import terminals.  We have interests in seven major crude oil
pipelines in the UK and the Rest of Europe and fifteen in the USA.

     Bulk products are transported  between  refineries and storage terminals by
pipeline,  ship,  barge, and rail.  Onward delivery to customers is primarily by
road. We have  interests in nine major product  pipelines in the UK and the Rest
of Europe and five in the USA.

     BP sold its 17.97% interest in the Colonial  Pipeline to Koch Industries in
November  2002,  and took over  operatorship  of the Chicap  Crude  pipeline  in
September 2002. The Company still maintains its share of 29.2% in the Chicap.

Shipping

     BP  Shipping  owns or  operates  an  international  fleet of crude  oil and
product  tankers  and LNG  carriers  transporting  cargoes for the Group and for
third parties.  It also offers a wide range of marine-related  services to Group
and third party customers.

     Excluding  BP  companies  in the  USA,  at  December  31,  2002  the  Group
controlled or operated an international  fleet of 17 oil tankers and 6 LNG ships
with total capacity of approximately  2.7 million  deadweight  tonnes (dwt). The
Group had four very large  crude  carriers,  five medium  sized crude  carriers,
seven product  carriers,  and one North Sea shuttle tanker. It also operated one
LNG carrier to trade globally,  four LNG carriers for Abu Dhabi  contracted gas,
and one LNG carrier for the Western Australia North West Shelf (NWS) project. BP
holds an interest in six NWS gas carriers of which this is one.

     BP Companies in the USA had seven large crude  carriers,  four medium crude
carriers,  and six product carriers totalling  approximately 1.54 million dwt on
long-term charter. BP owns four barges totalling 0.01 million dwt.

     BP is in the  middle  of a new  building  programme  which  saw four  ships
delivered into service in 2002.

     In addition  Group  companies  around the world  charter a large  number of
vessels.



Page 52


                                    CHEMICALS

     Our  petrochemicals  business  is a major  producer  of  chemicals  through
subsidiaries,  joint  ventures and  associated  undertakings.  BP has operations
principally  in the USA and Europe.  We are  increasing  our  activities  in the
Asia-Pacific  region.  The  petrochemicals  segment is also  responsible for the
supply,  marketing and distribution of chemical products to bulk,  wholesale and
retail customers.



                                                                                Years ended December 31,
                                                                            --------------------------------
                                                                                2002         2001       2000
                                                                            --------     --------  ---------
                                                                                       ($ million)
                                                                                             
Turnover (a)...........................................................       13,064       11,515     11,247
Total replacement cost operating profit ...............................          515          128        760
Total assets...........................................................       16,595       15,098     13,674
Capital expenditure and acquisitions...................................          823        1,926      1,585
                                                                                         ($/tonne)
Chemicals Indicator Margin (b).........................................          102(c)       109        126

----------

(a)  Excludes BP's share of joint venture turnover of $511 million in 2002, $102
     million in 2001, and $67 million in 2000.

(b)  The Chemicals  Indicator  Margin (CIM) is a weighted  average of externally
     based  product  margins.  It is based on market  data  collected  by Nexant
     (formerly Chem Systems) in their quarterly market  analyses,  then weighted
     based  on BP's  product  portfolio.  While  it does not  cover  our  entire
     portfolio,  it includes a broad range of  products.  Among the products and
     businesses  covered  in the  CIM  are  the  olefins  and  derivatives,  the
     aromatics and derivatives,  linear alpha-olefins (LAOs), acetic acid, vinyl
     acetate monomers and nitriles. Not included are fabrics and fibres, plastic
     fabrications,  poly alpha-olefins (PAOs), anhydrides,  engineering polymers
     and carbon fibres, speciality intermediates, and the remaining parts of the
     solvents and acetyls businesses.

(c)  Provisional.  The data for the  current  year is based on eleven  months of
     actual data and one month of provisional data.

     2002 was the first full year of operations following the acquisition of the
50% of  Erdoelchemie we did not already own, and the Solvay  transaction,  which
resulted in the transfer of Solvay's US and European polypropylene businesses to
BP, the  transfer  of BP's  engineering  polymers  buisness  to Solvay,  and the
combination  of the two  companies'  European and US  high-density  polyethylene
businesses.  Erdoelchemie  has been renamed BP Koeln.  In 2002,  we acquired the
chemicals  interests of Veba.  We also  continued  to high grade our  portfolio,
expand our existing capacity by  debottlenecking or with new plant additions and
reduce our cost base.  Since 2001,  these efforts have grown  capacity by 7% and
increased  our  efficiency by reducing cash fixed costs per tonne of capacity by
6%.

     BP is now the  world's  third  largest  petrochemicals  company in terms of
capacity,  and  manufactures and markets more than 26 million tonnes of products
each year.

Page 53


     The following table shows BP production capacity (kilotonnes per annum
(ktepa)) by product and by region at December 31, 2002.



                                                                Rest of                   Rest of
Capacity by Region (a)                                  UK       Europe          USA        World        Total
                                                   -------      -------      -------      -------      -------

                                                                                          
PTA......................................               --        1,180        2,481        2,246        5,907
PX.......................................               --          583        2,320           --        2,903
Ethylene and related co-products.........            1,575        4,247        2,267           64        8,153
Polypropylene............................              270        1,052        1,276           --        2,598
HDPE.....................................              165          617          412          530        1,724
Acrylonitrile/Acetonitrile...............               --          300          677           --          977
Acetic acid..............................              781           --          491          875        2,147
Other....................................            1,843        5,365        2,154          342        9,704
                                                    ------       ------       ------       ------       ------
Total                                                4,634       13,344       12,078        4,057       34,113
                                                    ======       ======       ======       ======       ======

------------

(a)  Includes  BP share of joint  ventures,  associated  undertakings  and other
     interests in production.

     Approximately  2,100 ktepa of our  production  capacity  increase from 2001
resulted from our acquisition of Veba.

     During the year, we  completely  reviewed our strategy and are now focusing
on seven core products.  The outcome of the review is to pursue a strategy aimed
at providing industry-leading performance in all aspects of our activities.  The
mechanisms for achieving this objective are:

     Differentiation -- creating a material and differentiated portfolio, which,
by matching our products and services with customer needs, and through selective
integration,  creates  distinctive  performance  in our chosen  areas of various
value chains.

     Focus -- growing  seven core  products  where our emphasis is on developing
and  retaining  advantaged  positions.  In  addition we have a number of closely
associated products.

     Capability -- further developing our functional  capabilities in innovative
proprietary  technology,   world-class  manufacturing,   market  excellence  and
commercial optimization.

     The seven core products within our portfolio are:

Purified Terephthalic Acid (PTA)

     PTA is important as a raw material for the manufacture of polyester used in
textiles,  fibres and films. BP is the world's largest  producer of PTA, with an
interest in approximately  20% of the world's PTA capacity.  PTA is manufactured
at Cooper  River,  South  Carolina and  Decatur,  Alabama,  in the USA,  Geel in
Belgium,  and  Kuantan  in  Malaysia.   We  also  produce  PTA  through  Samsung
Petrochemical  Company  (SPC) in Korea (BP 35%),  China  American  Petrochemical
Company (CAPCO) in Taiwan (BP 50%), PT Ami in Indonesia (BP 50%) and Rhodiaco in
Brazil (BP 49%). The sites in Taiwan,  Korea,  Belgium and the USA are among the
largest PTA production sites in the world.

Major Activities

     --   During  2001,  construction  began on a new PTA plant in  Taiwan.  The
          plant,  to be operated by our CAPCO joint venture,  will add 700 ktepa
          capacity and is expected to commence operation during 2003.

     --   Construction  on the Zhuhai (BP 85%) plant was completed in early 2003
          and operation has commenced. This plant will add 350 ktepa capacity.

Page 54

     --   BP further  refined its options for the site of the next  European PTA
          investment.  This is intended to be a world-scale  development located
          in Northwestern  Europe which will take into account  integration with
          customers and feedstock.

     --   BP, in collaboration with several industry  partners,  has developed a
          polyethylene  terephthalate  (PET) beer bottle.  We believe this to be
          technically  best in class and cost  competitive  with  glass.  Market
          evaluation and roll out occurred  during 2002. The aim is to establish
          PET as a  competitive  third  packaging  material  in the global  beer
          market,   potentially   developing  new  markets  for  BP's  polyester
          intermediate product lines.

Paraxylene (PX)

     PX is feedstock for the  production of PTA and is  manufactured  from mixed
xylene  streams  acquired from BP refineries and third party  producers.  We are
currently  the global  leader in PX. Our plants are located in Decatur,  Alabama
and  Texas  City,  Texas  in the USA and Geel in  Belgium.  Joint  efforts  with
Refining and Marketing  continue to maximize  sourcing of xylenes feedstock from
BP refineries.

Ethylene (and related co-products)

     We produce and market the basic  petrochemical  building  blocks,  known as
olefins,  that are used primarily as raw material for other  chemical  products.
These  olefins  are  derived  from the  steam  cracking  of liquid  and  gaseous
hydrocarbons.

     The  olefins --  ethylene,  propylene  and  butadiene  -- are  produced  by
crackers at Grangemouth,  UK; Lavera,  France  (Naphtachimie  - BP 50%);  Koeln,
Germany and Chocolate Bayou,  Texas in the USA. Olefins are also manufactured by
Ethylene  Malaysia  Sdn.  Bhd. (BP 15%) at Kertih,  Malaysia.  The Veba share of
production  in the crackers at  Gelsenkirchen  and  Munchmunster  in Germany was
added during 2002 through  acquisition.  Crackers  produce the raw materials for
the production of derivative  products  including  polyethylene,  polypropylene,
acrylonitrile,  styrene,  ethanol and ethylene oxide, which are also produced at
various BP plants.

Major Activities

     --   In February 2002 and June 2002, BP acquired first a majority stake and
          then   complete   ownership   of  Veba,   based  in  Germany.   Veba's
          petrochemicals  business,  based at Gelsenkirchen  and Munchmunster in
          Germany,  with Veba's  share of ethylene  capacity of 810 ktepa,  will
          help meet BP's future chemical feedstock needs in the region.

     --   BP  successfully   completed  and  commissioned  a  200-ktepa  cracker
          expansion at Koeln.

     --   In December  2001 BP,  Sinopec  and  Shanghai  Petrochemicals  Company
          announced  the  formation  of SECCO (BP 50%),  which  plans to build a
          $2.7-billion  petrochemicals  complex near  Shanghai.  The  integrated
          complex will be centred around a 900-ktepa  naphtha cracker producing
          a range  of  olefins  and  related  derivatives.  In  January  2002 we
          announced a loan  facility in the amount of $1.8  billion with nine UK
          and two  international  banks to provide  financing  for the  project.
          Construction  began in late 2002, and the first contracts were awarded
          in 2003. Operation is expected to begin in 2005.

     --   In the USA, we announced our intention to increase  ethylene  capacity
          at Chocolate Bayou, Texas by 295 ktepa.

Page 55

Polypropylene

     Polypropylene  is used for moulded  products,  fibres and films. We are the
second  largest  producer  of  polypropylene  in the world,  with  manufacturing
facilities at Chocolate Bayou and Deer Park,  Texas and Carson City,  California
in the USA; Lillo and Geel, Belgium and Sarralbe, France.

Major Activities

     --   In 2002 we elected to rationalize our polypropylene  activities in the
          USA,  closing  the  Cedar  Bayou  operation  and  shutting  a unit  at
          Chocolate Bayou.

     --   Late in 2002 we  increased  our  interest  in the  Carson,  California
          polypropylene unit from 85% to 100%.

     --   The complex near  Shanghai,  planned by SECCO (BP 50%), is expected to
          add 250 ktepa of polypropylene when completed in 2005.

High Density Polyethylene (HDPE)

     Polyethylene  is used  for  packaging,  pipes  and  containers.  BP  Solvay
Polyethylene Europe (BP 50%) has HDPE plants at Grangemouth, UK; Lillo, Belgium;
Sarralbe  and  Lavera,  France;  and  Rosignano,  Italy.  In  addition BP Solvay
Polyethylene  North  America (BP 49%) has a HDPE plant at Deer Park,  Texas.  We
also produce HDPE through  Polyethylene  Malaysia  Sdn. Bhd. (BP 60%) at Kertih,
Malaysia.

Major Activities

     --   We announced the intended closure of our smaller  118-ktepa HDPE plant
          at Deer Park,  Texas in light of the  opening of a new more  efficient
          600-ktepa, world scale HDPE plant (BP 25%) in Houston, Texas.

     --   In light of continuing  difficult market conditions in Asia we decided
          to exit the mothballed Bataan  Polyethylene  Company plant (BP 39%) in
          the  Philippines,  and  commence  the sale of our share in PT Peni (BP
          75%) at Merak, Indonesia.

     --   The complex near  Shanghai,  planned by SECCO (BP 50%), is expected to
          add 600 ktepa of  HDPE/linear-low  density  polyethylene  (LLDPE) when
          completed in 2005.

Acrylonitrile

     BP is the world's largest producer and marketer of acrylonitrile,  which is
used in textiles and plastics for the automobile and consumer goods  industries.
We operate two  acrylonitrile  plants at Green Lake, Texas and Lima, Ohio in the
USA.  Green  Lake,  with a capacity of 450 ktepa,  is the largest  acrylonitrile
production site in the world.  Acrylonitrile is also produced at Koeln,  Germany
and through a capacity rights  agreement with Sterling  Chemicals at Texas City,
Texas in the USA. Additionally,  BP is the world's largest producer and marketer
of the co-product, acetonitrile, primarily sold for pharmaceutical applications.

Major Activities

     --   The  planned  SECCO  complex  near  Shanghai  (BP 50%) is  intended to
          produce 260 ktepa of acrylonitrile when complete in 2005.

Page 56

Acetic Acid

     We are a major  manufacturer  and  supplier  of acetic  acid,  a  versatile
chemical used in a variety of products  such as  foodstuffs,  textiles,  paints,
dyes and pharmaceuticals.  Acetic acid is also used in the production of PTA. BP
has acetic acid  operations in Europe,  the USA, in Korea  through  Samsung - BP
Chemicals (BP 51%), in China through  Yangtze River Acetyls Company (BP 51%) and
in Malaysia through BP Petronas Acetyls Sdn. Bhd. (BP 70%).

Major Activities

     --   We  established a new joint  venture with Formosa  Chemicals and Fibre
          Corporation (BP 50%), with  a view to building a 300-ktepa acetic acid
          plant in Taiwan around 2005.

Other Products

     In  addition  to the seven core  products,  we are  involved in a number of
other closely related products. These include LLDPE and low density polyethylene
(LDPE), used in a wide range of applications including packaging, as is styrene,
ethylene oxide and ethanol,all  used in solvents,  coatings,  and the automotive
industry,  LAOs, used as a plasticiser;  PAOs, used in both synthetic lubricants
and surfactants,  purified  isophthalic acid (PIA), used for isopolyester resins
and gel coats;  napthalene  dicarboxylate  (NDC), used for photographic film and
specialized  packaging;  polybutene,  used in  lubricants  and  fuel  additives;
trimellitic   anhydride  (TMA),  used  by  the  automotive  and  consumer  goods
industries;  butanediol  (BDO),  used in  synthetic  materials  and  engineering
plastics;  maleic anhydride (MAN),  used in a wide range of plastics and resins;
ethyl acetate,  and vinyl acetate  monomer  (VAM),  used in coatings and textile
applications.

     BP operates  LLDPE  plants at  Grangemouth  in the UK and Koeln in Germany.
Koeln also produces LDPE.

     We operate styrene monomer plants at Texas City,  Texas in the USA and Marl
in Germany.  Polystyrene  plants are  operated  at Marl in  Germany,  Wingles in
France and  Trelleborg in Sweden.  Expanded  polystyrene  plants are operated at
Wingles and Marl.

     PIA is produced at Joliet,  Illinois in the USA; Geel, Belgium;  and by the
AG  International  Chemicals  Company joint venture (BP 50%) with Mitsubishi Gas
Chemical Company in Japan.  NDC is produced at our plant in Decatur,  Alabama in
the USA.

     BP  manufactures  polybutene at Whiting,  Indiana in the USA and at Lavera,
France. A plant at Texas City, Texas ceased production in 2002.

     LAOs are produced at our facilities in Pasadena,  Texas in the USA; Joffre,
Canada and Feluy,  Belgium.  We manufacture PAOs at our facilities in Deer Park,
Texas in the USA and Feluy, Belgium.

     We produce TMA and MAN at Joliet,  Illinois in the USA. We manufacture  BDO
using our  proprietary  technology in a world-scale  plant at Lima,  Ohio in the
USA.

     In Korea,  the Asian Acetyls  Company (BP 34%)  operates a 150-ktepa  plant
producing  VAM, a derivative  of acetic acid. A new  250-ktepa VAM plant at Hull
was  commissioned  during  2001 and the VAM plant at Baglan Bay in Wales  closed
during 2002.

Major Activities

     --   The  110-ktepa  ethanol  plant  at  Grangemouth  was  commissioned  as
          planned.

     --   We announced the  cessation of the  production of alcohols on our site
          at  Pasadena,  Texas.  The 60-ktepa  plant  stopped  during the fourth
          quarter 2002 when this site began  concentrating  on the production of
          LAOs.

Page 57

     --   The  proposed  65-ktepa  TMA  plant at our  existing  PTA  complex  in
          Kuantan,  Malaysia  had  advanced  to  construction  bid  stage.  As a
          consequence of current market conditions,  this TMA plant construction
          has been cancelled.

     --   In Korea we exited the acetate esters business,  International  Esters
          Co. (BP 50%).

     We have  implemented  or announced a number of  structural  changes that we
believe should  significantly  strengthen our position as the petrochemicals arm
of an integrated energy company. The most significant structural changes were as
follows:

     --   During 2002,  we sold our Plastics  Fabrications  Group.

     --   During 2002,  we wrote down the value of our  manufacturing  assets in
          the  Philippines and Indonesia,  thus reflecting the difficult  market
          conditions expected to prevail in the region.

     --   During 2002, we sold Fosroc Construction,  and in early 2003 announced
          the sale of the two  remaining  Burmah  Castrol  Chemicals  businesses
          (Fosroc Mining and Sericol).

     --   Early in 2003 we announced our intention to sell our wholly-owned TMA,
          PIA and MAN  business in Joliet,  Illinois in the USA and PIA produced
          at our integrated aromatics and polyolefins complex in Geel, Belgium.

Manufacturing Facilities

     BP has  large-scale  manufacturing  facilities  in Europe and the USA.  The
Group's major sites, with our share of their capacities are:  Grangemouth (2,930
ktepa) and Hull (1,595 ktepa) in the UK;  Lavera  (1,800 ktepa) in France;  Marl
(630 ktepa),  Gelsenkirchen  (1,700  ktepa) and Koeln (4,730  ktepa) in Germany;
Geel (2,300 ktepa) in Belgium;  and Texas City,  Texas (2,690 ktepa),  Chocolate
Bayou,  Texas (2,650 ktepa),  Decatur,  Alabama (2,280 ktepa), and Cooper River,
South Carolina (1,330 ktepa) in the USA.

     We also aim to grow in the Asia-Pacific  region, which offers prospects for
demand growth. The intention is to build further on the positions that the Group
now holds in the region through planned investment and commercial relationships,
such as joint ventures. Our share of capacity in Asia amounts to 3,670 ktepa, as
follows:  Indonesia  (580 ktepa),  Korea (820 ktepa),  Malaysia  (1,440  ktepa),
Taiwan (680 ktepa), China (105 ktepa), and Japan (45 ktepa).



                                                                                 Years ended December 31,
                                                                             --------------------------------
Production by region (a)                                                        2002         2001         2000
                                                                            --------     --------    ---------
                                                                                            (kte)
                                                                                                
UK.....................................................................        3,221        3,126        3,137
Rest of Europe.........................................................       10,526        7,925        6,713
USA....................................................................       10,201        8,943        9,874
Rest of World..........................................................        3,040        2,722        2,341
                                                                              ------       ------       ------
Total Production (a)...................................................       26,988       22,716       22,065
                                                                              ======       ======       ======

----------

     (a)  Includes BP share of joint ventures, associated undertakings and other
          interests in production.

     BP's petrochemical products are sold to companies in a number of industries
that manufacture components used in a wide range of applications.  These include
the  agriculture,  automotive,  construction,   furniture,  household  products,
insulation,  packaging,  paint,  pharmaceuticals  and  textile  industries.  Our
products are marketed  through a network of sales  personnel and agents who also
provide technical services.

Page 58

                         OTHER BUSINESSES AND CORPORATE

     Other Businesses and Corporate  comprises  Finance,  the Group's coal asset
and aluminium asset, its investments in PetroChina and Sinopec,  interest income
and costs relating to corporate activities worldwide.



                                                                                  Years ended December 31,
                                                                             --------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                         ($ million)
                                                                                                   
Turnover...............................................................          510          549           59
Total replacement cost operating loss..................................         (701)        (523)      (1,071)
Total assets...........................................................        6,987        7,527       11,498
Capital expenditure and acquisitions (a)...............................          428          430       30,576

----------

(a)  Capital  expenditure and  acquisitions in 2000 includes $27,506 million for
     the  acquisition of ARCO and $994 million for the  acquisition of interests
     in PetroChina and Sinopec.

     On January 1, 2002 the solar,  renewables and alternative  fuels activities
were transferred to Gas, Power and Renewables.  Comparative information has been
restated.

     Finance  coordinates the management of the Group's major  financial  assets
and liabilities.  From locations in the UK, Europe, the USA and the Asia-Pacific
region, it provides the link between BP and the international financial markets,
and  makes  available  a range of  financial  services  to the  Group  including
supporting the financing of BP's projects around the world.

     Coal  activity  consists of our 50%  interest in PT Kaltim  Prima Coal,  an
Indonesian  company.  This company operates an opencast coal mine at Sangatta in
Kalimantan, Indonesia.

     Aluminium. Our aluminium business is a non-integrated producer and marketer
of rolled  aluminium  products,  headquartered  in  Louisville,  Kentucky,  USA.
Production  facilities  are located in Logan  County,  Kentucky  and are jointly
owned with Alcan Aluminum. The primary activity of our aluminium business is the
supply of aluminium coil to the beverage can business.

     Investments  in China.  During 2000 BP made two  strategic  investments  in
China, one of the world's fastest growing economies. BP invested $416 million in
the China  Petroleum  and  Chemical  Corporation  (Sinopec)  and $578 million in
PetroChina in the initial public offerings of both companies. BP has an interest
of around 2% in each  company.  Separately,  BP has formed a joint  venture with
PetroChina in Guangdong  province  which had 320 service  stations at the end of
2002, and has agreed to form a joint venture with Sinopec to acquire,  revamp or
build service stations in the Zhehang  Province.  PetroChina and Sinopec are two
of China's major companies in the oil and chemicals businesses.

     Research,  technology and engineering activities are carried out by each of
the major business segments on the basis of a distributed  programme coordinated
by the BP Technology  Council.  This body provides  leadership  for  scientific,
technical  and  engineering  activities  throughout  the Group and in particular
promotes  cross-business  initiatives and the transfer of best practice  between
businesses.  In addition,  a group of eminent  industrialists and academics form
the Technology Advisory Council, which advises senior management on the state of
technology  within  the Group and  helps  identify  current  trends  and  future
developments in technology.

     Research and development is carried out using a balance of internal and
external resources. Involving third parties in the various steps of technology
development and application enables a wider range of technology solutions to be
considered and implemented, improving the productivity of research and
development activities.

Page 59


     The  innovative  application  of technology  and the rapid transfer of this
knowledge  through the Group make a key  contribution to improving BP's business
performance,  particularly  in the areas of the  introduction  of new  products,
safety, the environment,  cost reduction and efficiency of business  operations.
We believe that, in addition to improving existing business performance, the use
of innovative  technology can create new possibilities for the organic growth of
our energy- and petrochemical-related businesses.

     Insurance.  The Group  generally  restricts  its  purchase of  insurance to
situations  where this is required  for legal or  contractual  reasons.  This is
because  external  insurance is not  considered  an economic  means of financing
losses for the Group.  Losses will therefore be borne as they arise, rather than
being  spread over time  through  insurance  premia with  attendant  transaction
costs. The position is reviewed from time to time.


Page 60

                       REGULATION OF THE GROUP'S BUSINESS

United Kingdom

     BP's exploration and production  activities are conducted in many different
countries  and  are  therefore  subject  to a broad  range  of  legislation  and
regulations.  These cover  virtually all aspects of  exploration  and production
activities,  including  matters such as license  acquisition,  production rates,
royalties,  pricing,   environmental  protection,   export,  taxes  and  foreign
exchange.  The terms and conditions of the leases,  licenses and contracts under
which these oil and gas interests  are held vary from country to country.  These
leases,  licenses and contracts are generally  granted by or entered into with a
government  entity or state company and are sometimes  entered into with private
property  owners.  These  arrangements  usually  take  the form of  licenses  or
production sharing agreements.

     Licenses  (or  concessions)  give the holder  the right to explore  for and
exploit a commercial  discovery.  Under a license,  the holder bears the risk of
exploration,  development  and production  activities and provides the financing
for these  operations.  In  principle,  the  license  holder is  entitled to all
production  minus any  royalties  that are payable in kind. A license  holder is
generally required to pay production taxes or royalties, which may be in cash or
in kind.

     Production  sharing  agreements  entered into with a  government  entity or
state  company  generally  obligate BP to provide all the financing and bear the
risk of  exploration  and  production  activities in exchange for a share of the
production remaining after royalties, if any.

     In certain  countries,  separate  licenses are required for exploration and
production activities and, in certain cases,  production licenses are limited to
a portion of the area covered by the exploration  license.  Both exploration and
production  licenses are  generally  for a specified  period of time (except for
production licenses in the United States which remain in effect until production
ceases). The term of BP's licenses and the extent to which these licenses may be
renewed vary by area.

     In  general,  BP is  required  to pay income tax on income  generated  from
production activities (whether under a license or production sharing agreement).
In addition, depending on the area, BP's production activities may be subject to
a range of other taxes,  levies and  assessments,  including  special  petroleum
taxes and revenue taxes.  The taxes imposed upon oil and gas production  profits
and  activities  may  be  substantially  higher  than  those  imposed  on  other
businesses.

     BP's other  activities are also subject to a broad range of legislation and
regulations in various countries in which it operates.

     Health, safety, and environmental  regulations are discussed in more detail
in this item under 'Environmental Protection'.



Page 61

                            ENVIRONMENTAL PROTECTION

Health, Safety and Environmental Regulation

     The Group is subject to numerous national and local  environmental laws and
regulations  concerning  its products,  operations and  activities.  Current and
proposed fuel and product  specifications  under a number of environmental  laws
will have a significant effect on the production, sale and profitability of many
of our products.  Environmental  laws and regulations  also require the Group to
remediate or otherwise  redress the effects on the environment of prior disposal
or release of chemicals or petroleum  substances by the Group or other  parties.
Such contingencies may exist for various sites including  refineries,  chemicals
plants,  natural gas  processing  plants,  oil and  natural gas fields,  service
stations,  terminals and waste disposal sites.  In addition,  the Group may have
obligations  relating to prior asset sales or closed facilities.  Provisions for
environmental  restoration  and remediation are made when a clean-up is probable
and the amount is reasonably  determinable.  Generally,  their timing  coincides
with the commitment to a formal plan of action or, if earlier,  on divestment or
on closure of inactive  sites.  The provisions made are considered by management
to be sufficient for known requirements.

     The extent and cost of future  environmental  restoration,  remediation and
abatement programmes are often inherently difficult to estimate.  They depend on
the  magnitude  of any  possible  contamination,  the  timing  and extent of the
corrective  actions  required  and BP's share of  liability  relative to that of
other solvent  responsible  parties.  Though the costs of future restoration and
remediation  could  be  significant,  and  may be  material  to the  results  of
operations in the period in which they are  recognized,  it is not expected that
such costs will have a material impact on the Group's overall financial position
or liquidity.

     The Group's  operations  are also subject to  environmental  and common law
claims  for  personal  injury  and  property  damage  caused by the  release  of
chemicals,  hazardous materials or petroleum  substances by the Group or others.
Proceedings  instituted by  governmental  authorities are pending or known to be
contemplated  against BP and  certain of its US  subsidiaries  under US federal,
state or local  environmental  laws,  each of which  could  result  in  monetary
sanctions  in excess of  $100,000.  No  individual  proceeding  is,  nor are the
proceedings  as a group,  expected  to have a  material  adverse  effect on BP's
consolidated financial position or profitability.

     Management cannot predict future developments,  such as increasingly strict
requirements of environmental  laws and enforcement  policies  thereunder,  that
might affect the Group's  operations or affect the  exploration for new reserves
or the products sold by the Group. A risk of increased  environmental  costs and
impacts is inherent in particular operations and products of the Group and there
can be no assurance that material  liabilities and costs will not be incurred in
the  future.  In  general,  the Group does not expect  that it will be  affected
differently  from other  companies  with  comparable  assets  engaged in similar
businesses. Management believes that the Group's activities are in compliance in
all material respects with applicable environmental laws and regulations.

     For a discussion of the Group's  environmental  expenditures  see Item 5 --
Operating and Financial Review and Prospects -- Environmental Expenditure.

     BP operates in over 100 countries worldwide. In all regions of the world BP
has processes to ensure  compliance  with applicable  regulations.  In addition,
each  individual  in the Company is required to comply with the BP Health Safety
and Environment policy, and associated expectations and standards. Our partners,
suppliers  and  contractors  are also  encouraged  to adopt them.  This document
focuses  primarily  on the US and EU where  over  80% of our  fixed  assets  are
located - and on two issues of a global nature;  climate change programmes;  and
maritime oil spills regulations.


Page 62

Climate Change Programs

Kyoto Protocol

     In  December  1997,  at the Third  Conference  of the Parties to the United
Nations  Framework  Convention on Climate Change (UNFCCC) in Kyoto,  Japan,  the
participants  agreed  on a  system  of  differentiated  internationally  legally
binding targets for the first commitment  period of 2008 to 2012.  Before it can
be  implemented,  the Kyoto  protocol  to the UNFCCC  needs to be ratified by at
least  55  nations,  representing  a  minimum  of  55% of  global  anthropogenic
greenhouse  gas (GHG)  emissions.  The US has indicated that it will not ratify.
Therefore,  in order for the treaty to come into  force,  both Russia and Canada
need to ratify,  in addition to those nations which have either already ratified
or indicated  that they will  ratify.  If the Kyoto treaty does enter into force
and its targets are to be met,  some  reduction in the use of fossil fuels would
be required within countries which have ratified the Kyoto treaty. The impact of
the Kyoto agreements on global energy (and fossil fuel) demand is expected to be
small (see International Energy Agency Global Energy Outlook, 2000 Edition).

     Since 1997, BP has been  actively  involved in policy  debate,  worked with
others on mitigating  technologies,  demonstrated  global emissions  trading and
reduced the emissions from our  facilities.  Last year, we announced that we had
succeeded in reducing our direct,  equity share, GHG emissions by 10%, and set a
target to maintain  our net  emissions  at 2001 levels  through the next decade,
which is  dependent  upon the  resolution  of the various  international  policy
discussions on market mechanisms.

     BP is an advocate of market  mechanisms  to allow  optimum  utilization  of
resources to meet national  Kyoto  targets.  Such systems are being  considered,
developed or  implemented  by  individual  countries,  and also  internationally
through the European Union. The relative success of these systems will determine
the extent to which  alternative  fiscal or regulatory  measures may be applied.
Some EU member States have  indicated  that they require energy product taxes to
enable  them to meet  their  Kyoto  commitments  within  the EU  burden  sharing
agreement,  and are already implementing  national  legislation,  such as the UK
Climate Change Levy.

United Kingdom Emissions Trading Scheme

     In April  2002,  we joined the UK  government-sponsored  emissions  trading
scheme, the world's first scheme to cross industry sectors. We successfully made
a 353,500 tonnes of carbon dioxide  equivalent  emissions  reduction  commitment
into the UK Scheme  equating  to nearly 10% of the total  commitment  made by UK
industry entering into the Scheme as `Direct  Participants' via the auction.  If
BP does not meet the targets,  a proportion of the  incentive  money would be at
risk and rules could be imposed  during  2003 which may  penalize  companies  in
future for exceeding the agreed targets.  This market is at its early stages and
the risk of significant penalties from BP participation in the scheme is small.

European Union Emissions Trading Scheme

In December  2002, EU Member States'  Environment  Ministers  reached  political
agreement on the proposal  for a Directive  of the European  Parliament  and the
Council  establishing  a scheme for greenhouse  gas emission  allowance  trading
within the Community (this proposal amends  Directive  96/61/EC).  The political
agreement  will  have its  second  reading  later in 2003.  It aims to create an
instrument to reduce emissions of GHGs in a cost-effective  manner,  in order to
allow the Union to meet its obligations under the UNFCCC and the Kyoto Protocol.
It  may  proceed  even  without  ratification  of  the  Kyoto  Protocol  at  the
international  level.  Once ratified in member  states,  the programme  would be
mandatory for all enterprises producing emissions from combustion  installations
greater  than 20 MW  rated  thermal  input.  It  would  apply  to BP's  European
refineries,  chemical sites with crackers,  upstream offshore  installations and
possibly flares.



Page 63

Maritime Oil Spill Regulations

     Within the  United  States,  the Oil  Pollution  Act of 1990  significantly
increased oil spill  prevention  requirements.  Details of this  legislation are
provided in the regional  review  below.  Outside of the United  States,  the BP
operated  fleet of  tankers  is  subject to  international  spill  response  and
preparedness   regulations   that  are   typically   promulgated   through   the
International  Maritime  Organization (IMO) and implemented by the relevant flag
state authorities.  The International Convention for the Prevention of Pollution
From Ships (Marpol 73/78) requires vessels to have detailed shipboard  emergency
and spill  prevention  plans.  The  International  Convention on Oil  Pollution,
Preparedness,  Response,  and  Co-Operation  (OPRC)  requires  vessels  to  have
adequate  spill  response  plans,  resources,  and financial  cover for response
anywhere  the  vessel  travels  to.  These   conventions   and  separate  Marine
Environmental Protection Circulars also stipulate the relevant state authorities
around the globe that require  engagement in the event of a spill.  All of these
requirements  together  are  addressed  by the vessel  owners in  Shipboard  Oil
Pollution Emergency Plans.

     Since 1995, BP Shipping has taken 10 single hull vessels out of service. At
the end of 2002 our international  fleet numbered 17 oil tankers with an average
age of six  years  (13  are  double-hulled,  three  are  double-sided,  one is a
single-hulled  ear-marked for disposal) and six gas ships with an average age of
eight years.  The fleet  renewal  programme  will  continue  into the future and
should see 16 modern double-hulled  vessels delivered by the end of 2003, with a
further 19 confirmed  for 2004  onwards.  In addition to its own fleet,  BP will
continue to charter quality ships;  currently these vessels include both single-
and double-hulled designs but all are vetted to BP's high standard prior to each
use  to  ensure  they  are  operated  and   maintained  to  meet  our  stringent
requirements.

United States Regional Review

     The  following is a summary of  significant  US  environmental  legislation
affecting the Group.

     The Clean Air Act and its regulations require, among other things, new fuel
specifications and sulphur  reductions,  enhanced monitoring of major sources of
specified  pollutants;  stringent air emission limits and new operating  permits
for chemical plants,  refineries,  marine and distribution  terminals;  and risk
management  plans for  storage  of  hazardous  substances.  This law  affects BP
facilities producing, refining,  manufacturing and distributing oil and products
as well as the fuels  themselves.  Federal and state  controls on ozone,  carbon
monoxide,  benzene,  sulphur, MTBE, nitrogen dioxide,  oxygenates and Reid Vapor
Pressure  impact  BP's  activities  and  products  in the US. BP is  continually
adapting its business to these rules and has the know-how to produce quality and
competitive  products in compliance  with their  requirements.  For example,  in
1999,  BP  introduced  a premium  grade  gasoline in Atlanta,  Georgia,  meeting
stringent  future  sulphur  standards  and has expanded this offering to over 40
cities across the US.

     In 2001, BP entered into a consent  decree with the EPA and several  states
that settled alleged  violations of various Clean Air Act  requirements  related
largely to emissions of sulphur dioxide and nitrogen dioxide at BP's refineries.
This settlement  requires the installation of additional controls at all of BP's
US refineries at a cost, over at least an eight-year  period,  of  approximately
$500 million,  and the one-time  payment of a $10 million penalty which was made
in 2001.

     On March 11, 2003 the South Coast Air Quality  Management  District filed a
complaint  against BP West Coast Products LLC and Atlantic  Richfield Company in
Los Angeles County Superior Court,  alleging multiple  violations of air quality
regulations at the Carson oil refinery in California,  USA.  Atlantic  Richfield
Company  operated the refinery  until its  acquisition by the Group in 2000. The
complaint seeks penalties for  non-compliance in the amount of $319 million.  BP
believes that it has valid defenses to many of the allegations of the complaint,
believes that the amount of the penalty  sought is grossly  disproportionate  to
any resulting environmental harm, and intends to defend the action vigorously.


Page 64


     BP is in the  fourth  year of  implementing  a plea  agreement  with the US
Justice Department to develop, implement and maintain a nationwide environmental
management  system (EMS)  consistent  with the best  environmental  practices at
Group facilities  engaged in oil exploration,  drilling and/or production in the
US and its territories. BP expects to have EMSs fully implemented for Alaska and
Lower 48 performance  units during 2003. BP has met the  requirement to spend at
least $15 million on the programme.

     The Clean  Water Act is  designed  to protect and enhance the quality of US
surface waters by regulating  the discharge of wastewater  and other  pollutants
from both onshore and  offshore  operations.  Facilities  are required to obtain
permits  for most  surface  water  discharges,  install  control  equipment  and
implement  operational  controls  and  preventative  measures,  including  spill
prevention and control plans. Requirements under the Clean Water Act have become
more  stringent in recent years,  including  coverage of storm and surface water
discharges at many more facilities and increased control of toxic discharges.

     BP was  fined  approximately  $25  million  for  underground  storage  tank
allegations  in its US Retail  operations.  These fines  constituted  90% of the
total fines and  penalties  paid by BP in 2002.  In addition to these fines,  BP
paid $3 million  for  supplemental  environmental  projects;  approximately  $24
million in  miscellaneous  environmental  funds and  projects  and $6 million in
associated legal costs.

     The Oil Pollution Act of 1990 or OPA 90  significantly  increased oil spill
prevention requirements, spill response planning obligations and spill liability
for tankers and barges  transporting oil, offshore  facilities such as platforms
and onshore terminals. To provide funds for response to and compensation for oil
spills  when the  spiller is unable to do so, the Oil  Pollution  Act  created a
$1-billion  fund which is funded by a tax on  imported  and  domestic  oil.  One
requirement  of the Oil Pollution Act is that all new tank vessels  operating in
US waters must have double hulls,  and the law orders the phase out, between the
years 1995 and 2015, of existing vessels without double hulls. In 2002, BP began
construction of four double hull tankers at a shipyard in San Diego, California.
The first of these new  vessels  should  begin  service  in early  2004.  BP has
interest in the Alaska  Tanker  Company  (ATC) in the US. Since 1995,  seven ATC
single hull  vessels  have been taken out of service  (replaced  with  chartered
tonnage).  The current ATC fleet  consists of six single hull  vessels and three
double  hull  vessels.  By the end of 2006 all ATC  vessels  are  expected to be
double hulled vessels.

     BP has a  national  strike  team,  the BP  Americas  Response  Team,  which
consists of approximately 240 trained emergency  responders at company locations
throughout  North  America,  which is ready to assist in a  response  to a major
incident.

     The Resource  Conservation  and Recovery Act (RCRA)  regulates the storage,
handling, treatment,  transportation and disposal of hazardous and non-hazardous
wastes.  It also requires the investigation and remediation of certain locations
at a facility  where such wastes have been handled,  released or disposed of. BP
facilities  generate  and handle a number of wastes  regulated  by RCRA and have
units that have been used for the  storage,  handling or disposal of RCRA wastes
that are subject to investigation and corrective action.

     Under the Comprehensive Environmental Response, Compensation, and Liability
Act (also known as CERCLA or Superfund), waste generators, site owners, facility
operators and certain  other parties are strictly  liable for part or all of the
cost of addressing sites contaminated by spills or waste disposal  regardless of
fault or the amount of waste sent to a site.  Additionally,  each state has laws
similar to CERCLA.



Page 65

     BP has been  identified  as a  Potentially  Responsible  Party  (PRP) under
CERCLA and similar state  statutes at  approximately  800 sites. A PRP has joint
and several  liability for site  remediation  costs under some of these statutes
and so BP may be required to assume,  among other costs, the share attributed to
insolvent,  unidentified or other parties. BP has the most significant  exposure
for remediation  costs at 75 of these sites. For the remaining sites, the number
of PRPs can range up to 200 or more. BP expects its share of  remediation  costs
at these sites to be small in  comparison  to the major sites.  BP has estimated
its  potential  exposure at all sites where it has been  identified as a PRP and
has accrued  provisions  accordingly.  BP does not anticipate  that its ultimate
exposure at these sites individually,  or in the aggregate,  will be significant
except as reported for ARCO in the matters below.

     The State of Montana has  pursued  claims  against  ARCO  alleging  natural
resource  damages  arising  out  of  ARCO's  predecessors'  mining  and  mineral
processing  activities.  In  addition,  a tribe was allowed to  intervene in the
lawsuit,  Montana vs. ARCO.  These matters were settled in part in 1999,  except
for the  State's  claims for $206  million  for  restoration  damages at several
sites.  In 1989, the EPA filed a CERCLA cost recovery  action  against  Atlantic
Richfield  Company for oversight  costs at several of the Upper Clark Fork River
Basin  Superfund  sites US v. ARCO.  Litigation  is proceeding on both the EPA's
claim,  and on ARCO's  counterclaims  against various federal  agencies  seeking
contribution from the federal agencies for remediation costs and for any natural
resource damage liability it might incur in Montana vs. ARCO. The settlements in
Montana  vs.  ARCO,   and  subsequent   settlements   resolved  the  claims  and
counterclaims  in US vs.  ARCO  pertaining  to  four  sites  and may  provide  a
framework for possible future settlement of the remaining  claims.  The Group is
also subject to other  claims for natural  resource  damage (NRD) under  several
federal  and state  laws.  This is a  developing  area under US law which  could
impact the cost of some  cleanups.  NRD claims have been  asserted by government
trustees against several refineries and other company operations.

     In 1995, a final federal rule was issued regarding  protection of the Great
Lakes watershed which has had ongoing impacts on water protection  requirements.
In 2000, a final  federal rule was issued  regarding  use of Total Maximum Daily
Load  (TMDL)  assessments  to  address  pollutants  not  meeting  water  quality
standards. EPA deferred implementation of the rule to April 2003 and in December
2002,  proposed to  withdraw  the rule.  However,  the TMDL  programme  is going
forward under existing  regulations  with the effect of requiring more stringent
permit limits at affected  industrial  facilities.  In May 2002, EPA published a
draft strategy for water quality  standards and criteria.  The strategy lays out
actions  through 2008 addressing a broad range of issues with  implications  for
industrial  facilities;  these include water use designations,  antidegradation,
TMDLs,  mixing  zones,  water  quality  protection  criteria,  and  contaminated
sediments.

     In the US, many environmental cleanups are the result of strict groundwater
protection  standards at both the state and federal level.  Contamination or the
threat of  contamination  of current or potential  drinking water  resources can
result  in  stringent  cleanup  requirements,  but some  states  have  addressed
contamination of nonpotable water resources using similarly strict standards. BP
has encouraged risk-based approaches to these issues and aims to tailor remedies
at its facilities to match the level of risk presented by the contamination.

     Other  significant  legislation  includes the Toxic Substances  Control Act
which regulates the development, testing, import, export and introduction of new
chemical  products into commerce;  the Occupational  Safety and Health Act which
imposes  workplace safety and health,  training and process  standards to reduce
the risks of chemical exposure and injury to employees;  the Emergency  Planning
and Community  Right-to-Know  Act which  requires  emergency  planning and spill
notification as well as public disclosure of chemical usage and emissions.

     See also Item 8 -- Financial Information -- Legal Proceedings.



Page 66

European Union Regional Review

     A European Commission (the Commission) Directive for a system of Integrated
Pollution  Prevention  and  Control  (IPPC) was  approved  in 1996.  This system
requires  permitting through the application of Best Available  Techniques (BAT)
taking into account the costs and benefits.  In the event that the use of BAT is
likely to  result in the  breach of an  environmental  quality  standard,  plant
emissions must be reduced  further.  The European  Commission has stated that it
hopes that all processes to which it applies will be licensed by July 2005.  All
plants must be permitted  according to the requirements of the IPPC Directive by
November  2007.  The  Directive   encompasses   most  activities  and  processes
undertaken by the oil and  petrochemical  industry within the European Union and
requires  capital and revenue  expenditure  across these BP sites.  The European
Commission  is  expected  to make  recommendations  for a  revision  to the IPPC
Directive in 2003. This may tighten minimum  standards for permitting  including
the provision of emission limit values.

     The European  Union Large  Combustion  Plant  Directive sets emission limit
values  for  sulphur  dioxide,  nitrogen  oxides  and  particulates  from  large
combustion plants. It also required phased reductions in emissions from existing
large  combustion  plants  at the  latest  by April 1,  2001.  A  revised  Large
Combustion  Plant  Directive has been agreed and  implementation  is required by
November 27, 2002.  Plants will have to comply by 2008. The second important set
of air emission regulations  affecting BP European operations is the Air Quality
Framework  Directive  and its three  daughter  Directives on ambient air quality
assessment and management, which prescribe, among other things, limit values for
sulphur dioxide, oxides of nitrogen,  particulate matter, lead, carbon monoxide,
benzene and ozone.  Measured or modelled exceedences of air quality limit values
will require  local action to reduce  emissions and may impact any BP operations
whose emissions contribute to such exceedences.

     BP  continues  to make  investments  on  Cleaner  Fuels  at its  refineries
worldwide. For our European refineries,  these investments are important because
availability  of  cleaner  fuels  is a part of the EU  strategy  to  combat  air
pollution.  In April  1999,  the EU adopted a  Directive  to further  reduce the
sulphur  content of liquid  fuels,  but  excluding  marine  bunker fuel oil, and
marine gas oil used by ships crossing a frontier  between a third country and an
EU Member State.  Sulphur in gas oil is limited to 0.2% from July 2000, and 0.1%
from January 2008.  From January  2003,  sulphur in heavy fuel oil is limited to
1%,  except  where  use of  heavy  fuel  oil up to 3%  sulphur  can be  used  in
combustion plants without exceeding  specific emission limits, and provided that
local air quality standards are met.

     The EU has set  stringent  objectives  to control  exhaust  emissions  from
vehicles,  which  are being  implemented  in  stages.  In 1998,  the EU  adopted
directives  to set  emission  limits for cars and light  vehicles  to apply from
2000,  together with  specifications  for gasoline and diesel fuel to apply from
that date. In 1999,  this was followed by emission  limits for heavy  commercial
vehicles.  Maximum  sulphur  levels for  gasoline and diesel fuels to apply from
2005 have  also been  agreed at 50 parts  per  million  (ppm),  and 35%  maximum
aromatic  content  for  gasoline  from the same date.  Agreement  was reached in
December  2002 on a further  Directive  to make petrol and diesel with a maximum
sulphur  content of 10 ppm mandatory  throughout  the EU from January 2009,  and
from 2005  member  states  will also have to supply  low-sulphur  fuel at enough
locations to allow the  circulation of new  low-emission  engines  requiring the
cleaner fuel.

     In Europe there is no overall soil protection regulation,  although a draft
Directive  is  expected  in 2003.  Certain  individual  member  states have soil
protection policies,  but each has its own contaminated land regulations.  There
are common principles behind these regulations,  including a risk based approach
and  recognition  of  costs  versus  benefits.  Much of the  technical  guidance
supporting these regulations is in draft form.

     Other  environment-related  existing regulations include: the Major Hazards
Directive  which requires  emergency  planning,  public  disclosure of emergency
plans and ensuring that hazards are assessed, and effective emergency management
systems; the Water Framework Directive which includes protection of groundwater;
and the  Framework  Directive  on Waste to ensure  that  waste is  recovered  or
disposed without endangering human health and without using processes or methods
which could harm the environment.



Page 67


     There  are  many  other  environmental   regulations  at  national  levels,
including those to implement existing EU Directives outlined above. Individually
these national regulations are less significant in their overall impact on BP.

     The  European  Commission  is  expected  soon to  release a draft  proposal
setting  out the  system  for  Registration,  Evaluation  and  Authorisation  of
Chemicals.   It  is  anticipated  that  up  to  100,000   chemicals,   including
intermediaries  and polymers,  could be captured by the legislation.  Additional
complexity and costs for the important small and medium  enterprise (SME) sector
of the chemical  industry  could be severe,  with adverse  impact on employment,
innovation  and  competitiveness.  Costs to BP will mainly arise from erosion of
the SME customer base.

     The  European  Commission  issued a  proposed  Directive  on  Environmental
Liability on January 23, 2003, which is currently under consideration within the
European  Parliament  and  Council.  The  proposal  seeks to  implement a strict
liability approach for damage to biodiversity from high-risk  operations.

     The Commission's Clean Air for Europe Programme aims to conduct a review of
the health and environmental effects of air pollution and predicted European Air
Quality  up to  2020.  It will  also  examine  cost-effective  solutions  to any
residual air pollution  problems,  firstly in a strategy  document  (expected in
2005) and secondly in  legislative  proposals  (expected  between 2005 and 2007)
which may include revisions to current  regulations on air quality limit values,
fuel quality standards, plant emission standards and totally new regulations. BP
through various industry bodies is among the various  stakeholders  contributing
to the scientific activities underpinning this work.

                         PROPERTY, PLANTS AND EQUIPMENT

     BP has  freehold  and  leasehold  interests  in  real  estate  in  numerous
countries throughout the world, but no one individual property is significant to
the Group as a whole.  See Exploration  and Production  under this heading for a
description  of the Group's  significant  reserves  and sources of crude oil and
natural  gas.  Significant  plans  to  construct,  expand  or  improve  specific
facilities are described under each of the business headings within this Item.

Page 68

                            ORGANIZATIONAL STRUCTURE

     The significant  subsidiary  undertakings of the Group at December 31, 2002
and the Group percentage of ordinary share capital (to nearest whole number) are
set out below. The principal country of operation is generally  indicated by the
company's  country of  incorporation  or by its name. Those held directly by the
Company are marked with an asterisk (*), the percentage  owned being that of the
Group unless otherwise indicated.



                                                      Country of
Subsidiary undertakings                    %          incorporation             Principal activities
-----------------------                               -------------             --------------------

                                                                       
INTERNATIONAL
BP Chemicals Investments                   100        England                   Chemicals
BP Exploration Co.                         100        Scotland                  Exploration and production
BP International                           100        England                   Integrated oil operations
BP Oil International                       100        England                   Integrated oil operations
BP Shipping*                               100        England                   Shipping
Burmah Castrol                             100        England                   Lubricants
EUROPE
UK
BP Capital Markets                         100        England                   Finance
BP Chemicals                               100        England                   Chemicals
BP Oil UK                                  100        England                   Refining and marketing
Britoil (parent 15%)*                      100        Scotland                  Exploration and production
Jupiter Insurance                          100        Guernsey                  Insurance
FRANCE
BP France                                  100        France                    Refining and marketing and chemicals
GERMANY
Deutsche BP                                100        Germany                   Refining and marketing and chemicals
Veba Oil                                   100        Germany                   Refining and marketing and chemicals
NETHERLANDS
BP Capital BV                              100        Netherlands               Finance
BP Nederland                               100        Netherlands               Refining and marketing
NORWAY
BP Norway                                  100        Norway                    Exploration and production
SPAIN
BP Espana                                  100        Spain                     Refining and marketing
MIDDLE EAST
BP Egypt                                   100        USA                       Exploration and production
BP Egypt Gas                               100        USA                       Exploration and production
FAR EAST
INDONESIA
BP Kangean                                 100        Indonesia                 Exploration and production
SINGAPORE
BP Singapore Pte*                          100        Singapore                 Refining and marketing


Page 69




                                                      Country of
Subsidiary undertakings                    %          incorporation             Principal activities
-----------------------                               -------------             ---------------------

                                        
AFRICA
BP Southern Africa                         75         South Africa              Refining and marketing
AUSTRALASIA
AUSTRALIA
BP Australia                               100        Australia                 Integrated oil operations
BP Developments Australia                  100        Australia                 Exploration and production
BP Finance Australia                       100        Australia                 Finance
NEW ZEALAND
BP Oil New Zealand                         100        New Zealand               Marketing
WESTERN HEMISPHERE
CANADA
BP Canada Energy                           100        Canada                    Exploration and production
TRINIDAD
Amoco Trinidad (LNG) B.V.                  100        Netherlands               Exploration and production
BP of Trinidad and Tobago                  90         USA                       Exploration and production
USA
Atlantic Richfield Co.                     100        USA                       (
BP America*                                100        USA                       (
BP America Production Company              100        USA                       ( Exploration and production,
BP Amoco Chemical Company                  100        USA                       ( gas, power and renewables,
BP Company North America                   100        USA                       ( refining and marketing,
BP Corporation North America               100        USA                       ( pipelines and chemicals
BP Products North America                  100        USA                       (
BP West Coast Products                     100        USA                       (
Standard Oil Co.                           100        USA                       (


Page 70

ITEM 5 -- OPERATING AND FINANCIAL REVIEW AND PROSPECTS

                             GROUP OPERATING RESULTS



                                                                       Years ended December 31,
                                                                 ----------------------------------
                                                                     2002         2001         2000
                                                                 --------     --------    ---------
                                                                        ($ million except per
                                                                             share amounts)
                                                                                   
Turnover..................................................        178,721      174,218      148,062
Reconciliation of historical cost and
  pro forma results
Historical cost profit for the year.......................          6,845        6,556       10,120
Inventory holding (gains) losses..........................         (1,104)       1,900         (728)
                                                                 --------     --------    ---------
Replacement cost profit for the year......................          5,741        8,456        9,392
Exceptional items, net of tax.............................         (1,043)        (165)         (78)
                                                                 --------     --------    ---------
Replacement cost profit before exceptional items (a)......          4,698        8,291        9,314
Special items, net of tax.................................          1,443          683        1,257
Acquisition amortization..................................          2,574        2,585        1,612
                                                                 --------     --------    ---------
Pro forma result adjusted for special items...............          8,715       11,559       12,183
                                                                 ========     ========    =========
Per ordinary share (cents)
  Historical cost profit..................................          30.55        29.21        46.77
  Replacement cost profit before exceptional items........          20.97        36.95        41.15
  Pro forma result adjusted for special items.............          38.90        51.51        56.29
Dividends per ordinary share (cents)......................          24.00        22.00        20.50


----------

(a)  Refer to Item 3 -- Key  Information -- Selected  Financial  Information for
     further information on replacement cost measures.

     The  financial  information  for 2001 and 2000 has been restated to reflect
(i) the adoption by the Group of UK Financial Reporting Standard No. 19 (FRS 19)
'Deferred  Tax' with effect from  January 1, 2002;  and (ii) the transfer of the
solar,  renewables and alternative  fuels  activities from Other  Businesses and
Corporate to Gas and Power on January 1, 2002. To reflect this transfer, Gas and
Power was renamed  Gas,  Power and  Renewables  from the same date.  Comparative
information has been restated.  For further information see Item 18 -- Financial
Statements -- Notes 45 and 46.

     On February 1, 2002, BP acquired a 51% interest in and operational  control
of Veba. Veba has been fully  consolidated  within the Group's results from this
date. The remaining 49% of Veba was acquired on June 30, 2002.

     During 2000 the Company acquired ARCO and Burmah Castrol and also purchased
most of ExxonMobil's  assets used by the fuels refining and marketing  operation
in Europe  (the 2000  portfolio  changes).  BP's  turnover  and  results in 2000
reflect the inclusion of ARCO and Burmah Castrol and the full  consolidation  of
the  European  fuels  joint  venture  from April 14,  July 7 and August 1, 2000,
respectively.

     The  2000  portfolio  changes  have a  significant  effect  on year on year
comparisons:  2002 and 2001  include a full year;  2000  includes  ARCO,  Burmah
Castrol and the full  consolidation  of the European  fuels business for varying
parts of the year.

     The trading  environment  was  challenging  during  2002,  with natural gas
prices and refining  margins  significantly  weaker than in the  previous  year,
owing to the global  economic  slowdown.  Demand  improved  in most parts of the
business  after  the first  half of the year but  economic  conditions  remained
sluggish.  The adverse  business  conditions had the greatest impact on refining
and marketing.  Worldwide  refining margins were depressed for much of the year,
at nearly half the average  level of 2001.  Margins in Chemicals  were at levels
similar to the bottom of previous cycles.


Page 71

     Oil prices were  volatile in 2002.  The Brent price  ranged from around $18
per barrel to above $31 per  barrel.  The crude oil price  increased  during the
second  half of the  year,  partly  reflecting  a 'war  premium'.  Brent  prices
averaged $25.03 per barrel compared with $24.44 per barrel in 2001.  Natural gas
prices in the USA were on average  lower than in 2001, at around $3.36 per mmbtu
compared  with $3.96 per  mmbtu,  owing to a large  surplus  of  natural  gas in
storage  during the 2001-2002  heating  season.  Cold weather and the start of a
decline  in  domestic  production  in the USA  brought  about a rise in price to
around $5 per mmbtu towards the end of 2002.

     The trading environment was generally favourable in the first half of 2001.
Natural  gas and oil prices  remained  high until  clear  evidence of the global
economic  slowdown  emerged  after  the first few  months.  Business  conditions
deteriorated  in the  second  half and  remained  weak  following  the events of
September 11. Oil prices were 15% down against the levels seen in 2000; refining
margins were weak;  retailing  was fiercely  competitive;  and in the  chemicals
sector, margins  were at levels  below those seen at the bottom of the  previous
business cycle.

     The trading  environment  was strong in 2000,  with high oil and gas prices
and  significantly  improved refining margins being partly offset by pressure on
marketing   margins  from  higher   product  costs  and  the  weaker   chemicals
environment, owing to high feedstock costs and a weak euro.

     Hydrocarbon  production increased by 2.9% in 2002 against a target of 5.5%,
reflecting  production  growth of 4.5% for crude oil and 0.9% for  natural  gas.
Total hydrocarbon production increased by 5.5% in 2001 compared with 2000.

     The  increase in turnover  for 2002  reflects  production  and sales volume
increases and higher crude oil realizations,  partly offset by lower natural gas
prices.  The increase in turnover  between 2000 and 2001  reflects a full year's
contribution  from the 2000  portfolio  changes  and  higher  natural  gas sales
volumes partly offset by the effect of lower oil prices.

     Replacement cost profit before  exceptional items (which excludes inventory
holding  gains and  losses)  was $4,698  million in 2002  compared  with  $8,291
million in 2001 and $9,314 million in 2000.

     The  reduction in 2002  replacement  cost profit before  exceptional  items
compared with 2001 reflects the challenging environment,  although the impact of
lower  natural  gas  prices and  refining  margins  was partly  offset by higher
production  and sales  volumes,  lower  costs in  certain  businesses,  improved
Chemicals performance and contributions from Veba and other acquisitions.

     The decline in replacement  cost profit before  exceptional  items for 2001
compared with 2000 primarily  reflects  lower oil prices and chemicals  margins,
partly offset by the inclusion of the first full year of contributions  from the
2000 portfolio additions.

     Owing to the significant  acquisitions that took place in 2000, in addition
to its reported results, BP is presenting pro forma results adjusted for special
items in order to enable  shareholders  to  assess  current  performance  in the
context of our past  performance  and against that of our  competitors.  The pro
forma result,  adjusted for special  items,  was $8,715 million in 2002 compared
with $11,559  million in 2001 and $12,183 million in 2000. The pro forma result,
adjusted for special items,  has been derived from the Group's  reported UK GAAP
accounting  information but is not in itself a recognized UK or US GAAP measure.
The pro  forma  result is  replacement  cost  profit  before  exceptional  items
excluding   acquisition   amortization.   Acquisition   amortization  refers  to
depreciation   relating  to  the  fixed  asset   revaluation   adjustments   and
amortization   of  goodwill   consequent   upon  the  ARCO  and  Burmah  Castrol
acquisitions in 2000.  Goodwill and fixed asset revaluation  adjustments arising
from subsequent transactions has not been included in acquisition amortization.


Page 72

     The following tables provide a breakdown of pro forma results and reconcile
those results to replacement cost operating profit by operating segment.



                                                                                                       Pro forma
                                                                                                          result
                                                                                                        adjusted
                                                                                                             for
Reconciliation of replacement cost profit/loss to                          Acquisition      Special      special
pro forma result adjusted for special items                    Reported   amortization (a)    items (b)    items
                                                               --------    -----------     --------     --------
                                                                                  ($ million)
Year ended December 31, 2002

                                                                                              
Exploration and Production....................................    9,206          1,780        1,019       12,005
Gas, Power and Renewables.....................................      354             --           30          384
Refining and Marketing........................................      872            794          415        2,081
Chemicals.....................................................      515             --          250          765
Other businesses and corporate................................     (701)            --          186         (515)
                                                                 ------         ------       ------       ------
Replacement cost operating profit.............................   10,246          2,574        1,900       14,720
Interest expense..............................................   (1,279)            --           15       (1,264)
Taxation......................................................   (4,217)            --         (456)      (4,673)
Minority shareholders' interest...............................      (52)            --          (16)         (68)
                                                                 ------         ------       ------       ------
Replacement cost profit before exceptional items..............    4,698          2,574        1,443        8,715
                                                                                ======       ======       ======
Exceptional items before tax..................................    1,168
Taxation on exceptional items.................................     (125)
                                                                 ------
Replacement cost profit after exceptional items...............    5,741
Inventory holding gains (losses)..............................    1,104
                                                                 ------
Historical cost profit........................................    6,845
                                                                 ======

Year ended December 31, 2001(c)

Exploration and Production....................................   12,361          1,815          322       14,498
Gas, Power and Renewables.....................................      488             --           --          488
Refining and Marketing........................................    3,573            770          487        4,830
Chemicals.....................................................      128             --          114          242
Other businesses and corporate................................     (523)            --           73         (450)
                                                                 ------         ------       ------       ------
Replacement cost operating profit.............................   16,027          2,585          996       19,608
Interest expense..............................................   (1,670)            --           62       (1,608)
Taxation......................................................   (6,005)            --         (375)      (6,380)
Minority shareholders' interest...............................      (61)            --           --          (61)
                                                                 ------         ------       ------       ------
Replacement cost profit before exceptional items..............    8,291          2,585          683       11,559
                                                                                ======       ======       ======
Exceptional items before tax..................................      535
Taxation on exceptional items.................................     (370)
                                                                 ------
Replacement cost profit after exceptional items...............    8,456
Inventory holding gains (losses)..............................   (1,900)
                                                                 ------
Historical cost profit........................................    6,556
                                                                 ======



Page 73



                                                                                                       Pro forma
                                                                                                          result
                                                                                                        adjusted
                                                                                                             for
Reconciliation of replacement cost profit/loss to                          Acquisition      Special      special
pro forma result adjusted for special items                    Reported   amortization (a)    items (b)    items
                                                               --------    -----------     --------     --------
                                                                                  ($ million)
Year ended December 31, 2000(c)

                                                                                              
Exploration and Production....................................   13,972          1,214          524       15,710
Gas, Power and Renewables.....................................      532             --           --          532
Refining and Marketing........................................    3,486            477          595        4,558
Chemicals.....................................................      760             --          276        1,036
Other businesses and corporate................................   (1,071)            --          488         (583)
                                                                 ------         ------       ------       ------
Replacement cost operating profit.............................   17,679          1,691        1,883       21,253
Interest expense..............................................   (1,770)            --          111       (1,659)
Taxation......................................................   (6,506)            --         (737)      (7,243)
Minority shareholders' interest...............................      (89)           (79)          --         (168)
                                                                 ------         ------       ------       ------
Replacement cost profit before exceptional items..............    9,314          1,612        1,257       12,183
                                                                                ======       ======       ======
Exceptional items before tax..................................      220
Taxation on exceptional items.................................     (142)
                                                                 ------
Replacement cost profit after exceptional items...............    9,392
Inventory holding gains (losses)..............................      728
                                                                 ------
Historical cost profit........................................   10,120
                                                                 ======


----------

(a)  Acquisition amortization refers to depreciation relating to the fixed asset
     revaluation  adjustment and  amortization  of goodwill  consequent upon the
     ARCO and Burmah Castrol acquisitions in 2000.
(b)  The special items refer to charges and credits reported in the year.
(c)  2000 and 2001 have been  restated to reflect the adoption of FRS 19 and the
     transfer of the solar,  renewables and  alternative  fuels  activities from
     Other businesses and corporate to Gas, Power and Renewables.

     Acquisition  amortization  for 2002 was $2,574 million compared with $2,585
million in 2001 and $1,612 million in 2000.



Page 74

     We  present  special  items to  provide a better  understanding  of trading
performance unaffected by significant impairment, restructuring, integration and
other charges and credits.  The special items for 2002,  2001 and 2000 are shown
in the table below.



                                                                            Years ended December 31,
                                                                      ----------------------------------
Special items                                                             2002         2001         2000
                                                                      --------     --------    ---------
                                                                                   ($ million)
                                                                                          
Impairment charges and asset write-downs.........................          985          175          242
Restructuring, integration and rationalization costs (a).........          774          761        1,408
Insurance claim..................................................         (184)          --           --
Vacant space provision...........................................          140           --           --
Pipeline incident................................................           62           --           --
Litigation.......................................................           55           60           63
Environmental charges............................................           46           --          170
Other............................................................           22           --           --
                                                                      --------     --------    ---------
                                                                         1,900          996        1,883
Interest-- bond redemption charges...............................           15           62          111
                                                                      --------     --------    ---------
Total special items before tax...................................        1,915        1,058        1,994
Taxation.........................................................         (456)        (375)        (737)
Minority shareholders' interest..................................          (16)          --           --
                                                                      --------     --------    ---------
Total special items after tax....................................        1,443          683        1,257
                                                                      ========     ========    =========


----------

(a)  Refer to 'Business  Operating Results' in this item for further information
     on restructuring integration and rationalization costs.

     The historical cost profit for 2002 was $6,845 million including  inventory
holding  gains of $1,104  million and net  exceptional  gains of $1,168  million
($1,043 million after tax) in respect of net profits on the sale of fixed assets
and  businesses or termination  of  operations.  For 2001,  the historical  cost
profit was $6,556 million after  inventory  holding losses of $1,900 million and
including  net  exceptional  gains of $535 million  ($165  million after tax) in
respect of net profits on the sale of fixed assets and businesses or termination
of  operations.  The  historical  cost  profit  for  2000 was  $10,120  million,
including  inventory  holding gains of $728 million and net exceptional gains of
$220 million  ($78  million  after tax) in respect of net profits on the sale of
fixed assets and businesses or termination of operations.

     Employee numbers increased  slightly during 2002, mainly as a result of the
Veba acquisition. 2001 increases primarily related to the acquisition of Bayer's
50% interest in  Erdoelchemie,  the Solvay  transaction and the inclusion of the
Burmah Castrol chemicals businesses previously held for sale, were partly offset
by downstream  rationalization  and a further decrease in former ARCO employees.
The  acquisitions  of ARCO and Burmah  Castrol in 2000  increased  our  employee
numbers by approximately 25,000.

     Return on average  capital  employed  (ROACE) is one measure used to assess
BP's current  performance  compared with prior years and the  performance of our
competitors.  The decrease in replacement  cost ROACE for 2002 and 2001 compared
with the  prior  years is due to lower  profits  together  with  higher  average
capital  employed.  Increases  in  average  capital  employed  are mainly due to
acquisitions and upstream investment.



Page 75



                                                                            Years ended December 31,
                                                                       --------------------------------
Return on average capital employed (ROACE)                               2002         2001         2000
                                                                       ------      -------       ------
                                                                                  ($ million)
                                                                                        
Replacement cost basis
Replacement cost profit before exceptional items.................       4,698        8,291        9,314
Interest (a).....................................................         602          798          886
Minority shareholders' interest..................................          52           61           89
                                                                      -------      -------      -------
                                                                        5,352        9,150       10,289
                                                                      =======      =======      =======
Average capital employed (b).....................................      89,616       87,259       76,068
ROACE............................................................           6%          10%          14%
                                                                      -------      -------      -------
Pro forma and special items adjustments
Acquisition amortization.........................................       2,574        2,585        1,691
Special items (post tax).........................................       1,449          643        1,185
Average capital employed acquisition adjustment (c)..............      17,777       20,739       12,939
ROACE - Pro forma basis adjusted for special items (d)...........          13%          19%          21%
                                                                      -------      -------      -------
Historical cost basis
Historical cost profit after exceptional items...................       6,845        6,556       10,120
Interest.........................................................         602          798          886
Minority shareholders' interest..................................          77           61           89
                                                                      -------      -------      -------
                                                                        7,524        7,415       11,095
                                                                      =======      =======      =======
Average capital employed (b).....................................      89,616       87,259       76,068
ROACE............................................................           8%           8%          15%


----------

(a)  For the ROACE  calculation,  interest expense excludes  interest on debt of
     joint ventures and associated  undertakings as well as the unwinding of the
     discount on  provisions  and the effect of changes in the discount  rate on
     provisions, and is on a post-tax basis using a deemed tax rate equal to the
     US statutory tax rate.
(b)  Capital  employed is defined as net assets plus total  finance debt. As the
     acquisition  of ARCO was completed in April 2000 and Burmah Castrol in July
     2000, the return on average  capital  employed for 2000 has been calculated
     as the average of the four discrete quarters.  Average capital employed was
     derived from the quarterly averages.
(c)  Acquisition adjustment refers to the fixed asset revaluation adjustment and
     goodwill consequent upon the ARCO and Burmah Castrol acquisitions.
(d)  Based on the pro forma  result  adjusted  for  special  items  and  capital
     employed  excluding  the fixed asset  revaluation  adjustment  and goodwill
     resulting from the ARCO and Burmah Castrol acquisitions.



                                                                            Years ended December 31,
                                                                       --------------------------------
Capital expenditure and acquisitions (a)                                 2002         2001         2000
                                                                       ------       ------       ------
                                                                                  ($ million)
                                                                                         
Exploration and Production......................................        9,266        8,627        6,383
Gas, Power and Renewables.......................................          335          485          376
Refining and Marketing..........................................        2,682        2,386        2,369
Chemicals.......................................................          810        1,446        1,585
Other businesses and corporate..................................          228          256          458
                                                                      -------      -------      -------
Capital expenditure.............................................       13,321       13,200       11,171
Acquisitions (a)................................................        5,790          924       36,442
                                                                      -------      -------      -------
Capital expenditure and acquisitions............................       19,111       14,124       47,613
Disposals (b)...................................................       (6,782)      (2,903)     (11,362)
                                                                      -------      -------      -------
Net Investment..................................................       12,329       11,221       36,251
                                                                      =======      =======      =======


----------

(a)  2002  includes  $5,038  million  for the Veba  acquisition.  2000  includes
     $27,506 million for the ARCO  acquisition and $4,909 million for the Burmah
     Castrol acquisition.

(b)  2000 includes $6,803 million proceeds from the sale of ARCO assets.


Page 76

     Capital  expenditure  and  acquisitions  in 2002, 2001 and 2000 amounted to
$19,111 million, $14,124 million and $47,613 million, respectively. Acquisitions
during 2002 included  Veba,  an  additional  15% interest in Sidanco and several
minor  acquisitions.  Acquisitions  during 2001 included the purchase of Bayer's
50% interest in Erdoelchemie and a number of minor acquisitions. Expenditure for
the year 2000 included the acquisition of ARCO,  Burmah Castrol,  the ExxonMobil
share of the  European  Joint  Venture  and the  minority  interest  in  Vastar,
interests  in  PetroChina  and Sinopec,  and  ExxonMobil's  aviation  lubricants
business.  Excluding  acquisitions,  capital  expenditure  for 2002 was  $13,321
million compared with $13,200 million for 2001.

     Our investment  strategy for 2003 to 2007 is focused on developing five new
upstream  profit  centres  --  in  the  Deepwater  Gulf  of  Mexico,   Trinidad,
Azerbaijan,  Angola and Asia Pacific LNG. We believe the Russian joint  venture,
TNK-BP,  should generate sufficient cash to finance its investment programme and
it is not expected to need additional funding from its shareholders.

Exceptional Items

     For 2002, net exceptional  gains,  consisting of the profit or loss on sale
of fixed assets and businesses or termination of operations, were $1,168 million
before  tax.  These  include  gains from  disposal of  interests  in Ruhrgas and
Colonial Pipeline,  the sale of a US downstream electronic payment system, and a
gain on the redemption of certain  preferred  limited  partnership  interests BP
retained  following  the  Altura  Energy  common  interest  disposal  in 2000 in
exchange  for BP loan notes held by the  partnership.  These  items were  partly
offset by  provisions  for  losses  on the sale of  certain  upstream  interests
announced in early 2003.

     Net  exceptional  gains  were  $535  million  before  tax  in  2001.  These
represented  the  profits  from the sale of the Group's  interest in Vysis;  the
refineries  at Mandan,  North  Dakota,  and Salt Lake City,  Utah;  the  Group's
interest in the Alliance and certain other pipeline systems in the USA; and BP's
interest in the Kashagan discovery in Kazakhstan, partly offset by losses mainly
related to the sale or closure of certain chemicals activities.

     In 2000,  the net  exceptional  gains of $220  million  before tax  related
mainly to disposal  profits on the sale of the Group's common interest in Altura
Energy,  the sale of the Alliance refinery and the divestment of exploration and
production interests in Trinidad,  the UK and the USA, partly offset by the loss
on the sale of certain  Venezuelan  upstream  interests and on the subvention of
Singapore  Aromatics  Company bank loans in  connection  with the closure of our
joint venture.

Interest Expense

     Interest expense in 2002 was $1,279 million compared with $1,670 million in
2001 and $1,770 million in 2000.  These amounts  included special charges of $15
million,  $62  million and $111  million  respectively,  arising  from the early
redemption of bonds. After adjusting for these special charges,  the decrease in
Group  interest  expense in 2002 compared  with 2001  primarily  reflects  lower
interest  rates.  The decrease in 2001 compared with 2000 mainly  reflects lower
interest rates, partly offset by the impact of revaluing environmental and other
provisions at a lower interest rate.

Taxation

     The charge for corporate  taxes in 2002 was $4,342  million,  compared with
$6,375  million  in 2001 and  $6,648  million  in 2000.  The  effective  rate on
historical  cost profit was 39% in 2002,  49% in 2001 and 39% in 2000. The lower
rate in 2002 reflects non-taxable  inventory holding gains in 2002 compared with
inventory  holding  losses in 2001.  The higher rate in 2001  compared with 2000
reflects  the  effect  of a full  year of  acquisition  amortization  (which  is
non-deductible for tax purposes) together with non-deductible  inventory holding
losses.


Page 77

     The effective rate on replacement cost profit before  exceptional items was
47% compared with 42% in 2001 and 41% in 2000. The increase in the rate for 2002
compared  with  2001  reflects  the  ratably   greater   effect  of  acquisition
amortization  on lower  pre-tax  income in 2002,  together with the $355 million
charge in the second  quarter to increase the North Sea  deferred tax  provision
for the  supplementary UK tax rate,  partly offset by higher tax relief on asset
impairment charges and related restructuring. The higher rate in 2001 was due to
the full-year  effect of the ARCO and Burmah  Castrol  acquisition  amortization
charge (which is non-deductible for tax purposes).

Dividends and Share Repurchases

     The total dividends  announced for 2002 were $5,375 million,  compared with
$4,935 million in 2001 and $4,625 million in 2000.  Dividends per share for 2002
were 24.00  cents,  compared  with 22.00 cents per share in 2001 (an increase of
9.1%) and 20.50 cents per share in 2000 (an  increase  of 7.3% over  2000).  The
board sets the  dividend  based on a balance of factors.  It  considers  present
earnings,  together with long-term growth  prospects,  cash flow and the Group's
competitive position.

     BP intends to continue  the  operation of the  Dividend  Reinvestment  Plan
(DRIP) for shareholders who wish to receive their dividend in the form of shares
rather than cash.  The BP Direct Access Plan for US and Canadian  investors also
includes a dividend reinvestment feature.

     As part of giving a return to  shareholders,  one of the steps we take from
time to time is to  repurchase  our own  shares.  During  2002,  a total  of 100
million  shares were  repurchased  and cancelled at a cost of $750 million.  The
repurchased  shares had a nominal value of $25 million and  represented  0.4% of
ordinary  shares in issue at the end of 2001. At that time the Company still had
shareholder approval, subject to conditions, for the repurchase of a further 2.1
billion Ordinary Shares.  Since the inception of the share repurchase  programme
in 2000,  476 million  shares have been  repurchased  and cancelled at a cost of
$4.1  billion.  BP's  present  intention is to spend up to $2 billion on further
repurchases  of its own  shares,  subject to market  conditions  and  continuing
support at the April 2003 Annual General Meeting.

Business Operating Results

     Total  replacement  cost  operating  profit,  which is  arrived  at  before
inventory  holding  gains and losses,  interest  expense,  taxation and minority
interests,  and before  exceptional  items, was $10,246 million in 2002, $16,027
million in 2001 and $17,679 million in 2000.  Performance of operating  segments
is evaluated by management on replacement cost operating profit or loss. Segment
results are discussed in the following pages on this basis.


Page 78




Exploration and Production
                                                                                    Years ended December 31,
                                                                                 ----------------------------
                                                                                    2002        2001       2000
                                                                                --------    --------  ---------

                                                                                             
Turnover.........................................  ($ million)                    25,753      28,229     30,942
Total replacement cost operating profit..........  ($ million)                     9,206      12,361     13,972
Results included:
  Exploration expense............................  ($ million)                       644         480        599
Key statistics:
  Average BP crude oil realizations (a)..........  ($ per barrel)                  22.69       22.50      26.63
  Average West Texas Intermediate oil price......  ($ per barrel)                  26.14       25.89      30.38
  Average Brent oil price........................  ($ per barrel)                  25.03       24.44      28.44
  Average BP US natural gas realizations.........  ($ per thousand cubic feet)      2.63        3.99       3.72
  Average Henry Hub gas price (b)................  ($ per thousand cubic feet)      3.22        4.26       3.90
Crude oil production (net of royalties) (c)......  (mb/d)                          2,018       1,931      1,928
Natural gas production (net of royalties) (c)....  (mmcf/d)                        8,707       8,632      7,609
Total production (net of royalties) (c) (d)......  (mboe/d)                        3,519       3,419      3,240


----------

(a)  Crude oil and natural gas liquids.
(b)  Henry Hub First of Month Index.
(c)  Includes BP's share of associated undertakings.
(d)  Expressed  in  thousands  of barrels of oil  equivalent  per day  (mboe/d).
     Natural gas is converted to oil  equivalent  at 5.8 billion  cubic feet : 1
     million barrels.

     Turnover for 2002 was $25,753 million compared with $28,229 million in 2001
and  $30,942  million  in 2000.  The  decrease  in 2002 was  mainly due to lower
natural gas prices,  which more than offset the effect of higher  production and
crude oil realizations.  The lower turnover in 2001 compared with 2000 reflected
the  impact  of lower  oil and  natural  gas  prices,  partly  offset  by higher
production, in part through the inclusion of ARCO for a full year.

     The replacement  cost operating profit for 2002 was $9,206 million compared
with  $12,361  million in 2001 and $13,972  million in 2000.  These  results are
after charging  special items of $1,019  million,  $322 million and $524 million
respectively;  and depreciation  and  amortization  arising from the fixed asset
revaluation  adjustment  and goodwill  consequent  upon the ARCO  acquisition of
$1,780 million,  $1,815 million and $1,214 million  respectively.  The year 2002
includes   special   charges  of  $686  million  and   accelerated   acquisition
amortization  of $405 million  related to the  impairments  of Shearwater in the
North Sea,  Rhourde  El Baguel in  Algeria,  LL652 and  Boqueron  in  Venezuela,
Pagerungan  in  Indonesia  and  Badami  in  Alaska,   following  full  technical
reassessments  and  evaluations of future  investment  opportunities.  All these
fields  continued in operation.  In addition,  there were special  restructuring
charges of $184 million relating to significant  restructuring to reposition the
business in North  America and the North Sea,  $94 million for the  write-off of
our Gas to Liquids  demonstration  plant in Alaska and $55 million of litigation
costs. The special restructuring costs comprised $145 million of severance,  $19
million  repatriation and other costs of $20 million,  which were mostly settled
in 2002.

     Special  items  for  2001  included  a  $175  million   impairment  of  our
partner-operated  Venezuelan  Lake Maracaibo  operations,  following a technical
reassessment, $77 million additional severance costs which related to US pension
and benefits  incurred in respect of ARCO terminations and were settled in 2001,
$60  million  litigation  and $10  million  restructuring  costs  related to the
Grangemouth operating site in Scotland.



Page 79

     The special charges of $524 million in 2000 comprise mainly ARCO and Vastar
integration  costs. The restructuring  cost element relating to  rationalization
following the ARCO and Vastar acquisitions totalled $390 million comprising $188
million severance,  $18 million asset write-downs,  $59 million office closures,
$26 million information technology alignment and $99 million other restructuring
costs.  With the  exception of the non-cash  asset  write-downs,  the costs were
mainly  settled in 2000.  Other  special  items in 2000 were costs  incurred  in
relation to the  realignment  of the partner  interests in Alaska of $50 million
and other costs of $84 million that mainly relate to litigation settlements.

     In assessing the value in use of potentially  impaired  assets,  a discount
rate of 9% has been  used,  as well as a Brent oil price of $20 per barrel and a
Henry  Hub gas price of $3.20 per  mmbtu,  which  represents  an  average  price
achieved  over the past  ten  years.  The  information  in Item 18 --  Financial
Statements -- Supplementary Oil and Gas Information -- Standardized  measures of
discounted  future net cash flows and changes therein relating to proved oil and
gas reserves was prepared  using a discount rate of 10% and a year-end Brent oil
price of $30.38  per barrel  and a Henry Hub gas price of $4.75 as  required  by
FASB Statement of Financial Accounting Standards No. 69 -- Disclosures about Oil
and Gas Producing Activities.

     The 2002 decrease in replacement cost operating profit reflects  production
growth of 4.5% for  crude oil and 0.9% for  natural  gas  (2.9%  overall),  a 4%
decrease in unit lifting costs and slightly higher crude oil realizations, which
were more than offset by significantly lower natural gas realizations.

     Lower 2001  replacement  cost operating  profit compared with 2000 reflects
the oil price  decrease  of over $4 per  barrel,  partly  offset by  operational
improvements  and the  inclusion  of ARCO for the whole  year,  compared to only
around nine months (from April 14) in 2000 and other portfolio changes.

     Finding  and  development  costs in 2002  averaged  $4.14 per barrel of oil
equivalent, compared with $3.68 in 2001 and $3.29 in 2000. The increase reflects
the higher costs  incurred on the  deepwater  developments.  Finding  costs were
$0.79 per  barrel of oil  equivalent,  compared  with $0.54 in 2001 and $1.22 in
2000. On a three year rolling  average  basis,  the finding costs were $0.78 per
barrel of oil  equivalent  for 2002  compared  with $0.82 for 2001 and $1.21 for
2000 reflecting the significant discoveries made during the period 1999 to 2001.
Unit lifting costs were $2.60 per barrel of oil  equivalent  compared with $2.70
in 2001 and $2.60 in 2000,  reflecting the sustained cost savings that have been
achieved since the merger of BP and Amoco.

     In 2002, a number of new fields started producing,  the most significant of
which were King, King's Peak, Horn Mountain, Aspen and Princess in the Deepwater
Gulf of Mexico.  In Trinidad,  production of natural gas was increased  from the
existing fields to supply the second LNG train,  which started up in August.  In
Azerbaijan,   the  Chirag  field  contributed  steady  production.   In  Angola,
production  from Girassol built up to its plateau level after starting up at the
end of 2001.  Production started at the Lan Tay field in Vietnam in November. In
our other  operations,  production  from  Northstar  in Alaska  also built up to
plateau level,  and there was strong  performance from Australia and Egypt owing
to higher natural gas sales.

     These  production  increases  in 2002  were  partly  offset  by a number of
factors,  including lower natural gas demand  resulting from warm weather in the
UK, OPEC  reductions,  severe storm patterns in the Gulf of Mexico,  the general
strike in Venezuela and operational problems in Alaska and the UK.

     Exploration  successes in 2002 included  discoveries in the Gulf of Mexico,
Trinidad,  Angola  and  Egypt.  The  Plutao  field is the first  ultra-deepwater
discovery  offshore Angola.  We were awarded new licences in the Gulf of Mexico,
Norway and Russia.



Page 80

     We made two major  natural  gas  discoveries  off the coast of  Trinidad in
2002,  in Iron  Horse  and Red  Mango  No.  2,  taking  the  total  to four  new
discoveries  in three  years.  Along  with the  advantages  of  scale,  improved
liquefaction  technology  has reduced costs in Trinidad by nearly 30%,  compared
with LNG  plants  built  elsewhere  in the  1980s and  early  1990s.  Continuing
technology  developments  and an  increase  in plant  scale allow us to target a
further 25% cost  reduction by the end of the decade.  This should  enable us to
compete  successfully in new LNG markets.  We have led our major  competitors in
the number of large discoveries during the past five years.

     The reserve replacement ratio for 2002 was 175% with 2.0 billion barrels of
oil equivalent booked through  discoveries,  extensions,  revisions and improved
recovery.  Total hydrocarbon  production for 2001 increased 5.5% and the reserve
replacement  ratio was 191% with 2.2 billion  barrels of oil  equivalent  booked
through  extensions,  discoveries,  revisions  and  improved  recovery.  Reserve
replacement  has exceeded  production  for ten  consecutive  years at an average
ratio of 145% over that period.

     In support of growth,  2002 capital  expenditure  and  acquisitions at $9.7
billion was 9% higher than the 2001 level of $8.9  billion;  2001 was 52% higher
than the 2000 level of $6.4 billion. Excluding acquisitions, capital expenditure
in 2002 was $9.3 billion  compared with $8.6 billion in 2001 and $6.4 billion in
2000.

     Our aim is to  balance  growth  and  returns by  allocating  investment  to
projects  with the highest  expected  returns,  ranked  globally;  by  improving
operating  efficiency;  and by selling  assets that are not  strategic to us and
have  greater  value to others.  We have  already  divested  or agreed to divest
assets amounting to over $3 billion in 2003.

     We made  significant  progress  in 2002 in  building up our five new profit
centres.  Late  in  2002,  development  started  at the  Atlantis  field  in the
Deepwater  Gulf of  Mexico.  Atlantis  joined  four  other  fields  -- Na  Kika,
Holstein, Mad Dog and Thunder Horse - that are also being developed in the Gulf.
Construction  of the Mardi  Gras  pipeline  system,  to  handle  the oil and gas
production from BP's new fields in the Gulf, continues and is on track.

     We expect to invest  around  $20  billion  in the five new  profit  centres
during the period  2003 to 2007;  no  investment  is  currently  planned for the
proposed  Russian  joint  venture.  Building  these  profit  centres  requires a
relatively high level of capital spending over the period 2002 to 2004.



Gas, Power and Renewables
                                                                               Years ended December 31,
                                                                          --------------------------------
                                                                             2002         2001         2000
                                                                         --------     --------    ---------
                                                                                         
Turnover...............................................   ($ million)      37,357       39,442       21,203
Total replacement cost operating profit................   ($ million)         354          488          532
Total natural gas sales volumes (a)....................   (mmcf/d)         21,621       18,794       14,471


----------

(a)  Includes marketing, trading and supply sales.

     On January 1, 2002, the solar,  renewables and alternative fuels activities
were  transferred  from Other  Businesses  and  Corporate  to Gas and Power.  To
reflect this transfer,  Gas and Power was renamed Gas, Power and Renewables from
the same date and comparative information has been restated.

     Turnover was $37,357 million in 2002 compared with $39,442 million in 2001,
as higher  natural  gas sales  volumes  were more than  offset by lower  prices,
particularly  in North  America.  The increase  from $21,203  million in 2000 is
mainly  attributable  to higher sales  volumes in the natural gas  marketing and
trading  business.



Page 81

     Replacement  cost operating  profit for 2002 was $354 million compared with
$488  million in 2001 and $532 million in 2000.  The result for 2002  includes a
special charge of $30 million related to the impairment of a cogeneration  power
plant  under  construction  in  the  UK.  The  impairment  is  the  result  of a
significant fall in power prices in the UK over the last two years. The decrease
in  profit  in 2002 is due to a lower  contribution  from  Ruhrgas  and a weaker
marketing and trading  environment,  partly offset by better  performance in the
NGL business and  increased  natural gas sales volumes which were up by 15%. The
sale of the Ruhrgas  shareholding  was effective August 1, 2002. The 2001 result
is down on 2000 due to a lower  contribution  from NGLs, partly offset by better
results  from  marketing  and  trading  and  Ruhrgas.  In 2000 the NGL  business
benefited from exceptionally strong margins.

     Natural gas sales increased from 14.5 billion cubic feet per day in 2000 to
18.8 billion cubic feet per day in 2001,  and increased  further to 21.6 billion
cubic feet per day in 2002.

     Although gas sales volumes  increased 15% in 2002,  margins in the industry
were less favourable than in 2001,  which had benefited from a period of unusual
volatility in North America. Margins improved across our NGLs business through a
combination  of  operating   efficiency,   lower  costs  and  favourable  market
conditions.  We also achieved more than 20% growth in sales of solar systems and
panels,  from 55  megawatts  in 2001 to 67  megawatts  in 2002,  with an overall
improvement in total gross margin against increasing competitive pressure.

     Capital  expenditure and  acquisitions  for 2002 was $408 million  compared
with $492 million in 2001 and $376 million in 2000.



Refining and Marketing
                                                                                Years ended December 31,
                                                                           --------------------------------
                                                                              2002         2001         2000 (a)
                                                                          --------     --------    ---------

                                                                                         
Turnover...............................................   ($ million)      125,836      120,233      107,883
Total replacement cost operating profit................   ($ million)          872        3,573        3,486
Global Indicator Refining Margin (b)...................   ($/bbl)             2.11         4.06         4.22
Refinery throughputs...................................   (mb/d)             3,103        2,929        2,916
Total marketing sales .................................   (mb/d)             4,180        3,797        3,420


----------

(a)  Includes BP's share of the BP/Mobil  European joint venture until August 1,
     2000.

(b)  The Global  Indicator  Refining  Margin is the  average  of seven  regional
     indicator margins weighted for BP's crude refining capacity in each region.
     Each regional  indicator margin is based on a single  representative  crude
     with  product  yields  characteristic  of the  typical  level of  upgrading
     complexity.

     Turnover for 2002 was $125,836  million  compared with $120,233 million for
2001 and $107,883  million for 2000.  The increase in turnover for 2002 compared
with  2001 is due  primarily  to  volume  increases  from the Veba  acquisition.
Results  for Veba have been  included  from  February 1, 2002.  The  increase in
turnover for 2001 compared with 2000  principally  reflected the acquisitions of
ARCO and Burmah  Castrol and the  consolidation  of the European  fuels business
during 2000.  Turnover for 2000 included ARCO from April 14, Burmah Castrol from
July 7 and the European fuels business from August 1. Turnover for 2001 includes
these businesses for the full year.

     The replacement  cost operating  profit for 2002 was $872 million  compared
with $3,573 million in 2001 and $3,486 million in 2000.  These results are after
special charges of $415 million, $487 million and $595 million respectively; and
depreciation  and  amortization   arising  from  the  fixed  asset   revaluation
adjustment and goodwill consequent upon the ARCO and Burmah Castrol acquisitions
of $794 million, $770 million and $477 million, respectively.  Special items for
2002 included a credit related to business  interruption  insurance  proceeds of
$184 million,  as well as charges of $348 million  related to Veba  integration,
$132 million  restructuring  costs, $62 million costs associated with an Olympic
pipeline  incident  in 1999,  a $35  million  write-down  of  retail  assets  in
Venezuela and $22 million  settlement  costs  associated with a  pre-acquisition
ARCO US MTBE supply  contract.  Special  charges in 2001  comprised $334 million
Castrol integration costs, $101 million  rationalization costs in the downstream
European  commercial  business  and  Grangemouth  restructuring  and $52 million
additional  severance  charges  mainly  related to former  ARCO  employees.  The
special  charges in 2000 mainly  comprised ARCO and Burmah  Castrol  integration
costs,  rationalization  costs following the BP and Amoco merger,  environmental
charges and litigation costs.


Page 82

     The 2002 special  charges of $348 million  related to the Veba  acquisition
comprised $210 million severance costs, $77 million other integration costs such
as  consulting,   studies  and  internal   project  teams,  $24  million  system
infrastructure  and  application  costs,  $22 million office  consolidation  and
relocation  and $15 million  additional  synergy  projects.  2002 cash  outflows
related to these special charges were  approximately  $140 million.  Integration
began in February  2002,  and  completion is planned in the second half of 2003.
Total costs and cash  outflows are expected to be  approximately  $570  million,
including the full  integration  of the  organizations,  rebranding  and systems
integration and alignment. The targeted synergies are $200 million per year. The
$132  million   special   restructuring   costs  are  associated   with  several
restructuring and cost reduction  initiatives  during 2002 in different business
units and support functions, primarily in the USA, Western Europe and in Africa.
The largest  single  functional  area affected was  information  technology.  In
Venezuela an impairment review was triggered by the current political crisis and
poor  business  performance  in 2002.

     The  integration of the ARCO businesses was largely  completed  during 2001
and primarily  affected the Western USA. The  anticipated  downstream  synergies
were  achieved,  resulting  from cost  reduction,  hydrocarbon  procurement  and
working capital  reduction.  The special charges associated with the integration
were $52 million in 2001 and $109 million in 2000.  The major  components of the
costs were severance payments,  office consolidation and information  technology
infrastructure.

     The integration of the Castrol businesses was mostly complete by the end of
2001.  The  anticipated  synergies  of $260  million  per year,  resulting  from
efficiencies  in supply  chain and  support  activities,  were  exceeded  by $20
million  and  delivered  one  year  in  advance.   The  costs   associated  with
restructuring,  integration and rationalisation  were $485 million ($334 million
in 2001 and $151  million in 2000).  The  majority of the costs were  related to
severance payments, relocation and infrastructure.

     The result for 2002  compared with 2001 reflects the impact of a halving of
worldwide   refining   margins  with  a  further   adverse   effect  from  price
differentials  in BP's  crude oil mix,  and lower US retail  margins,  with some
offset from  European  retail and the Veba  contribution.  Refining  throughputs
increased  by 6% over the prior year and  marketing  volumes  increased  by 10%,
primarily due to Veba.  Excluding  Veba,  marketing  volumes were slightly down.
Retail  shop sales grew 60% due to Veba and the  increased  number of BP Connect
stations,  10% excluding Veba.  Retail sales grew 7% in 2002 in stores that were
also operating in 2001.

     Against   this   difficult   background,   we  delivered   improved   plant
availability,  increased  retail  store  sales and volume  and margin  growth in
lubricants.

     The 2001  result  reflects  the benefit of the 2000  portfolio  changes and
improved  marketing  volumes,  offset  by  the  effects  of  a  larger  refinery
maintenance programme.  We delivered a strong performance,  led in particular by
US refining in the first half of the year, where margins were very good. In both
the USA and Europe,  refining  margins  declined in the latter part of 2001.  In
September  2001, in line with our strategy,  we completed the sale of refineries
at Mandan, North Dakota and Salt Lake City, Utah in the USA.



Page 83

     Marketing experienced significant competitive pressures throughout 2001. We
delivered growth of 23% (7% excluding  portfolio  changes) in convenience  store
sales and 8% in retail fuel volumes,  reflecting  the  full-year  benefit of the
2000 portfolio changes and the rollout of the new BP Connect  convenience sites.

     Capital expenditure and acquisitions in 2002 was $7,753 million,  including
$5,038  million for the Veba  acquisition,  compared with $2,415 million in 2001
and $8,693 million in 2000.  Excluding  acquisitions,  capital  expenditure  was
$2,682  million in 2002 compared with $2,386  million in 2001 and $2,369 million
in 2000.



Chemicals
                                                                             Years ended December 31,
                                                                          ----------------------------
                                                                            2002         2001       2000
                                                                          ------       ------     ------
                                                                                      
Turnover...............................................   ($ million)     13,064       11,515     11,247
Total replacement cost operating profit................   ($ million)        515          128        760
Chemicals Indicator Margin (a).........................   ($/te)             102 (b)      109        126
Production volumes (c).................................   (kte)           26,988       22,716     22,065


----------

(a)  The Chemicals  Indicator  Margin (CIM) is a weighted  average of externally
     based  product  margins.  It is based on market  data  collected  by Nexant
     (formerly Chem Systems) in their quarterly market  analyses,  then weighted
     based  on BP's  product  portfolio.  While  it does not  cover  our  entire
     portfolio,  it includes a broad range of  products.  Among the products and
     businesses  covered  in the  CIM  are  the  olefins  and  derivatives,  the
     aromatics and derivatives,  linear alpha-olefins (LAOs), acetic acid, vinyl
     acetate monomers and nitriles. Not included are fabrics and fibres, plastic
     fabrications,  poly alpha-olefins (PAOs), anhydrides,  engineering polymers
     and carbon fibers, speciality intermediates, and the remaining parts of the
     solvents and acetyls businesses.

(b)  Provisional.  The data for the  current  year is based on eleven  months of
     actual data and one month of  provisional  data.

(c)  Includes  BP share of joint  ventures,  associated  undertakings  and other
     interests in production.

     Turnover has increased from $11,247  million in 2000 to $11,515  million in
2001 and to $13,064  million in 2002. The higher  turnover in 2001 compared with
2000 reflects the  consolidation of Erdoelchemie  from May 2, 2001 partly offset
by the effect of lower  prices.  The increase in turnover for 2002 compared with
2001 primarily  reflects higher production as a result of acquisitions,  organic
growth and improved site reliability.

     Replacement cost operating profit for 2002 was $515 million,  compared with
$128 million in 2001 and $760 million in 2000, including special charges of $250
million, $114 million and $276 million respectively.



Page 84

     Special  charges  for  2002  included  a  $140  million  write-down  of our
Indonesian  manufacturing  assets held for sale, following a review of immediate
prospects and opportunities for future growth in a highly competitive market. In
addition,  there  were $110  million of special  integration  and  restructuring
costs.  Special  charges for 2001 include  Grangemouth  restructuring  and costs
related  to  Erdoelchemie  and  Solvay  integration.  In  2000  special  charges
comprised  a  provision  against a  chemicals  investment  in  Indonesia,  asset
write-downs and rationalization costs following the BP and Amoco merger.

     The   special   charges   related  to   integration,  rationalization   and
restructuring  in  2002,  2001 and 2000 are the  result  of an  ongoing  segment
restructuring  programme  which  dates back to the  merger of BP and Amoco.  The
costs comprise severance,  asset write-downs,  information technology alignment,
and various other costs.  The aim of the programme is to reposition  the segment
portfolio, and thus improve efficiency and performance.

     The 2002 result was an increase of $387  million  over 2001,  in an overall
trading  environment  which was similar.  This  improvement  was driven by lower
costs and increased production.

     Compared with 2000, the business  environment for  petrochemicals  was very
difficult  throughout 2001 with margins at levels below those seen at the bottom
of the  previous  business  cycle.  After early  plant  operating  problems,  we
recorded lower unit costs through  restructuring  and improved plant performance
in the second half of 2001.

     Cash fixed costs per tonne of capacity,  using an index which  equates 2000
costs to 100, were 81 in 2002 compared with 86 in 2001.

     BP's share of production  for 2002 was 26,988  thousand  tonnes,  up 19% on
2001,  as a  result  of  new  production  from  existing  and  acquired  assets.
Production  for  2001  was  22,716  million  tonnes,  up 3% on  2000  due to new
production and acquired assets. Production for 2000 was 22,065 million tonnes.

     Major   restructuring   continued   throughout  2002  and  2001,  aimed  at
repositioning  the  portfolio  and  lowering  the cost base.  In addition to the
special charges above, the 2002 and 2001 results include further rationalization
costs of $39 million and $102 million respectively.

     Capital expenditure and acquisitions in 2002 was $823 million compared with
$1,926  million in 2001 and  $1,585  million  in 2000.  Excluding  acquisitions,
capital  expenditure  was  $810  million,  $1,446  million  and  $1,585  million
respectively.



Other Businesses and Corporate
                                                                         Years ended December 31,
                                                                    --------------------------------
                                                                       2002         2001         2000
                                                                   --------     --------    ---------

                                                                                       
Turnover...........................................   ($ million)       510          549           59
Replacement cost operating loss....................   ($ million)      (701)        (523)      (1,071)


     Other Businesses and Corporate  comprises  Finance,  our coal and aluminium
assets,  our  investments in PetroChina and Sinopec,  interest  income and costs
relating to corporate activities worldwide.

     On January 1, 2002, the solar,  renewables and alternative fuels activities
were transferred to Gas, Power and Renewables.  Comparative information has been
restated.

Page 85

     The net cost of Other Businesses and Corporate  amounted to $701 million in
2002,  $523 million in 2001 and $1,071 million in 2000.  These net costs include
special  charges of $186  million,  $73 million and $488  million  respectively.
Special charges in 2002 include provisions of $140 million for future rentals on
surplus  leasehold  property  and a  charge  of $46  million  for  environmental
liabilities in respect of a divested business.  Special charges in 2001 comprise
additional severance charges mainly related to former ARCO employees.  For 2000,
special  charges  comprised  ARCO  integration  costs,   rationalization   costs
following the BP and Amoco merger and environmental charges.

     Expenditure  on  research  for 2002 was $373  million,  compared  with $385
million in 2001 and $434 million in 2000.

     During 2000, we purchased an interest in PetroChina for $578 million and an
interest in Sinopec for $416 million.

Outlook

     The trading  environment  was  challenging  during  2002.  Whilst there was
little change in crude oil prices between 2001 and 2002,  natural gas prices and
refining  margins  were  significantly  weaker  than in the  previous  year  and
chemicals margins remained depressed.

     Crude oil prices were marginally  higher in 2002 than in 2001.  Dated Brent
averaged $25.03 per barrel in 2002 compared with $24.44 per barrel in 2001. OPEC
production restraint kept the market reasonably balanced despite weak oil demand
and strong growth in oil production outside OPEC. Prices were volatile moving in
a range of $18 to 32 for Brent but, in general,  they  trended  upwards over the
course of the year.

     The economic  downturn and the  aftermath of the September  11th  terrorist
attacks took a heavy toll on the margin  businesses  in 2002.  Refining  margins
were depressed for much of the year and averaged only around half of 2001 levels
in the face of consistently  high product  inventories and tightening  crude oil
markets.  Margins in chemicals  were at levels similar to the bottom of previous
cycles.

     US natural gas prices (Henry Hub) averaged  around $3.36 per mmbtu in 2002,
down from  $3.96  per mmbtu in 2001.  The mild  winter of  2001/2002  and the US
economic  downturn resulted in a large surplus of gas in storage at the start of
the year,  which was not worked off until late in 2002.  Gas prices  traded at a
discount to residual fuel oil for most of the year. As with crude oil prices, US
gas  prices  trended  upwards  over the  course of 2002,  the low of just  under
$2/mmbtu  being recorded in January and the high of over $5/mmbtu being recorded
in December.

     Crude oil  prices  have been  volatile  so far in 2003,  with  dated  Brent
fluctuating between $26 and $35 in the aftermath of the supply disruption caused
by the  Venezuelan  general  strike and as a result of the threat and subsequent
outbreak of military  action in Iraq.  Refining  margins  have  strengthened  in
response to falling  product  inventories.  US natural gas prices have also been
strong  in the  face  of a cold  US  winter  and  declining  US gas  production.
Chemicals margins remain under pressure.

     We continue to take a cautious view about the external environment in 2003,
given  the  uncertain   nature  of  the  economic   recovery  and   geopolitical
uncertainties.  Whilst  US  gas  markets  look  to be  strongly  underpinned  by
supply/demand fundamentals,  crude prices and refining margins remain vulnerable
to  reductions  in  uncertainties  and potential  economic  weakness.  Chemicals
margins will be sensitive to any deterioration in economic conditions.

     As of the  date of  filing  this  annual  report,  the  outlook  in all our
activities is unusually uncertain due to the unpredictable situation surrounding
Iraq.


Page 86



Environmental Expenditure
                                                                        Years ended December 31,
                                                                   --------------------------------
                                                                      2002         2001         2000
                                                                  --------     --------    ---------
                                                                               ($ million)

                                                                                        
Operating expenditure........................................          485          436          514
Capital expenditure..........................................          660          423          298
Clean-ups....................................................           49           67           81
New provisions for environmental remediation.................          312          180          228
New provisions for decommissioning...........................          308          156          139


     Operating and capital expenditure on the prevention,  control, abatement or
elimination of air,  water and solid waste  pollution is often not incurred as a
discrete  identifiable   transaction.   Instead,  it  forms  part  of  a  larger
transaction which includes,  for example,  normal maintenance  expenditure.  The
figures for  environmental  operating and capital  expenditure  in the table are
therefore  estimates,  based on the  definitions  and guidelines of the American
Petroleum Institute.

     Operating  expenditure  and  clean-ups  for 2002 were  similar  to the 2001
level. Capital expenditure  increased in 2002 compared with 2001, primarily as a
result of projects to reduce  refinery  emissions  associated with our agreement
with the  Environmental  Protection  Agency and upgrades required to meet new US
emission requirements for gasoline and highway diesel.  Capital expenditures are
expected  to be at levels  similar  to 2002 in the near  term.  In  addition  to
operating  and  capital  expenditures,  we also  create  provisions  for  future
environmental  remediation.  The increase in new provisions in 2002 is primarily
related to US retail sites and results from new  regulations  and ongoing review
of the liabilities.  Expenditure against such provisions is normally incurred in
subsequent  periods and is not included in environmental  operating  expenditure
reported for such periods.

     Provisions  for  environmental  remediation  are made  when a  clean-up  is
probable  and  the  amount  reasonably  determinable.  Generally,  their  timing
coincides  with  commitment  to a formal  plan of  action  or,  if  earlier,  on
divestment or on closure of inactive sites.

     The  extent  and  cost of  future  remediation  programmes  are  inherently
difficult to estimate.  They depend on the scale of any possible  contamination,
the timing and extent of corrective  actions,  and also the Group's share of the
liability. Although the cost of any future remediation could be significant, and
may be  material  to the  result  of  operations  in the  period  in which it is
recognized,  we do not expect that such costs will have a material effect on the
Group's  financial  position  or  liquidity.   We  believe  our  provisions  are
sufficient  for known  requirements;  and we do not believe  that our costs will
differ significantly from those of other companies (with similar assets) engaged
in  similar  industries  or that  our  competitive  position  will be  adversely
affected as a result.

     In   addition,   we  make   provisions   to  meet  the  cost  of   eventual
decommissioning  of our oil- and  gas-producing  assets and  related  pipelines.
Provisions for environmental  remediation and decommissioning are usually set up
on a  discounted  basis,  as required by  Financial  Reporting  Standard No. 12,
'Provisions,  Contingent Liabilities and Contingent Assets'.  Further details of
decommissioning  and  environmental  provisions  appear in Item 18 --  Financial
Statements  -- Note  31.  See  also  Item 4 --  Information  on the  Company  --
Environmental Protection.

Insurance

     The Group generally restricts its purchase of insurance to situations where
this is required  for legal or  contractual  reasons.  This is because  external
insurance is not considered an economic means of financing losses for the Group.
Losses will  therefore be borne as they arise rather than being spread over time
through  insurance  premia with  attendant  transaction  costs.  The position is
reviewed from time to time.


Page 87

                         LIQUIDITY AND CAPITAL RESOURCES



Cash Flow
                                                                        Years ended December 31,
                                                                   --------------------------------
                                                                      2002         2001         2000
                                                                  --------     --------    ---------
                                                                               ($ million)
                                                                                     
Net cash inflow from operating activities....................       19,342       22,409       20,416
Net cash (outflow) inflow ...................................         (344)       1,002        3,743


     Net cash  outflow  for 2002 was $344  million,  compared  with an inflow of
$1,002  million in 2001,  as lower  operating  cash flow and higher  acquisition
spending were partly offset by lower tax payments and higher disposal  proceeds.
The decrease in cash flow  between  2000 and 2001 is primarily  driven by higher
capital  expenditure and significantly  lower divestment proceeds (2000 included
proceeds from the sale of the ARCO Alaska assets).

     Net cash inflow from operating  activities  decreased to $19,342 million in
2002 from $22,409  million in 2001 and $20,416  million in 2000. In 2002,  lower
profit and higher  working  capital  were partly  offset by higher  depreciation
resulting  from  impairments.  Lower income in 2001  compared with 2000 was more
than   compensated  for  by  lower  working  capital   requirements  and  higher
depreciation.

     Dividends from joint ventures and  associated  undertakings  have decreased
from $1,039 million in 2000 to $632 million in 2001 and to $566 million in 2002.
The decrease in 2002 was related to the Erdoelchemie  transaction and the Altura
transaction partly offset by an increase from Watson Cogeneration. The principal
factor  underlying the decrease in 2001 was the  dissolution in August,  2000 of
the BP/Mobil European joint venture.

     The net cash outflow from servicing of finance and returns from investments
was $911 million in 2002,  $948  million in 2001 and $892  million in 2000.  The
lower cash  outflow in 2002 is primarily  due to lower  interest  payments.  The
higher cash outflow in 2001  compared  with 2000 arises  because the decrease in
interest payments was more than offset by the decrease in interest receipts.

     Tax  payments  decreased to $3,094  million in 2002 from $4,660  million in
2001 and $6,198  million in 2000  reflecting  the decline in profits  across the
period and in 2000  additional  taxes  related to the FTC  mandated  disposal of
ARCO's Alaskan operations.

     Payments  for capital  expenditures  on fixed  assets net of proceeds  from
sales of fixed assets,  amounted to $9,646  million in 2002 compared with $9,849
million in 2001 and $7,072  million in 2000.  The decrease in 2002 over 2001 was
due to slightly lower capital  expenditure  and higher  disposal  proceeds.  The
increase  in 2001 over 2000 was mainly  due to higher  capital  expenditure  and
lower disposal proceeds.

     Acquisitions  and  disposals of  businesses  produced a net cash outflow of
$1,337  million in 2002 compared  with an outflow of $1,755  million in 2001, as
the  impact  of the Veba  acquisition  was more than  offset by higher  disposal
proceeds.  Acquisitions and disposals of businesses  produced a net cash outflow
of $1,755  million  in 2001  compared  with an inflow  of $865  million  in 2000
reflecting  decreased  acquisition  activity and lower disposal  proceeds.  2000
included disposal proceeds of $6,803 million,  for the FTC mandated sales, which
were largely offset by the Burmah Castrol acquisition.

     Overall net cash outflow for capital  expenditure and acquisitions,  net of
disposals,  was $10,983 million compared with $11,604 million in 2001 and $6,207
million in 2000.

     Dividend  payments have  increased to $5,264 million from $4,827 million in
2001 and $4,415  million in 2000. The increase in both years reflects the impact
of the higher dividend per share, partly offset by share repurchases.


Page 88

Financing the Group's Activities

     The Group's principal commodity, oil, is priced internationally in dollars.
Group  policy has been to minimize  economic  exposure to currency  movements by
financing  operations with US dollar debt wherever possible,  otherwise by using
currency swaps when funds have been raised in currencies other than dollars.

     The Group's  finance debt is almost  entirely in US dollars and at December
31, 2002 amounted to $22,008  million  (2001  $21,417  million) of which $10,086
million (2001 $9,090 million) was short term.

     Net debt, that is debt less cash and liquid resources,  was $20,273 million
at the end of 2002, an increase of $664 million over the year.  The ratio of net
debt to net debt  plus  equity  was 22% at the end of 2002 and 23% at the end of
2001.  After adjusting for the fixed asset  revaluation  adjustment and goodwill
consequent upon the ARCO and Burmah Castrol acquisitions,  the ratio of net debt
to net debt plus  equity was 28%. We expect to keep this  adjusted  ratio in the
range of 25% to 35%.

     The maturity profile and fixed/floating rate characteristics of the Group's
debt are described in Item 18 -- Financial Statements -- Notes 26 and 29.

     In  addition to  reported  debt,  BP uses  conventional  off balance  sheet
arrangements  such as  operating  leases and  borrowings  in joint  ventures and
associated  undertakings.  At December 31, 2002 the Group's share of third party
borrowings of joint ventures and associated  undertakings was $457 million (2001
$460 million) and $849 million (2001 $1,136 million) respectively. These amounts
are not reflected in the Group's debt on the balance sheet.

     The Group has issued third party guarantees under which amounts outstanding
at December 31, 2002 are summarized  below.  Some guarantees  outstanding are in
respect of borrowings of joint ventures and associated undertakings noted above.



                                                               Guarantees expiring by period
                                             -------------------------------------------------------------
                                                                                                  2008 and
                                            Total     2003     2004    2005     2006     2007   thereafter
                                            -----    -----    -----   -----    -----    -----   ----------
                                                                      ($ million)
                                                                                
Guarantees issued in respect of:
Borrowings of joint ventures and
  associated undertakings..............       338       --       --     100       --      100          138
Liabilities of other third parties.....       293      133       65       9        9       11           66


     At  December  31, 2002  contracts  had been  placed for  authorized  future
capital  expenditure   estimated  at  $5,966  million,   mainly  in  respect  of
exploration  and  production  activities.  Such  expenditure  is  expected to be
financed  largely  by cash flow from  operating  activities.  The Group also has
access to significant  sources of liquidity in the form of committed  facilities
and other funding through the capital  markets.  At December 31, 2002, the Group
had available undrawn committed  borrowing  facilities of $3,600 million ($3,400
million at December 31, 2001).

     On February 11, BP announced  the  formation of a joint venture with AAR in
Russia.  The deal is scheduled  for  completion  in the summer of 2003, at which
time BP will pay AAR approximately $3 billion in cash.




Page 89

     The  following   table   summarizes  the  Group's   principal   contractual
obligations.  Further  information  on borrowings and capital leases is given in
Item 18 -- Financial  Statements -- Note 28 and further information on operating
leases is given in Item 18 -- Financial Statements -- Note 34.



                                                                          Payments due by period
                                                    ----------------------------------------------------------------
                                                                                                            2008 and
Contractual obligations payments due by period      Total     2003     2004     2005     2006     2007    thereafter
                                                    -----    -----    -----    -----    -----    -----    ----------
                                                                              ($ million)
                                                                                       
Long-term borrowings...........................    14,609    4,609      830    2,690      505    1,603         4,372
Finance lease obligations......................     4,423      106      204      211      218      203         3,481
Operating leases...............................     7,110    1,203      975      859      778      643         2,652
Unconditional purchase obligations.............    13,707    2,896    1,767    1,336    1,093      826         5,789


     The  following  table  summarizes  the  nature  of  the  Group's  long-term
unconditional  purchase  obligations.  The Group enters into these  arrangements
principally to secure  long-term  access to supplies of crude oil,  natural gas,
feedstocks and pipeline systems.




                                                                     Payments due by period
                                              -----------------------------------------------------------------
                                                                                                       2008 and
Unconditional purchase                         Total     2003     2004     2005     2006     2007    thereafter
obligations payments due by period             -----    -----    -----    -----    -----    -----    ----------
                                                                              ($ million)
                                                                                  
Crude oil and oil products................     2,741    1,239      503      304      226       90           379
Natural gas...............................     2,651      410      354      256      206      159         1,266
Chemicals and other refinery feedstocks...     4,147      320      311      306      302      297         2,611
Utilities.................................       770      119      109       67       55       48           372
Transportation............................     2,175      626      359      298      202      138           552
Use of facilities and services............     1,223      182      131      105      102       94           609
                                              ------    -----    -----    -----    -----    -----         -----
Total.....................................    13,707    2,896    1,767    1,336    1,093      826         5,789
                                              ======    =====    =====    =====    =====    =====         =====


     We have in place a European  Debt Issuance  Programme  (DIP) and a US Shelf
Registration  under each of which the Group may raise $8 billion  and $6 billion
of debt  respectively for maturities of one month or longer.  At March 19, 2003,
the amount drawn down  against the DIP was $2,024  million,  and $3,550  million
under the US Shelf Registration.

     Commercial  paper  markets in the USA and  Europe  are a primary  source of
liquidity for the Group. At December 31, 2002 the outstanding  commercial  paper
amounted to $4,853 million (2001 $4,634 million).

     BP believes that,  taking into account the  substantial  amounts of undrawn
borrowing  facilities  available,  the Group has sufficient  working capital for
foreseeable requirements.



Page 90

Liquidity Risk

     Liquidity risk is the risk that suitable sources of funding for the Group's
business  activities may not be available.  The Group has long-term debt ratings
of Aa1 and AA+  assigned  respectively  from  Moody's  and  Standard  &  Poor's.
Standard & Poor's placed this rating on CreditWatch,  following the announcement
of the  transaction  to form TNK-BP (see Item 4 - Information  on the Company --
General -- Recent  Developments).  In early  March  2003,  the  Company met with
Standard  & Poor's to discuss  its debt  rating.  As of the date of this  annual
report, we await the outcome of their review.

     The Group has  access  to a wide  range of  funding  at  competitive  rates
through the capital markets and banks. It co-ordinates relationships with banks,
borrowing  requirements,  foreign  exchange  requirements  and  cash  management
centrally.  The Group believes it has access to sufficient  funding and also has
undrawn committed borrowing facilities to meet currently  foreseeable  borrowing
requirements.  At December 31, 2002, the Group had available  undrawn  committed
facilities of $3,600 million. These committed facilities,  which are mainly with
a number of international  banks, expire in 2003. The Group expects to renew the
facilities on an annual basis.

Credit Risk

     Credit risk is the potential  exposure of the Group to loss in the event of
non-performance  by a  counterparty.  The credit risk  arising  from the Group's
normal commercial  operations is controlled by individual operating units within
guidelines.  In addition, as a result of its use of derivatives to manage market
risk, the Group has credit  exposures  through its dealings in the financial and
specialized  oil and natural gas markets.  The Group controls the related credit
risk  through  credit  approvals,   limits,  use  of  netting  arrangements  and
monitoring  procedures.  Counterparty  credit  validation,  independent  of  the
dealers, is undertaken before contractual commitment.


Page 91

            CRITICAL ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS

UK Generally Accepted Accounting Policies

     BP prepares  its  financial  statements  in  accordance  with UK  generally
accepted  accounting  practice (UK GAAP).  This  requires BP  Management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities at the date of the accounts and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  outcomes  could differ from the
estimates and assumptions used.

     The accounts for the year ended  December 31, 2002 have been prepared using
accounting  policies  consistent  with those used in the preparation of the 2001
accounts,  except for the change in accounting policy for deferred tax described
below.

     Segment  information  for 2001 and 2000 has been  restated  to reflect  the
transfer of the solar,  renewables and alternative  fuels  activities from Other
Businesses  and  Corporate to Gas and Power on January 1, 2002. At the same time
to reflect this transfer Gas and Power was renamed Gas, Power and Renewables.

     The  accounting  policies  and  areas  that  require  the most  significant
judgments  and  estimates  to be used in the  preparation  of BP's  consolidated
financial   statements  are  in  relation  to  oil  and  natural  gas  reserves;
depreciation  and amounts  provided;  impairment;  and  provisions  for deferred
taxation,   decommissioning,   environmental  liabilities,  pensions  and  other
postretirement benefits.

Adoption of New UK Accounting Standard

     With  effect  from  January  1,  2002 BP has  adopted  Financial  Reporting
Standard No. 19 'Deferred Tax' (FRS 19). This standard  generally  requires that
deferred  tax should be  provided  on a full  liability  basis  rather than on a
restricted  liability  basis as required  by  Statement  of Standard  Accounting
Practice No. 15 'Accounting  for Deferred Tax' (SSAP15).  The adoption of FRS 19
has been treated as a change in accounting policy.

     Under  FRS  19  deferred  tax  is  recognized  in  respect  of  all  timing
differences  that have  originated  but not  reversed at the balance  sheet date
where  transactions  or events have occurred at that date that will result in an
obligation to pay more, or right to pay less tax in the future. In particular:

     --   Provision is made for tax on gains  arising from the disposal of fixed
          assets that have been rolled over into replacement assets, only to the
          extent that, at the balance sheet date,  there is a binding  agreement
          to dispose of the replacement assets concerned.  However, no provision
          is made where,  on the basis of all available  evidence at the balance
          sheet date,  it is more likely than not that the taxable  gain will be
          rolled over into replacement  assets and charged to tax only where the
          replacement assets are sold.

     --   Provision is made for deferred tax that would arise on  remittance  of
          the retained  earnings of overseas  subsidiaries,  joint  ventures and
          associated  undertakings only to the extent that, at the balance sheet
          date, dividends have been accrued as receivable.

     Deferred tax assets are recognized only to the extent that it is considered
more likely than not that there will be suitable taxable profits from which the
underlying timing differences can be deducted.

     Deferred tax is measured on an undiscounted basis at the tax rates that are
expected to apply in the periods in which timing differences  reverse,  based on
tax rates and laws enacted or substantively enacted at the balance sheet date.

     When an acquisition has been made prior to the date of adopting FRS 19, the
accounting  standard  requires  that the fair  values  attributed  to assets and
liabilities  at the date of acquisition be restated as though FRS 19 had applied
at that time.  Applying  this  principle  has led to the creation of  additional
amounts of deferred taxation and additional  amounts of goodwill on acquisitions
made prior to January 1, 2002.

Page 92

     The change in  accounting  policy has resulted in a prior year  adjustment.
Shareholders' interest at January 1, 2000 has been reduced by $6,250 million and
the tax charge for the years  ended  December  31,  2001 and 2000  increased  by
$1,358 million and $1,676 million  respectively.  The provision for deferred tax
has been  increased  by $10,047  million at December  31,  2001.  Profit for the
current year has been reduced by  approximately  $750 million as a result of the
change in accounting policy.

Oil and Gas Reserves

     BP's oil and natural gas  reserves are  estimated by the Group's  petroleum
engineers in accordance with industry standards and SEC regulations.  Proved oil
and gas reserves are the estimated quantities of crude oil, NGLs and natural gas
which geological and engineering  data demonstrate with reasonable  certainty to
be recoverable in future years from known reservoirs under existing economic and
operating  conditions.  Accordingly,  these estimates do not include probable or
possible  reserves.  Estimated  oil and gas  reserves  are  based  on  available
reservoir  data and prices and costs as of the date the estimate is made and are
subject to future revision.

     As discussed  below,  oil and natural gas reserves  have a direct impact on
certain amounts reported in the financial statements.

Depreciation and Amounts Provided

     The Group follows the  successful  efforts method of accounting for its oil
and gas activities. This accounting principle requires, among other things, that
the capitalized costs for proved oil and gas properties (which include the costs
of  drilling  successful  wells) be  amortized  on the  basis of  oil-equivalent
barrels  that are produced in a period as a  percentage  of the total  estimated
proved  reserves.  The impact of changes in estimated  proved reserves are dealt
with  prospectively by amortizing the remaining book value of the asset over the
expected future  production.  If proved reserve  estimates are revised downward,
earnings  could be  affected  by higher  depreciation  expense  or an  immediate
write-down of the property's book value (see impairment discussion below).

     Given the large number of producing fields in the Group's portfolio,  it is
unlikely  that any  changes  in  reserve  estimates,  year on year,  will have a
significant effect on prospective charges for depreciation.

     Other tangible and intangible  assets are depreciated on the  straight-line
method over their estimated useful lives. The average  estimated useful lives of
refineries  are 20 years,  chemicals  manufacturing  plants 20 years and service
stations 15 years.  Other  intangibles are amortized over a maximum period of 20
years,  with most goodwill  amortized  over 10 years.  The 10-year  amortization
period  chosen for the  goodwill  arising on the ARCO,  Burmah  Castrol and Veba
acquisitions  reflects  the period over which the benefit of cost  synergies  is
expected to be eroded.

     During the period 2000 to 2002 there have been no changes in the  estimated
useful lives of the Group's major asset categories.  No significant  changes are
expected in 2003. The Group believes its asset lives are similar to those of its
major competitors.

Impairment of Fixed Assets and Goodwill

     Fixed assets,  including  goodwill are assessed for impairment if there are
events or changes in circumstances  which indicate that carrying values of those
assets may not be recoverable.  This entails comparing the carrying value of the
income-generating  unit and associated  goodwill with the recoverable  amount of
the asset,  that is, the higher of net realizable  value and value in use. Value
in use is usually  determined  on the basis of discounted  estimated  future net
cash flows.


Page 93

     For oil and  natural gas  properties,  the  expected  future cash flows are
estimated  based on the Group's plans to continue to produce and develop  proved
and associated  risk-adjusted  probable and possible  reserves.  Expected future
cash flows from the sale or  production  of reserves are  calculated  based on a
Brent  oil price of $20 and a Henry  Hub gas  price of  $3.20.  These  represent
10-year  historic  average  prices.  The net  present  values of cash  flows are
determined using a discount rate of 9%. The estimated future level of production
is based on assumptions about future commodity  prices,  lifting and development
costs,  field  decline  rates,  market  demand and supply,  economic  regulatory
climates and other factors.

     Charges for impairment  are recognized in the Group's  results from time to
time as a result of, among other  factors,  adverse  changes in the  recoverable
reserves  from oil and  natural  gas fields,  low plant  utilization  or reduced
profitability.  See Group Operating Results within this item for a discussion of
impairment  charges  recognized  in 2002. If there are low oil prices or natural
gas prices or refining margins or chemicals margins over an extended period, the
Group may need to recognize significant impairment charges.

Deferred Taxation

     The Group has  approximately  $5,300 million of carry-forward tax losses in
the UK, which are available to offset against future  taxable  income.  To date,
tax assets have been  recognized on $840 million of those losses  (i.e.,  to the
extent that it is regarded as more likely than not that suitable  taxable income
will  arise).  It is  unlikely  that the  Group's  effective  tax  rate  will be
significantly  affected in the near term by utilisation of losses not previously
recognized  as deferred  tax assets.  Carry-forward  tax losses in other  taxing
jurisdictions  have not been  recognized  as deferred  tax  assets,  and are not
likely to have a significant effect on the Group's tax rate in the near term.

     Deferred taxation is not generally provided in respect of liabilities which
may arise on the distribution of accumulated reserves of overseas  subsidiaries,
joint ventures and associated undertakings.

Decommissioning Costs

     The  Group  holds  provisions  for the  future  decommissioning  of oil and
natural gas  production  facilities  and pipelines at the end of their  economic
lives. The largest asset removal obligations facing BP relate to the removal and
disposal of oil and natural gas platforms and  pipelines  around the world.  The
estimated  discounted  costs of dismantling  and removing  these  facilities are
accrued at the  commencement  of production,  reflecting our legal  obligations.
Most of these  removal  events  are many  years in the  future  and the  precise
requirements that will have to be met when the removal event actually occurs are
uncertain. Asset removal technologies and costs are constantly changing, as well
as political, environmental,  safety and public expectations.  Consequently, the
timing and amounts of future cash flows are subject to significant uncertainty.

     The timing and amount of future expenditures are reviewed annually together
with the interest rate to be used in  discounting  the cash flows.  The interest
rate used to determine  the balance  sheet  obligation at year end 2002 was 2.5%
down from 3.0% at the end of 2001.  This change in the discount  rate  increased
the provision for decommissioning costs by $334 million at December 31, 2002.

Environmental Costs

     BP also makes judgments and estimates in recording  costs and  establishing
provisions for environmental  clean-up and remediation costs, which are based on
current   information  on  costs  and  expected  plans  for   remediation.   For
environmental  provisions,  actual  costs can differ from  estimates  because of
changes in laws and regulations, public expectations,  discovery and analysis of
site conditions and changes in clean-up technology.

     The provision  for  environmental  liabilities  is reviewed  annually.  The
change  in the  discount  rate,  from  3.0% at year end 2001 to 2.5% at year end
2002,  increased the provision for  environmental  liabilities by $36 million at
end 2002.



Page 94

Pensions and Other Postretirement Benefits

     Accounting for pensions and other postretirement benefits involves judgment
about uncertain events,  including estimated  retirement dates, salary levels at
retirement,  mortality rates,  rates of return on plan assets,  determination of
discount rates for measuring plan obligations,  health care cost-trend rates and
rates of utilization of health care services by retirees.  These assumptions are
based on the environment in each country. Determination of the projected benefit
obligations for the Company's defined benefit pension and  postretirement  plans
are important to the recorded  amounts for such obligations on the balance sheet
and to the amount of benefit  expense in the income  statement.  The assumptions
used may vary from year-to-year, which will affect future results of operations.
Any  differences  between these  assumptions and the actual outcome also impacts
future results of operations.

     Pension and other  postretirement  benefit  assumptions  are  discussed and
agreed with the independent  actuaries in December each year. These  assumptions
are used to determine the projected benefit obligation at the year end and hence
the  liability  or asset  recorded on the  Group's  balance  sheet,  and pension
expense for the following year.

     The pension  assumptions  at December 31, 2002 and 2001 under  Statement of
Standard Accounting Practice No. 24 'Accounting for Pension Costs' (SSAP 24) are
summarized  below.  The change in  assumptions  should lead to a net increase in
pension expense in 2003 of approximately $300 million.



                                                        UK            Other European                       USA
                                       -------------------       -------------------       -------------------
                                        2002          2001         2002         2001         2002         2001
                                     -------       -------      -------      -------      -------      -------
                                                                         (%)
                                                                                                
Rate of return on assets............    6.25           6.0          n/a          n/a          8.0         10.0
Discount rate.......................    6.25           6.0         5.75          6.2         6.75         7.25
Future salary increases.............     4.0           4.5          4.0          3.2          4.0          4.0
Future pension increases............     2.5           2.5          2.4          2.0           --           --
Dividend growth.....................     n/a           n/a          n/a          n/a          n/a          n/a


     The assumed rate of investment  return and discount rate have a significant
effect  on  the  amounts  reported.  A  one-percentage-point   change  in  these
assumptions for the principal plans would have the following effects:



                                                                            One percentage point
                                                                            ---------------------
                                                                            Increase     Decrease
                                                                            --------     --------
                                                                                  ($ million)
                                                                                     
Investment return:
Effect on pension expense in 2002.....................................          (240)         240
Discount rate:
Effect on pension expense in 2002.....................................          (320)         275
Effect on pension obligation at December 31, 2002.....................        (3,575)       3,625


     The  assumptions  used in  calculating  the  charge  for US  postretirement
benefits are consistent with those shown above for US pension plans. The assumed
future healthcare cost trend rate is shown below.



                                                                                                     2009 and
                                                                                                   subsequent
                                                2003     2004     2005     2006     2007     2008       years
                                               -----    -----    -----    -----    -----    -----  ----------
                                                                              (%)
                                                                                   
Beneficiaries aged under 65...............        12       11        9        8        7        6           5
Beneficiaries aged over 65................        15       14       12       10        8        7           6



     The  change  in  assumptions  between  2002 and 2003  should  result  in an
increase in postretirement benefits of approximately $140 million.



Page 95

     The  assumed  healthcare  cost trend rate has a  significant  effect on the
amounts reported. A  one-percentage-point  change in the assumed healthcare cost
trend rate would have the following effects:



                                                                                One percentage point
                                                                                ---------------------
                                                                                Increase     Decrease
                                                                                --------     --------
                                                                                     ($ million)
                                                                                          
Effect on total of service and interest cost in 2002...........................       52          (41)
Effect on postretirement obligation  at December 31, in 2002...................      587         (476)


     Under SSAP 24 surpluses  and  deficits on pension and other  postretirement
benefit plans are not recognized immediately, but spread over a number of years.
On the basis of SSAP 24 the asset or liability  reflected in the Group's balance
sheet at December  31, 2002 for the major  pension  and  postretirement  benefit
plans, net of tax, is as follows:



                                                                                         USA
                                                                  Other      ------------------------
                                                      UK       European                Postretirement
                                                 Pension        Pension        Pension       benefits
                                              ----------     ----------     ----------    -----------

                                                                     ($ million)

                                                                                   
Asset (liability)...........................       1,882         (2,883)           787        (1,795)



     If the assets and  liabilities of the pension and  postretirement  benefits
plans were  measured  at fair value at  December  31,  2002 in  accordance  with
Financial  Reporting  Standard No. 17, the assets and liabilities  that would be
recognized in the Group's balance sheet are set out below.  The aggregate impact
of  using  this  basis  would  be  to  reduce  BP   Shareholders'   interest  by
approximately $4.2 billion.



                                                                                         USA
                                                                  Other      ------------------------
                                                      UK       European                Postretirement
                                                 Pension        Pension        Pension       benefits
                                              ----------     ----------     ----------    -----------

                                                                     ($ million)

                                                                                   
Asset (liability)...........................         221         (1,947)        (1,663)        (2,790)



     The Other European  pension plans and US  postretirement  benefit plans are
unfunded;  payments to  beneficiaries  are made by the Group from its  operating
cash  flows and  other  resources.  The UK and US  pension  plans are  generally
funded. Subject to finalization of the actuarial valuation it is expected that a
contribution in the range of $500 million to $700 million will be made to the US
pension  plan in 2003.



Page 96

Impact of New UK Accounting Standards

     Retirement  benefits:  In December 2000, the UK Accounting  Standards Board
issued Financial Reporting Standard No. 17 'Retirement  Benefits' (FRS 17). This
standard was to be fully  effective for  accounting  periods  ending on or after
June 22, 2003 with certain of the disclosure  requirements effective for periods
prior to 2003.  However,  in November  2002, the UK Accounting  Standards  Board
issued an amendment to FRS 17, which defers full adoption  until January 1, 2005
although the  disclosure  requirements  apply to periods  prior to 2005.  FRS 17
requires  that  financial  statements  reflect  at fair  value  the  assets  and
liabilities  arising from an employer's  retirement benefit  obligations and any
related  funding.  The  operating  costs of  providing  retirement  benefits are
recognized  in the  period in which they are earned  together  with any  related
finance costs and changes in the value of related  assets and  liabilities.

     The  pro  forma   impact  of  adopting   this   standard  on  pensions  and
postretirement  benefits  is shown  in  Notes  40 and 41 of  Notes to  Financial
Statements.

US Generally Accepted Accounting Principles

     The  consolidated  financial  statements  of the BP Group are  prepared  in
accordance  with UK GAAP which  differs in certain  respects  from US  generally
accepted accounting  principles (US GAAP). The principal  differences between US
GAAP and UK GAAP for BP Group  reporting  are  discussed  in Note 45 of Notes to
Financial Statements.

Impact of New US Accounting Standards

     New US accounting  standards  adopted:  The Group has adopted  Statement of
Financial Accounting Standards No. 141 'Business Combinations' (SFAS 141) for US
GAAP reporting with effect from January 1, 2002.  Under SFAS 141, the pooling of
interest  method of accounting is no longer  permitted.  Also on January 1, 2002
the  Group  adopted  Statement  of  Financial   Accounting   Standards  No.  144
'Accounting  for the  Impairment or Disposal of  Long-Lived  Assets' (SFAS 144).
SFAS 144 retains the  requirement to recognize an impairment loss only where the
carrying value of a long-lived  asset is not recoverable  from its  undiscounted
cash flows and to  measure  such loss as the  difference  between  the  carrying
amount and fair value of the asset.  SFAS 144,  among other things,  changes the
criteria that have to be met in order to classify an asset as held-for-sale  and
requires that operating losses from discontinued operations be recognized in the
period that the losses are incurred rather than as of the measurement date.

     The adoption of SFAS 141 and SFAS 144 had no impact on profit,  as adjusted
to  accord  with  US  GAAP,  for  the  year  ended  December  31,  2002 or on BP
shareholders'  interest,  as adjusted to accord  with US GAAP,  at December  31,
2002.

     Asset  retirement  obligations:  In June  2001,  the  Financial  Accounting
Standards Board (FASB) issued  Statement of Financial  Accounting  Standards No.
143 'Accounting for Asset Retirement  Obligations' (SFAS 143). SFAS 143 requires
companies  to  record  liabilities  equal  to the  fair  value  of  their  asset
retirement  obligations  when  they are  incurred  (typically  when the asset is
installed at the production location). When the liability is initially recorded,
companies capitalize an equivalent amount as part of the cost of the asset. Over
time the  liability is accreted for the change in its present value each period,
and the  initial  capitalized  cost is  depreciated  over the useful life of the
related asset. SFAS 143 is effective for accounting periods beginning after June
15, 2002.

     The  cumulative  effect of adopting SFAS 143 at January 1, 2003 will result
in an after tax  credit to  income,  as  adjusted  to  accord  with US GAAP,  of
approximately  $1,700 million.  The effect of adoption also included an increase
in total  assets,  as  adjusted to accord with US GAAP,  of  approximately  $660
million  and a  reduction  in total  liabilities,  as adjusted to accord with US
GAAP,  of  approximately  $1,040  million.  It is expected that there will be an
additional  charge to profit,  adjusted to accord with US GAAP,  in the range of
$200 to 250 million in future periods.



Page 97

     Costs associated with exit or disposal  activities:  In June 2002, the FASB
issued Statement of Financial Accounting Standards No. 146 'Accounting for Costs
Associated with Exit or Disposal  Activities' (SFAS 146). SFAS 146 requires that
a liability for costs associated with an exit or disposal activity be recognized
only when the  liability  is  incurred,  rather  than at the date of an entity's
commitment  to an exit plan.  The new standard  requires  that the  liability be
initially  measured at fair value.  SFAS 146 is  effective  for exit or disposal
activities that are initiated after December 31, 2002.

     Contracts involved in energy trading activities:  In October 2002, the FASB
Emerging Issues Task Force (EITF) reached a consensus which rescinded EITF Issue
No.  98-10,  'Accounting  for  Contracts  Involved  in Energy  Trading  and Risk
Management  Activities'  (EITF  98-10).  As a  result  of  this  consensus,  all
energy-related,  non-derivative  contracts  (such  as  transportation,  storage,
tolling,  and  requirements  contracts  that do not  meet  the  definition  of a
derivative)  and  trading  inventories  that  are  accounted  for at fair  value
pursuant  to EITF  98-10  will no longer be  accounted  for at fair  value  upon
application  of the consensus.  Rather,  such contracts will be accounted for as
executory contacts on an accruals basis.

     The consensus is applicable  for all contracts  executed  after October 25,
2002.  Application  of the consensus to contracts  existing prior to October 26,
2002 is  required  to be  accounted  for as a  cumulative  effect of a change in
accounting principle effective for periods beginning after December 15, 2002.

     For BP's reporting under UK GAAP,  energy-related  non-derivative contracts
associated  with trading  activities  are marked to market with gains and losses
recognized in the income statement.

     The  cumulative  effect of adopting  the  consensus at January 1, 2003 will
result in an after tax credit to income,  as adjusted to accord with US GAAP, of
approximately $50 million.

     Stock-based  compensation:  In December 2002, the FASB issued  Statement of
Financial Accounting Standards No. 148 'Accounting for Stock-Based  Compensation
-  Transition  and  Disclosure'  (SFAS 148).  SFAS 148 amends SFAS 123 to permit
alternative  methods of  transition  for  adopting a fair value based  method of
accounting for stock-based employee compensation.  Under UK GAAP, the Group uses
the intrinsic value method to account for stock-based employee compensation.

     Guarantees:  In November 2002, the FASB issued FASB  Interpretation  No. 45
'Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect   Guarantees   of   Indebtedness   of  Others'   (Interpretation   45).
Interpretation 45 elaborates on existing disclosure  requirements for guarantees
and clarifies  that a guarantor is required to recognize,  at the inception of a
guarantee,  a  liability  for the fair  value of the  obligation  undertaken  in
issuing the guarantee.  The initial  recognition and  measurement  provisions of
Interpretation  45 apply on a prospective basis to guarantees issued or modified
after December 31, 2002.

     Consolidation:  In January 2003, the FASB issued FASB Interpretation No. 46
'Consolidation   of   Variable   Interest   Entities'    (Interpretation    46).
Interpretation   46  clarifies  the   application   of  existing   consolidation
requirements  to entities  where a  controlling  financial  interest is achieved
through arrangements that do not involve voting interests.  Under Interpretation
46, a  variable  interest  entity is  consolidated  if a company is subject to a
majority of the risk of loss from the variable interest  entity's  activities or
entitled to receive a majority of the entity's residual returns.  Interpretation
46 applies to variable  interest  entities created or acquired after January 31,
2003.   For   variable   interest   entities   existing  at  January  31,  2003,
Interpretation  46 is effective for accounting  periods beginning after June 15,
2003.

     The Company is  currently  carrying  out the  analysis  necessary  to adopt
Interpretation  46 in the  third  quarter  of 2003 for  existing  entities.  The
Company  does not expect  that the  adoption  of  Interpretation  46 will have a
significant  effect  on  profit  as  adjusted  to  accord  with US  GAAP,  or BP
shareholders' interest, as adjusted to accord with US GAAP.


Page 98

Impact of International Accounting Standards

     In June 2002, the European Union Council of Ministers  adopted a Regulation
which will  require  the Group to prepare  its  primary  consolidated  financial
statements in accordance with International Accounting Standards (IAS) beginning
January 1, 2005,  with  restatement  of prior periods  presented.  IAS differ in
several respects from UK and US GAAP. In addition,  significant revisions to IAS
are currently  being  contemplated  and other  revisions may be adopted prior to
January 1, 2005. The Group has not determined the effects of adopting IAS.


Page 99


ITEM 6 -- DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

                        DIRECTORS AND SENIOR MANAGEMENT

     The  following  lists  the  Company's  directors and senior management.



                                                                                Initially elected
Name                                                                            or appointed
------                                                                          --------------

                                                                                                
P D Sutherland....................... Non-executive chairman (a)                Chairman since May 1997
                                                                                Director since July 1995
Sir Ian Prosser...................... Non-executive deputy chairman (a)(b)(c)   Deputy chairman since
                                                                                February 1999
                                                                                Director since May 1997
The Lord Browne of Madingley......... Executive director (Group chief           September 1991
                                      executive)
R C Alexander........................ Chief executive, Gas, Power
                                      and Renewables                            April 2002
Dr D C Allen......................... Executive director                        February 2003
P B P Bevan.......................... Group general counsel                     September 1992
R F Chase............................ Executive director                        March 1992
I C Conn............................. Chief executive, Chemicals                November 2002
Dr A B Hayward....................... Executive director                        February 2003
J A Manzoni.......................... Executive director                        February 2003
Dr B E Grote......................... Executive director (Chief financial
                                      officer)                                  August 2000
R L Olver............................ Executive director (Deputy group
                                      chief executive)                          January 1998
J H Bryan............................ Non-executive director (a)(c)             December 1998
E B Davis, Jr........................ Non-executive director (a)(b)(c)          December 1998
Dr D S Julius........................ Non-executive director (a)(b)             November 2001
C F Knight........................... Non-executive director (a)(b)             October 1987
F A Maljers.......................... Non-executive director (a)(d)             December 1998
Dr W E Massey........................ Non-executive director (a)(d)             December 1998
H M P Miles.......................... Non-executive director (a)(c)(d)          June 1994
Sir Robin Nicholson.................. Non-executive director (a)(b)             October 1987
M H Wilson........................... Non-executive director (a)(c)(d)          December 1998


----------
(a) Member of the Chairman's Committee.
(b) Member of the Remuneration Committee.
(c) Member of the Audit Committee.
(d) Member of the Ethics and Environment Assurance Committee.

     Mr W D Ford retired as an executive  director on March 31, 2002. Sir Robert
Wilson retired as a non-executive  director on April 18, 2002. Dr J G S Buchanan
retired as an  executive  director and chief  financial  officer on November 21,
2002. Mr R F Chase will retire as an executive  director on April 23, 2003. BP's
articles of association  require  directors who have held office for three years
or more since they were  appointed  or  re-elected  to retire from office at the
Company's annual general meeting, together with directors appointed by the board
since the last annual general meeting.  Retiring  directors may offer themselves
for re-election.  The Director  retiring and offering himself for re-election at
this year's  meeting is Mr C F Knight.  Dr D C Allen,  Dr A B Hayward and Mr J A
Manzoni are standing for election by the shareholders.


Page 100

     The biographies of the directors and the secretary are set out below.

     P D Sutherland,  SC -- Peter  Sutherland  (56) rejoined BP's board in 1995,
having  previously  been a  non-executive  director  from  1990 to 1993.  He was
appointed chairman of BP in 1997. He is non-executive  chairman of Goldman Sachs
International and a non-executive  director of  Telefonaktiebolaget LM Ericsson,
Investor AB and The Royal Bank of Scotland Group.

     Sir Ian Prosser -- Sir Ian (59) joined BP's board in 1997 and was appointed
non-executive  deputy chairman in 1999. He is chairman of Six Continents.  He is
also a non-executive director of GlaxoSmithKline,  and chairman of the Executive
Committee of the World Travel and Tourism Council.

     The Lord  Browne of  Madingley,  FREng -- Lord  Browne,  formerly  Sir John
Browne,  (55), group chief executive,  was appointed an executive director of BP
in 1991 and group chief  executive in 1995.  He is a  non-executive  director of
Goldman Sachs Group and Intel Corporation, and a trustee of the British Museum.

     R C Alexander - Ralph Alexander (47), was appointed chief executive of Gas,
Power and Renewables in April 2002.

     Dr D C Allen -- David Allen (48),  group chief of staff,  was  appointed an
executive director of BP in February 2003.

     P B P Bevan - Peter Bevan (58),  was  appointed  group  general  counsel in
1992.

     R F  Chase  --  Rodney  Chase  (59),  senior  adviser  to the  group  chief
executive,  was  appointed  an  executive  director  of  BP  in  1992.  He  is a
non-executive director of Computer Sciences Corporation, Diageo and Tesco. He is
also a trustee of the Prince of Wales International Business Leaders Forum and a
member of the Executive Board of the World Council for Sustainable Development.

     I C Conn - Iain Conn (40),  was appointed  chief  executive of Chemicals in
November 2002.

     Dr B E Grote -- Byron Grote (54), chief financial officer, was appointed an
executive director of BP in 2000 and chief financial officer in November 2002.

     Dr A B Hayward -- Tony  Hayward  (45),  chief  executive,  Exploration  and
Production,  was appointed an executive director of BP in February 2003. He is a
non-executive director of Corus Group.

     J A Manzoni -- John Manzoni (43), chief executive,  Refining and Marketing,
was appointed an executive director of BP in February 2003.

     R L Olver -- Dick Olver (56),  deputy group chief executive,  was appointed
an executive director of BP in 1998, and deputy group chief executive in January
2003. He is a non-executive director of Reuters Group.

     J H Bryan -- John Bryan (66) joined Amoco's board in 1982. He serves on the
boards of Bank One Corporation, General Motors Corporation and Goldman Sachs. He
retired as chairman of Sara Lee Corporation in 2001.

     E B Davis,  Jr -- Erroll B Davis,  Jr (58) joined Amoco's board in 1991. He
is  president  and  chief  executive   officer  of  Alliant  Energy.   He  is  a
non-executive director of PPG Industries and a member of the American Society of
Corporate  Executives.  He serves as a director of the Wisconsin  Association of
Manufacturers and Commerce, the Edison Electric Institute and the Electric Power
Research  Institute.  He is also  chairman  of the board of trustees of Carnegie
Mellon University.

     Dr D S Julius,  CBE -- DeAnne  Julius  (53)  joined  BP's board in November
2001.  She is a  non-executive  director  of the  Court of the Bank of  England,
Lloyds TSB,  Serco and Roche  Holding.  From 1997 until June 2001 she was a full
time member of the Monetary Policy Committee of the Bank of England.

     C F Knight -- Charles Knight (67) joined BP's board in 1987. He is chairman
of Emerson Electric and is a non-executive  director of  Anheuser-Busch,  Morgan
Stanley Dean Witter, SBC Communications and IBM.


Page 101

     F A Maljers, KBE -- Floris Maljers (69) joined Amoco's board in 1994. He is
a member of the supervisory  boards of SHV Holding and Vendex NV. He is chairman
of  the  supervisory   boards  of  KLM  Royal  Dutch  Airlines,   the  Amsterdam
Concertgebouw NV and Rotterdam School of Management, Erasmus University.

     Dr W E Massey -- Walter Massey (64) rejoined Amoco's board in 1993,  having
previously  been a director  from 1983 to 1991.  He is  president  of  Morehouse
College and is a non-executive director of Motorola, Bank of America, McDonald's
Corporation,  the Mellon  Foundation  and the  Commonwealth  Fund.  He serves on
President Bush's Council of Advisors on Science and Technology.

     H M P Miles,  OBE -- Michael  Miles (66) joined  BP's board in 1994.  He is
chairman of Schroders and of Johnson Matthey.

     Sir Robin  Nicholson,  FREng,  FRS -- Sir Robin (68)  joined  BP's board in
1987. He is a non-executive director of Rolls-Royce.

     M H Wilson -- Michael  Wilson  (65)  joined  Amoco's  board in 1993.  He is
president and chief executive  officer of UBS Global Asset  Management  (Canada)
and a non-executive  director of  Manufacturers  Life Insurance  Company and UBS
Global Asset Management.




Page 102

                                  COMPENSATION

     The  remuneration   committee   determines  the  terms  of  engagement  and
remuneration of the executive directors.

Reward Policy

     The remuneration committee's reward policy reflects its obligation to align
executive  directors'  remuneration with  shareholders'  interests and to engage
world-class  executive  talent for the benefit of the Group. The main principles
of the policy are:

     --   Total  rewards  should be set at  appropriate  levels to  reflect  the
          competitive global market in which BP operates.

     --   The majority of the total reward  should be linked to the  achievement
          of demanding performance targets.

     --   Executive  directors'  incentives should be aligned with the interests
          of ordinary shareholders. This is achieved through setting performance
          targets  that are based on measures  of  shareholders'  interests  and
          through the  committee's  policy that each executive  director  should
          hold a significant  shareholding in the Company,  currently equivalent
          to 5 x the director's base salary.

     --   The  performance  targets in the Executive  Directors'  Incentive Plan
          (EDIP) should  encompass  demanding  comparisons  of BP's  shareholder
          returns and earnings with those of other companies in its own industry
          and in the broader marketplace.

     --   The wider scene,  including pay and employment conditions elsewhere in
          the Group,  should be taken into account,  especially when determining
          annual salary increases.

Elements of Remuneration

     The executive  directors'  total  remuneration  consists of salary,  annual
bonus, long-term incentives,  pensions and other benefits. This reward structure
is  regularly  reviewed  by the  committee  to ensure that it is  achieving  its
objectives.  In 2003,  over  three-quarters  of executive  directors'  potential
direct remuneration will again be performance  related. It is intended that this
balance of elements should continue.

Salary

     Each executive  director  receives a fixed sum payable monthly in cash. The
committee  expects to review salaries later in 2003 in line with global markets.
The appropriate survey groups are defined and analyzed by external  remuneration
advisers.

Annual Bonus

     Each   executive   director  is  eligible  to   participate  in  an  annual
performance-based  bonus scheme.  The  remuneration  committee  reviews and sets
bonus targets and levels of  eligibility  annually.  The target level is 100% of
base salary (except for Lord Browne,  for whom, as group chief executive,  it is
considered  appropriate  to have a target of 110%).  There is a stretch level of
150% of base salary for substantially  exceeding targets.  Executive  directors'
annual bonus awards for 2003 will again be based on a mix of demanding financial
targets and other  leadership  objectives,  established  at the beginning of the
year.  In  addition to  business  performance,  they cover areas such as people,
safety, environment and organization.


Page 103

Long-term Incentives

     Long-term  incentives  are provided  under the EDIP,  which was approved by
shareholders  in April 2000. It has three  elements:  a share  element,  a share
option element and a cash element.  Each executive director participates in this
plan. The committee's policy, subject to unforeseen circumstances,  is that this
should  continue until the plan expires or is renewed in 2005.  The  committee's
policy  for 2003 is to  continue  to use only the  share  element  and the share
option element.  The committee's policy that each executive director should hold
shares equivalent to 5 x the director's base salary is reflected in the terms of
the plan.

     The  performance  conditions in the share element and share option elements
of the  EDIP  were  selected  to  ensure  that  executive  directors'  long-term
remuneration  under the EDIP is appropriately  balanced between elements testing
BP's  performance  against that of  competitors in the oil industry and elements
testing BP's performance against that of the leading global companies.

Share Element

     The share element permits the remuneration  committee to grant `performance
units' to executive  directors,  which may result in an award of shares (without
payment  by the  directors)  at the end of a  three-year  performance  period if
demanding performance  conditions are met. The maximum number of shares that may
be awarded for each performance unit is two.

     Shares  awarded  are then  held in trust for three  years  before  they are
released  to the  individual.  This  gives the  executive  directors  a six-year
incentive  structure,  and ensures  their  interests  are aligned  with those of
shareholders.

     The share element compares BP's performance  against the oil and gas sector
over three years on a rolling  basis.  This is assessed in terms of a three year
total shareholder  return against the market (SHRAM),  return on average capital
employed  (ROACE) and  earnings  per share  growth,  based on pro forma  results
adjusted for special items (EPS).  SHRAM is the primary measure,  accounting for
nearly two-thirds of the potential total award. All calculations are reviewed by
the  external  auditors  to  ensure  that  they  meet an  independent  objective
standard.  The  relative  position of the Company  within the  comparator  group
determines the number of shares awarded per performance unit.

     For the 2001-2003 plan, BP's three-year SHRAM is measured against the other
oil  majors:  ExxonMobil,  Shell,  TotalFinaElf  and  ChevronTexaco.  Due to the
reduced  number of oil  majors,  for the  2002-2004  and  2003-2005  plans  BP's
three-year SHRAM is measured against the companies in the FTSE All World Oil and
Gas Index.  Companies  within the index are  weighted  according to their market
capitalization  at the  beginning  of each  three-year  period  in order to give
greatest emphasis to oil majors.

     The committee  reviews and approves  annually the performance  measures and
the comparator companies.  The policy for 2003 and for the foreseeable future is
to continue with the SHRAM  measure  adopted by the committee in relation to the
2002-2004 and 2003-2005 plans.

     BP's  ROACE and EPS for all the plans  since  April  2001 are,  and for the
foreseeable future will be, measured against ExxonMobil, Shell, TotalFinaElf and
ChevronTexaco.


Page 104

Share Option Element

     The  share  option  element  of  the  EDIP  is  designed  to  reflect  BP's
performance  relative  to a  wider  selection  of  global  companies.  It  has a
disclosed  three-year pre-grant  performance  requirement that differentiates it
from  traditional  share  option  schemes.  Under this  element,  options may be
granted to  executive  directors  at an exercise  price no lower than the market
value (as  determined in accordance  with the plan rules) of a share at the date
the option is granted. Reflecting the pre-grant performance requirement, options
vest over three years after grant (one-third each after one, two and three years
respectively). They have a life of seven years after grant.

     In accordance  with the framework  approved by  shareholders in 2000, it is
the committee's policy to continue exercising its judgement to decide the number
of options to be granted to each  executive  director,  taking into account BP's
total  shareholder  return (TSR)  compared  with the TSR for the FTSE Global 100
group of companies over the three years preceding the grant.  The committee will
not grant  options in any year unless the  criteria for an award of shares under
the share  element have been met.  These methods of  calculation  were chosen to
enable the committee to take into account not only the TSR position but also the
underlying health of the business and the competitive marketplace.

     Following grant, the options are not subject to any performance conditions.
The remuneration committee favours this approach for two main reasons. First, it
has the effect of treating  share options as a reward both for past  performance
(because  BP's  ranking  within a  comparator  group  will have been  taken into
account in  determining  the number of shares under  option) and as an incentive
for future  performance  (because the  participant's  gain under the option will
depend on share price  growth  after the grant  under the  option).  Second,  BP
operates  internationally  and the application of a performance  condition after
grant is not a  feature  of  option  schemes  operated  by  major  international
companies based outside the UK.

Cash Element

     The cash  element  allows the  remuneration  committee to grant cash rather
than share-based incentives in exceptional  circumstances.  This element was not
used in 2002, and the committee has no present intention to use it in 2003.

Other Benefits

Pension

     Executive  directors are eligible to participate in the appropriate pension
schemes applicable in their home countries.

Benefits and Other Share Schemes

     Executive directors are eligible to participate in regular employee benefit
plans and in all-employee share schemes and savings plans as applicable in their
home countries. Benefits in kind are not pensionable.

Resettlement Allowance

     Expatriates may receive a resettlement allowance for a limited period.



Page 105


New Appointees

     Dr Allen, Dr Hayward and Mr Manzoni were appointed  executive  directors on
February 1, 2003, each on a base salary of  (pound)400,000  per annum.  They are
subject to the  committee's  policy on  executive  directors'  remuneration,  as
described  above.  As such,  they will be eligible to  participate in the annual
bonus scheme and EDIP described  above on a similar basis to the other executive
directors.

2002 Remuneration for Executive Directors

     The table below represents  remuneration received by executive directors in
the 2002 financial  year,  with the exception of the 2002 annual bonus which was
earned in 2002 but paid in 2003. Amounts are shown in both US dollars and pounds
sterling and are converted at the rate of (pound)1 = $1.44 for 2001 and (pound)1
= $1.50 for 2002. Lord Browne, Mr Chase, Mr Olver and Dr Buchanan received their
remuneration in pounds sterling; Dr Grote and Mr Ford in US dollars.



                                    Annual remuneration         Long term Performance Plan (LTPP)        Grants under EDIP
                     ----------------------------------------  ----------------------------------   ------------------------
                                                                2000-2002 LTPP    1999-2001 LTPP        2002-2004        Share
                                                                  (awarded in       (awarded in             Share       option
                                                                   Feb 2003)         Feb 2002)            element      element
                        2002  annual                                                                      (granted in Feb 2002)
                         performance    Other      2002    2001  Actual             Actual
                     Salary    bonus benefits     total   total   award    Value     award   Value(c) (performance
Summary of 2002        `000     `000     `000      `000    `000 (shares)(a) `000(b)(shares)   `000          units)(d)  (options)(e)
Remuneration         ------    ----- --------     -----   -----  ------    -----    ------   ------   ------------     --------
                       ($)      ($)     ($)        ($)     ($)               ($)               ($)
                    (pounds) (pounds)(pounds)   (pounds) (pounds)         (pounds)          (pounds)
                                                                                    
The Lord Browne
  of Madingley.....  $1,926   $2,543      $78    $4,547  $4,373 224,000   $1,329   472,500  $3,875         475,556    1,348,032
....................   1,284    1,695       52     3,031   3,037              886             2,691

R F Chase..........    $960   $1,152      $47    $2,159  $2,042 139,200     $826   315,000  $2,583         272,031           --
....................     640      768       32     1,440   1,418              551             1,794

Dr B E Grote.......    $713     $856     $302(f) $1,871  $1,864  68,000     $403    175,000 $1,436         182,613      349,038
....................     475      570      202     1,247   1,294              269               997

R L Olver..........    $795     $954      $56    $1,805  $1,717 117,600     $698    252,000 $2,066         196,296      370,956
....................     530      636       37     1,203   1,192              465             1,435

Directors leaving the board in 2002 (g)
Dr J G S Buchanan..    $715     $787      $26    $1,528  $1,656 123,200     $731    280,000 $2,297         221,026           --
....................     477      524       17     1,018   1,150              487             1,595

W D Ford...........    $180     $180     $148(f)   $508  $2,188 105,600     $626    175,000 $1,436               --          --
....................     120      120       99       339   1,519              418               997


------------

(a)  Gross award of shares based on a performance assessment by the remuneration
     committee and on the other terms of the plan. Sufficient shares are sold to
     pay for tax applicable.  Remaining shares are held in trust until 2006 when
     they are released to the individual.

(b)  Based on the closing  mid-market  price of BP shares on  February  17, 2003
     ((pound)3.955/$5.93 at (pound)1=$1.50).

(c)  Based on the closing mid-market price on date of award  ((pound)5.695/$8.20
     at (pound)1=$1.44).

(d)  Performance units granted under the 2002-2004 share element of the EDIP are
     converted to shares at the end of the  performance  period.  Maximum of two
     shares per performance unit.
(e)  Options  granted in February  2002 have a grant price of  (pound)5.715  per
     share.  Dr Grote  holds  options  over ADSs;  the above  numbers and prices
     reflect calculated equivalents.
(f)  Includes  resettlement  allowances for Dr Grote and Mr Ford of $300,000 and
     $110,000 respectively.
(g)  Amounts for Dr  Buchanan  and Mr Ford  reflect the eleven  months and three
     months respectively that they were directors in 2002.




Page 106


Salary

     In January 2002 base salaries for  executive  directors  were  increased by
less than 10% per annum.  Base salaries  have recently been  increased by 5% per
annum both for Dr Grote on his promotion to chief  financial  officer and for Mr
Olver on his promotion to deputy group chief executive.

Annual Bonus

     The annual bonus  awards for 2002 were based on a mix of financial  targets
and leadership  objectives  established at the beginning of the year. Assessment
of all the  targets  resulted  in a target  performance  of 120  points out of a
maximum  of 150,  which is some 11% lower than the 135  points  last  year.  The
resulting bonus awards are shown in the summary table above. All calculations in
relation to the annual bonus have been reviewed by the external auditors.

Long-term Performance-based Components

Long Term Performance Plan (LTPP) and Share Element of EDIP

     Under the Long Term  Performance  Plans and the share  element of the EDIP,
performance  units are granted at the beginning of the period and converted into
an  award  of  shares  at  the  end  of  the  three-year  period,  depending  on
performance. There is a maximum of two shares per performance unit.

     Since the adoption of the EDIP in April 2000, the executive  directors have
ceased to be eligible  for grants  under the BP share option plan and the LTPPs.
However,  they were not required to relinquish rights under those plans that had
already been granted prior to April 2000 (including  performance units under the
LTPPs that have yet to mature into share awards).

     The last of these LTPP  rights  under the  1999-2001  and  2000-2002  plans
matured or mature into share awards in February 2002 and 2003 respectively.

     For the 2000-2002  LTPP,  BP's  performance was assessed in terms of SHRAM,
ROACE and EPS growth - each relative to that of ExxonMobil, Shell, TotalFinaElf,
ChevronTexaco, ENI and Repsol-YPF.

     BP's SHRAM came in at sixth place among the comparator group,  fourth place
on EPS growth and first place on ROACE.

     Based on a performance assessment of 80 points out of 200, the remuneration
committee has made awards of shares to executive directors as highlighted in the
2000-2002 lines of the table on the page following.



Page 107


     The  following  table  summarizes  the  LTPPs  and  share  elements  of the
executive directors' remuneration for 2002.



                                                            LTPP/Share element interests                      Interests vested
                      ------------------------------------------------------------------    -----------------------------------
                                                      Market
                                                    price of                                                             Market
                                                  each share                                                           price of
                                                  at date of                                 Number                  each share
                                        Date of     grant of      Performance units(b)           of                    at share
                                       grant of  performance  --------------------------   ordinary                       award
                    Performance     performance        units  At Jan 1  Granted   At Dec     shares       Share award      date
                         period(a)        units       (pound)     2002     2002  31 2002    awarded(c)           date    (pound)
                    -----------     -----------  -----------   -------  -------  -------    --------      -----------   -------

                                                                                                
The Lord Browne       1999-2001    Mar 11, 1999         5.11   270,000       --       --    472,500      Feb 19, 2002      5.70
  of Madingley        2000-2002    Feb 23, 2000         4.59   280,000       --  280,000    224,000      Feb 17, 2003      3.96
                      2001-2003    Feb 19, 2001         5.80   415,000       --  415,000         --                --        --
                      2002-2004    Feb 18, 2002         5.73        --  475,556  475,556         --                --        --

R F Chase             1999-2001    Mar 11, 1999         5.11   180,000       --       --    315,000      Feb 19, 2002      5.70
                      2000-2002    Feb 23, 2000         4.59   174,000       --  174,000    139,200      Feb 17, 2003      3.96
                      2001-2003    Feb 19, 2001         5.80   205,000       --  205,000         --                --        --
                      2002-2004    Feb 18, 2002         5.73        --  237,037  237,037         --                --        --
                      2002-2004    Mar 13, 2002         6.17        --   34,994   34,994         --                --        --

Dr B E Grote          1999-2001    Mar 11, 1999         5.11   100,000       --       --    175,000      Feb 19, 2002      5.70
                      2000-2002    Feb 23, 2000         4.59    85,000       --   85,000     68,000      Feb 17, 2003      3.96
                      2001-2003    Feb 19, 2001         5.80   155,000       --  155,000         --                --        --
                      2002-2004    Feb 18, 2002         5.73        --  182,613  182,613         --                --        --

R L Olver             1999-2001    Mar 11, 1999         5.11   144,000       --       --    252,000      Feb 19, 2002      5.70
                      2000-2002    Feb 23, 2000         4.59   147,000       --  147,000    117,600      Feb 17, 2003      3.96
                      2001-2003    Feb 19, 2001         5.80   170,000       --  170,000         --                --        --
                      2002-2004    Feb 18, 2002         5.73        --  196,296  196,296         --                --        --

Directors leaving the board in 2002

Dr J G S Buchanan     1998-2000     Feb 5, 1998         4.05   159,900(d)    --       --         --                --        --
                      1999-2001    Mar 11, 1999         5.11   160,000       --       --    280,000      Feb 19, 2002      5.70
                      2000-2002    Feb 23, 2000         4.59   154,000       --  154,000(e) 123,200      Feb 17, 2003      3.96
                      2001-2003    Feb 19, 2001         5.80   165,000       --  165,000(e)      --                --        --
                      2002-2004    Feb 18, 2002         5.73        --  192,593  192,593(e)      --                --        --
                      2002-2004    Mar 13, 2002         6.17        --   28,433   28,433(e)      --                --        --

W D Ford              1999-2001    Mar 11, 1999         5.11   100,000       --       --    175,000      Feb 19, 2002      5.70
                      2000-2002    Feb 23, 2000         4.59   132,000       --  132,000(f) 105,600      Feb 17, 2003      3.96
                      2001-2003    Feb 19, 2001         5.80   170,000       --  170,000(f)      --                --        --

Former Director
Dr C S Gibson-Smith   1999-2001    Mar 11, 1999         5.11   144,000       --       --    252,000      Feb 19, 2002      5.70
                      2000-2002    Feb 23, 2000         4.59   140,000       --  140,000    112,000      Feb 17, 2003      3.96

---------------

(a)  For  performance  periods up to 2000-2002,  performance  units were granted
     under the LTPPs.  Thereafter  they were granted under the EDIP as explained
     in this item.  Each performance period ends on December 31 of the third
     year.
(b)  Represents number of performance units, each having a maxiumum potential of
     two shares depending on performance.
(c)  Represents  awards of shares  or share  equivalents  made at the end of the
     relevant  performance  period based on performance  achieved under rules of
     the plan. BP's performance is assessed in terms of three-year SHRAM against
     the  oil  majors.   For   1998-2000   this  included   ExxonMobil,   Shell,
     TotalFinaElf, ChevronTexaco; for 1999-2001 this included ExxonMobil, Shell,
     TotalFinaElf,  ChevronTexaco;  and for 2000-2002 this included  ExxonMobil,
     Shell,  TotalFinaElf,  ChevronTexaco,  ENI  Repsol-YPF.  For the two latter
     plans,  performance  was also  assessed  in terms of ROACE  and EPS  growth
     against he same oil majors.  Dr Grote and Mr Ford received  their awards in
     ADSs.
(d)  Dr Buchanan elected to defer to 2004 the  determination of whether an award
     should be made for this period.
(e)  On leaving the board of BP p.l.c. on November 21, 2002.
(f)  On leaving the board of BP p.l.c. on March 31, 2002



Page 108

Share Options

     The table below represents the interests of executive  directors in options
over Ordinary Shares during 2002.


                                                                                        Market price    Date from
                   Option           At                                  At       Option      at date  which first
                     type  Jan 1, 2002    Granted  Exercised  Dec 31, 2002        price  of exercise  exercisable   Expiry date
                   ------  -----------  ---------  ---------  ------------   ---------- ------------  -----------   -----------
                                                                                          
The Lord Browne
  of Madingley       SAYE        5,968         --      5,968            --  (pound)2.89  (pound)4.52   Sept 1, 02    Feb 28, 03
                     SAYE           --      3,661         --         3,661  (pound)4.52           --   Sept 1, 07    Feb 28, 08
                     EDIP      408,522         --         --       408,522  (pound)5.99           --   May 15, 01    May 15, 07
                     EDIP    1,269,843         --         --     1,269,843  (pound)5.67           --   Feb 19, 02    Feb 19, 08
                     EDIP           --  1,348,032         --     1,348,032  (pound)5.72           --   Feb 18, 03    Feb 18, 09

R F Chase            SAYE        3,388         --         --         3,388  (pound)4.98           --   Sept 1, 05    Feb 28, 06
                     EDIP       85,215         --         --        85,215  (pound)5.99           --   May 15, 01    May 15, 07
                     EDIP      312,171         --         --       312,171  (pound)5.67           --   Feb 19, 02    Feb 19, 08

Dr B E Grote(a)       SAR       40,000         --         --        40,000       $13.63           --   Mar 23, 96    Mar 23, 03
                      SAR       40,800         --         --        40,800       $16.63           --   Mar 25, 97    Mar 25, 04
                      SAR       35,600         --         --        35,600       $19.16           --   Feb 28, 98    Feb 28, 05
                      SAR       35,200         --         --        35,200       $25.27           --   Mar  6, 99    Mar  6, 06
                      SAR       40,000         --         --        40,000       $33.34           --   Feb 28, 00    Feb 28, 07
                      BPA       10,404         --         --        10,404       $53.90           --   Mar 15, 00    Mar 14, 09
                      BPA       12,600         --         --        12,600       $48.94           --   Mar 28, 01    Mar 27, 10
                     EDIP       40,182         --         --        40,182       $49.65           --   Feb 19, 02    Feb 19, 08
                     EDIP           --     58,173         --        58,173       $48.82           --   Feb 18, 03    Feb 18, 09

R L Olver            SAYE        2,386         --         --         2,386  (pound)2.89           --   Sept 1, 02    Feb 28, 03
                     SAYE        1,137         --         --         1,137  (pound)5.11           --   Sept 1, 04    Feb 28, 05
                     SAYE           --        840         --           840  (pound)4.52           --   Sept 1, 05    Feb 28, 06
                     EDIP       71,847         --         --        71,847  (pound)5.99           --   May 15, 01    May 15, 07
                     EDIP      260,319         --         --       260,319  (pound)5.67           --   Feb 19, 02    Feb 19, 08
                     EDIP           --    370,956         --       370,956  (pound)5.72           --   Feb 18, 03    Feb 18, 09

Director leaving the board in 2002
Dr J G S Buchanan(b) SAYE        1,856         --         --         1,856  (pound)3.71           --   Sept 1, 03    Feb 28, 04
                     SAYE          750         --         --           750  (pound)4.49           --   Sept 1, 04    Feb 28, 05
                     SAYE        1,320         --         --         1,320  (pound)5.11           --   Sept 1, 06    Feb 28, 07
                     EDIP       75,189         --         --        75,189  (pound)5.99           --   May 15, 01    May 15, 07
                     EDIP      253,971         --         --       253,971  (pound)5.67           --   Feb 19, 02    Feb 19, 08

W D Ford(a)(c)       NRSO      105,866         --         --       105,866       $20.80           --   Mar 22, 95    Mar 22, 04
                     NRSO      119,100         --         --       119,100       $23.69           --   Mar 28, 96    Mar 28, 05
                     NRSO      132,332         --         --       132,332       $27.68           --   Mar 26, 97    Mar 26, 06
                     NRSO      132,332         --         --       132,332       $34.08           --   Mar 25, 98    Mar 25, 07
                     NRSO      132,332         --         --       132,332       $32.92           --   Mar 24, 99    Mar 24, 08
                      BPA       54,712         --         --        54,712       $53.90           --   Mar 15, 00    Mar 14, 09
                      BPA       38,750         --         --        38,750       $48.94           --   Mar 28, 01    Mar 27, 10
                     EDIP       43,506         --         --        43,506       $49.65           --   Feb 19, 02    Feb 19, 08

---------------
     The closing  market  prices of an ordinary  share and of an ADS on December
31, 2002 were  (pound)4.27  and $40.65  respectively.  During 2002,  the highest
market prices were  (pound)6.25 and $53.88  respectively,  and the lowest market
prices were (pound)3.93 and $36.78 respectively.

EDIP -- Executive  Directors' Incentive Plan adopted  by  shareholders  in April
        2000  as  described in this item. The awards take into consideration the
        ranking  of  the  company's TSR  against  the TSR of the FTSE Global 100
        group of companies over the  three-year period  prior to  the  grant. As
        noted in last year's report, for directors  who retire after January 1,
        2002, options that are vested at a director's  retirement  will  now  be
        preserved  until  the  normal  lapse  date  (the  seventh anniversary of
        grant).

BPA  -- BP Amoco share option plan which applied to US executive directors prior
        to the adoption of the EDIP.

NRSO -- Amoco  Non-Restricted  Stock Option Plan which  applied to Mr Ford as an
        employee of Amoco.

SAR  -- Stock Appreciation Rights under BP America Inc. Share Appreciation Plan.

     In keeping with the US market practice,  none of the options under the BPA,
NRSO and SAR is subject to  performance  conditions  because  they were  granted
under  American  plans to the  relevant  individuals  and the NRSO  options were
awarded prior to Amoco's merger with BP.

SAYE -- Save as You Earn  employee  share option  scheme.  These options are not
        subject to performance conditions because this is an all-employee  share
        scheme governed by specific tax legislation.
---------------
(a)  Numbers shown are ADSs under option.  One ADS is equivalent to six ordinary
     shares.
(b)  On leaving the board of BP p.l.c. on November 21, 2002.
(c)  On leaving the board of BP p.l.c. on March 31, 2002.


Page 109

Pensions

     In the  table  below,  amounts  are  shown in both US  dollars  and  pounds
sterling and are converted at the rate of (pound)1 = $1.44 for 2001 and (pound)1
= $1.50 for  2002.  Lord  Browne,  Mr Chase,  Mr Olver and Dr  Buchanan  accrued
pension  benefits in pounds  sterling (the currency of payment).  Similarly,  Dr
Grote and Mr Ford accrued pension benefits in US dollars.



                                                                                                                           Amount
                                                                        Additional      Transfer         Transfer     of A-B less
                                                           Accrued         pension         value            value   contributions
                                                           pension   earned during    of accrued       of accrued     made by the
                                       Service at      entitlement  the year ended   benefits at      benefits at        director
                                     Dec 31, 2002  at Dec 31, 2002    Dec 31, 2002  Dec 31, 2002(a)  Dec 31, 2001(b)      in 2002
                                     ------------  ---------------  --------------  ------------     ------------   -------------
                                                                              (thousand)
                                                                                                        
The Lord Browne of Madingley (UK).($)    36 years           $1,284             $84       $19,143          $16,335          $2,808
  (pounds)...........................                          856              56        12,762           11,344           1,418
Dr J G S Buchanan (UK)............($)    33 years             $520             $40        $9,586           $8,652            $934
  (pounds)...........................                          347              27         6,391            6,008             383
R F Chase (UK)....................($)    38 years             $640             $50       $11,649          $10,633          $1,016
  (pounds)...........................                          427              33         7,766            7,384             382
W D Ford (USA) (a)................($)    31 years             $644            $140        $8,324           $5,988          $2,336
  (pounds)...........................                          429              93         5,549            4,158           1,391
Dr B E Grote (USA)................($)    23 years             $263            $181        $3,493           $1,069          $2,424
  (pounds)...........................                          175             121         2,329              742           1,587
R L Olver (UK)....................($)    29 years             $530             $40        $8,210           $6,955          $1,255
  (pounds)...........................                          353              27         5,473            4,830             643



----------

(a)  2002 figures for Mr Ford are stated as at March 31, 2002,  the date he left
     the board of BP p.l.c.  He retired in June 2002 and, in accordance with his
     entitlements under the normal rules of the `grandfathered'  plan, he took a
     lump-sum  distribution  in  August  2002  of  his  combined  plan  benefits
     totalling $8,485,733.

UK Directors

     UK directors are members of the BP Pension Scheme. The scheme offers Inland
Revenue-approved  retirement benefits based on final salary. It is the principal
section  of the BP  Pension  Fund,  the latter  being set up under  trust  deed.
Company  contributions  to the  fund  are  made  on the  advice  of the  actuary
appointed by the trustee. No company contributions were made during 2002.

     Scheme members' core benefits are non-contributory.  They include a pension
accrual of 1/60th of basic salary for each year of service, subject to a maximum
of two-thirds of final basic salary; a lump-sum  death-in-service benefit of 3 x
salary;  and a dependant's  benefit of two-thirds of the member's  pension.  The
scheme pension is not integrated with state pension benefits.

     Normal  retirement age is 60, but scheme members who have 30 or more years'
pensionable  service at age 55 can elect to retire  early  without an  actuarial
reduction being applied to their pension.

     Pensions  payable from the fund are guaranteed to be increased  annually in
line with changes in the Retail Prices Index, up to a maximum of 5% a year.

     Directors  appointed  prior to 2003  accrue  pension on a  non-contributory
basis at the  enhanced  rate of 2/60ths of their  final  salary for each year of
service as executive  directors (up to the same two-thirds  limit).  None of the
directors is affected by the pensionable earnings cap.


Page 110

US Directors

     In  accordance  with the  Company's  long-standing  practice for  executive
directors  who  retire  from BP on or after  age 55 having  accrued  at least 30
years'  service,  Mr Chase will  receive an  ex-gratia  lump-sum  superannuation
payment  from  the  Company  equal  to one  year's  base  salary  following  his
retirement.  Lord Browne  will  remain  eligible  for  consideration  for such a
payment.  In the  case  of  these  individuals,  all  matters  relating  to such
superannuation  payments will be considered by the remuneration  committee.  Any
such  payments  would be in addition to their pension  entitlements  referred to
above. None of the other executive  directors are eligible for consideration for
a superannuation payment on retirement, as the remuneration committee decided in
1996 that  appointees  to the board after that time should  cease to be eligible
for consideration for such a payment.

     US directors participate in the BP Retirement  Accumulation Plan (US plan),
which features a cash balance formula.  The current design of the US plan became
effective on July 1, 2000.  However,  certain former employees of Amoco and ARCO
have been  provided  with a minimum (or  'grandfathered')  benefit  equal to the
benefit that would have accrued under the respective  predecessor  pension plan.
Mr Ford's  pension  benefit  was  subject  to this  'grandfathered'  arrangement
described above, reflecting his Amoco service and benefits.

     Consistent with US tax regulations, pension benefits are provided through a
combination of tax-qualified and non-qualified benefit restoration plans, as
applicable.

     The Supplemental  Executive  Retirement  Benefit  (supplemental  plan) is a
non-qualified top-up arrangement that became effective on January 1, 2002 for US
employees above a specified  salary level.  The benefit formula is 1.3% of final
average  earnings,  which  comprise  base  salary and bonus in  accordance  with
standard US practice (as specified under the qualified  arrangement)  multiplied
by years of  service,  with an offset for  benefits  payable  under all other BP
qualified and non-qualified pension  arrangements.  This benefit is unfunded and
therefore paid from corporate assets.

     Dr Grote is an eligible  participant  under the supplemental  plan, and his
pension accrual for 2002 includes the total amount that may become payable under
all plans.

Executive Directors' Shareholdings



Executive directors' interest in BP ordinary                              At January 1, 2002           Change from
shares or calculated equivalents                                   At                  or on     December 31, 2002
                                                    December 31, 2002            appointment     to March 19, 2003
                                                    -----------------     ------------------     -----------------
                                                                                                
Current directors
(excluding those appointed in 2003)
The Lord Browne of Madingley.....................           1,681,652 (a)          1,392,184 (a)          134,400
R F Chase........................................             810,826                794,745               83,802
Dr B E Grote.....................................             722,562 (b)            595,845 (b)           40,800
R L Olver........................................             738,563                585,852               58,229

                                                                                          At
                                                        On retirement (c)    January 1, 2002
                                                        -------------        ---------------
Directors leaving the board in 2002
Dr J G S Buchanan................................             890,409                723,149
W D Ford.........................................             435,607 (b)            333,139 (b)

                                                                                                       Change from
                                                                              On appointment      February 1, 2003
                                                                         on February 1, 2003     to March 19, 2003
                                                                         -------------------     -----------------
Directors appointed in 2003
Dr D C Allen.....................................                                    306,565 (d)            64,800
A B Hayward......................................                                     91,777                24,192
J A Manzoni......................................                                     95,552                24,192


----------

(a)  Includes 50,368 Ordinary Shares held as ADSs throughout 2002.
(b)  Held as ADSs.
(c)  At retirement on November 21, 2002 and March 31, 2002 respectively.
(d)  Includes 25,368 shares held as ADSs.



Page 111

     In  disclosing  the above  interests to the Company under the Companies Act
1985,   directors  did  not  distinguish  their  beneficial  and  non-beneficial
interests.

     Executive  directors  are also deemed to have an interest in such shares of
the  Company  held  from  time to time by BP QUEST  Company  Limited  and The BP
Employee  Share  Ownership  Plan (No.  2) to  facilitate  the  operation  of the
Company's option schemes.

     No director has any interest in the preference  shares or debentures of the
Company, or in the shares or loan stock of any subsidiary company.

Service Contracts

     The committee's  policy on executive  directors'  service  contracts is for
them to contain a maximum  notice period of one year. To reflect  current market
practice,  Lord Browne has agreed to reduce the notice period in his contract to
one year and it has been  amended  to reflect  this.  All  executive  directors'
service contracts now either expire this year or can be terminated on one year's
notice.

     Each service contract expires at the respective  normal  retirement date of
the  director  but is subject to earlier  termination  for cause or if notice is
given under the contract.

     The contracts are designed to allow for  flexibility to deal with each case
on its own particular  merits in accordance with the law and policy as they have
developed at the relevant  time.  With effect from January  2003,  the committee
will  include a  provision  in new  service  contracts  to allow  for  severance
payments  to be  phased  where  appropriate  to do so.  It  will  also  consider
mitigation to reduce  compensation to a departing  director where appropriate to
do so. A large  proportion of each executive  director's  total  remuneration is
linked to  performance  and  therefore  will not be payable  to the extent  that
relevant targets are not met.

Remuneration of Non-Executive Directors

     During 2002, the board  appointed a committee of independent  non-executive
directors to review the  remuneration  of the  non-executive  directors and make
recommendations for future structure and amount.

Policy

     In making recommendations for non-executive  directors'  remuneration,  the
following  policies were  developed to guide the board in its current and future
decision-making.

     --   Within  the  limits  sets  by the  shareholders  from  time  to  time,
          remuneration  should be  sufficient  to attract,  motivate  and retain
          world-class non-executive talent.

     --   Remuneration  of  non-executive  directors  should be  proportional to
          their contribution towards the interests of the Company.

     --   Remuneration   practice   should   be   consistent   with   recognized
          best-practice standards for non-executive directors' remuneration.

     --   Remuneration should be in the form of cash fees, payable monthly.

     --   Non-executive  directors  should not receive  share  options  from the
          Company.

     --   Non-executive directors should be encouraged to establish a holding in
          BP shares broadly  related to one year's base fee, to be held directly
          or indirectly in a manner  compatible  with their personal  investment
          activities and any applicable legal and regulatory requirements.


Page 112

Elements of Remuneration

     In  contrast  to the  position  of  executive  directors'  pay, in which an
increasing  element  is   performance-related,   non-executive   directors'  pay
comprises cash fees,  paid monthly,  with increments for positions of additional
responsibility,   reflecting   additional  workload  and  consequent   potential
liability.  For all  non-executive  directors  except the chairman,  a fixed sum
allowance  is paid  for  transatlantic  travel  undertaken  for the  purpose  of
attending  a  board  meeting.  In  addition,   non-executive  directors  receive
reimbursement of reasonable  travel and related business  expenses.  No share or
share option awards are made to any non-executive director in respect of service
on the board. Non-executive directors have letters of appointment that recognize
that, subject to the Articles of Association, their service is at the discretion
of the  shareholders.  They submit themselves for election at the annual general
meeting  following their  appointment  and  subsequently at intervals of no more
than three years.

Non-executive Directors' Annual Fee Structure

     The Company's  Articles provide that the remuneration paid to non-executive
directors is  determined by the board within  limits set by  shareholders.  Fees
payable to non-executive  directors were reviewed during 2002. New and increased
fees based on a comparable  structure were approved by the board as from July 1,
2002. All fees are fixed and paid in pounds  sterling.  For conformity these are
also reported in US dollars.



                                                 To June 30, 2002          From July 1, 2002
                                                 $(a)      (pound)          $ (a)     (pound)
                                                  ---------------          -----------------
                                                                  (thousands)

                                                                             
Chairman................................       420           280         585             390 (b)
Deputy chairman.........................       128            85         128              85 (c)
Board member............................        68            45          98              65
Committee chairmanship fee..............         8             5          23              15
Transatlantic attendance allowance (d)..         5             3           8               5
                                            ------        ------      ------          ------


----------

(a)  Sterling payments converted at the average 2002 exchange rate of (pound)1 =
     $1.50.
(b)  The  chairman  is  not  eligible  for   committee   chairmanship   fees  or
     transatlantic  attendance  allowance but has the use of a fully  maintained
     office and a chauffered car for company business.
(c)  The  deputy  chairman  receives  a  (pound)20,000  increment  on top of the
     standard  board  fee.  In  addition,  this  is  supplemented  by  committee
     chairmanship fees and the transatlantic  attendance  allowance.  The deputy
     chairman is  currently  chairman of the Audit  Committee.  Prior to July 1,
     2002, the deputy chairman  received an  all-inclusive  fee of (pound)85,000
     and  was  ineligible  for  both   committee   chairmanship   fees  and  the
     transatlantic attendance allowance.
(d)  This   allowance  is  payable  to   non-executive   directors   undertaking
     transatlantic  travel for the purpose of attending a board meeting or board
     committee meeting.



Page 113





                                                                    2002                       2001
Remuneration of Non-Executive Directors                  $(a)     (pound)           $(b)     (pound)
                                                         ----------------          -----------------
                                                                        (thousands)
Current directors
                                                                                     
J H Bryan.......................................       120            80          82             57
E B Davis, Jr...................................       120            80          82             57
Dr D S Julius...................................        95            63           6              4
C F Knight......................................        95            63          78             54
F A Maljers.....................................        95            63          78             54
Dr W E Massey...................................       135            90          94             65
H M P Miles (c).................................        95            63          78             54
Sir Robin Nicholson (d).........................       110            73          83             57
Sir Ian Prosser.................................       147            98         122             85
P D Sutherland..................................       503           335         403            280
M H Wilson......................................       116            77          86             60
                                                    ------        ------      ------         ------
Directors leaving the board in 2002
Sir Robert Wilson...............................        27            18          73             51
                                                    ======        ======      ======         ======

----------

(a)  Sterling payments converted at the average 2002 exchange rate of (pound)1 =
     $1.50.
(b)  Sterling payments converted at the average 2001 exchange rate of (pound)1 =
     $1.44.
(c)  Also received (pound)300 in 2001 ($432 at 2001 rate) and (pound)600 in 2002
     ($900 at 2002  rate) for  serving  as a  director  of BP  Pension  Trustees
     Limited.
(d)  Also received (pound)20,000 each year ($28,800 at 2001 rate; and $30,000 at
     2002 rate) for  serving as the  board's  representative  on the  Technology
     Advisory Council.

Long-term Incentives (residual)

     Non-executive  directors of Amoco  Corporation  were  allocated  restricted
stock in the  Amoco  Non-Employee  Directors'  Restricted  Stock  Plan by way of
remuneration  for their service on the board of Amoco  Corporation  prior to its
merger with BP in 1998.  On merger,  interests  in Amoco shares in the plan were
converted into interests in BP ADSs. Under the terms of the plan, the restricted
stock will vest upon the retirement of the  non-executive  director at age 70 or
upon earlier  retirement at the  discretion of the board.  Since the merger,  no
further entitlements have accrued to any director under the plan.

Amoco Non-Employee Directors' Restricted Stock Plan

     The  table  below  sets  out the  residual  entitlements  of  non-executive
directors who were formerly  non-executive  directors of Amoco Corporation under
the Amoco Non-Employee Directors' Restricted Stock Plan.

                            Interest in BP ADSs
                            January 1, 2002 and      Date on which director
                              December 31, 2002(a)           reaches age 70(b)
                            -------------------      ----------------------

J H Bryan                                 5,546             October 5, 2006
E B Davis, Jr                             4,490              August 5, 2014
F A Maljers                               2,906             August 12, 2003
Dr W E Massey                             3,346               April 5, 2008
M H Wilson                                3,170            November 4, 2007

----------

(a)  No awards were granted or vested and no awards lapsed during the year.
(b)  If the  director  retires  prior to this  date,  the  board  may  waive the
     restrictions.


Page 114

Superannuation Gratuities

     In accordance with BP's long-standing practice, non-executive directors who
retire  from the board  after at least six years'  service  are,  at the time of
their retirement,  eligible for consideration for a superannuation gratuity. The
board is  authorized to make such payments  under the  Company's  Articles.  The
amount of payment is determined at the board's discretion,  having regard to the
director's period of service as a director and other relevant factors. The board
did not make any payment to Sir Robert Wilson, the only  non-executive  director
retiring in 2002, in view of his limited length of service.

     On  the   recommendation   of  the  ad  hoc   committee  on   non-executive
remuneration,  during 2002 the board  revised  its policy  with  respect to such
payments so that (i) non-executive  directors  appointed to the board after July
1, 2002 would not be eligible  for  consideration  for such a payment,  and (ii)
non-executive  directors  in service at July 1, 2002 would  remain  eligible for
consideration for a payment, but service after that date would not be taken into
account by the board in considering the amount of any payment.

Non-Executive Directors' Shareholding



Non-Executive Directors' interest in BP ordinary                      At January 1, 2002          Change from
shares or calculated equivalents                                At                 or on    December 31, 2002
                                                 December 31, 2002           appointment    to March 19, 2003
                                                 -----------------    ------------------    -----------------
                                                                                             
Current directors
J H Bryan............................................       98,760 (a)            98,760 (a)           60,000
E B Davis, Jr........................................       63,814 (a)            62,695 (a)               --
Dr D S Julius........................................        2,000                 2,000                   --
C F Knight...........................................       92,238 (a)            30,247 (a)               --
F A Maljers..........................................       33,492 (a)            33,492 (a)               --
Dr W E Massey........................................       48,232 (a)            47,378 (a)               --
H M P Miles..........................................       22,145                 9,445                   --
Sir Robin Nicholson..................................        3,758                 3,643                   --
Sir Ian Prosser......................................        2,826                 2,826                4,475
P D Sutherland.......................................        7,079                 7,079                   --
M H Wilson...........................................       43,200 (a)            43,200 (a)               --

                                                                                      At
                                                     On retirement (b)   January 1, 2002
                                                   ---------------       ---------------
Directors leaving the board in 2002
Sir Robert Wilson....................................        5,478                 5,478


----------

(a) Held as ADSs.
(b) At retirement on April 18, 2002.

     In  disclosing  the above  interests to the Company under the Companies Act
1985,   directors  did  not  distinguish  their  beneficial  and  non-beneficial
interests.

     No director has any interest in the preference  shares or debentures of the
Company, or in the shares or loan stock of any subsidiary company.

Total Remuneration

     Total remuneration  includes salary and benefits earned and paid during the
relevant year, plus bonuses, which are paid in the following year, plus for 2002
the value of the awards made under the 1999 to 2001 Long Term  Performance  Plan
in respect of the three years covered by that plan. The total  remuneration paid
during 2002 to all directors and senior management as a group was $35.5 million.
Total share options  granted during 2002 to all directors and senior  management
as a group was 3,047,547;  these have an option price of (pound)5.72  and expire
in 2012.


Page 115

                                 BOARD PRACTICES



                                                                               Period during which the
                                                                                director has served in
                                                   Date of expiration of             this office (from
Directors' Terms of Office                        current term of office    appointment to April 2003)
                                                  ----------------------    --------------------------

                                                                                        
Dr D C Allen...................................                       --                      2 months
The Lord Browne of Madingley...................               April 2004             11 years 7 months
J H Bryan (a)..................................               April 2005              4 years 4 months
R F Chase......................................       Retires April 2003              11 years 1 month
E B Davis, Jr (a)..............................               April 2005              4 years 4 months
Dr B E Grote...................................               April 2004              2 years 9 months
Dr A B Hayward.................................                       --                      2 months
Dr D S Julius..................................               April 2005               1 year 5 months
C F Knight.....................................               April 2003             15 years 7 months
F A Maljers (a)................................               April 2005              4 years 4 months
J A Manzoni....................................                       --                      2 months
Dr W E Massey (a)..............................               April 2005              4 years 4 months
H M P Miles....................................               April 2004             8 years 11 months
Sir Robin Nicholson............................               April 2004             15 years 7 months
R L Olver......................................               April 2004              5 years 4 months
Sir Ian Prosser................................               April 2004                       6 years
P D Sutherland.................................               April 2005              7 years 8 months
M H Wilson (a).................................               April 2005              4 years 4 months


----------

(a)  Does not include service on the board of Amoco Corporation.

Directors'  Service  Contracts   Providing  for  Benefits  upon  Termination  of
Employment

     Executive directors are employees of the Company or one of its subsidiaries
under a variety of contracts of service.  The contracts of service for executive
directors  provides  for one  year's  notice to be given of  termination  of the
contract  or, in some  circumstances,  payment of one  year's  salary in lieu of
notice. There are two exceptions to this: Mr R F Chase and Mr W D Ford. Mr Chase
has a contract that provides for two year's notice of termination,  however this
contract  expires at his normal  retirement  date of May 2003.  Mr Ford resigned
from the board of BP p.l.c.  with effect from March 31, 2002,  at which time his
secondment  to BP p.l.c.  ended and he returned to the USA.  His  underlying  US
employment  agreement with BP Corporation  North America (BPCNA) had a two-month
notice  period and was due to expire on  January  21,  2004.  His  contract  was
terminated  early by BPCNA in  accordance  with its terms.  The  contract  terms
required  payment to him by BPCNA of  liquidated  damages of  $1,655,555,  being
equivalent  to $1 million  per annum  (pro  rated for part  years) for each year
between the date of severance  and January 21, 2004.  BPCNA also made  payments
totalling  $129,691  to Mr Ford in June  2002 in  accordance  with its  standard
benefits and  repatriation  programme.  Mr Ford remains  eligible for a pro rata
award  under the 2002 annual  bonus  scheme and for awards  under the  long-term
incentive schemes in accordance with the rules of those schemes.

     Non-executive  directors  do not have service  contracts  with the Company;
they are not employees of the Company.  Non-executive directors are not entitled
to any benefits on termination of office.



Page 116

Corporate Governance Statement

General

     The  board's   governance   policies   regulate   its   relationship   with
shareholders,  the conduct of board affairs and its relationship  with the group
chief executive. The policies recognize that the board has a separate and unique
role as the link in the chain of  authority  between  the  shareholders  and the
group chief executive. In addition, they acknowledge the dual role played by the
group chief  executive and executive  directors as both members of the board and
leaders of the executive  management.  The policies therefore require a majority
of the board to be composed of non-executive  directors and delegate all aspects
of the  relationship  between  the board and the group  chief  executive  to the
non-executive  directors.  The  policies  also  require the  chairman and deputy
chairman to be non-executive  directors;  throughout 2002 the posts were held by
Mr  Sutherland  and Sir Ian Prosser  respectively.  Sir Ian Prosser  acts as the
senior  independent  non-executive  director as required by the Combined Code on
Corporate   Governance.   Finally,   the  company   secretary   reports  to  the
non-executive chairman and is not part of the executive management.

Relationship with Shareholders

     The policies emphasize the importance of the relationship between the board
and the  shareholders.  In them  the  board  acknowledges  that  its  role is to
represent and promote the interests of  shareholders  and that it is accountable
to shareholders for the performance and activities of the Group (including,  for
example,  the system of internal  control and the review of its  effectiveness).
The  board  is  required  to be  proactive  in  obtaining  an  understanding  of
shareholder  preferences and to evaluate  systematically  the economic,  social,
environmental  and ethical matters that may influence or affect the interests of
its  shareholders.  These  interests are  represented  and promoted by the board
through  exercising its  policy-making  and monitoring  functions.  As a result,
shareholder interests lie at the heart of the goals established by the board for
the Company.

     The board is accountable to  shareholders  in a variety of ways.  Directors
are  required  to  stand  for  re-election  every  three  years to  ensure  that
shareholders  have a regular  opportunity  to reassess  the  composition  of the
board. New directors are subject to election at the first opportunity  following
their  appointment.  Names submitted to  shareholders  for election in 2002 were
accompanied by biographical details.

     The board  makes use of a number of formal  channels  of  communication  to
account to shareholders  for the  performance of the Company.  These include the
Annual  Report and  Accounts,  the Annual  Report on Form 20-F filed with the US
Securities and Exchange Commission,  quarterly  announcements made through stock
exchanges  on which BP shares  are  listed  and the  annual  general  meeting of
shareholders.  Given the size and  geographical  diversity  of BP's  shareholder
base,  the  opportunities  for  shareholder  interaction  at the annual  general
meeting are limited. However, the chairman and all board committee chairmen were
present at the 2002 annual general meeting to answer questions.  All proxy votes
at shareholder meetings are counted since votes on all matters except procedural
issues are taken by way of a poll.  BP has also  pioneered the use of electronic
communications  to  facilitate  the  exercise  of  shareholder   voting  rights.
Presentations   given  at  appropriate   intervals  to  representatives  of  the
investment  community are available  simultaneously  to all shareholders by live
internet broadcast or open conference call.



Page 117

Board Process

     The board has laid down  rules for its own  activities  in a board  process
policy  that  covers the  conduct of  members  at  meetings;  the cycle of board
activities  and the setting of agendas;  the  provision  of  information  to the
board;  board  officers  and their  roles;  board  committees,  their  tasks and
composition;  qualifications  for  board  membership  and  the  process  of  the
Nomination  Committee;   the  remuneration  of  non-executive   directors;   the
appointment  and role of the company  secretary;  the process for  directors  to
obtain  independent  advice and the assessment of the board's  performance.  The
board process policy places  responsibility  for  implementation of this policy,
including training of directors, on the chairman.

     The policy  recognizes that the board's  capacity,  as a group, is limited.
The board  therefore  reserves to itself the making of broad  policy  decisions,
delegating  more  detailed   considerations   involved  in  meeting  its  stated
requirements  either to board  committees  and  officers (in the case of its own
processes) or to the group chief executive (in the case of the management of the
Company's  business  activity).  The policy  allocates  the tasks of  monitoring
executive actions and assessing reward to the following committees:

     --   Chairman's  Committee  (all  non-executive  directors) - to review the
          structure and effectiveness of the business  organization;  succession
          planning for the executive  directors and the most senior  executives;
          and to assess the overall  performance  of the group chief  executive.
          The committee met four times during 2002.

     --   Audit Committee (four to six non-executive directors) - to monitor all
          reporting,  accounting, control and financial aspects of the executive
          management's activities. The auditors' lead partner and the BP general
          auditor (head of internal audit) attend each meeting at the request of
          the committee chairman. The committee met 10 times during 2002.

     --   Ethics and Environment  Assurance Committee (four to six non-executive
          directors)  - to monitor the  non-financial  aspects of the  executive
          management's activities. The auditors' lead partner and the BP general
          auditor (head of internal audit) attend each meeting at the request of
          the committee chairman. The committee met four times during 2002.

     --   Remuneration  Committee  (four to six  non-executive  directors)  - to
          determine  performance  contracts,  targets and the  structure  of the
          rewards for the group chief executive and the executive  directors and
          to monitor the policies  being  applied in  remunerating  other senior
          executives. The committee met five times during 2002.

     --   Nomination  Committee (the chairman,  group chief  executive and three
          non-executive  directors  selected from time to time as required) - to
          identify,   evaluate  and  recommend  candidates  for  appointment  or
          reappointment as directors and as company secretary. The committee met
          once during 2002.

     The  qualification  for  board  membership   includes  a  requirement  that
non-executive  directors  be free  from  any  relationship  with  the  executive
management of the Company that could  materially  interfere with the exercise of
their independent  judgement.  In the board's view, all non-executive  directors
fulfil this requirement.  The board met nine times during 2002, six times in the
UK,  twice in the USA and once in  Europe  for a  two-day  strategy  discussion.
Committee  meetings  are  held  in  conjunction  with  board  meetings  whenever
possible.

     In carrying  out its work,  the board has to exercise  judgement  about how
best to further the interests of shareholders.  Given the uncertainties inherent
in the future of business  activity,  the board seeks to maximize  the  expected
value  of  the  shareholders'interest  in the  Company,  not  to  eliminate  the
possibility of any adverse outcomes for shareholders.



Page 118

Board/Executive Relationship

     The  board/executive  relationship  policy sets out how the board delegates
authority to the group chief executive and the extent of that authority.  In its
goals policy,  the board states the long-term outcome it expects the group chief
executive to deliver.  The  restrictions  on the manner in which the group chief
executive  may  achieve  the  required  results  are  set  out in the  executive
limitations  policy,  which addresses ethics,  health,  safety, the environment,
financial distress,  internal control, risk preferences,  treatment of employees
and political  considerations.  On all these matters, the board's role is to set
general  policy and to monitor  the  implementation  of that policy by the group
chief executive.

     The group chief  executive  explains how he intends to deliver the required
outcome  in  annual  and  medium-term  plans,  the  former  of which  include  a
comprehensive assessment of the risks to delivery. Progress towards the expected
outcome is set out in a monthly report that covers actual results and a forecast
of results for the current year. This report is reviewed at each board meeting.

     The  board/executive  relationship policy also sets out how the group chief
executive's  performance will be monitored and recognizes that, in the multitude
of  changing  circumstances,  judgement  is always  involved.  The  group  chief
executive is obliged through dialogue and systematic  review to discuss with the
board all material matters currently or prospectively  affecting the Company and
its performance and all strategic  projects or developments.  This  specifically
includes any materially  under-performing  business  activities and actions that
breach the executive limitations policy. It also includes social,  environmental
and   ethical   considerations.   This   dialogue   is  a  key  feature  of  the
board/executive   relationship.   Between   board   meetings  the  chairman  has
responsibility   for   ensuring  the   integrity   and   effectiveness   of  the
board/executive  relationship.  The  systems  set  out  in  the  board/executive
relationship  policy are designed to manage  rather than  eliminate  the risk of
failure to achieve the board goals policy or observe the  executive  limitations
policy.  They provide  reasonable,  not  absolute,  assurance  against  material
misstatement or loss.

Audit Committee

     The committee is comprised of five non-executive directors: Sir Ian Prosser
(Chairman),  Mr Bryan, Mr Davis Jr, Mr Miles and Mr Wilson. The Secretary of the
Audit Committee,  Miss Judith Hanratty (Company Secretary) is independent of the
executive management of the Company and reports to the non-executive chairman.

     The committee's task as set out in the board governance policies are:

     --   To  monitor  systematically  and  obtain  assurance  that the  legally
          required standards of disclosure are being fully and fairly observed.

     --   To review all  prospectuses,  information  and offering  memoranda and
          other   documents   to  be  placed   before   shareholders   and  make
          recommendations to the board about their adoption and publication.

     --   To review all annual,  quarterly and similar  reports to  shareholders
          and  make  recommendations  to the  board  about  their  adoption  and
          publication.

     --   To monitor  systematically  and obtain  assurance  that the  Executive
          Limitations  set out in the  Board  Governance  Policies  relating  to
          financial matters are being observed.

     The committee  keeps under review the scope and results of audit work,  its
cost-effectiveness  and the  independence  and  objectivity of the auditors.  It
requires the auditors to rotate  their lead audit  partner  every five years and
reviews non-audit assignments. Aside from its monitoring of external audit work,
the committee considers the internal audit programme.



Page 119

Remuneration Committee

     The committee's tasks as set out in the board governance policies are:

     --   To  determine  on behalf of the  board  the  terms of  engagement  and
          remuneration of the group chief executive and the executive  directors
          and to report on those to the shareholders.

     --   To determine  on behalf of the board  matters of policy over which the
          Company has authority  relating to the  establishment  or operation of
          the  Company's  pension  scheme of which the  executive  directors are
          members.

     --   To  nominate  on behalf of the board any  trustees  (or  directors  of
          corporate trustees) of such scheme.

     --   To monitor the policies being applied by the group chief  executive in
          remunerating senior executives other than executive directors.

Constitution and Operation

     The  committee  members are all  non-executive  directors.  The  membership
throughout 2002 was: Sir Robin  Nicholson  (chairman),  Mr Davis, Dr Julius,  Mr
Knight and Sir Ian Prosser.  Like other directors,  each member of the committee
is subject to  re-election  every three years.  They have no personal  financial
interest, other than as shareholders, in the committee's decisions. They have no
conflicts  of  interest  arising  from  cross-directorships  with the  executive
directors nor from being involved in the day-to-day business of the Company. The
committee met five times in the period under review.

     In its constitution and operation the committee  complies with the Combined
Code on Corporate  Governance.  It is  accountable to  shareholders  through its
annual report on executive directors' remuneration.  The committee will consider
the outcome of the vote on the  remuneration  report at the 2003 Annual  General
Meeting,  and the views of investors will be taken into account by the committee
in its future decisions.




Page 120


                                   EMPLOYEES


                                                                Rest of                   Rest of
                                                        UK       Europe          USA        World        Total
                                                  --------     --------     --------     --------     --------
                                                                                         
Number of employees at December 31,
2002
Exploration and Production..................         3,500          800        5,500        7,000       16,800
Gas, Power and Renewables...................           250        1,000        1,500        1,650        4,400
Refining and Marketing .....................         9,950       23,300       28,100       12,000       73,350
Chemicals...................................         2,800        4,750        6,650        3,700       17,900
Other businesses and corporate..............         1,250           --        1,450          100        2,800
                                                  --------     --------     --------     --------     --------
                                                    17,750       29,850       43,200       24,450      115,250
                                                  ========     ========     ========     ========     ========
2001
Exploration and Production..................         3,700          800        5,550        6,500       16,550
Gas, Power and Renewables...................           650          650        1,350        1,550        4,200
Refining and Marketing .....................        10,450       15,100       27,800       11,250       64,600
Chemicals...................................         3,450        6,250        6,700        5,550       21,950
Other businesses and corporate..............         1,400           --        1,350          100        2,850
                                                  --------     --------     --------     --------     --------
                                                    19,650       22,800       42,750       24,950      110,150
                                                  ========     ========     ========     ========     ========
2000
Exploration and Production..................         3,300          700        5,900        6,100       16,000
Gas, Power and Renewables...................           500          500        1,500          900        3,400
Refining and Marketing .....................        10,100       16,800       27,000       13,200       67,100
Chemicals...................................         3,700        4,500        7,900        1,500       17,600
Other businesses and corporate..............         1,300           --        1,700          100        3,100
                                                  --------     --------     --------     --------     --------
                                                    18,900       22,500       44,000       21,800      107,200
                                                  ========     ========     ========     ========     ========


     Employee numbers increased  slightly during 2002, mainly as a result of the
Veba acquisition. 2001 increases primarily related to the acquisition of Bayer's
50% interest in  Erdoelchemie,  the Solvay  transaction and the inclusion of the
Burmah Castrol chemicals businesses previously held for sale, were partly offset
by downstream  rationalization  and a further decrease in former ARCO employees.
The  acquisitions  of ARCO and Burmah  Castrol in 2000  increased  our  employee
numbers by approximately 25,000.

     The Company seeks to maintain constructive relationships with labor unions.


Page 121

                                 SHARE OWNERSHIP

Directors and Senior Management

     As at March 19, 2003 the following directors of BP p.l.c. held interests in
BP ordinary  shares of 25 cents each or their  calculated  equivalent as set out
below:

                Dr D C Allen................................      371,365
                The Lord Browne of Madingley................    1,816,052
                R F Chase...................................      894,628
                Dr B E Grote................................      763,362
                Dr A B Hayward..............................      115,969
                J A Manzoni.................................      119,744
                R L Olver...................................      796,792
                J H Bryan...................................      158,760
                E B Davis, Jr...............................       63,814
                Dr D S Julius...............................        2,000
                C F Knight..................................       92,238
                F A Maljers.................................       33,492
                Dr W E Massey...............................       48,232
                H M P Miles.................................       22,145
                Sir Robin Nicholson.........................        3,758
                Sir Ian Prosser.............................        7,301
                P D Sutherland..............................        7,079
                M H Wilson..................................       43,200

     As at March 19, 2003,  the following  directors of BP p.l.c.  held
options  under the BP Group share option  schemes for  ordinary  shares or their
calculated equivalent as set out below:

                Dr D C Allen................................      519,950
                The Lord Browne of Madingley................    4,378,090
                R F Chase...................................      400,774
                Dr B E Grote................................    1,077,192(a)
                Dr A B Hayward..............................      494,702
                J A Manzoni.................................      517,478
                R L Olver...................................    1,076,055

---------------

(a)  In addition to the above, Dr Grote holds 151,600 Stock Appreciation Rights
     (equivalent to 909,600 Ordinary Shares).

     There are no directors or members of senior management who own more than 1%
of the Ordinary Shares outstanding.

     Additional details regarding the options granted,  including exercise price
and expiry  dates,  are found in this item under the  heading  `Compensation  --
Share Option Element and Other Option Schemes.'



Employee Share Plans
                                                                    2002         2001         2000
                                                                 -------      -------      -------
                                                                                    
                                                                         (options thousands)
Employee share options granted during the year
Savings related schemes.....................................       9,719        7,901        7,930
Executive Directors' Incentive Plan.........................       2,068        2,598          709
BP Share Option Plan........................................      66,771       58,208       50,461
                                                                 -------      -------      -------
                                                                  78,558       68,707       59,100
                                                                 =======      =======      =======


     The  exercise   prices  for  BP  options   granted  during  the  year  were
(pound)4.52/$6.78  (9,719,005  options) for  savings-related  and similar plans;
(pound)5.67/$8.51  (weighted average price) for Executive  Directors'  Incentive
Plan (2,068,026  options);  and  (pound)5.50/$8.25  (weighted average price) for
66,770,545 options granted under the BP Share Option Plan.


Page 122

     BP offers most of its employees the  opportunity  to acquire a shareholding
in the Company through  savings-related and/or matching share plan arrangements.
Such  arrangements  are now in  place  in  nearly  80  countries.  BP also  uses
long-term performance plans (see Item 18 -- Financial Statements -- Note 36) and
the  granting  of share  options  as  elements  of  remuneration  for  executive
directors and senior employees.

     During 2002,  share options were granted to the executive  directors  under
the Executive  Directors'  Incentive  Plan (EDIP).  For these options the option
exercise  price was the market  value (as  determined  in  accordance  with plan
rules) on the grant date.  The options  granted to executive  directors  reflect
BP's  performance  in terms of total  shareholder  return (TSR),  that is, share
price  increase with all dividends  reinvested,  relative to the FTSE Global 100
group of companies over the three years  preceding the grant.  Options vest over
three years  (one-third  each after one, two and three years  respectively)  and
have a life of seven years after the grant.

     Share  options  were also granted in 2002 under the BP Share Option Plan to
certain  categories of employees.  Subject to certain vesting  requirements  the
options are exercisable between the third and tenth anniversaries of the date of
grant.  There are no  performance  conditions  attaching to the options  granted
during the year.

     Under the BP ShareSave Plan (a savings-related share option plan) employees
save on a monthly basis over a three- or five-year  period  towards the purchase
of shares at a price  fixed when the  option is  granted.  The  option  price is
usually  set at a 20%  discount  to the market  price at the time of grant.  The
option must be exercised within six months of maturity of the savings  contract;
otherwise  it  lapses.  The  plan is run in the UK and a small  number  of other
countries.

     Under the BP ShareMatch  Plan, BP matches  employees' own  contributions of
shares,  up to a  predetermined  limit.  The shares are then held in trust for a
defined  minimum  period.  The  plan  is run in the  UK  and in  over  60  other
countries.

     The Company  sponsors a number of savings plans covering most US employees.
Under these plans,  most  employees  may  contribute  up to 100% of their salary
subject  to  certain  regulatory  limits.  Most  employees  are  eligible  for a
dollar-for-dollar  company matched contribution for the first 7% of eligible pay
contributed  on a before-tax or after-tax  basis,  or a combination of both. The
precise  arrangement may vary in certain business units.  Company  contributions
are initially  invested in a fund  primarily  comprised of BP ADSs but employees
may transfer those amounts and may invest their own  contributions  in more than
200 investment options. The Company's contributions generally vest over a period
of three years.  Company  contributions  to savings  plans during 2002 were $125
million (2001 $125 million and 2000 $101 million).

     An Employee  Share  Ownership  Plan was  established  in 1997 to acquire BP
shares to satisfy  future  requirements  of certain  employee  share plans.  The
Company provides funding to the ESOP. The assets and liabilities of the ESOP are
recognized as assets and  liabilities  of the Company  within the accounts.  The
ESOP has waived its rights to dividends.

     During 2002, the ESOP released  15,332,235  shares (2001 11,508,754  shares
and 2000  9,412,931  shares) for the matching  share  plans.  The cost of shares
released  for these plans has been  charged in these  accounts.  At December 31,
2002 the ESOP held 18,673,675 shares (2001 34,005,910 shares and 2000 45,514,664
shares).

     BP has  established a Qualifying  Employee Share Ownership Trust (QUEST) to
support the UK ShareSave  plans.  During the year,  contributions of $21 million
(2001 $36  million and 2000 $76  million)  were made by the Company to the QUEST
which,  together  with  option-holder  contributions,  were used by the QUEST to
subscribe for new ordinary  shares at market price.  The Company has transferred
the cost of this contribution directly to retained profits and the excess of the
subscription price over nominal value has increased the share premium account.


Page 123

     At December 31, 2002, all the 9,443,842 Ordinary Shares issued to the QUEST
had been  transferred  to employees  exercising  options  under the UK ShareSave
plan. Under new legislation, the QUEST can no longer be used for ShareSave plans
after December 31, 2002.

     Pursuant  to the  various BP Group  share  option  schemes,  the  following
options for BP  ordinary  shares of the Company  were  outstanding  at March 19,
2003:

                                           Expiry                  Exercise
                    Options              dates of                     price
                outstanding               options                 per share
               ------------          ------------              ------------
                   (shares)
                473,205,541          2003 to 2013            $3.47 to $9.97

     Further details on share options appear in Item 18 -- Financial  Statements
-- Note 35.


Page 124

ITEM 7 -- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

     At March 19, 2003,  the Company has been notified that JPMorgan Chase Bank,
as depositary for American Depositary Shares (ADSs), holds interests through its
nominee,  Guaranty Nominees Limited, in 6,537,438,628 Ordinary Shares (29.35% of
the Company's  ordinary  share  capital).  Included in this total is part of the
holding  of the Kuwait  Investment  Office  (KIO).  Either  directly  or through
nominees,  the KIO holds interests in 715,040,000  Ordinary Shares (3.21% of the
Company's  ordinary share capital).  The KIO does not have any different  voting
rights from the rights of other ordinary shareholders.

Related Party Transactions

     The Group had no material  transactions  with joint ventures and associated
undertakings  during the period  commencing  January 1, 2002 to the date of this
filing.  Transactions  between the Group and its significant  joint ventures and
associated  undertakings  are  summarised in Item 18 -- Financial  Statements --
Note 43.

     In the  ordinary  course of its business  the Group has  transactions  with
various  organizations  with which certain of its directors are associated  but,
except as described in this report, no material transactions  responsive to this
item have been  entered into in the period  commencing  January 1, 2002 to March
19, 2003.

ITEM 8 -- FINANCIAL INFORMATION

             CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Financial Statements

     See Item 18 -- Financial Statements.

Dividends

     The total dividends  announced for 2002 were $5,375 million,  compared with
$4,935 million in 2001 and $4,625 million in 2000.  Dividends per share for 2002
were 24.00  cents,  compared  with 22.00 cents per share in 2001 (an increase of
9.1%) and 20.50 cents per share in 2000 (an  increase  of 7.3% over  2000).  The
board sets the  dividend  based on a balance of factors.  It  considers  present
earnings,  together with long-term growth  prospects,  cash flow and the Group's
competitive position.

Legal Proceedings

     Save as disclosed in the following paragraphs,  no member of the Group is a
party to, and no  property  of a member of the Group is subject  to, any pending
legal proceedings which are significant to the Group.

     Approximately 200 lawsuits were filed in State and Federal Courts in Alaska
seeking  compensatory  and punitive  damages arising out of the Exxon Valdez oil
spill in Prince  William  Sound in March  1989.  Most of those suits named Exxon
(now ExxonMobil), Alyeska Pipeline Service Company (Alyeska), which operates the
oil terminal at Valdez,  and the other oil companies which own Alyeska.  Alyeska
initially  responded to the spill until the response was taken over by Exxon. BP
owns a 47% interest  (reduced  during 2001 from 50% by a sale of 3% to Phillips)
in Alyeska through a subsidiary of BP America Inc. and briefly  indirectly owned
a further 20%  interest in Alyeska  following  BP's  combination  with  Atlantic
Richfield  Company  (ARCO).  Alyeska and its owners have  settled all the claims
against them under these lawsuits.  Exxon has indicated that it may file a claim
for contribution against Alyeska for a portion of the costs and damages which it
has incurred.  If any claims are asserted by Exxon which affect  Alyeska and its
owners, BP will defend the claims vigorously.

Page 125


     Since 1987,  Atlantic Richfield Company (ARCO), a current subsidiary of BP,
has been named as a  co-defendant  in  numerous  lawsuits  brought in the United
States  alleging injury to persons and property caused by lead pigment in paint.
The majority of the lawsuits  have been  abandoned or dismissed as against ARCO.
ARCO  (and in one case two of its  affiliates)  is  named in these  lawsuits  as
alleged  successor to  International  Smelting and Refining which,  along with a
predecessor  company,  manufactured  lead pigment  during the period  1920-1946.
Plaintiffs  include  individuals  and  governmental  entities.  Several  of  the
lawsuits purport to be class actions. The lawsuits (depending on plaintiff) seek
various remedies including: compensation to lead-poisoned children; cost to find
and  remove  lead  paint  from  buildings;   medical  monitoring  and  screening
programmes;  public  warning and  education of lead  hazards;  reimbursement  of
government  healthcare costs and special education for  lead-poisoned  citizens;
and punitive damages. No case has been settled or tried to conclusion. While the
amounts  claimed  could be  substantial  and it is not  possible  to predict the
outcome of these legal actions,  ARCO believes that it has valid defences and it
intends to defend such actions  vigorously.  Consequently,  BP believes that the
impact  of these  lawsuits  on the  Group's  results  of  operations,  financial
position or liquidity will not be material.

     For certain information regarding  environmental  proceedings see Item 4 --
Environmental Protection -- Legislation and Regulation -- United States.

                               SIGNIFICANT CHANGES

     None.

ITEM 9 -- THE OFFER AND LISTING

Markets and Market Prices

     The primary  market for BP's ordinary  shares is the London Stock  Exchange
(LSE).  BP's ordinary  shares are a constituent  element of the Financial  Times
Stock  Exchange  100  Index.  BP's  ordinary  shares  are also  traded  on stock
exchanges in France, Germany, Japan and Switzerland.

     Trading of BP's shares on the LSE is primarily through the use of the Stock
Exchange  Electronic Trading Service (SETS),  introduced in 1997 for the largest
companies in terms of market  capitalization  whose primary  listing is the LSE.
Under SETS,  buy and sell orders at specific  prices may be sent to the exchange
electronically  by any firm which is a member of the LSE,  on behalf of a client
or on behalf of itself  acting as a principal.  The orders are then  anonymously
displayed  in the  order  book.  When  there is a match on a 'buy'  and a 'sell'
order, the trade is executed and  automatically  reported to the LSE. Trading is
continuous  from  8:00  a.m.  to 4:30  p.m.  UK time,  but in the event of a 20%
movement  in the share price  either way the LSE may impose a temporary  halt in
the trading of that  company's  shares in the order book, to allow the market to
re-establish  equilibrium.  Dealings in Ordinary Shares may also take place
between  an  investor  and  a  market-maker,  via a  member  firm,  outside  the
electronic order book.

     In the United States and Canada the Company's  securities are traded in the
form of American  Depositary Shares (ADSs), for which JPMorgan Chase Bank is the
depositary (the Depositary) and transfer agent.  The  Depositary's  address is 1
Chase Manhattan Plaza,  40th Floor, New York, NY 10081, USA. Each ADS represents
six Ordinary Shares. ADSs are listed on the New York Stock Exchange,  and are
also  traded on the  Chicago,  Pacific  and Toronto  Stock  Exchanges.  ADSs are
evidenced  by  American  Depositary  Receipts,  or ADRs,  which may be issued in
either certificated or book entry form.


Page 126

     The  following  table sets forth for the periods  indicated the highest and
lowest middle market quotations for the Ordinary Shares of The British Petroleum
Company p.l.c.  for 1998, and of BP p.l.c.  for 1999, 2000, 2001 and 2002. These
are derived from the Daily  Official List of the LSE, and the highest and lowest
sales prices of ADSs as reported on the New York Stock Exchange  composite tape.
The  information in this table has been changed to reflect the subdivision of BP
ordinary  shares on October 4, 1999,  whereby each  Ordinary  Share of $0.50 was
subdivided into two Ordinary Shares of $0.25.



                                                                                 American
                                                                                Depositary
                                                    Ordinary shares             Shares (a)
                                                    ---------------          --------------
                                                    High        Low            High     Low
                                                    ----        ---          ------     ----
                                                        (Pence)                  (Dollars)
                                                                           
Year ended December 31,
1998........................................      484.25     368.50           48.66    36.50
1999........................................      643.50     411.00           62.63    40.19
2000........................................      671.00     444.50           60.63    43.13
2001........................................      647.00     491.50           54.86    43.23
2002........................................      625.00     392.50           53.88    36.78

Year ended December 31,
2001:    First quarter......................      609.00     526.50           53.49    46.64
         Second quarter.....................      647.00     562.00           54.86    47.88
         Third quarter......................      610.50     504.00           52.80    44.20
         Fourth quarter.....................      594.50     491.50           51.88    43.23
2002:    First quarter......................      625.00     511.00           53.10    43.84
         Second quarter.....................      625.00     523.50           53.88    47.30
         Third quarter......................      559.50     418.00           50.86    39.32
         Fourth quarter.....................      458.50     392.50           42.35    36.78
2003:    First quarter (through March 19)...      429.00     356.50           41.88    35.37

Month of
September 2002..............................      499.00     418.00           44.33    39.65
October 2002................................      458.50     392.50           42.35    36.78
November 2002...............................      423.00     396.50           39.47    37.11
December 2002...............................      429.00     410.50           40.75    38.75
January 2003................................      429.00     356.50           41.88    35.37
February 2003...............................      416.50     379.00           39.97    37.67
March 2003 (through March 19)...............      415.00     371.00           39.45    37.25


----------

(a)  An ADS is equivalent to six Ordinary Shares.

     Market  prices  for the BP  ordinary  shares on the LSE and in  after-hours
trading off the LSE, in each case while the New York Stock Exchange is open, and
the  market  prices  for ADSs on the New York  Stock  Exchange  and other  North
American stock exchanges, are closely related due to arbitrage among the various
markets, although differences may exist from time to time due to various factors
including UK stamp duty reserve tax.  Trading in ADSs began on the LSE on August
3, 1987.

     On March 19, 2003,  1,089,573,105  ADSs  (equivalent  to  6,537,438,628  BP
ordinary  shares or some 32.4% of the total) were  outstanding  and were held by
approximately  177,000  registered  ADR  holders.  Of these,  about  175,000 had
registered  addresses in the USA at that date. One of the registered  holders of
ADSs represents some 525,000 underlying holders.


Page 127

     On March 19,  2003 there were  approximately  359,000  holders of record of
Ordinary Shares. Of these holders,  around 1,500 had registered addresses in the
United States and held a total of some 4,644,000 Ordinary Shares.




Page 128

ITEM 10 -- ADDITIONAL INFORMATION

                     MEMORANDUM AND ARTICLES OF ASSOCIATION

     The following summarizes certain provisions of BP's memorandum and articles
of  association  and  applicable  English law.  This summary is qualified in its
entirety by reference to the UK Companies Act and BP's  memorandum  and articles
of  association.  Information  on  where  investors  can  obtain  copies  of the
memorandum and articles of association is described under the heading `Documents
on Display' under this Item.

     Subject to the approval of  shareholders  at BP's Annual General Meeting to
be held on April 24, 2003, BP proposed to adopt new articles of  association  to
consolidate  amendments  which  have been  necessary  to  implement  legislative
changes since the current articles of association were adopted in 1983.

Objects and Purposes

     BP is  incorporated  under the name BP p.l.c.  and is registered in England
and  Wales  with  registered  number  102498.  Clause  4 of BP's  memorandum  of
association  provides  that its objects  include the  acquisition  of  petroleum
bearing  lands;  the  carrying on of  refining  and  dealing  businesses  in the
petroleum,  manufacturing,  metallurgical or chemicals businesses;  the purchase
and  operation of ships and all other  vehicles and other  conveyances;  and the
carrying on of any other  businesses  calculated  to benefit BP. The  memorandum
grants BP a range of corporate capabilities to effect these objects.

Directors

     The business and affairs of BP shall be managed by the directors.

     The  articles  of  association  place a general  prohibition  on a director
voting in  respect of any  contract  or  arrangement  in which he has a material
interest other than by virtue of his interest in shares in the Company. However,
in the absence of some other material  interest not indicated  below, a director
is  entitled  to vote and to be counted in a quorum for the  purpose of any vote
relating to a resolution concerning the following matters:

     --   The giving of security or indemnity  with respect to any money lent or
          obligation  taken by the  director  at the  request  or benefit of the
          Company;

     --   Any proposal in which he is interested  concerning the underwriting of
          Company securities or debentures;

     --   Any proposal  concerning  any other company in which he is interested,
          directly  or  indirectly  (whether  as an  officer or  shareholder  or
          otherwise) provided that he and persons connected with him are not the
          holder or holders of 1% or more of the voting  interest  in the shares
          of such company;

     --   Proposals  concerning the modification of certain retirement  benefits
          schemes  under  which he may  benefit  and which has been  approved by
          either the UK Board of Inland Revenue or by the shareholders; and

     --   Any proposal  concerning  the purchase or maintenance of any insurance
          policy under which he may benefit.

     The UK  Companies  Act  requires a director  of a company who is in any way
interested  in a contract or proposed  contract  with the company to declare the
nature of his  interest  at a  meeting  of the  directors  of the  company.  The
directors  may  exercise all the powers of the company to borrow  money,  except
that the amount  remaining  undischarged  of all moneys  borrowed by the company
shall not,  without approval of the  shareholders,  exceed the amount paid up on
the share  capital  plus the  aggregate of the amount of the capital and revenue
reserves of the company.  Variation of the borrowing power of the board may only
be effected by amending the articles of association.



Page 129

     Remuneration  of  non-executive   directors  shall  be  determined  in  the
aggregate by resolution of the shareholders. Remuneration of executive directors
is  determined  by the  Remuneration  Committee.  This  committee  is made up of
non-executive  directors only. Any director attaining the age of 70 shall retire
at the next annual general  meeting.  There is no requirement of share ownership
for a director's qualification.

Dividend Rights; Other Rights to Share in Company Profits; Capital Calls

     If recommended by the directors of BP, BP shareholders  may, by resolution,
declare  dividends  but no such dividend may be declared in excess of the amount
recommended  by the  directors.  The  directors  may also pay interim  dividends
without obtaining  shareholder  approval. No dividend may be paid other than out
of profits  available for  distribution,  as determined under UK GAAP and the UK
Companies  Act.  Dividends on Ordinary  Shares are payable only after payment of
dividends on BP  preference  shares.  Any dividend  unclaimed  after a period of
twelve years from the date of  declaration  of such dividend  shall be forfeited
and reverts to BP.

     Apart from  shareholders'  rights to share in BP's  profits by dividend (if
any is declared), the articles of association provide that the directors may set
aside:

     --   a special reserve fund out of the balance of profits each year to make
          up any deficit of cumulative dividend on the BP preference shares; and

     --   a general reserve out of the balance of profits each year, which shall
          be applicable  for any purpose to which the profits of the Company may
          properly be  applied.  This may  include  capitalization  of such sum,
          pursuant to an ordinary shareholders' resolution,  and distribution to
          shareholders  as if it were  distributed  by way of a dividend  on the
          Ordinary  Shares or in paying up in full unissued  Ordinary Shares for
          allotment and distribution as bonus shares.

     Any such sums so deposited may be distributed in accordance with the manner
of distribution of dividends as described above.

     Holders  of shares are not  subject  to calls on  capital  by the  Company,
provided  that the amounts  required to be paid on issue have been paid off. All
shares are fully paid.

Voting Rights

     The articles of  association  of BP provide that voting on resolutions at a
shareholders'  meeting  will be decided on a poll  other than  resolutions  of a
procedural  nature,  which may be decided on a show of hands.  If voting is on a
poll,  every  shareholder  who is present in person or by proxy has one vote for
every  Ordinary Share held and two votes for every (pound)5 in nominal amount of
BP preference shares held. If voting is on a show of hands, each shareholder who
is present at the meeting in person or whose duly appointed  proxy is present in
person will have one vote,  regardless  of the number of shares  held,  unless a
poll is requested. Shareholders do not have cumulative voting rights.

     Holders of record of  ordinary  shares  may  appoint a proxy,  including  a
beneficial owner of those shares,  to attend,  speak and vote on their behalf at
any shareholders' meeting.



Page 130

     Record  holders of BP ADSs also are  entitled to attend,  speak and vote at
any shareholders'  meeting of BP by the appointment by the approved  depositary,
JPMorgan  Chase  Bank,  of them as proxies in  respect  of the  ordinary  shares
represented  by  their  ADSs.   Each  such  proxy  may  also  appoint  a  proxy.
Alternatively,  holders of ADSs are entitled to vote by  supplying  their voting
instructions to the depositary, who will vote the Ordinary Shares represented by
their ADSs in accordance with their instructions.

     Proxies may be delivered electronically.

     Matters are  transacted  at  shareholders'  meetings by the  proposing  and
passing of  resolutions,  of which there are three types:  ordinary,  special or
extraordinary.

     An ordinary  resolution  requires the affirmative vote of a majority of the
votes of those persons  voting at a meeting at which there is a quorum.  Special
and  extraordinary  resolutions  require the  affirmative  vote of not less than
three-fourths of the persons voting at a meeting at which there is a quorum. Any
annual  general  meeting at which it is  proposed  to put a special or  ordinary
resolution  requires 21 days' notice.  An  extraordinary  resolution  put to the
annual general  meeting  requires no notice period.  Any  extraordinary  general
meeting at which it is  proposed to put a special  resolution  requires 21 days'
notice;  otherwise, the notice period for an extraordinary general meeting is 14
days.

Liquidation Rights; Redemption Provisions

     In the event of a liquidation of BP, after payment of all  liabilities  and
applicable  deductions  under UK laws and  subject  to the  payment  of  secured
creditors,  the holders of BP preference  shares would be entitled to the sum of
(i) the capital paid up on such shares plus,  (ii) accrued and unpaid  dividends
and (iii) a premium equal to the higher of (a) 10% of the capital paid up on the
BP  preference  shares and (b) the excess of the average  market  price over par
value of such  shares on the  London  Stock  Exchange  during the  previous  six
months.  The  remaining  assets  (if any)  would be  divided  pro rata among the
holders of Ordinary Shares.

     Without prejudice to any special rights previously conferred on the holders
of any class of shares, BP may issue any share with such preferred,  deferred or
other special rights,  or subject to such  restrictions  as the  shareholders by
resolution   determine  (or,  in  the  absence  of  any  such  resolutions,   by
determination of the directors),  and may issue shares which are to be or may be
redeemed.

Variation of Rights

     The rights  attached  to any class of shares may be varied with the consent
in writing of holders of 75% of the shares of that class or upon the adoption of
an extraordinary  resolution  passed at a separate meeting of the holders of the
shares of that class. At every such separate  meeting,  all of the provisions of
the articles of association  relating to proceedings at a general meeting apply,
except that the quorum with  respect to a meeting to change the rights  attached
to the  preference  shares is 10% or more of the shares of that  class,  and the
quorum to change the rights attached to the Ordinary Shares is one third or more
of the shares of that class.

Shareholders' Meetings and Notices

     Shareholders must provide BP with a postal or electronic  address in the UK
in order to be entitled to receive notice of shareholders'  meetings. In certain
circumstances,  BP may give  notices  to  shareholders  by  advertisement  in UK
newspapers.  Holders of BP ADSs are entitled to receive  notices under the terms
of the  deposit  agreement  relating  to BP ADSs.  The  substance  and timing of
notices is described above under the heading Voting Rights.



Page 131

     Under  the  articles  of   association,   the  annual  general  meeting  of
shareholders  will be held within 15 months after the preceding  annual  general
meeting and at a time and place  determined by the  directors  within the United
Kingdom. If any shareholders' meeting is adjourned for lack of quorum, notice of
the time and place of the meeting may be given in any lawful  manner,  including
electronically.  The  Chairman  has the power to take any  action he sees fit to
promote order at any shareholders' meeting.

Limitations on Voting and Shareholding

     There are no  limitations  imposed by  English  law or BP's  memorandum  or
articles of association on the right of non-residents or foreign persons to hold
or vote the Company's Ordinary Shares or ADSs, other than limitations that would
generally apply to all of the shareholders.

Disclosure of Interests in Shares

     The UK  Companies  Act  permits a public  company,  on written  notice,  to
require any person  whom the  company  believes to be or, at any time during the
previous three years prior to the issue of the notice,  to have been  interested
in its voting  shares,  to disclose  certain  information  with respect to those
interests.   Failure   to  supply   the   information   required   may  lead  to
disenfranchisement  of the relevant  shares and a prohibition  on their transfer
and receipt of dividends and other payments in respect of those shares.  In this
context the term  `interest'  is widely  defined and will  generally  include an
interest of any kind  whatsoever in voting  shares,  including any interest of a
holder of BP ADSs.




Page 132

                               MATERIAL CONTRACTS

     None.

       EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

     There are  currently no UK foreign  exchange  controls or  restrictions  on
remittances  of  dividends  on the BP  ordinary  shares or on the conduct of the
Company's operations.

     There  are no  limitations,  either  under  the laws of the UK or under the
articles of association of BP p.l.c.,  restricting  the right of non-resident or
foreign owners to hold or vote BP ordinary or preference shares in the Company.





Page 133

                                    TAXATION

     This section describes the material United States federal income tax and UK
taxation  consequences  of owning  ordinary  shares or ADSs to a US holder  that
holds the ordinary  shares or ADSs as capital  assets for tax purposes.  It does
not apply,  however, to members of special classes of holders subject to special
rules  and  holders  that,  directly  or  indirectly,  hold  10% or  more of the
Company's voting stock.

     A US holder is any beneficial  owner of Ordinary Shares or ADSs that is (i)
a citizen or resident  (for United  States  federal  income tax purposes) of the
United States,  (ii) a corporation  organized in the United States of any of its
States,  (iii) an estate whose income is subject to United States federal income
tax  regardless  of its  source,  or (iv) a trust if a United  States  court can
exercise  primary  supervision over the trust's  administration  and one or more
United States persons are authorized to control all substantial decisions of the
trust.

     This section is based on the Internal Revenue Code of 1986, as amended, its
legislative history,  existing and proposed  regulations,  published rulings and
court decisions,  and the taxation laws of the United Kingdom,  all as currently
in effect, as well as on the Convention Between the United States of America and
the United Kingdom  entered into force in 1980 (the 'Treaty') and the Convention
Between the United States of America and the United Kingdom which is expected to
enter into force in 2003 (the 'New  Treaty').  These laws are subject to change,
possibly on a retroactive  basis. This section is further based in part upon the
representations  of the  Depositary  and  assumes  that each  obligation  in the
Deposit Agreement and any related agreement will be performed in accordance with
its terms.

     For United States federal income tax and UK taxation purposes,  a holder of
ADRs  evidencing  ADSs will be  treated as the owner of the  Company's  ordinary
shares  represented  by those ADSs.  Exchanges of ordinary  shares for ADSs, and
ADSs for Ordinary Shares, generally will not be subject to United States federal
income tax or to UK taxation.

     Investors should consult their own tax advisor  regarding the United States
federal,  state  and  local,  the UK and other tax  consequences  of owning  and
disposing of Ordinary Shares and ADSs in their particular circumstances,  and in
particular  whether they are eligible for the benefits of the Treaty and the New
Treaty.

Taxation of Dividends

United Kingdom Taxation

     Under  current UK taxation  law, no  withholding  tax will be deducted from
dividends paid by the Company.  A shareholder that is a company resident for tax
purposes in the United  Kingdom  generally  will not be taxable on a dividend it
receives from the Company.  A shareholder who is an individual  resident for tax
purposes in the United  Kingdom is  entitled  to a tax credit on cash  dividends
paid on ordinary  shares or ADSs of the Company  equal to  one-ninth of the cash
dividend.

     Under the  Treaty,  a US holder is  entitled to a refund from the UK Inland
Revenue  equal  to the  amount  of the tax  credit  available  to a  shareholder
resident in the United Kingdom (i.e.,  one-ninth of the dividend received),  but
the amount of the  dividend  plus the  amount of the refund are also  subject to
withholding  in an amount  equal to the  amount of the tax  credit.  A US holder
therefore  will not receive any payment from the UK Inland Revenue in respect of
a dividend from the Company and will have no further UK tax to pay in respect of
that dividend.  Under the Treaty,  special rules apply for  determining  the tax
credit  available to a  corporation  that,  either alone or together with one or
more associated corporations,  controls,  directly or indirectly, 10% or more of
the Company's voting stock.



Page 134

     The New Treaty has been ratified by the UK  Parliament  and was ratified by
the United  States Senate on March 13, 2003.  Under the New Treaty,  a US holder
will not be entitled  to a tax refund  from the UK Inland  Revenue in respect of
dividends in the manner described above.  However,  dividends received by the US
holder from the Company  generally  will not be subject to a withholding  tax by
the United Kingdom.

     The New Treaty  generally will be effective in respect of taxes withheld at
source  for  amounts  paid or  credited  on or after the first day of the second
month after it enters into force. The provisions of the New Treaty affecting all
other US taxes,  however,  will take effect on January 1, 2004. The rules of the
Treaty will remain applicable until these effective dates. A US holder, however,
may elect to have the Treaty apply in its entirety for a period of twelve months
after the applicable effective dates of the New Treaty.

United States Federal Income Taxation

     A US holder  must  include  in gross  income as  ordinary  income the gross
amount of any dividend paid by the Company. A US holder that is eligible for the
benefits of the Treaty may include in the gross amount the UK tax withheld  from
the  dividend  payment  pursuant to the Treaty,  as  described  above in 'United
Kingdom  Taxation'.  Subject to certain  limitations,  the  United  Kingdom  tax
withheld will be creditable against the US holder's United States federal income
tax  liability,  if the US holder is eligible for the benefits of the Treaty and
has appropriately  filed Internal  Revenue Form 8833.

     A US holder will not be  entitled to a UK tax credit  under the New Treaty,
but also will not be subject to UK withholding  tax. In that case, the US holder
will include in income for United  States  federal  income tax purposes only the
amount of the dividend actually received from the Company,  and the receipt of a
dividend will not entitle the US holder to a foreign tax credit.

     In either case, the dividend must be included in income when the US holder,
in the case of Ordinary Shares, or the Depositary, in the case of ADSs, actually
or  constructively  receives  the  dividend,  and will not be  eligible  for the
dividends-received  deduction generally allowed to United States corporations in
respect of dividends received from other United States  corporations.  Dividends
will be income from sources  outside the United  States,  and generally  will be
'passive income' or 'financial  services  income',  which is treated  separately
from other types of income for purposes of computing the  allowable  foreign tax
credit.

     If a US holder  holds  ordinary  shares of the  Company,  the amount of the
dividend  distribution  on the ordinary  shares that is paid in pounds  sterling
will be the US dollar value of the pounds sterling payments made,  determined at
the spot pounds sterling/US dollar rate on the date the dividend distribution is
includable  in income,  regardless  of whether the payment is in fact  converted
into US dollars.  Generally,  any gain or loss resulting from currency  exchange
fluctuations  during  the  period  from the date the  pounds  sterling  dividend
payment is  includible  in income to the date the payment is  converted  into US
dollars will be treated as ordinary  income or loss.  The gain or loss generally
will be income or loss from  sources  within the United  States for  foreign tax
credit limitation purposes.

Taxation of Capital Gains

United Kingdom Taxation

     A US holder may be liable for both United  Kingdom and United States tax in
respect of a gain on the disposal of Ordinary Shares or ADSs if the US holder is
(i) a citizen of the United States resident or ordinarily resident in the United
Kingdom,  (ii) a United  States  domestic  corporation  resident  in the  United
Kingdom by reason of its  business  being  managed or  controlled  in the United
Kingdom or (iii) a citizen of the United States or a corporation that carries on
a trade or  profession  or  vocation in the United  Kingdom  through a branch or
agency or, in respect of  corporations  for accounting  periods  beginning on or
after January 1, 2003,  through a permanent  establishment,  and that have used,
held,  or acquired the  ordinary  shares or ADSs for the purposes of such trade,
profession  or  vocation  of such  branch,  agency or  permanent  establishment.
However,  subject to applicable  limitations and provisions of the Treaty,  such
persons may be entitled to a tax credit  against  their  United  States  federal
income tax  liability for the amount of United  Kingdom  capital gains tax or UK
corporation  tax on  chargeable  gains  (as the  case  may be)  which is paid in
respect of such gain.



Page 135

     Under the New Treaty,  capital gains on  dispositions of Ordinary Shares or
ADSs generally will be subject to tax only in the  jurisdiction  of residence of
the relevant holder as determined  under both the laws of the United Kingdom and
the United States and as required by the terms of the New Treaty.

     Under the New Treaty,  individuals  who are  residents of either the United
Kingdom  or the  United  States  and  who  have  been  residents  of  the  other
jurisdiction  (the United States or the United  Kingdom,  as the case may be) at
any time during the six years  immediately  preceding  the relevant  disposal of
ordinary  shares or ADRs may be  subject to tax with  respect  to capital  gains
arising from a disposition of Ordinary Shares or ADSs of the Company not only in
the jurisdiction of which the holder is resident at the time of the disposition,
but also in the other jurisdiction.

United States Federal Income Taxation

     A US holder that sells or  otherwise  disposes  of ordinary  shares or ADSs
will  recognize  a capital  gain or loss for United  States  federal  income tax
purposes  equal to the  difference  between  the US dollar  value of the  amount
realized and the holder's tax basis,  determined in US dollars,  in the ordinary
shares or ADSs. A capital gain of a noncorporate US holder is generally taxed at
a maximum rate of 20% where the property is held more than one year. The gain or
loss will  generally be income or loss from sources within the United States for
foreign tax credit limitation  purposes.  The deductibility of capital losses is
subject to limitations.

Additional Tax Considerations

UK Inheritance Tax

     The US-UK double taxation convention relating to estate and gift taxes (the
Estate Tax  Convention)  applies to inheritance  tax. ADRs held by an individual
who is domiciled for the purposes of the Estate Tax Convention in the USA and is
not for the purposes of the Estate Tax  Convention a national of the UK will not
be subject to inheritance  tax on death or on transfer  during the  individual's
lifetime unless,  among other things, the ADSs are part of the business property
of a  permanent  establishment  situated  in the UK or  pertain  to a fixed base
situated in the UK used for the performance of independent personal services. In
the  exceptional  case where ADSs are subject both to inheritance  tax and to US
Federal gift or estate tax, the Estate Tax Convention generally provides for tax
paid in the UK to be credited  against tax payable in the USA or for tax paid in
the USA to be credited against tax payable in the UK based on priority rules set
forth in the Estate Tax Convention.

UK Stamp Duty and Stamp Duty Reserve Tax

     The  statements  below  relate  to what  is  understood  to be the  current
practice of the UK Inland Revenue under existing law.

     Provided  that the  instrument  of transfer  is not  executed in the UK and
remains at all times  outside  the UK, and the  transfer  does not relate to any
matter or thing done or to be done in the UK, no UK stamp duty is payable on the
acquisition  or transfer of ADSs.  Neither will an agreement to transfer ADSs in
the form of ADRs give rise to a liability to stamp duty reserve tax.


Page 136

     Purchases  of BP  ordinary  shares,  as opposed to ADSs,  through the CREST
system of paperless share transfers will be subject to stamp duty reserve tax at
a rate of 0.5%.  The charge will arise as soon as there is an agreement  for the
transfer  of the shares (or, in the case of a  conditional  agreement,  when the
condition is fulfilled).  The stamp duty reserve tax will apply to agreements to
transfer  Ordinary  Shares even if the  agreement is made outside the UK between
two  non-residents.  Purchases of Ordinary  Shares  outside the CREST system are
subject either to stamp duty at a rate of 50 pence per (pound)100 (or part),  or
stamp  duty  reserve  tax at 0.5%.  Stamp duty and stamp  duty  reserve  tax are
generally the liability of the purchaser.  A subsequent  transfer of BP ordinary
shares to the  Depositary's  nominee will give rise to further stamp duty at the
rate of  (pound)1.50  per  (pound)100 (or part) or stamp duty reserve tax at the
rate of 1.5% of the value of the Ordinary Shares at the time of the transfer.

     A  transfer  of  the  underlying  Ordinary  Shares  to an ADR  holder  upon
cancellation of the ADSs without transfer of beneficial ownership will give rise
to UK stamp duty at the rate of (pound)5 per transfer.

     An ADR holder  electing to receive ADSs instead of a cash  dividend will be
responsible  for the  stamp  duty  reserve  tax due on  issue of  shares  to the
Depositary's  nominee and  calculated  at the rate of 1.5% on the issue price of
the shares.  Current UK Inland Revenue  practice is to calculate the issue price
by reference to the total cash receipt  (i.e.  cash  dividend plus the Refund if
any) to which a US Holder  would have been  entitled had the election to receive
ADSs instead of a cash dividend not been made.  ADR holders  electing to receive
ADSs instead of the cash dividend  authorize the  Depositary to sell  sufficient
shares to cover this liability.

                              DOCUMENTS ON DISPLAY

     It is possible to read and copy documents referred to in this annual report
on Form 20-F that have been  filed  with the SEC at the SEC's  public  reference
room  located at 450 Fifth  Street,  NW,  Washington,  DC 20549 and at the SEC's
other public  reference rooms in New York City and Chicago.  Please call the SEC
at  1-800-SEC-0330  for further  information on the public  reference  rooms and
their copy  charges.  The SEC  filings  are also  available  to the public  from
commercial  document retrieval services and, for most recent BP periodic filings
only, at the Internet world wide web site maintained by the SEC at www.sec.gov.




Page 137

ITEM 11 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     BP is  exposed  to a number of  different  market  risks  arising  from the
Group's normal business activities.  Market risk is the possibility that changes
in currency  exchange  rates,  interest rates or oil and natural gas prices will
adversely  affect the value of the  Group's  financial  assets,  liabilities  or
expected future cash flows.  The Group has developed  policies aimed at managing
the volatility  inherent in certain of these natural  business  exposures and in
accordance with these policies the Group enters into various  transactions using
derivative financial and commodity  instruments  (derivatives).  Derivatives are
contracts  whose  value  is  derived  from  one  or  more  underlying  financial
instruments, indices or prices which are defined in the contract. The Group also
trades derivatives in conjunction with these risk management activities.

     In  market  risk  management  and  trading,   conventional  exchange-traded
derivative  instruments  such  as  futures  and  options  are  used,  as well as
non-exchange-traded  instruments such as swaps,  `over-the-counter'  options and
forward contracts.

     Where  derivatives  constitute a hedge, the Group's exposure to market risk
created by the  derivative is offset by the opposite  exposure  arising from the
asset, liability or transaction being hedged. By contrast, where derivatives are
held for trading purposes,  changes in market risk factors give rise to realized
and unrealized gains and losses, which are recognized in the current period.

     All derivative activity, whether for risk management or trading, is carried
out by  specialist  teams  that  have the  appropriate  skills,  experience  and
supervision.  These teams are subject to close financial and management control,
meeting  generally  accepted  industry practice and reflecting the principles of
the Group of Thirty Global  Derivatives  Study  recommendations.  A Trading Risk
Management  Committee  has  oversight of the quality of internal  control in the
Group's trading function.  Independent control functions monitor compliance with
BP's policies. The control framework includes prescribed trading limits that are
reviewed regularly by senior management, daily monitoring of risk exposure using
value-at-risk principles, marking trading exposures to market and stress testing
to assess the exposure to  potentially  extreme market  situations.  The Group's
supply and trading  activities  in oil,  natural gas and  financial  markets are
managed within a single integrated  function.  This has the  responsibility  for
ensuring high and  consistent  standards of control,  making  investments in the
necessary  systems and  supporting  infrastructure  and  providing  professional
management oversight.

     Further information about BP's use of derivatives,  their  characteristics,
and the accounting treatment thereof is given in Item 18 -- Financial Statements
-- Note 1 and Note 26.

     The Group's  accounting  policies under UK GAAP do not satisfy the criteria
for hedge accounting under Statement of Financial  Accounting  Standards No. 133
`Accounting for Derivative  Instruments and Hedging Activities'.  The Group does
not  intend to  modify  its  practice  under UK GAAP.  See Item 18 --  Financial
Statements -- Note 50 for further information.

Risk Management

Foreign Currency Exchange Rate Risk

     Fluctuations in exchange rates can have significant  effects on the Group's
reported results. The effects of most exchange rate fluctuations are absorbed in
business operating results through changing cost competitiveness, lags in market
adjustment to movements in rates,  and conversion  differences  accounted for on
specific  transactions.  For this  reason,  the total  effect of  exchange  rate
fluctuations is not identifiable separately in the Group's reported results.




Page 138

     The main underlying  economic  currency of the Group's cash flows is the US
dollar. This is because BP's major product, oil, is priced internationally in US
dollars.  BP's foreign exchange  management  policy is to minimize  economic and
material transactional  exposures arising from currency movements against the US
dollar. The Group co-ordinates the handling of foreign exchange risks centrally,
by netting off naturally  occurring opposite  exposures  wherever  possible,  to
reduce the risks,  and then dealing with any material  residual foreign exchange
risks. Significant residual non-US dollar exposures are managed using a range of
derivatives.  The most  significant  of such  exposures  are the  sterling-based
capital  leases,  the net Euro cash inflows  mainly  relating to downstream  and
chemicals in Europe, the sterling cash flow requirements for UK Corporation Tax,
and the capital  expenditure  and  operational  requirements  of Exploration and
Production, mainly in the UK. In addition, most of the Group's borrowings are in
US dollars or are hedged with  respect to the US dollar.  At December  31, 2002,
the total of foreign currency borrowings not swapped into US dollars amounted to
$903 million.  The principal  elements of this are $103 million of borrowings in
sterling,  $74 million in Malaysian ringgits, $77 million in Trinidad and Tobago
dollars and $474 million in Euros.

     The following table provides information about the Group's foreign currency
derivative  financial  instruments.   These  include  foreign  currency  forward
exchange  agreements  (forwards) and cylinder option contracts  (cylinders) that
are sensitive to changes in the sterling/US dollar, euro/US dollar and Norwegian
krone/US dollar exchange rates.  Where foreign currency  denominated  borrowings
are swapped into US dollars  using  forwards or cross  currency  swaps such that
currency risk is completely eliminated, neither the borrowing nor the derivative
are included in the table.

     For forwards,  the tables present the notional amounts and weighted average
contractual  exchange rates by contractual  maturity dates and exclude  forwards
that have offsetting positions.  Only significant forward positions are included
in the tables.  The notional  amounts of forwards are translated into US dollars
at the exchange rate included in the contract at inception.  The majority of the
sterling  forwards  relate to  sterling-based  capital leases which  effectively
convert the lease  obligation  from  sterling  into  dollars.  The euro forwards
relate mainly to payments for capital and operational expenditure. The Norwegian
krone forwards relate to the Group's  Norwegian tax payments over the next year.
The  fair  value  represents  an  estimate  of the gain or loss  which  would be
realized if the contracts were settled at the balance sheet date.

     For cylinders,  the tables present the notional  amounts of the constituent
purchased  call and written put option  contracts  at December  31, 2002 and the
weighted  average strike rates.  The receive  sterling  cylinders  relate to the
Group's expected sterling tax payments and net operational expenditures over the
next year. The pay Euro cylinders  relate to the Group's  expected net Euro cash
inflows from operations and the sale of business assets.


Page 139

     The fair values for the foreign  exchange  contracts in the table below are
based on market prices of comparable  instruments  (forwards) and pricing models
which  take into  account  relevant  market  data  (options).  These  derivative
contracts  constitute  a hedge;  any change in the fair value or  expected  cash
flows is offset by an opposite change in the market value or expected cash flows
of the asset, liability or transaction being hedged.




                                                Notional amount by expected maturity date
                                              ---------------------------------------------
                                                                                                        Fair value
                                                                                                             asset/
                                                2003      2004      2005     2006      2007     Total   (liability)
                                              ------    ------    ------   ------    ------    ------   ----------
                                                                           ($ million)
                                                                                       
At December 31, 2002
Forwards
  Receive sterling/pay US dollars
    Contract amount......................      2,066        30        --       --        --     2,096          177
    Weighted average contractual
     exchange rate.......................       1.48
  Receive euro/pay US dollars
    Contract amount......................         (3)       47        14       --        --        58           43
    Weighted average contractual
     exchange rate.......................       0.96
  Receive Norwegian krone/pay US dollars
    Contract amount......................        204         5         2       --        --       211           15
    Weighted average contractual
     exchange rate (a)..................        8.58

Cylinders
  Receive sterling/pay US dollars
  Purchased call
    Contract amount.......................       859        --        --       --        --       859           10
    Weighted average strike price.........      1.62
  Sold put
    Contract amount.......................       859        --        --       --        --       859           (4)
    Weighted average strike price.........      1.52
  Pay euro/receive US dollars
  Sold call
    Contract amount.......................       430        --        --       --        --       430          (11)
    Weighted average strike price.........      1.05
  Purchased put
    Contract amount.......................       430        --        --       --        --       430            1
    Weighted average strike price.........      0.92
  Pay euro/receive sterling
  Sold call
    Contract amount.......................       614        --        --       --        --       614           (3)
    Weighted average strike price.......(pound) 0.68
  Purchased put
    Contract amount.......................       614        --        --       --        --       614            1
    Weighted average strike price.......(pound) 0.62




Page 140




                                                 Notional amount by expected maturity date
                                                 -----------------------------------------
                                                                                                          Fair value
                                                                                                               asset/
                                                2002      2003      2004     2005      2006     Total     (liability)
                                              ------    ------    ------   ------    ------    ------       --------
                                                                           ($ million)
                                                                                       
At December 31, 2001
Forwards
  Receive sterling/pay US dollars
    Contract amount......................      3,822       (48)       --       --        --     3,774             18
    Weighted average contractual
     exchange rate......................        1.44
  Receive euro/pay US dollars
    Contract amount......................      1,055       190        55       13         1     1,314            (20)
    Weighted average contractual
     exchange rate......................        0.90
  Receive Norwegian krone/pay US dollars
    Contract amount......................        172         6         2        1        --       181              1
    Weighted average contractual
     exchange rate (a)..................        9.49


---------------

(a)  Weighted average contractual exchange rates are expressed as US dollars per
     non-US dollar  currency unit except  Norwegian krone which are expressed as
     krone per US dollar.

Interest Rate Risk

     BP is exposed to interest rate risk on short- and  long-term  floating rate
instruments  and as a result of the  refinancing  of fixed  rate  finance  debt.
Consequently,  as well as managing the  currency  and the maturity of debt,  the
Group manages interest expense through the balance between generally  lower-cost
floating  rate debt,  which has  inherently  higher  risk,  and  generally  more
expensive but lower-risk, fixed rate debt. The Group is exposed predominantly to
US dollar LIBOR  interest  rates as  borrowings  are mainly  denominated  in, or
swapped into, US dollars. The Group uses derivatives to achieve the required mix
between fixed and floating rate debt.  During 2002,  the  proportion of floating
rate debt was in the range of 41-60% of total net debt outstanding.

     The following table shows,  by major currency,  the Group's finance debt at
December 31, 2002 and 2001 and the weighted  average  interest rates achieved at
those  dates  through  a  combination  of  borrowings  and other  interest  rate
sensitive instruments entered into to manage interest rate exposure.



                                              Fixed rate debt                Floating rate debt
                                   ------------------------------------    ----------------------
                                    Weighted      Weighted                  Weighted
                                     average  average time                   average
                                    interest     for which                  interest
                                        rate rate is fixed       Amount         rate       Amount        Total
                                    --------      --------     --------     --------     --------     --------
                                         (%)       (years)  ($ million)          (%)  ($ million)  ($ million)
                                                                                      
At December 31, 2002
US dollar...........................       7             7        7,818            2       13,287       21,105
Sterling............................      --            --           --            4          103          103
Other currencies....................       7            11          317            5          483          800
                                                               --------                  --------     --------
Total loans.........................                              8,135                    13,873       22,008
                                                               ========                  ========     ========

At December 31, 2001
US dollar...........................       7             8       11,603            2        9,365       20,968
Sterling............................      --            --           --            4          133          133
Other currencies....................      10            29          122            6          194          316
                                                               --------                  --------     --------
Total loans.........................                             11,725                     9,692       21,417
                                                               ========                  ========     ========




Page 141

     The Group's  earnings are  sensitive to changes in interest  rates over the
forthcoming  year as a result of the floating rate  instruments  included in the
Group's finance debt at December 31, 2002.  These include the effect of interest
rate and currency swaps and forwards  utilized to manage  interest rate risk. If
the  interest  rates  applicable  to  floating  rate  instruments  were  to have
increased by 1% on January 1, 2003, the Group's 2003 earnings before taxes would
decrease by approximately $130 million.  This assumes that the amount and mix of
fixed and floating rate debt,  including capital leases,  remains unchanged from
that in place at  December  31,  2002 and that the change in  interest  rates is
effective from the beginning of the year.  Where the interest rate applicable to
an  instrument  is reset  during a quarter it is assumed that this occurs at the
beginning  of the  quarter and remains  unchanged  for the rest of the year.  In
reality,  the fixed/floating  rate mix will fluctuate over the year and interest
rates will change continually.  Furthermore the effect on earnings shown by this
analysis  does not  consider  the effect of an  overall  reduction  in  economic
activity which could accompany such an increase in interest rates.

Oil Price Risk

     The Group's  risk  management  policy with  respect to oil price risk is to
manage only those exposures associated with the immediate  operational programme
for certain of its equity  share of  production  and certain of its refinery and
marketing  activities.  To this end,  BP's supply and trading  function uses the
full range of conventional oil price-related financial and commodity derivatives
available in the oil markets.

     The  derivative  instruments  used for  hedging  purposes do not expose the
Group to market risk  because the change in their  market  value is offset by an
equal and  opposite  change  in the  market  value of the  asset,  liability  or
transaction being hedged.  The values at risk in respect of derivatives held for
oil price risk  management  purposes  are shown in isolation in the table below.
The items being hedged are not included in the values at risk.

     The value at risk model used is that discussed  under Trading  below.  Thus
the  value  at risk  calculation  for oil  price  exposure  includes  derivative
financial  instruments  such  as  exchange-traded   futures  and  options,  swap
agreements and  over-the-counter  options and derivative  commodity  instruments
(commodity contracts that permit settlement either by delivery of the underlying
commodity or in cash) such as forward  contracts.  The values at risk  represent
the  potential  gain or loss in fair values  over a 24-hour  period with a 99.7%
confidence level.

     The  following  table  shows  values at risk for oil price risk  management
activities.



                                                     High            Low        Average    December 31
                                                   ------         ------        -------   ------------
                                                                      ($ million)
                                                                                        
2002
Oil price contracts..........................          13             11             12             11
2001
Oil price contracts..........................          11              4              7              7
2000
Oil price contracts..........................          18             11             15             11


Natural Gas Price Risk

     BP's  general  policy  with  respect to natural gas price risk is to manage
only a portion of its exposure to price fluctuations. Natural gas swaps, options
and futures are used to convert  specific  sales and  purchases  contracts  from
fixed prices to market  prices.  Swaps are also used to hedge  exposure to price
differentials between locations.


Page 142

     The table  below  provides  information  about the Group's  material  swaps
contracts that are sensitive to changes in natural gas prices.  Contract  amount
represents  the  notional  amount of the  contract.  Fair  value  represents  an
estimate  of the gain or loss which  would be  realized  if the  contracts  were
settled at the balance sheet date.  Weighted  average price represents the fixed
price and the year-end forward price related to the settlement month for swaps.

     At December 31, 2002, in addition to the swaps contracts shown in the table
there were options  contracts  with  aggregate  notional  amounts of $11 million
($1,090 million at December 31, 2001) and terms of up to one year.





Page 143



                                                                                                    Weighted
                                                                              Fair value          average price
                                                             Contract    ------------------     ------------------
                                             Quantity          amount      Asset  Liability     Receive        Pay
                                              -------         -------    -------    -------     -------    -------
                                        (Btu trillion)(a)  ($ million)         ($ million)        ($ per mmbtu)(b)
                                                                                            
At December 31, 2002
Maturing in 2003
Swaps
  Receive variable/pay fixed............          190             734        129         (4)       4.54       3.89
  Receive fixed/pay variable............          140             529         --       (108)       3.78       4.56
  Receive and pay variable..............          586           2,633         62        (61)       4.40       4.40
Maturing in 2004
Swaps
  Receive variable/pay fixed............           24              95          8         (1)       4.20       3.87
  Receive fixed/pay variable............           16              62         --         (9)       3.76       4.33
  Receive and pay variable..............          181             757         19        (22)       4.06       4.08
Maturing in 2005
Swaps
  Receive variable/pay fixed............            6              25          1         --        3.91       3.78
  Receive fixed/pay variable............            1               6         --         --        3.74       3.83
  Receive and pay variable..............          115             444         10        (10)       3.77       3.77
Maturing in 2006
Swaps
  Receive variable/pay fixed............            2               7         --         --        3.85       3.94
  Receive fixed/pay variable............           --               1         --         --        4.32       3.85
  Receive and pay variable..............           61             228          1         (3)       3.62       3.70
Maturing in 2007
Swaps
  Receive variable/pay fixed............            2               7         --         --        3.91       3.99
  Receive fixed/pay variable............           --               1         --         --        4.36       3.91
  Receive and pay variable..............           55             204          1         (3)       3.70       3.75
Maturing beyond 2007
Swaps
  Receive variable/pay fixed............            1               5         --         --        3.93       4.05
  Receive fixed/pay variable............            1               5          1         --        4.85       4.13
  Receive and pay variable..............          119             461          1         (5)       3.81       3.85
At December 31, 2001
Maturing in 2002
Swaps
  Receive variable/pay fixed............          447           1,600         17       (419)       2.64       3.58
  Receive fixed/pay variable............          302           1,002        210        (27)       3.32       2.64
  Receive and pay variable..............        4,232              44        653       (610)       2.68       2.68
Maturing in 2003
Swaps
  Receive variable/pay fixed............          104             349         37        (47)       3.24       3.36
  Receive fixed/pay variable............           86             272         25        (32)       3.16       3.21
  Receive and pay variable..............          682               4         52        (55)       2.99       3.00
Maturing in 2004
Swaps
  Receive variable/pay fixed............           20              63         11         (6)       3.45       3.18
  Receive fixed/pay variable............            8              20          4        (10)       2.54       3.30
  Receive and pay variable..............          230               7         18        (25)       2.90       2.93
Maturing in 2005
Swaps
  Receive variable/pay fixed............            3               8          2         (1)       3.43       3.02
  Receive fixed/pay variable............            4              11          2         (4)       2.89       3.37
  Receive and pay variable..............          165               8         12        (20)       3.02       3.07
Maturing in 2006
Swaps
  Receive variable/pay fixed............            2               7         --         (1)       3.49       3.94
  Receive fixed/pay variable............            3              10          2         (2)       3.42       3.45
  Receive and pay variable..............          102               9          5        (14)       3.10       3.19
Maturing beyond 2006
Swaps
  Receive variable/pay fixed............            3              12         --         (1)       3.59       4.02
  Received fixed/pay variable...........           13              43          5        (10)       3.26       3.68
  Receive and pay variable..............          318              25         22        (48)       2.79       2.87

---------------
(a) British thermal units (btu)
(b) Million british thermal units (mmbtu)


Page 144

Trading

     In conjunction with the risk management activities discussed above, BP also
trades interest rate and foreign currency exchange rate  derivatives.  The Group
controls the scale of the trading  exposures by using a value at risk model with
a maximum value at risk limit authorized by the board.

     In  addition  to the risk  management  activities  related to equity  crude
disposal,  refinery  supply and  marketing,  BP's  supply and  trading  function
undertakes  trading in the full range of conventional  derivative  financial and
commodity  instruments and physical cargoes available in the energy markets. The
Group also uses  financial and commodity  derivatives  to manage  certain of its
exposures to price  fluctuations on natural gas  transactions.  These activities
are monitored and are subject to maximum value at risk limits  authorized by the
Board.

     The Group measures its market risk exposure, i.e. potential gain or loss in
fair values,  on its trading  activity  using  value-at-risk  techniques.  These
techniques are based on a variance/covariance  model or a Monte Carlo simulation
and make a  statistical  assessment  of the market risk  arising  from  possible
future changes in market values over a 24-hour  period.  The  calculation of the
range of  potential  changes in fair value takes into  account a snapshot of the
end-of-day  exposures,  and the  history of  one-day  price  movements  over the
previous twelve months,  together with the correlation of these price movements.
The potential movement in fair values is expressed to three standard  deviations
which is  equivalent  to a 99.7%  confidence  level.  This means that,  in broad
terms,  one would expect to see an increase or a decrease in fair values greater
than the value at risk on only one occasion per year if the portfolio  were left
unchanged.

     The Group  calculates  value at risk on all  instruments  that are held for
trading  purposes  and that  therefore  give an  exposure  to market  risk.  The
value-at-risk  models take account of derivative  financial  instruments such as
interest  rate  forward  and  futures  contracts  and swap  agreements;  foreign
exchange forward and futures contracts and swap agreements;  and oil and natural
gas price futures and swap  agreements.  Financial  assets and  liabilities  and
physical  crude oil and refined  products that are treated as trading  positions
are also included in these calculations.  For options a linear  approximation is
included in the value-at-risk models. The value-at-risk  calculation for oil and
natural  gas price  exposure  also  includes  derivative  commodity  instruments
(commodity contracts that permit settlement either by delivery of the underlying
commodity or in cash), such as forward contracts.

     The following table shows values at risk for trading activities.



                                                     High         Low        Average    December 31
                                                   ------      ------        -------   ------------
                                                                     ($ million)
                                                                                   
2002
Interest rate trading........................          --          --             --             --
Foreign exchange trading.....................           2          --              1             --
Oil price trading............................          34          14             23             19
Natural gas price trading....................          18           1              6              9

2001
Interest rate trading........................           1          --             --             --
Foreign exchange trading.....................           3          --              1             --
Oil price trading............................          29          10             18             17
Natural gas price trading....................          21           4             10              9

2000
Interest rate trading........................           2          --              1             --
Foreign exchange trading.....................          15          --              1              1
Oil price trading............................          23           4             13             13
Natural gas price trading....................          16           1              6             13




Page 145

     The following tables shows the changes during the year in the net fair
value of instruments held for trading purposes.


                                                       Fair value     Fair value     Fair value     Fair value
                                                         interest       exchange            oil    natural gas
                                                             rate           rate          price          price
                                                        contracts      contracts      contracts      contracts
                                                        ---------      ---------      ---------     ----------
                                                                             ($ million)
                                                                                                
Fair value of contracts at January 1, 2002...........          --             (3)            26             12
Contracts realized or settled in the year............          --              3            (22)           154
Fair value of new contracts when entered
  into during the year...............................          --             --             --             --
Changes in fair value attributable to changes
  in valuation techniques and assumptions............          --             --             --             --
Other changes in fair values.........................          --             12             18             (9)
                                                        ---------      ---------      ---------     ----------
Fair value of contracts at December 31, 2002.........          --             12             22            157
                                                        =========      =========      =========     ==========


     The following  table shows the net fair value of contracts held for trading
purposes at December 31, 2002 analyzed by maturity  period and by methodology of
fair value estimation.


                                                              Fair value of contracts at December 31, 2002
                                                         -----------------------------------------------------
                                                         Maturity                          Maturity      Total
                                                        less than   Maturity   Maturity        over       fair
                                                           1 year  1-3 years  4-5 years     5 years      value
                                                         --------   --------   --------    --------    -------
                                                                               ($ million)

                                                                                               
Prices actively quoted.................................       116         66          6          --        188
Prices provided by other external sources..............       (10)         2         --          --         (8)
Prices based on models and other
  valuation methods....................................        11         --         --          --         11
                                                           ------     ------     ------      ------     ------
                                                              117         68          6          --        191
                                                           ======     ======     ======      ======     ======



ITEM 12 -- DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable



Page 146

                                     PART II

ITEM 13 -- DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     None.

ITEM 14 -- MATERIAL  MODIFICATIONS  TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
           PROCEEDS

     None.

ITEM 15 -- CONTROLS AND PROCEDURES

     Under  the  supervision  and  with  the   participation  of  the  Company's
management,  including the Company's Chief Executive Officer and Chief Financial
Officer, the Company has evaluated the effectiveness of the design and operation
of its  disclosure  controls  and  procedures  pursuant  to  Exchange  Act  Rule
13a-14(c) within 90 days of the filing date of this annual report. Based on that
evaluation,  the Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded that these disclosure controls and procedures are effective.

     In designing and  evaluating our disclosure  controls and  procedures,  our
management,  including the Chief Executive Officer and Chief Financial  Officer,
recognized  that any controls and  procedures,  no matter how well  designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives,  and our management  necessarily was required to apply its judgement
in evaluating the cost-benefit relationship of possible controls and procedures.
Because of the inherent  limitations  in all control  systems,  no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected.

     There were no significant  changes in the Company's internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of their most recent evaluation.






Page 147


                                    PART III

ITEM 17 -- FINANCIAL STATEMENTS

     Not applicable.

ITEM 18 -- FINANCIAL STATEMENTS

(a)  Financial Statements

     The  following  financial  statements,  together  with the  reports  of the
Independent Auditors thereon, are filed as part of this annual report:



                                                                                                    Page

                                                                                                 
Report of Independent Auditors and Consent of Independent Auditors.............................      F-1
Consolidated Statement of Income for the Years Ended December 31, 2002, 2001, and 2000.........      F-2
Consolidated Balance Sheet at December 31, 2002 and 2001.......................................      F-3
Consolidated Statement of Cash Flows for the Years
  Ended December 31, 2002, 2001, and 2000......................................................      F-4
Statement of Total Recognized Gains and Losses for the Years
  Ended December 31, 2002, 2001, and 2000......................................................      F-5
Statement of Changes in BP Shareholders' Interest for
  the Years Ended December 31, 2002, 2001, and 2000............................................      F-6
Notes to Financial Statements..................................................................      F-9
Supplementary Oil and Gas Information (Unaudited)..............................................      F-127
Schedule for the Years Ended December 31, 2002, 2001, and 2000
  Schedule II Valuation and Qualifying Accounts................................................      S-1


ITEM 19 -- EXHIBITS

     The  following  documents  are filed as part of, or  furnished  with,  this
annual report:

Exhibit 1       Memorandum and Articles of Association of BP p.l.c.*
Exhibit 4.1     The BP Executive Directors' Long Term Incentive Plan+
Exhibit 4.2     Directors' Service Contracts
Exhibit 7       Computation of Ratio of Earnings to Fixed Charges (Unaudited)
Exhibit 8       Subsidiaries
Exhibit 10      Section 906 Certifications**

     The total amount of long-term  debt  securities of the  Registrant  and its
subsidiaries  authorized  under any one  instrument  does not  exceed 10% of the
total assets of BP p.l.c.  and its  subsidiaries  on a consolidated  basis.  The
Company  agrees  to  furnish  copies  of  any  or all  such  instruments  to the
Securities and Exchange Commission upon request.

*    Incorporated  by reference to the Company's  Annual Report on Form 20-F for
     the year ended December 31, 2001.

**   Furnished, not filed.

+    Incorporated  by reference to the Company's  Annual Report on Form 20-F for
     the year ended December 31, 2000.



Page 148

                         BP p.l.c. AND SUBSIDIARIES

                         REPORT OF INDEPENDENT AUDITORS

To:  The Board of Directors
     BP p.l.c.

     We have audited the accompanying  consolidated  balance sheets of BP p.l.c.
as of December 31, 2002 and 2001,  and the related  consolidated  statements  of
income, changes in BP shareholders' interest, total recognized gains and losses,
and cash flows for each of the three  years in the  period  ended  December  31,
2002. Our audits also included the financial  statement  schedule  listed in the
Index at Item 18. These financial statements and schedule are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements and schedule based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United Kingdom and United States.  Those standards  require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
BP p.l.c.  at December 31, 2002 and 2001,  and the  consolidated  results of its
operations  and its  consolidated  cash flows for each of the three years in the
period  ended  December 31,  2002,  in  conformity  with  accounting  principles
generally  accepted in the United Kingdom which differ in certain  respects from
those  followed  in the  United  States  (see  Note  50 of  Notes  to  Financial
Statements).  Also, in our opinion,  the related financial  statement  schedule,
when considered in relation to the basic financial  statements taken as a whole,
presents fairly in all material respects the information set forth therein.

     As discussed in Note 45 of Notes to Financial Statements, in the year ended
December  31, 2002 the Company  changed its method of  accounting  for  deferred
taxation.


                                   /s/ ERNST & YOUNG LLP
                                   -----------------------
London, England                    Ernst & Young LLP
February 11, 2003

CONSENT OF INDEPENDENT AUDITORS

     We consent to the  incorporation  by reference of our report dated February
11, 2003,  with respect to the  consolidated  financial  statements of BP p.l.c.
included in this Annual Report (Form 20-F) for the year ended  December 31, 2002
in the following Registration Statements:

     Registration  Statements on Form F-3 (File Nos.  333-9790 and 333-65996) of
BP p.l.c.;

     Registration  Statement  on Form F-3 (File No.  333-83180)  of BP Australia
Capital Markets Limited,  BP Canada Finance Company,  BP Capital Markets p.l.c.,
BP Capital Markets America Inc. and BP p.l.c.; and

     Registration  Statements  on  Form  S-8  (File  Nos.  33-21868,   333-9020,
333-9798, 333-79399, 333-34968, 333-67206, 333-74414 and 333-102583,  333-103923
and 333-103924) of BP p.l.c.


                                        /s/ ERNST & YOUNG LLP
                                        -----------------------
London, England                         Ernst & Young LLP
March 24, 2003

                                     F - 1


                           BP p.l.c. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENT OF INCOME




                                                                           Years ended December 31,
                                                                      ---------------------------------
                                                            Note         2002         2001         2000
                                                            ----      -------      -------      -------
                                                                    ($ million, except per share amounts)

                                                                                   
Turnover..................................................            180,186      175,389      161,826
Less: Joint ventures......................................              1,465        1,171       13,764
                                                                      -------      -------      -------
Group turnover............................................            178,721      174,218      148,062
Replacement cost of sales.................................            155,528      147,001      120,797
Production taxes..........................................     3        1,274        1,689        2,061
                                                                      -------      -------      -------
Gross profit..............................................             21,919       25,528       25,204
Distribution and administration expenses..................     4       12,632       10,918        9,331
Exploration expense.......................................                644          480          599
                                                                      -------      -------      -------
                                                                        8,643       14,130       15,274
Other income..............................................     5          641          694          805
                                                                      -------      -------      -------
Group replacement cost operating profit...................              9,284       14,824       16,079
Share of profits of joint ventures........................                346          443          808
Share of profits of associated undertakings...............                616          760          792
                                                                      -------      -------      -------
Total replacement cost operating profit...................             10,246       16,027       17,679
Profit (loss) on sale of businesses or termination
  of operations...........................................     7          (33)         (68)         132
Profit (loss) on sale of fixed assets.....................     7        1,201          603           88
                                                                      -------      -------      -------
Replacement cost profit before interest and tax...........             11,414       16,562       17,899
Inventory holding gains (losses)..........................              1,129       (1,900)         728
                                                                      -------      -------      -------
Historical cost profit before interest and tax............             12,543       14,662       18,627
Interest expense..........................................     8        1,279        1,670        1,770
                                                                      -------      -------      -------
Profit before taxation....................................             11,264       12,992       16,857
Taxation..................................................    13        4,342        6,375        6,648
                                                                      -------      -------      -------
Profit after taxation.....................................              6,922        6,617       10,209
Minority shareholders' interest...........................                 77           61           89
                                                                      -------      -------      -------
Profit for the year*......................................              6,845        6,556       10,120
Dividend requirements on preference shares*...............                  2            2            2
                                                                      -------      -------      -------
Profit for the year applicable to ordinary shares*........              6,843        6,554       10,118
                                                                      -------      -------      -------
Profit per ordinary share - cents
Basic.....................................................    16        30.55        29.21        46.77
Diluted...................................................    16        30.41        29.04        46.46
                                                                      =======      =======      =======
Dividends per ordinary share - cents......................    15        24.00        22.00        20.50
                                                                      =======      =======      =======
Average number outstanding of 25 cents ordinary shares
  (in thousands)..........................................         22,397,126   22,435,737   21,638,280
                                                                   ==========   ==========   ==========

----------

*    A summary  of the  adjustments  to profit  for the year of the Group  which
     would be required if generally accepted accounting principles in the United
     States had been applied instead of those  generally  accepted in the United
     Kingdom is given in Note 50.




    The Notes to Financial Statements are an integral part of this Statement.


                                     F - 2

                           BP p.l.c. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET



                                                                                 December 31,
                                                                 --------------------------------------------
                                                      Note             2002                        2001
                                                     ------      ----------------            ----------------
                                                                                 ($ million)
                                                                                        
Fixed assets
   Intangible assets.............................       20                 15,566                       16,489
   Tangible assets...............................       21                 87,682                       77,410
   Investments
    Joint ventures
     Gross assets................................                4,829                        4,661
     Gross liabilities...........................                  798                          800
                                                               -------                      -------
     Net investment..............................       22                  4,031                        3,861
    Associated undertakings......................       22                  4,626                        5,433
    Other........................................       22                  2,154                        2,669
                                                                          -------                      -------
                                                                           10,811                       11,963
                                                                          -------                      -------
Total fixed assets...............................                         114,059                      105,862
Current assets
   Inventories...................................       23      10,181                        7,631
   Trade receivables.............................       24      18,798                       15,436
   Other receivables falling due
    Within one year..............................       24       8,107                        6,552
    After more than one year.....................       24       6,245                        4,681
   Investments...................................       25         215                          450
   Cash at bank and in hand......................                1,520                        1,358
                                                               -------                      -------
                                                                45,066                       36,108
                                                               -------                      -------
Current liabilities -- falling due within one year
   Finance debt..................................       29      10,086                        9,090
   Trade payables................................       30      17,454                       13,129
   Other accounts payable and accrued liabilities       30      18,761                       15,395
                                                               -------                      -------
                                                                46,301                       37,614
                                                               -------                      -------
Net current assets (liabilities).................                          (1,235)                      (1,506)
                                                                          -------                      -------
Total assets less current liabilities............                         112,824                      104,356
Noncurrent liabilities
   Finance debt..................................       29      11,922                       12,327
   Accounts payable and accrued liabilities......       30       3,455                        3,086
Provisions for liabilities and charges
   Deferred taxation.............................       13      13,514                       11,702
   Other.........................................       31      13,886                       11,482
                                                               -------                      -------
                                                                           42,777                       38,597
                                                                          -------                      -------
Net assets.......................................                          70,047                       65,759
Minority shareholders' interest -- equity........                             638                          598
                                                                          -------                      -------
BP shareholders' interest*.......................                          69,409                       65,161
                                                                          =======                      =======
Represented by:
Capital shares
   Preference....................................                              21                           21
   Ordinary......................................                           5,595                        5,608
Paid in surplus..................................       32                  4,243                        4,014
Merger reserve...................................       32                 27,033                       26,983
Other reserves...................................       32                    173                          223
Retained earnings................................    32/33                 32,344                       28,312
                                                                          -------                      -------
                                                                           69,409                       65,161
                                                                          =======                      =======

----------

*    A summary of the  adjustments to BP  shareholders'  interest which would be
     required if generally accepted  accounting  principles in the United States
     had been applied instead of those generally  accepted in the United Kingdom
     is given in Note 50.

  The Notes to Financial Statements are an integral part of this Balance Sheet.


                                     F - 3


                           BP p.l.c. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS



                                                                             Years ended December 31,
                                                                          -------------------------------
                                                              Note         2002         2001         2000
                                                             -----     --------     --------    ---------
                                                                                    ($ million)

                                                                                       
Net cash inflow from operating activities..................     34       19,342       22,409       20,416
                                                                         ------       ------       ------
Dividends from joint ventures..............................                 198          104          645
                                                                         ------       ------       ------
Dividends from associated undertakings.....................                 368          528          394
                                                                         ------       ------       ------

Servicing of finance and returns on investments
Interest received..........................................                 231          256          444
Interest paid..............................................              (1,204)      (1,282)      (1,354)
Dividends received.........................................                 102          132           42
Dividends paid to minority shareholders....................                 (40)         (54)         (24)
                                                                         ------       ------       ------
Net cash outflow from servicing of finance and
  returns on investments...................................                (911)        (948)        (892)
                                                                         ------       ------       ------
Taxation
UK corporation tax.........................................                (979)      (1,058)        (869)
Overseas tax...............................................              (2,115)      (3,602)      (5,329)
                                                                         ------       ------       ------
Tax paid...................................................              (3,094)      (4,660)      (6,198)
                                                                         ------       ------       ------

Capital expenditure and financial investment
Payments for tangible and intangible fixed assets..........             (12,049)     (12,142)      (8,837)
Payments for fixed assets - investments....................                 (67)         (72)      (1,264)
Proceeds from the sale of fixed assets.....................     19        2,470        2,365        3,029
                                                                         ------       ------       ------
Net cash outflow for capital expenditure
  and financial investment.................................              (9,646)      (9,849)      (7,072)
                                                                         ------       ------       ------
Acquisitions and disposals
Investments in associated undertakings.....................                (971)        (586)        (985)
Proceeds from sale of investment in Ruhrgas................     19        2,338           --           --
Acquisitions, net of cash acquired.........................              (4,324)      (1,210)      (6,265)
Net investment in joint ventures...........................                (354)        (497)        (218)
Proceeds from the sale of businesses.......................     19        1,974          538        8,333
                                                                         ------       ------       ------
Net cash (outflow) inflow for acquisitions and disposals...              (1,337)      (1,755)         865
                                                                         ------       ------       ------
Equity dividends paid......................................              (5,264)      (4,827)      (4,415)
                                                                         ------       ------       ------
Net cash (outflow) inflow..................................                (344)       1,002        3,743
                                                                         ======       ======       ======

Financing..................................................     34         (181)         972        3,413
Management of liquid resources.............................     34         (220)        (211)         452
Increase (decrease) in cash................................     34           57          241         (122)
                                                                         ------       ------       ------
                                                                           (344)       1,002        3,743
                                                                         ======       ======       ======

---------------

For a cash flow statement and a statement of  comprehensive  income  prepared on
the basis of US GAAP see Note 50 -- US generally accepted accounting principles.


   The Notes to Financial Statements are an integral part of these Statements.


                                     F - 4


                           BP p.l.c. AND SUBSIDIARIES

                 STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES




                                                                            Years ended December 31,
                                                                       --------------------------------
                                                                          2002         2001         2000
                                                                      --------     --------    ---------
                                                                                   ($ million)

                                                                                         
Profit for the year..............................................        6,845        6,556       10,120
Currency translation differences (net of tax)....................        3,333         (828)      (2,340)
                                                                      --------     --------    ---------
Total recognized gains and losses relating to the year...........       10,178        5,728        7,780
                                                                                   ========    =========
Prior year adjustment-- change in accounting policy..............       (9,206)
                                                                      --------
Total recognized gains and losses since last annual accounts.....          972
                                                                      ========


















   The Notes to Financial Statements are an integral part of these Statements.

                                     F - 5


                           BP p.l.c. AND SUBSIDIARIES

                STATEMENT OF CHANGES IN BP SHAREHOLDERS' INTEREST

     The Company's  authorized ordinary share capital at December 31, 2002, 2001
and 2000 was 36 billion  shares of 25 cents each,  amounting  to $9 billion.  In
addition  the Company has  authorized  preference  share  capital of  12,750,000
shares of (pound)1 each ($21 million). Details of movements in share capital are
shown in Note 32.

     The allotted, called up and fully paid share capital at December 31, was as
follows:



                                                                                  Shares
                                                                        ------------------------
                                                                          Authorized       Issued       Amount
                                                                        ------------    ---------    ---------
                                                                                                     ($ million)
                                                                                            
Non-equity-- preference shares
8% cumulative first preference
  shares of(pound)1 each at December 31, 2002, 2001 and 2000........       7,250,000    7,232,838           12
                                                                       =============    =========    =========
9% cumulative second preference
  shares of(pound)1 each at December 31, 2002, 2001 and 2000........       5,500,000    5,473,414            9
                                                                       =============    =========    =========
Equity -- ordinary shares of 25 cents each
Authorized
December 31, 2002, 2001 and 2000....................................  36,000,000,000
                                                                      ==============






                                                             Years ended December 31,
                                   --------------------------------------------------------------------------
                                             2002                       2001                     2000
                                   -----------------------    ----------------------    ---------------------
                                   Shares of                  Shares of                 Shares of
                                    25 cents                   25 cents                  25 cents
Issued                                  each        Amount         each       Amount         each       Amount
                                   ---------     ---------    ---------    ---------    ---------    ---------
                                 (thousands)    ($ million)  (thousands)  ($ million)  (thousands)  ($ million)

                                                                                      
January 1......................   22,432,077         5,608   22,528,747        5,632   19,484,024        4,871
Employee share schemes (a).....       33,821             9       33,461            8       38,112            9
ARCO (b).......................       12,894             3       23,798            7           --           --
ARCO acquisition...............           --            --           --           --    3,228,274          807
Repurchase of ordinary
  share capital (c)............     (100,141)          (25)    (153,929)         (39)    (221,663)         (55)
                                   ---------     ---------    ---------    ---------    ---------    ---------
December 31....................   22,378,651         5,595   22,432,077        5,608   22,528,747        5,632
                                   =========     =========    =========    =========    =========    =========

Paid in surplus
January 1......................                      4,014                     3,770                     3,684
Premium on shares issued:
  Employee share schemes.......                        129                       118                       250
  ARCO.........................                         54                        51                        --
Repurchase of ordinary
  share capital................                         25                        39                        55
Stamp duty reserve tax.........                         --                        --                      (295)
Qualifying Employee Share
  Ownership Trust (d)..........                         21                        36                        76
                                                 ---------                 ---------                 ---------
December 31....................                      4,243                     4,014                     3,770
                                                 =========                 =========                 =========






    The Notes to Financial Statements are an integral part of this Statement.

                                     F - 6


                           BP p.l.c. AND SUBSIDIARIES

          STATEMENT OF CHANGES IN BP SHAREHOLDERS' INTEREST (Continued)




                                                                         Years ended December 31,
                                                                    --------------------------------
                                                                       2002         2001         2000
                                                                   --------     --------    ---------
                                                                               ($ million)

                                                                                     
Merger reserve
January 1......................................................      26,983       26,869          697
ARCO (b).......................................................          50          114           --
ARCO acquisition...............................................          --           --       26,172
                                                                   --------     --------    ---------
December 31....................................................      27,033       26,983       26,869
                                                                   ========     ========    =========
Other reserves
January 1......................................................         223          456           --
ARCO(b)........................................................         (50)        (117)          --
ARCO acquisition...............................................          --           --          456
Redemption of ARCO preference shares (e).......................          --         (116)          --
                                                                   --------     --------    ---------
December 31....................................................         173          223          456
                                                                   ========     ========    =========
Retained earnings
January 1......................................................      28,312       28,836       34,008
Prior year adjustment -- change in accounting policy...........          --           --       (6,250)
                                                                   --------     --------    ---------
As restated....................................................      28,312       28,836       27,758
Currency translation differences (net of tax)..................       3,333         (828)      (2,340)
Repurchase of ordinary share capital...........................        (750)      (1,281)      (2,001)
Qualifying Employee Share Ownership Trust (d)..................         (21)         (36)         (76)
Profit for the year............................................       6,845        6,556       10,120
Dividends (f)
  Preference (non-equity)......................................          (2)          (2)          (2)
  Ordinary (equity)............................................      (5,373)      (4,933)      (4,623)
                                                                   --------     --------    ---------
December 31....................................................      32,344       28,312       28,836
                                                                   ========     ========    =========


----------

(a)  Employee share schemes.  During the year  33,820,750  ordinary  shares were
     issued under the BP, Amoco and Burmah Castrol employee share schemes.

(b)  ARCO.  12,894,348  ordinary  shares were issued in respect of ARCO employee
     share option schemes.

(c)  Repurchase  of  ordinary   share   capital.   The  Company   purchased  for
     cancellation  100,140,987  ordinary  shares  for a total  consideration  of
     $750 million.

(d)  See Note 35 -- Employee share plans.

(e)  Redemption of ARCO preference shares. A cash tender offer was made in March
     2001  for  the  outstanding  ARCO  preference  shares.

(f)  See Note 15 -- Dividends per ordinary share.

(g)  See Note 33 -- Retained earnings.

(h)  Voting on substantive resolutions tabled at a general meeting is on a poll.
     On a poll,  shareholders  present  in person or by proxy have two votes for
     every (pound)5 in nominal amount of the first and second  preference shares
     held and one vote for every ordinary share held. On a show of hands vote on
     other resolutions  (procedural matters) at a general meeting,  shareholders
     present in person or by proxy have one vote each.



   The Notes to Financial Statements are an integral part of this Statement.

                                     F - 7


                           BP p.l.c. AND SUBSIDIARIES

          STATEMENT OF CHANGES IN BP SHAREHOLDERS' INTEREST (Concluded)


     In the event of the winding up of the Company preference shareholders would
     be entitled to a sum equal to the capital paid up on the preference  shares
     plus an amount in  respect of accrued  and unpaid  dividends  and a premium
     equal to the  higher of (i) 10% of the  capital  paid up on the  preference
     shares and (ii) the excess of the  average  market  price of such shares on
     the London Stock Exchange during the previous six months over par value.




















   The Notes to Financial Statements are an integral part of this Statement.


                                     F - 8


                           BP p.l.c. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS

Note 1 -- Accounting policies

Accounting standards

     These  accounts are prepared in  accordance  with  applicable UK accounting
standards. In preparing the financial statements for the current year, the Group
has adopted Financial  Reporting Standard No. 19 'Deferred Tax' (FRS 19) and the
transitional  disclosure  requirements  of Financial  Reporting  Standard No. 17
'Retirement  Benefits' (FRS 17). The adoption of FRS 19 has resulted in a change
in accounting  policy for deferred tax. See Note 45 New accounting  standard for
deferred tax, for further information.

     In addition to the requirements of accounting standards, the accounting for
exploration   and  production   activities  is  governed  by  the  Statement  of
Recommended   Practice  ('SORP')   'Accounting  for  Oil  and  Gas  Exploration,
Development,  Production and  Decommissioning  Activities'  issued by the UK Oil
Industry Accounting Committee on June 7, 2001.

     These accounts have been prepared in accordance with the SORP's  provisions
except for where  royalties are payable in cash and the royalty  holder does not
have a direct  interest in the  underlying  reserves  and  production.  In these
circumstances, the SORP recommends that turnover, reserves and production should
be  presented on a gross basis with the royalty  payable  treated as an expense.
The Group has historically  presented  turnover,  reserves and production net of
all  royalties  whether  payable  in cash or in kind.  BP  considers  that  such
presentation  more  appropriately  reflects  the  nature of the  profit  sharing
arrangements.

Basis of preparation

     The Group's main activities are the exploration and production of crude oil
and  natural  gas;  the  marketing  and  trading of natural  gas and power;  the
refining,  marketing,  supply and transportation of petroleum products;  and the
manufacturing and marketing of petrochemicals.

     The  preparation  of  accounts in  conformity  with UK  generally  accepted
accounting  practice requires  management to make estimates and assumptions that
affect  the  reported  amounts  of  assets  and  liabilities  at the date of the
accounts and the reported  amounts of revenues and expenses during the reporting
period. Actual outcomes could differ from these estimates.

Group consolidation

     The Group financial  statements comprise a consolidation of the accounts of
the parent Company and its subsidiary undertakings  (subsidiaries).  The results
of subsidiaries acquired or sold are consolidated for the periods from or to the
date on which control passes.

     An associated undertaking (associate) is an entity in which the Group has a
long-term equity interest and over which it exercises significant influence. The
consolidated  financial statements include the Group proportion of the operating
profit or loss, exceptional items,  inventory holding gains or losses,  interest
expense, taxation and net assets of associates (the equity method).

     A joint  venture is an entity in which the Group has a  long-term  interest
and shares control with one or more  co-venturers.  The  consolidated  financial
statements  include the Group proportion of turnover,  operating profit or loss,
exceptional  items,  inventory  holding  gains  or  losses,   interest  expense,
taxation,  gross assets and gross  liabilities  of the joint  venture (the gross
equity method).

     Certain of the Group's  activities are conducted through joint arrangements
and are included in the consolidated  financial  statements in proportion to the
Group's interest in the income, expenses,  assets and liabilities of these joint
arrangements.

     On the acquisition of a subsidiary, or of an interest in a joint venture or
associate,  fair values  reflecting  conditions at the date of  acquisition  are
attributed to the identifiable net assets acquired. When the cost of acquisition
exceeds the fair values attributable to the Group's share of such net assets the
difference is treated as purchased  goodwill.  This is capitalized and amortized
over its estimated useful economic life, which is usually 10 years.

     Where an  interest in a separate  business  of an  acquired  entity is held
temporarily  pending  disposal,  it is  carried  on  the  balance  sheet  at its
estimated net proceeds of sale.

                                     F - 9

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 1 -- Accounting policies (continued)

Accounting convention

     The accounts are prepared under the historical cost  convention,  except as
explained under inventory  valuation.  Accounts  prepared on this basis show the
profits  available  to  shareholders  and are the  most  appropriate  basis  for
presentation of the Group's balance sheet.  Profit or loss determined  under the
historical cost convention  includes inventory holding gains or losses and, as a
consequence, does not necessarily reflect underlying trading results.

Replacement cost

     The results of individual  businesses and geographical  areas are presented
on  a  replacement  cost  basis.  Replacement  cost  operating  results  exclude
inventory  holding  gains or losses and  reflect  the  average  cost of supplies
incurred  during the year,  and thus  provide  insight into  underlying  trading
results.  Inventory holding gains or losses represent the difference between the
replacement  cost of sales and the historical cost of sales calculated using the
first-in first-out method.

Inventory valuation

     Inventories  are valued at cost to the Group using the  first-in  first-out
method or at net realizable value,  whichever is the lower. Stores are stated at
or below cost calculated mainly using the average method.

     Inventory held for trading  purposes is  marked-to-market  and any gains or
losses are recognized in the income statement rather than the statement of total
recognized  gains and  losses.  The  directors  consider  that the nature of the
Group's trading  activity is such that, in order for the accounts to show a true
and fair view of the state of affairs of the Group and the results for the year,
it is necessary to depart from the  requirements  of Schedule 4 to the Companies
Act 1985.  Had the  treatment in Schedule 4 been  followed,  the profit and loss
account reserve would have been reduced by $209 million (2001 $84 million) and a
revaluation reserve established and increased accordingly.

Revenue recognition

     Revenues  associated  with  the  sale of oil,  natural  gas  liquids,  LNG,
petroleum  and  chemical  products and all other items are  recognized  when the
title passes to the customer. Generally, revenues from the production of natural
gas and oil  properties in which the Group has an interest with other  producers
are recognized on the basis of the Group's working  interest in those properties
(the  entitlement  method).  Differences  between  the  production  sold and the
Group's share of production are not significant.

Foreign currencies

     On  consolidation,  assets and liabilities of  subsidiaries  are translated
into US dollars at closing  rates of exchange.  Income and cash flow  statements
are translated at average rates of exchange. Exchange differences resulting from
the  retranslation  of net  investments  in  subsidiaries,  joint  ventures  and
associates at closing rates, together with differences between income statements
translated  at average rates and at closing  rates,  are dealt with in reserves.
Exchange gains and losses arising on long-term foreign currency  borrowings used
to finance  the  Group's  foreign  currency  investments  are also dealt with in
reserves.  All other  exchange  gains or losses on settlement or  translation at
closing rates of exchange of monetary assets and liabilities are included in the
determination of profit for the year.



                                     F - 10

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 1 -- Accounting policies (continued)

Derivative financial instruments

     The Group uses derivative  financial  instruments  (derivatives)  to manage
certain  exposures  to  fluctuations  in  foreign  currency  exchange  rates and
interest  rates,  and to manage some of its margin  exposure from changes in oil
and natural gas prices.  Derivatives  are also traded in conjunction  with these
risk management activities.

     The  purpose  for which a  derivative  contract  is used is  identified  at
inception. To qualify as a derivative for risk management,  the contract must be
in accordance with  established  guidelines which ensure that it is effective in
achieving its objective.  All contracts not identified at inception as being for
the purpose of risk management are designated as being held for trading purposes
and accounted for using the fair value method, as are all oil price derivatives.

     The Group accounts for derivatives using the following methods:

     Fair value  method: Derivatives  are carried on the  balance  sheet at fair
value  ('marked-to-market') with changes in that value recognized in earnings of
the period.  This method is used for all derivatives  which are held for trading
purposes.  Interest rate contracts traded by the Group include  futures,  swaps,
options and swaptions.  Foreign  exchange  contracts traded include forwards and
options.  Oil and natural gas price contracts traded include swaps,  options and
futures.

     Accrual method: Amounts payable or receivable in respect of derivatives are
recognized ratably in earnings over the period of the contracts.  This method is
used for derivatives  held to manage  interest rate risk.  These are principally
swap agreements  used to manage the balance between fixed and floating  interest
rates on long-term  finance debt.  Other  derivatives  held for this purpose may
include  swaptions  and futures  contracts.  Amounts  payable or  receivable  in
respect of these  derivatives are recognized as adjustments to interest  expense
over the period of the contracts. Changes in the derivative's fair value are not
recognized.

     Deferral  method: Gains  and  losses  from  derivatives  are  deferred  and
recognized in earnings or as adjustments to carrying  amounts,  as  appropriate,
when the underlying debt matures or the hedged transaction  occurs.  This method
is used  for  derivatives  used to  convert  non-US  dollar  borrowings  into US
dollars,  to hedge  significant  non-US dollar firm  commitments  or anticipated
transactions,  and to manage some of the  Group's  exposure to natural gas price
fluctuations.  Derivatives  used to convert  non-US  dollar  borrowings  into US
dollars include foreign  currency swap agreements and forward  contracts.  Gains
and losses on these  derivatives  are deferred and recognized on maturity of the
underlying  debt,  together  with  the  matching  loss  or  gain  on  the  debt.
Derivatives used to hedge significant non-US dollar transactions include foreign
currency forward  contracts and options and to hedge natural gas price exposures
include  swaps,  futures and options.  Gains and losses on these  contracts  and
option premia paid are also deferred and  recognized in the income  statement or
as adjustments to carrying amounts, as appropriate,  when the hedged transaction
occurs.

     Where  derivatives  used to manage  interest rate risk or to convert non-US
dollar debt or to hedge other  anticipated cash flows are terminated  before the
underlying debt matures or the hedged transaction  occurs, the resulting gain or
loss is recognized on a basis that matches the timing and  accounting  treatment
of the underlying debt or hedged transaction. When an anticipated transaction is
no longer likely to occur or finance debt is  terminated  before  maturity,  any
deferred gain or loss that has arisen on the related derivative is recognized in
the income statement, together with any gain or loss on the terminated item.


                                     F - 11

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 1 -- Accounting policies (continued)

Tangible assets

     The  initial  cost of a tangible  fixed  asset  comprises  its  purchase or
construction cost and any cost directly attributable to bringing it into working
condition  for its intended use.  Capitalization  of directly  attributed  costs
ceases when the physical  construction  of the tangible  asset is complete.  Any
subsequent  expenditure  that  enhances  an  asset's  operating  performance  or
replaces a fully depreciated component of an asset is capitalized.

Depreciation

     Oil and gas production  assets are depreciated  using a  unit-of-production
method based upon  estimated  proved  reserves.  Other  tangible and  intangible
assets are depreciated on the straight line method over their  estimated  useful
lives. The average estimated useful lives of refineries are 20 years,  chemicals
manufacturing  plants 20 years and service stations 15 years.  Other intangibles
are amortized over a maximum period of 20 years.

     The Group  undertakes a review for  impairment of a fixed asset or goodwill
if events or changes in  circumstances  indicate that the carrying amount of the
fixed asset or goodwill may not be recoverable.  To the extent that the carrying
amount  exceeds the  recoverable  amount,  that is, the higher of net realizable
value and value in use,  the fixed  asset or  goodwill  is  written  down to its
recoverable  amount.  The value in use is determined  from estimated  discounted
future net cash flows.

Maintenance expenditure

     Expenditure on major maintenance, refits or repairs is capitalized where it
enhances the performance of an asset above its originally  assessed  standard of
performance;  replaces  an  asset  or  part of an  asset  which  was  separately
depreciated and which is then written off; or restores the economic  benefits of
an asset which has been fully depreciated.  All other maintenance expenditure is
charged to income as incurred.

Exploration expenditure

     Exploration  expenditure is accounted for in accordance with the successful
efforts  method.  Exploration  and appraisal  drilling  expenditure is initially
capitalized  as an  intangible  fixed  asset.  When  proved  reserves of oil and
natural  gas  are  determined  and  development  is  sanctioned,   the  relevant
expenditure  is  transferred  to tangible  production  assets.  All  exploration
expenditure  determined as unsuccessful  is charged against income.  Exploration
licence   acquisition   costs  are  amortized  over  the  estimated   period  of
exploration.  Geological and geophysical  exploration  costs are charged against
income as incurred.

Decommissioning

     Provision for  decommissioning is recognized in full at the commencement of
oil and natural gas  production.  The amount  recognized is the present value of
the estimated future expenditure  determined in accordance with local conditions
and requirements.  A corresponding  tangible fixed asset of an amount equivalent
to the provision is also created.  This is  subsequently  depreciated as part of
the capital costs of the production and transportation facilities. Any change in
the present value of the estimated  expenditure is reflected as an adjustment to
the provision and the fixed asset.



                                     F - 12

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 1 -- Accounting policies (continued)

Petroleum revenue tax

     The   charge   for   petroleum   revenue   tax  is   calculated   using   a
unit-of-production method.

Changes in unit-of-production factors

     Changes in factors which affect  unit-of-production  calculations are dealt
with prospectively, not by immediate adjustment of prior years' amounts.

Environmental liabilities

     Environmental  expenditures  that relate to current or future  revenues are
expensed or capitalized as appropriate.  Expenditures that relate to an existing
condition  caused by past  operations  and that do not  contribute to current or
future earnings are expensed.

     Liabilities  for  environmental  costs are  recognized  when  environmental
assessments or clean-ups are probable and the associated costs can be reasonably
estimated.  Generally,  the  timing  of  these  provisions  coincides  with  the
commitment  to a formal  plan of action  or, if  earlier,  on  divestment  or on
closure of inactive  sites.  The amount  recognized  is the best estimate of the
expenditure  required.  Where the liability  will not be settled for a number of
years  the  amount  recognized  is the  present  value of the  estimated  future
expenditure.

Leases

     Assets  held  under  leases  which  result  in  Group  companies  receiving
substantially   all  risks  and  rewards  of  ownership   (finance  leases)  are
capitalized  as  tangible  fixed  assets  at  the  estimated  present  value  of
underlying  lease  payments.  The  corresponding  finance  lease  obligation  is
included within finance debt. Rentals under operating leases are charged against
income as incurred.

Research

     Expenditure on research is written off in the year in which it is incurred.

Interest

     Interest is capitalized  gross during the period of  construction  where it
relates  either  to the  financing  of  major  projects  with  long  periods  of
development or to dedicated  financing of other projects.  All other interest is
charged against income.

Pensions and other postretirement benefits

     The cost of providing pensions and other postretirement benefits is charged
to income on a systematic basis,  with pension surpluses and deficits  amortized
over the average  expected  remaining  service lives of current  employees.  The
difference  between the amounts charged to income and the contributions  made to
pension plans is included within other provisions or debtors as appropriate. The
amounts  accrued  for  other   postretirement   benefits  and  unfunded  pension
liabilities are included within other provisions.



                                     F - 13

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 1 -- Accounting policies (concluded)

Deferred taxation

     Deferred tax is recognized in respect of all timing  differences  that have
originated  but not  reversed at the balance  sheet date where  transactions  or
events have occurred at that date that will result in an obligation to pay more,
or a right to pay less, tax in the future. In particular:

     --   Provision is made for tax on gains  arising from the disposal of fixed
          assets that have been rolled over into replacement assets, only to the
          extent that, at the balance sheet date,  there is a binding  agreement
          to dispose of the replacement assets concerned.  However, no provision
          is made where,  on the basis of all available  evidence at the balance
          sheet date,  it is more likely than not that the taxable  gain will be
          rolled over into replacement  assets and charged to tax only where the
          replacement assets are sold.

     --   Provision is made for deferred tax that would arise on  remittance  of
          the retained  earnings of overseas  subsidiaries,  joint  ventures and
          associated  undertakings only to the extent that, at the balance sheet
          date, dividends have been accrued as receivable.

     Deferred tax assets are recognized only to the extent that it is considered
more likely than not that there will be suitable  taxable profits from which the
underlying timing differences can be deducted.

     Deferred tax is measured on an undiscounted basis at the tax rates that are
expected to apply in the periods in which timing differences  reverse,  based on
tax rates and laws enacted or substantively enacted at the balance sheet date.

Discounting

     The  unwinding of the discount on provisions  is included  within  interest
expense.  Any  change  in the  amount  recognized  for  environmental  and other
provisions arising through changes in discount rates is included within interest
expense.

Comparative figures

     Information  for 2001 and 2000 has been restated to reflect the transfer of
the solar, renewables and alternative fuels activities from Other businesses and
corporate to Gas, Power and Renewables. In addition,  certain prior year figures
have been restated to conform with the 2002 presentation.

Note 2 -- Turnover


                                                                         Years ended December 31,
                                                                    --------------------------------
                                                                       2002         2001         2000
                                                                   --------     --------    ---------
                                                                               ($ million)

                                                                                     
Sales and operating revenue....................................     222,231      208,299      168,709
Customs duties and sales taxes.................................      43,510       34,081       20,647
                                                                   --------     --------    ---------
                                                                    178,721      174,218      148,062
                                                                   ========     ========    =========





                                     F - 14

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 3 -- Production taxes


                                                                         Years ended December 31,
                                                                    --------------------------------
                                                                       2002         2001         2000
                                                                   --------     --------    ---------
                                                                               ($ million)

                                                                                         
UK petroleum revenue tax.......................................         309          600          707
Overseas production taxes......................................         965        1,089        1,354
                                                                   --------     --------    ---------
                                                                      1,274        1,689        2,061
                                                                   ========     ========    =========


Note 4 -- Distribution and administration expenses


                                                                        Years ended December 31,
                                                                   --------------------------------
                                                                      2002         2001         2000
                                                                  --------     --------    ---------
                                                                               ($ million)

                                                                                      
Distribution................................................        11,431        9,852        7,514
Administration..............................................         1,201        1,066        1,817
                                                                  --------     --------    ---------
                                                                    12,632       10,918        9,331
                                                                  ========     ========    =========


     Distribution  and  administration  expenses  for  2002  include  Veba  from
February 1. The expenses for 2002 and 2001 include  Atlantic  Richfield  Company
(ARCO),  Burmah  Castrol  and the  European  fuels  business  for the full year,
whereas for 2000 their costs were only included for part of the year, from April
14, July 7, and August 1, respectively.


Note 5 -- Other income


                                                                        Years ended December 31,
                                                                   --------------------------------
                                                                      2002         2001         2000
                                                                  --------     --------    ---------
                                                                              ($ million)

                                                                                        
Income from other fixed asset investments.......................       139          208          202
Other interest and miscellaneous income.........................       502          486          603
                                                                  --------     --------    ---------
                                                                       641          694          805
                                                                  ========     ========    =========
Income from investments publicly traded included above..........        58           32            8
                                                                  --------     --------    ---------




                                     F - 15

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 6 -- Auditors' remuneration


                                                                      Years ended December 31,
                                                        ------------------------------------------------------
                                                              2002               2001               2000
                                                        ----------------   ----------------    ---------------
                                                            UK     Total       UK     Total        UK    Total
                                                        ------    ------   ------    ------    ------   ------
                                                                               ($ million)
                                                                                         
Audit fees -- Ernst & Young
  Group audit........................................        6        14        5        13         6       15
  Local statutory audit and quarterly review.........        4        14        3        11         3       13
                                                        ------    ------   ------    ------    ------   ------
                                                            10        28        8        24         9       28
                                                        ======    ======   ======    ======    ======   ======

Fees for other services -- Ernst & Young
  Audit-related services.............................       14        21       20        30        12       19
  Taxation services..................................        4        28        9        28         3       14
  Other services.....................................        2         2       --         1         5       18
                                                        ------    ------   ------    ------    ------   ------
                                                            20        51       29        59        20       51
                                                        ======    ======   ======    ======    ======   ======


     The audit fees payable to Ernst & Young are reviewed by the Audit Committee
in the context of other global companies for cost  effectiveness.  The committee
also  reviews  the  nature  and  extent of  non-audit  services  to ensure  that
independence is maintained.

     Ernst & Young is selected to provide audit-related  services in addition to
its  statutory  audit  duties  where  its  expertise  and  experience  of BP are
important.  The tax services  were  awarded  either  through a full  competitive
tender  process or following  an  assessment  of the  expertise of Ernst & Young
relative to that of other potential service providers.  These services are for a
fixed term. The other services were awarded on a similar basis.


                                     F - 16

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 7 -- Exceptional items

     Exceptional  items  comprise  profit (loss) on sale of fixed assets and the
sale of businesses or termination of operations, as follows:



                                                                                  Years ended December 31,
                                                                             --------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                         ($ million)
                                                                                                 
Profit on sale of businesses or
  termination of operations        -- Group............................          195          182          341
Loss on sale of businesses or
  termination of operations        -- Group............................         (228)        (250)        (209)
                                                                            --------     --------    ---------
                                                                                 (33)         (68)         132
                                                                            --------     --------    ---------
Profit on sale of fixed assets     -- Group............................        2,736          948          535
                                   -- Associated undertakings..........            2           --           --
                                   -- Joint ventures...................           --           --           24
Loss on sale of fixed assets       -- Group............................       (1,537)        (343)        (471)
                                   -- Associated undertakings..........           --           (2)          --
                                                                            --------     --------    ---------
                                                                               1,201          603           88
                                                                            --------     --------    ---------
Exceptional items......................................................        1,168          535          220
Taxation credit (charge):
  Sale of businesses or termination of operations......................           45         (100)         (86)
  Sale of fixed assets.................................................         (170)        (270)         (56)
                                                                            --------     --------    ---------
  Exceptional items (net of tax).......................................        1,043          165           78
                                                                            ========     ========    =========


Sales of businesses or termination of operations

     The profit on the sale of businesses in 2002 relates mainly to the disposal
of the Group's  retail network in Cyprus and the UK contract  energy  management
business.  For 2001 the profit  relates to the sale of the  Group's  interest in
Vysis.  For 2000 the profit is  attributable  primarily to the divestment by the
Group of its common interest in Altura Energy.

     The  loss on sale of  businesses  or  termination  of  operations  for 2002
represents the loss on disposal of the plastic fabrications  business,  the loss
on disposal of the former Burmah Castrol  speciality  chemicals  business Fosroc
Construction,  the loss on withdrawal from solar thin film manufacturing and the
provision for the loss on divestment  of the former  Burmah  Castrol  speciality
chemicals  businesses  Sericol  and Fosroc  Mining.  The loss  during 2001 arose
principally  from  the  sale  of the  Group's  Carbon  Fibers  business  and the
write-off  of  assets  following  the  closure  or exit from  certain  chemicals
activities.  The loss during 2000 arose from the subvention of bank loans to its
paraxylene joint venture in Singapore.


                                     F - 17

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 7 -- Exceptional items (concluded)

Sale of fixed assets

     The major part of the profit on the sale of fixed assets during 2002 arises
from  the  divestment  of  the  Group's   shareholding  in  Ruhrgas.  The  other
significant  elements of the profit for the year are the gain on the  redemption
of certain preferred  limited  partnership  interests BP retained  following the
Altura  Energy  common  interest  disposal in 2000 in exchange for BP loan notes
held by the  partnership,  the profit on the sale of the Group's interest in the
Colonial  pipeline  in the USA and the  profit  on the  sale of a US  downstream
electronic  payment  system.  For 2001,  the profit on the sale of fixed  assets
includes  the profit from the  divestment  of the  refineries  at Mandan,  North
Dakota,  and Salt Lake City,  Utah;  the Group's  interest in the  Alliance  and
certain  other  pipeline  systems in the USA; and BP's  interest in the Kashagan
discovery in  Kazakhstan.  For 2000 the profit on sale of fixed assets  included
the disposal of the Alliance refinery,  located in Belle Chasse,  Louisiana, the
profit  from  the  divestment  of a 10%  interest  in  certain  exploration  and
production  interests  in  Trinidad  and the  profit  from  the  sale  of  other
exploration and production interests, mainly in the UK and USA.

     The major  element of the loss on sale of fixed  assets in 2002  relates to
provisions  for losses on sale of exploration  and production  properties in the
USA  announced in early 2003.  For 2001,  the loss on sale of fixed assets arose
from a number of  transactions.  For 2000 the loss  relates  principally  to the
divestment by the Group of its interests in the Quiriquire and Guarapiche fields
in Venezuela.

     Additional  information on the sale of businesses and fixed assets is given
in Note 19 -- Disposals.

Note 8 -- Interest expense


                                                                      Years ended December 31,
                                                                ----------------------------------
                                                                    2002         2001         2000
                                                                --------     --------    ---------
                                                                             ($ million)

                                                                                      
Bank loans and overdrafts..................................          134          119          154
Other loans (a)............................................          852        1,111        1,221
Capital leases.............................................           40           78          107
                                                                --------     --------    ---------
                                                                   1,026        1,308        1,482
Capitalized at 4% (2001 5% and 2000 7%)....................          100           81          119
                                                                --------     --------    ---------
Group......................................................          926        1,227        1,363
Joint ventures.............................................           58           70           78
Associated undertakings....................................           83          135          140
Unwinding of discount on provisions .......................          170          196          189
Change in discount rate for provisions ....................           42           42           --
                                                                --------     --------    ---------
Total charged against profit...............................        1,279        1,670        1,770
                                                                ========     ========    =========


----------

(a)  Interest  expense  includes a charge of $15  million  (2001 $62 million and
     2000 $111 million) relating to early redemption of debt.



                                     F - 18

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 9 -- Depreciation and amounts provided

     Included in the income statement under the following headings:



                                                                            Years ended December 31,
                                                                       --------------------------------
                                                                          2002         2001         2000
                                                                      --------     --------    ---------
                                                                                   ($ million)

                                                                                        
Depreciation and amortization of goodwill and other intangibles
  Replacement cost of sales..........................................    9,346        7,475        6,480
  Distribution.......................................................      952        1,221          707
  Administration.....................................................       90           94           87
                                                                      --------     --------    ---------
                                                                        10,388        8,790        7,274
Amounts provided against fixed asset investments
  Replacement cost of sales..........................................       13           68          252
                                                                      --------     --------    ---------
                                                                        10,401        8,858        7,526
                                                                      ========     ========    =========
Depreciation of capitalized leased assets included above.............       49           65           79
                                                                      ========     ========    =========


     The 2002 charge for  depreciation  and  amortization  of goodwill and other
intangibles  includes asset write-downs and impairment charges of $1,390 million
in total.  Exploration and Production  recognized a charge of $1,091 million for
the  impairment of  Shearwater  in the North Sea,  Rhourde El Baguel in Algeria,
LL652 and Boqueron in  Venezuela,  Pagerungan in Indonesia and Badami in Alaska,
following  full technical  reassessments  and  evaluations of future  investment
opportunities. In addition, the business took a $94 million write-off in respect
of its  Gas-to-Liquids  plant in Alaska.  Chemicals  wrote down the value of its
Indonesian  manufacturing assets by $140 million following a review of immediate
prospects and opportunities for future growth in a highly  competitive  regional
market.  Gas, Power and Renewables  incurred an impairment charge of $30 million
in respect of a  cogeneration  power  plant in the UK.  Refining  and  Marketing
recognized  an  impairment  charge of $35  million  for its retail  business  in
Venezuela.

     The  charge  for  depreciation  and  amortization  of  goodwill  and  other
intangibles  in 2001  included  $175 million for the  impairment of the upstream
Venezuelan Lake Maracaibo operation.

     For 2000 the charge  included $61 million for the  write-down  of Chemicals
and Exploration and Production  assets.  In addition,  for 2000 $181 million was
provided  against the Group's  chemicals  investment in Indonesia as a result of
the weak business environment in the region.

     In assessing the value in use of potentially  impaired  assets,  a discount
rate of 9% has been used.  This is the rate used by the Company  for  investment
appraisal.


                                     F - 19

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 10 -- Rental expense under operating leases


                                                                           Years ended December 31,
                                                                      --------------------------------
                                                                         2002         2001         2000
                                                                     --------     --------    ---------
                                                                                  ($ million)
                                                                                         
Minimum rentals:
  Tanker charters................................................         397          393          361
  Plant and machinery............................................         621          530          471
  Land and buildings.............................................         342          355          343
                                                                     --------     --------    ---------
                                                                        1,360        1,278        1,175
Less: Rentals from sub-leases....................................        (166)        (165)        (185)
                                                                     --------     --------    ---------
                                                                        1,194        1,113          990
                                                                     ========     ========    =========



Note 11 -- Research and development

     Expenditure  on research and  development  amounted to $373  million  (2001
$385 million and 2000 $434 million).

Note 12 -- Currency exchange gains and losses

     Accounted net foreign currency  exchange gain included in the determination
of profit for the year  amounted to $66 million  (2001 $12 million gain and 2000
$30 million gain).



                                     F - 20

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 13 -- Taxation

Tax on profit on ordinary activities


                                                                         Years ended December 31,
                                                                    --------------------------------
                                                                       2002         2001         2000
                                                                   --------     --------    ---------
                                                                                ($ million)
                                                                                       
Current tax:
  UK corporation tax............................................      1,304        1,666        1,505
  Overseas tax relief...........................................       (301)        (678)        (310)
                                                                   --------     --------    ---------
                                                                      1,003          988        1,195
  Overseas......................................................      1,883        3,846        3,704
                                                                   --------     --------    ---------
  Group.........................................................      2,886        4,834        4,899
  Joint ventures................................................         75           94           57
  Associated undertakings.......................................        187          203          128
                                                                   --------     --------    ---------
                                                                      3,148        5,131        5,084

                                                                   --------     --------    ---------
Deferred tax:
  UK ...........................................................        433         (48)           12
  Overseas......................................................        761        1,292        1,552
                                                                   --------     --------    ---------
                                                                      1,194        1,244        1,564
                                                                   --------     --------    ---------
Tax on profit on ordinary activities............................      4,342        6,375        6,648
                                                                   ========     ========    =========


     Included in the charge for the year is a charge of $125 million  (2001 $370
million charge and 2000 $142 million charge) relating to exceptional items.


Tax included in statement of total recognised gains and losses


                                                                        Years ended December 31,
                                                                   --------------------------------
                                                                      2002         2001         2000
                                                                  --------     --------    ---------
                                                                              ($ million)
                                                                                       
Current tax:
  UK............................................................        57          (12)          --
  Overseas......................................................       (54)          (4)         (57)
                                                                  --------     --------    ---------
                                                                         3          (16)         (57)
                                                                  --------     --------    ---------
Deferred tax:
  UK............................................................       138          (14)          --
  Overseas......................................................         1           --           --
                                                                  --------     --------    ---------
                                                                       139          (14)          --
                                                                  --------     --------    ---------
Tax included in statement of total recognized gains and losses..       142          (30)         (57)
                                                                  ========     ========    =========



                                     F - 21

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 13 -- Taxation (continued)

Factors affecting current tax charge

     The  following  table  provides  a  reconciliation   of  the  UK  statutory
corporation  tax rate to the  effective  current tax rate of the Group on profit
before taxation.



                                                                          Years ended December 31,
                                                                     --------------------------------
                                                                        2002         2001         2000
                                                                    --------     --------    ---------
                                                                                 ($ million)
                                                                                      
Analysis of profit before taxation:
  UK...............................................................    2,822        2,333        3,426
  Overseas.........................................................    8,442       10,659       13,431
                                                                    --------     --------    ---------
                                                                      11,264       12,992       16,857
                                                                    ========     ========    =========
Taxation...........................................................    4,342        6,375        6,648
                                                                    ========     ========    =========
Effective tax rate.................................................       39%          49%          39%
                                                                    ========     ========    =========

                                                                          (% of profit before tax)

UK statutory corporation tax rate..................................       30           30           30
Increase (decrease) resulting from:
  UK supplementary and overseas taxes at higher rates..............        9            9            8
  Tax credits......................................................       (3)          (3)          (4)
  No relief for inventory holding losses
    (inventory holding gains not taxed)............................       (2)           3           (1)
  Current year losses unrelieved (prior year losses utilized)......        1            4            2
  Acquisition amortization.........................................        7            6            3
  Other............................................................       (3)          --            1
                                                                    --------     --------    ---------
Effective tax rate.................................................       39           49           39
Current year timing differences....................................      (11)         (10)          (9)
                                                                    --------     --------    ---------
Effective current tax rate.........................................       28           39           30
                                                                    ========     ========    =========


     Current  year  timing  differences  arise  mainly  from the  excess  of tax
depreciation over book depreciation.

Factors that may affect future tax charges

     The Group earns income in many different  countries  and, on average,  pays
taxes at rates higher than the UK statutory  rate.  The overall  impact of these
higher  taxes,  which  include the  supplementary  charge of 10% on UK North Sea
profits,  is subject to changes in enacted  tax rates and the country mix of the
Group's   income.   However,   it  is  not  expected  to  increase  or  decrease
substantially in the near term.

     The  major  component  of  timing   differences  in  the  current  year  is
accelerated tax  depreciation.  Based on current capital  investment  plans, the
Group  expects  to  continue  to be able to claim  tax  allowances  in excess of
depreciation in future years at a level similar to the current year.

                                     F - 22

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 13 -- Taxation (continued)

     The tax charge in 2002  reflected  a benefit  from  'non-conventional  fuel
credits' in the USA.  Those credits are no longer  available  after December 31,
2002.  The  effect of the loss of these  credits  on the  overall  tax charge is
likely to be offset by benefits from restructuring and planning initiatives.

     The Group's  profit before  taxation  includes  inventory  holding gains or
losses.  These  gains  (or  losses)  are not taxed (or  deductible)  in  certain
jurisdictions in which the Group operates,  and therefore give rise to decreases
or  increases  in the  effective  tax  rate.  However,  over  the  longer  term,
significant  changes  in the  tax  rate  would  arise  only  in the  event  of a
substantial and sustained change in oil prices.

     The Group has around $5.3  billion of  carry-forward  tax losses in the UK,
which would be available to offset against future taxable  income.  To date, tax
assets have been  recognized on $840 million of those losses (i.e. to the extent
that it is regarded as more likely than not that  suitable  taxable  income will
arise). It is unlikely that the Group's effective tax rate will be significantly
affected in the near term by utilization of losses not previously  recognized as
deferred tax assets. Carry-forward losses in other taxing jurisdictions have not
been  recognized as deferred tax assets,  and are unlikely to have a significant
effect on the Group's tax rate in future years.

     The  impact  on the tax rate of  acquisition  amortization  (non-deductible
depreciation   and  amortization   relating  to  the  fixed  asset   revaluation
adjustments   and  goodwill   consequent   upon  the  ARCO  and  Burmah  Castrol
acquisitions) is unlikely to change in the near term.



                                     F - 23


                           BP p.l.c. AND SUBSIDIARIES

                      NOTES TO FINANCIAL STATEMENTS (Continued)

Note 13 -- Taxation (concluded)

Deferred tax


                                                                                   At December 31,
                                                                                 -------------------
                                                                                    2002         2001
                                                                                 -------      -------
                                                                                      ($ million)
                                                                                         
Analysis of provision:
  Depreciation.................................................................. (14,990)     (12,511)
  Other taxable timing differences..............................................  (1,837)      (1,995)
  Petroleum revenue tax.........................................................     567          390
  Decommissioning and other provisions..........................................   2,192        1,993
  Tax credit and loss carry forward.............................................     273          184
  Other deductible timing differences...........................................     281          237
                                                                                 -------      -------
Deferred tax provision.......................................................... (13,514)     (11,702)
                                                                                 =======      =======

of which -- UK..................................................................   2,906        2,071
         -- Overseas............................................................  10,608        9,631
                                                                                 =======      =======




                                                                                           Year ended
                                                                                         December 31,
                                                                                                 2002
                                                                                         ------------
                                                                                           ($ million)
                                                                                           
Analysis of movements during the year:
  At January 1..........................................................................       11,702
  Exchange adjustments..................................................................          477
  Acquisitions..........................................................................            6
  Charge for the year on ordinary activities............................................        1,194
  Charge for the year in the statement of total recognized gains and losses.............          139
  Deletions/transfers...................................................................           (4)
                                                                                               ------
At December 31..........................................................................       13,514
                                                                                               ======




                                                                           Years ended December 31,
                                                                      --------------------------------
                                                                         2002         2001         2000
                                                                     --------     --------    ---------


                                                                                  ($ million)
                                                                                        
The charge for deferred tax on ordinary activities:
  Origination and reversal of timing differences....................      839        1,244        1,564
  Effect of the introduction of supplementary UK corporation
    tax of 10% on opening liability.................................      355           --           --
                                                                     --------     --------    ---------
                                                                        1,194        1,244        1,564
                                                                     ========     ========    =========
The charge (credit) for deferred tax in statement of
  total recognized gains and losses:
  Origination and reversal of timing differences....................      139          (14)          --
                                                                     ========     ========    =========




                                     F - 24

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 14 -- Quarterly results of operations (unaudited)


                                                                                               Profit (loss)
                                                                Historical cost                         per
                                                       Group      profit before       Profit       ordinary
                                                    turnover   interest and tax        (loss)         share
                                                   ---------   ----------------      -------   ------------
                                                                    ($ million)                       (cents)
                                                                                          
Year ended December 31, 2002
First quarter................................         36,290              2,422         1,296           5.78
Second quarter...............................         43,655              4,151         2,058           9.18
Third quarter................................         49,054              3,856         2,840          12.67
Fourth quarter...............................         49,722              2,114           651           2.92
                                                   ---------          ---------     ---------      ---------
Total........................................        178,721             12,543         6,845          30.55
                                                   =========          =========     =========      =========
Year ended December 31, 2001
First quarter................................         45,412              5,452         2,830          12.59
Second quarter...............................         48,409              5,156         2,741          12.21
Third quarter................................         43,580              3,509         1,588           7.08
Fourth quarter...............................         36,817                545          (603)         (2.67)
                                                   ---------          ---------     ---------      ---------
Total........................................        174,218             14,662         6,556          29.21
                                                   =========          =========     =========      =========
Year ended December 31, 2000
First quarter................................         27,711              4,336         2,719          14.00
Second quarter...............................         33,158              4,688         2,578          11.56
Third quarter................................         42,631              5,350         3,005          13.34
Fourth quarter...............................         44,562              4,253         1,818           7.87
                                                   ---------          ---------     ---------      ---------
Total........................................        148,062             18,627        10,120          46.77
                                                   =========          =========     =========      =========




Note 15 -- Dividends per ordinary share
                                                              Years ended December 31,
                                      ---------------------------------------------------------------------
                                        2002    2001    2000    2002    2001    2000   2002    2001    2000
                                      ------  ------  ------  ------  ------  ------ ------  ------  ------
                                          (pence per share)       (cents per share)       ($ million)

                                                                           
First quarterly..................      4.051   3.665   3.220    5.75    5.25    5.00  1,290   1,178   1,133
Second quarterly.................      3.875   3.911   3.352    6.00    5.50    5.00  1,346   1,235   1,128
Third quarterly..................      3.897   3.805   3.602    6.00    5.50    5.25  1,340   1,232   1,185
Fourth quarterly.................      3.815   4.055   3.617    6.25    5.75    5.25  1,397   1,288   1,177
                                      ------  ------  ------  ------  ------  ------ ------  ------  ------
                                      15.638  15.436  13.791   24.00   22.00   20.50  5,373   4,933   4,623
                                      ------  ------  ------  ------  ------  ------ ------  ------  ------





                                     F - 25

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 16 -- Profit per ordinary share



                                                                         Years ended December 31,
                                                                    --------------------------------
                                                                       2002         2001         2000
                                                                   --------     --------    ---------
                                                                             (cents per share)

                                                                                       
Basic earnings per share......................................        30.55        29.21        46.77
Diluted earnings per share....................................        30.41        29.04        46.46


     The calculation of basic earnings per ordinary share is based on the profit
attributable to ordinary shareholders,  i.e. profit for the year less preference
dividends, related to the weighted average number of ordinary shares outstanding
during the year.  The profit  attributable  to ordinary  shareholders  is $6,843
million (2001 $6,554  million and 2000 $10,118  million).  The average number of
shares  outstanding  excludes  the shares held by the Employee  Share  Ownership
Plans.

     The  calculation  of  diluted   earnings  per  share  is  based  on  profit
attributable to ordinary  shareholders as for basic earnings per share. However,
the number of shares  outstanding is adjusted to show the potential  dilution if
employee  share  options  are  converted  into  ordinary  shares.  The number of
ordinary  shares  outstanding  for basic and diluted  earnings  per share may be
reconciled as follows:



                                                                            Years ended December 31,
                                                                       --------------------------------
                                                                          2002         2001         2000
                                                                      --------     --------    ---------
                                                                                (shares thousand)
                                                                                     
Weighted average number of ordinary shares....................      23,397,126   22,435,737   21,638,280
Ordinary shares issuable under employee share schemes.........         107,322      137,988      144,869
                                                                    ----------   ----------  -----------
                                                                    22,504,448   22,573,725   21,783,149
                                                                    ==========   ==========  ===========


     In addition to basic earnings per share based on the historical cost profit
for the  year,  a further  measure,  based on  replacement  cost  profit  before
exceptional  items,  is provided as it is considered  that this measure gives an
indication of underlying performance.



                                                                           Years ended December 31,
                                                                      --------------------------------
                                                                         2002         2001         2000
                                                                     --------     --------    ---------
                                                                              (cents  per share)

                                                                                         
Profit for the year.............................................        30.55        29.21        46.77
Inventory holding (gains) losses................................        (4.93)        8.47        (3.36)
                                                                     --------     --------    ---------
Replacement cost profit for the year............................        25.62        37.68        43.41
Exceptional items (net of tax)..................................        (4.65)       (0.73)       (0.37)
                                                                     --------     --------    ---------
Replacement cost profit before exceptional items................        20.97        36.95        43.04
                                                                     ========     ========    =========



                                     F - 26

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 17 -- Operating lease commitments

     Annual commitments under operating leases were as follows:



                                                                           December 31,
                                                         -----------------------------------------------
                                                                 2002                      2001
                                                        ----------------------    ----------------------
                                                         Land and                  Land and
                                                        buildings        Other    buildings        Other
                                                        ---------    ---------    ---------    ---------
                                                                            ($ million)

                                                                                      
Expiring within: 1 year.................................       80          174           28          313
                 2 to 5 years...........................      166          438          115          306
                 Thereafter.............................      289          188          184          113
                                                          -------      -------      -------      -------
                                                              535          800          327          732
                                                          =======      =======      =======      =======


     The minimum future lease payments  (after  deducting  related rental income
from operating sub-leases of $705 million) were as follows:



                                                                                           December 31,
                                                                                                   2002
                                                                                           ------------
                                                                                             ($million)
                                                                                               
2003............................................................                                  1,203
2004............................................................                                    975
2005............................................................                                    859
2006............................................................                                    778
2007............................................................                                    643
Thereafter......................................................                                  2,652
                                                                                           ------------
                                                                                                  7,110
                                                                                           ============



                                     F - 27

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 18 -- Acquisitions


                                                                  2002                             2001        2000
                                         ---------------------------------------------------    -------    --------
                                                         Fair value adjustments
                                                       ------------------------
                                           Book value  Accounting
                                                   on      policy
                                          acquisition   alignment  Revaluations   Fair value  Fair value  Fair value
                                           ----------   ---------  ------------   ----------  ----------  ----------
                                                                         ($ million)
                                                                                             
Intangible assets..........................        --          --            --           --         194       2,549
Tangible assets............................     2,562         262         2,121        4,945         841      21,768
Fixed assets-- investments.................       258        (136)           --          122          18       4,085
Businesses held for resale.................       900          --           469        1,369          --       5,926
Current assets (excluding cash)............     2,905         126            --        3,031         428       6,759
Cash at bank and in hand...................     1,118          --            --        1,118          --       1,790
Finance debt...............................    (1,002)         --            --       (1,002)        (55)     (7,942)
Other creditors............................    (3,219)       (175)           --       (3,394)       (214)     (7,193)
Deferred taxation..........................      (101)          5            90           (6)         (3)       (323)
Other provisions...........................      (836)          3          (274)      (1,107)       (171)     (3,254)
Net investment in equity accounted entities
  transferred to full consolidation........      (191)         --            --         (191)       (170)         --
                                             --------    --------      --------     --------    --------    --------
Net assets acquired........................     2,394          85         2,406        4,885         868      24,165
                                             --------    --------      --------
Minority interests.........................                                           (2,201)         --      (1,840)
Goodwill...................................                                              342          48      11,669
                                                                                    --------    --------    --------
Consideration..............................                                            3,026         916      33,994
                                                                                    ========    ========    ========


Acquisitions in 2002

     During the year BP  acquired  the whole of Veba Oil (Veba) from E.ON in two
stages.  Veba owns Aral,  Germany's biggest fuels retailer.  In February BP paid
$1,072  million to subscribe for new shares  issued by Veba and acquired  $1,520
million of  outstanding  loans from E.ON to Veba in return for a 51% interest in
and operational control of Veba. In addition, there were acquisition expenses of
$30 million.  Subsequently, on June 30, BP paid E.ON a further $2,386 million to
acquire the remaining 49% of Veba.  There were further  acquisition  expenses of
$30  million.  The total  consideration  of $5,038  million  is subject to final
closing   adjustments.   Other   transactions   in  2002  included   buying  our
co-venturers' 15% interest in the ARCO polypropylene joint venture and acquiring
the 51% BP did not own in  certain  Chinese  LPG  ventures.  All these  business
combinations have been accounted for using the acquisition method of accounting.
The assets and liabilities  acquired as part of the 2002  acquisitions are shown
in the above table in aggregate. The identifiable assets and liabilities of Veba
were not revalued on the  acquisition  of the 49% minority  interest in June, as
the  difference  between the fair values and the carrying  amounts of the assets
and  liabilities  was not  material.  Additional  goodwill  of $203  million was
recognized on the acquisition of the minority interest in Veba.

     Fair values: The methods and assumptions used in estimating the fair values
of assets and liabilities acquired are set out in the following paragraphs.

     Tangible  assets:  The fair value of refineries has been estimated by using
earnings  multiples derived from other similar  transactions.  The fair value of
other tangible assets has been estimated by determining the net present value of
future cash flows.

     Net assets of businesses held for resale:  The fair value of the net assets
reflects the sales proceeds, less attributable taxation.

                                     F - 28

                           BP p.l.c. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)


Note 18 -- Acquisitions (continued)

     Finance  debt:  The debt  acquired was floating  rate debt and had maturity
dates of less than one year, so fair value approximates book value.

     Other   provisions:   Liabilities  for  pensions  have  been  estimated  by
independent actuaries.

     The fair values of other assets and liabilities  acquired approximate their
book value.

     Accounting  policy alignment:  The accounting policy alignment  adjustments
represent  the  adjustments  necessary  to  restate  the  balance  sheets of the
acquired  entities to conform with BP's  accounting  policies under UK GAAP. The
principal adjustments are set out below.

     Fixed assets -- Investments:  Interests in certain  refinery joint ventures
were equity  accounted by Veba.  Under UK GAAP these interests are accounted for
as joint arrangements that are not entities.

     Current  assets:  The basis of  inventory  valuation  has been changed from
last-in first-out to first-in first-out.

     Pro forma  effects as required by US GAAP are not  presented  as they would
not materially change reported consolidated results of operations.

Acquisitions in 2001

     During  the  year  the  Group   acquired   the  50%  of   Erdoelchemie,   a
petrochemicals  business based in Germany, it did not already own. In addition a
number of minor  acquisitions  were made. All these business  combinations  have
been accounted for using the  acquisition  method of accounting.  The assets and
liabilities  acquired  as part of the 2001  acquisitions  are shown in the above
table in aggregate.  The fair value of tangible  fixed assets has been estimated
by  determining  the net  present  value of future cash  flows.  No  significant
adjustments were made to the other acquired assets and liabilities.

Acquisitions in 2000

     In the year the Company  acquired  Atlantic  Richfield  Company  (ARCO) and
Burmah Castrol p.l.c.  (Burmah Castrol) and the 18% minority  interest in Vastar
Resources Inc.  (Vastar),  a subsidiary of ARCO. The Company also purchased most
of  ExxonMobil's  assets used by the fuels  refining and marketing  operation in
Europe and made a number of minor acquisitions.

     ARCO  was  acquired  in  April  2000.  The  total   consideration  for  the
acquisition was $27,506 million,  including acquisition expenses of $79 million,
and was effected by the issue of approximately 3,335 million BP ordinary shares.
In 2001, a cash tender offer was made for the outstanding ARCO preference stock.
The cash paid on redemption, $116 million,  approximated the amount attributable
to the ARCO preference stock in the original determination of the consideration.


                                     F - 29

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 18 -- Acquisitions (concluded)

     The fair  values of the  assets and  liabilities  of ARCO  included  in the
accounts  for the year  ended  December  31,  2000 have been  subject to further
investigation  and review  during 2001,  as  permitted  by  Financial  Reporting
Standard No. 7 'Fair Values in  Acquisition  Accounting'.  The  revisions to the
previously reported fair values are set out below.



                                                                 Fair value
                                                              as previously                     Final
                                                                   reported    Revisions   fair value
                                                                -----------      -------      -------
                                                                             ($ million)

                                                                                          
Intangible assets.............................................        2,549           --        2,549
Tangible assets...............................................       19,829         (911)      18,918
Fixed assets-- investments....................................        3,005           --        3,005
Net assets of businesses held for resale......................        5,290           --        5,290
Current assets (excluding cash)...............................        3,668           --        3,668
Cash at bank and in hand......................................          994           --          994
Finance debt..................................................       (6,796)          --       (6,796)
Other creditors...............................................       (3,475)         814       (2,661)
Deferred taxation.............................................         (323)          --         (323)
Other provisions..............................................       (3,009)          --       (3,009)
                                                                    -------      -------      -------
Net assets acquired...........................................       21,732          (97)      21,635
Minority interests............................................       (1,595)          --       (1,595)
Goodwill......................................................        7,369           97        7,466
                                                                    -------      -------      -------
Consideration.................................................       27,506           --       27,506
                                                                    =======      =======      =======


     Tangible  assets: The fair value  attributed  to  certain  exploration  and
production assets has been revised following further technical studies.

     Other  creditors: Liabilities  for taxation  have been revised  following a
review of outstanding liabilities.

     BP completed  the purchase of the minority  interest in Vastar on September
15, 2000 for a total  consideration of $1,618 million.  This was settled in cash
and included  expenses of $9 million and $94 million for the buy-out of employee
share options.

     On July 7, 2000,  the Company  declared  its cash offer for Burmah  Castrol
unconditional.  The total consideration was $4,909 million. Apart from the issue
of $130  million of loan notes the balance of the  consideration  was settled in
cash and included  expenses of $16 million.  The Company also acquired a further
20%  interest in Castrol  India at a cost of $178  million.  This was settled in
2001.

     On dissolution of the pan-European refining and marketing joint venture, BP
acquired most of the  ExxonMobil  assets used by the fuels  operation for $1,479
million.

     The Group undertook a number of other acquisitions in 2000 for an aggregate
consideration of $100 million.

                                     F - 30

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 19-- Disposals

     As part of the strategy to upgrade the quality of its asset portfolio,  the
Group has an active programme to dispose of non-strategic  assets. In the normal
course of business  in any  particular  year,  the group may sell  interests  in
exploration and production  properties,  service stations and pipeline interests
as well as non-core businesses.

     Divestments in 2002. During the year, BP made a number of asset or business
disposals.

     The major  asset  transactions  during  the year  included  the sale of the
Group's shareholding in Ruhrgas, the sale of a US downstream  electronic payment
system,  the Group's interest in the Colonial  pipeline in the USA, the refinery
at Yorktown,  Virginia,  and the  redemption  of certain  preferred  partnership
interests BP retained following the disposal in 2000 of the Altura Energy common
interest  in  exchange  for BP loan  notes  held by the  partnership.  The Group
entered into sale and leaseback transactions for certain chemicals manufacturing
facilities in the UK, a solar manufacturing facility in Spain and an LNG tanker.


     In addition BP sold  two-thirds  of its interest in the  European  ethylene
pipeline company, ARG, in accordance with EU Commission requirements in relation
to the Veba acquisition.

     BP closed its polypropylene  production  facility at Cedar Bayou,  Texas, a
high  density   polyethylene   unit  at  Deer  Park,  Texas,  and  one  of  four
polypropylene units at Chocolate Bayou, Texas.

     BP sold its plastic  fabrications  business,  Fosroc  Construction,  its UK
contract  energy  management  business and its downstream  retail  businesses in
Cyprus and Japan.  The Group also announced its withdrawal  from solar thin film
manufacturing.

     Divestments  in 2001. The major  transactions  in 2001 included the sale of
the Group's interest in the Kashagan discovery in Kazakhstan;  the divestment of
the refineries at Mandan,  North Dakota,  and Salt Lake City,  Utah; the sale of
interests in the Alliance and certain other pipeline systems in the USA; and the
disposal of the Group's majority interest in Vysis.

     At December 31, 2000, the Foseco,  Fosroc  Construction,  Fosroc Mining and
Sericol speciality chemicals businesses that were acquired as part of the Burmah
Castrol  acquisition were categorized as businesses held for resale.  Foseco was
sold in July 2001.  Fosroc  Construction  was sold in late 2002 and the sales of
the  remaining  two  businesses  were  announced  in January  2003.  These three
businesses were consolidated from July 1, 2001 until their disposal.

     A number of  chemicals  activities  were either sold or  terminated  during
2001. Included in the businesses sold was the Carbon Fibers business.

     The Group reduced its  investment in Lukoil,  which was acquired as part of
the ARCO acquisition, from 7% to 4% through the sale of 23.5 million shares.

     To fulfil  undertakings given to the European Commission at the time of the
ARCO acquisition, BP sold certain UK Southern North Sea natural gas interests in
April 2001.

     Divestments  in  2000.  As a  condition  of  the  acquisition  of  Atlantic
Richfield  Company  (ARCO)  in 2000 BP was  required  to divest  ARCO's  Alaskan
businesses and certain pipeline interests in the Lower 48. These operations were
sold for aggregate proceeds of $6,803 million.  No profit or loss arose on these
disposals.

     Other  major  disposals  during  2000 were the sale of the  Group's  common
interest in Altura Energy; the sale of the Alliance refinery;  the divestment of
exploration and production interests in Trinidad, the UK, USA and Venezuela; and
the sale of the Southern Company Energy Marketing.

                                     F - 31

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 19 -- Disposals (concluded)

     Total proceeds received for disposals represent the following amounts shown
in the cash flow statement:



                                                                              Years ended December 31,
                                                                         --------------------------------
                                                                            2002         2001         2000
                                                                        --------     --------    ---------
                                                                                     ($ million)

                                                                                            
Proceeds from the sale of businesses...............................        1,974          538        8,333
Proceeds from the sale of fixed assets.............................        2,470        2,365        3,029
Proceeds from the sale of investment in Ruhrgas....................        2,338           --           --
                                                                        --------     --------    ---------
                                                                           6,782        2,903       11,362
                                                                        ========     ========    =========





                                                                              Years ended December 31,
                                                                         --------------------------------
                                                                            2002         2001         2000
                                                                        --------     --------    ---------
The disposals comprise the following:                                                ($ million)

                                                                                              
Intangible assets..................................................          205          183          458
Tangible assets (a)................................................        2,545        1,481        3,224
Fixed asset -- investments.........................................        1,769          898          673
Net assets of businesses held for resale...........................        1,369          307        5,290
Finance debt.......................................................       (1,135)          --           --
Current assets less current liabilities............................          533         (145)         919
Other provisions...................................................         (109)        (112)         631
                                                                        --------     --------    ---------
                                                                           5,177        2,612       11,195
Profit (loss) on sale of businesses or termination of operations...          (33)         (68)         132
Profit (loss) on sale of fixed assets..............................        1,199          605           64
                                                                        --------     --------    ---------
Total consideration................................................        6,343        3,149       11,391
Decrease (increase) in amounts receivable from disposals...........          439         (246)         (29)
                                                                        --------     --------    ---------
Net cash inflow....................................................        6,782        2,903       11,362
                                                                        ========     ========    =========

---------------

(a)  Includes provision for loss on disposal of $1,204 million.


                                     F - 32

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 20 -- Intangible assets


                                                            Exploration                     Other
                                                            expenditure     Goodwill  intangibles        Total
                                                             ----------   ----------   ----------   ----------
                                                                               ($ million)
Cost
                                                                                         
At January 1, 2002........................................        6,114       11,991          805       18,910
Prior year adjustment - change in accounting policy.......           --        1,081           --        1,081
                                                               --------     --------     --------     --------
Restated..................................................        6,114       13,072          805       19,991
Exchange adjustments......................................           53          544           28          625
Acquisitions..............................................           --          342           --          342
Additions.................................................          886          203           92        1,181
Transfers.................................................       (1,138)          --           --       (1,138)
Deletions.................................................         (285)        (124)        (118)        (527)
                                                               --------     --------     --------     --------
At December 31, 2002......................................        5,630       14,037          807       20,474
                                                               ========     ========     ========     ========

Depreciation
At January 1, 2002........................................          780        2,020          517        3,317
Prior year adjustment - change in accounting policy.......           --          185           --          185
                                                               --------     --------     --------     --------
Restated..................................................          780        2,205          517        3,502
Exchange adjustments......................................           11          105           21          137
Charge for the year.......................................          385        1,302          169        1,856
Transfers.................................................         (265)          --           --         (265)
Deletions.................................................         (225)         (13)         (84)        (322)
                                                               --------     --------     --------     --------
At December 31, 2002......................................          686        3,599          623        4,908
                                                               ========     ========     ========     ========

Net book amount
At December 31, 2002......................................        4,944       10,438          184       15,566
At December 31, 2001......................................        5,334       10,867          288       16,489
                                                               ========     ========     ========     ========





                                     F - 33

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 21 -- Tangible assets

     Property, plant and equipment:


                                                  Gas                             Other                  of which:
                               Exploration      Power    Refining            businesses                    Assets
                                       and        and         and                   and                     under
                                Production Renewables   Marketing  Chemicals  corporate       Total  construction
                                ---------- ----------  ---------- ---------- ----------  ----------  ------------
                                                                   ($ million)
                                                                                      
Cost
At January 1, 2002.............     98,012      2,293      29,756     15,790      2,204     148,055         8,326
Exchange adjustments...........      4,014         64       2,249      1,021         82       7,430           287
Acquisitions...................         59         --       4,331        555         --       4,945            51
Additions......................      8,204        287       2,598        668        209      11,966         8,849
Transfers......................      1,636         --        (339)       (81)        --       1,216        (4,819)
Deletions......................     (1,213)      (300)     (1,747)      (899)      (291)     (4,450)         (567)
                                   -------    -------     -------    -------    -------     -------       -------
At December 31, 2002...........    110,712      2,344      36,848     17,054      2,204     169,162        12,127
                                   =======    =======     =======    =======    =======     =======       =======

Depreciation
At January 1, 2002.............     49,742        649      12,853      6,548        853      70,645
Exchange adjustments...........      2,326          8         837        360         21       3,552
Charge for the year............      6,110        111       1,914        709         73       8,917
Provision for loss on disposal.      1,187         --          --         17         --       1,204
Transfers......................        265         --           6         --         --         271
Deletions......................     (1,122)       (24)     (1,195)      (660)      (108)     (3,109)
                                   -------    -------     -------    -------    -------     -------
At December 31, 2002...........     58,508        744      14,415      6,974        839      81,480
                                   =======    =======     =======    =======    =======     =======

Net book amount
At December 31, 2002...........     52,204      1,600      22,433     10,080      1,365      87,682        12,127
At December 31, 2001...........     48,270      1,644      16,903      9,242      1,351      77,410         8,326
                                   =======    =======     =======    =======    =======     =======       =======


     Assets held under capital leases, capitalized interest and land at net book
amount included above:




                                                Leased assets                      Capitalized interest
                                    -----------------------------------     -----------------------------------
                                        Cost  Depreciation          Net         Cost  Depreciation          Net
                                    --------   -----------     --------     --------   -----------     --------
                                               ($ million)                            ($ million)
                                                                                       
At December 31, 2002................   1,694           904          790        3,329         1,617        1,712
At December 31, 2001................   1,517           837          680        3,018         1,480        1,538
                                     =======       =======      =======      =======       =======      =======




                                                                                            Leasehold land
                                                                                     --------------------------
                                                                                     Over 50 years
                                                                     Freehold land       unexpired        Other
                                                                     -------------   -------------   ----------
                                                                                      ($ million)

                                                                                                 
At December 31, 2002........................................                 2,919              48          171
At December 31, 2001........................................                 2,279             211          170
                                                                           =======         =======      =======



                                     F - 34

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 22 -- Fixed assets -- investments




                             Joint ventures   Associated undertakings
                      ---------------------   -----------------------
                       Net assets               Net assets             Other      Own          Listed
                     (liabilities)    Loans   (liabilities)    Loans   Loans   shares(a)  investments(b)  Other(c)   Total
                      -----------    ------    -----------     -----   -----   ------     -----------     ------     ------
                                                               ($ million)
                                                                                      
Cost
At January 1, 2002......... 2,722     1,139         4,806      1,280     181      266           1,287       998     12,679
Prior year adjustment -
  change in accounting
  policy...................    --        --           (84)        --      --       --              --        --        (84)
                           ------    ------        ------     ------  ------   ------          ------    ------     ------
Restated................... 2,722     1,139         4,722      1,280     181      266           1,287       998     12,595
Exchange adjustments.......   (16)       17            89         48      16       19             142         9        324
Additions and net
  movements in
  joint ventures...........   182       178           898         62      43       18               3         3      1,387
Acquisitions...............    --        --             2          1      23       --              72        24        122
Transfers..................  (112)      (79)         (243)       (77)    (14)      --             105      (746)    (1,166)
Deletions..................    --        --        (1,453)       (53)    (92)    (144)             --       (31)    (1,773)
                           ------    ------        ------     ------  ------   ------          ------    ------     ------
At December 31, 2002....... 2,776     1,255         4,015      1,261     157      159           1,609       257     11,489
                           ======    ======        ======     ======  ======   ======          ======    ======     ======

Amounts provided
At January 1, 2002.........    --        --           218        351      19       --              --        44        632
Exchange adjustments.......    --        --             5         31      --       --              --         1         37
Provided in the year.......    --        --            --         49      --       --              --       (36)        13
Transfers..................    --        --            --         --      --       --              --        --         --
Deletions..................    --        --            (4)        --      --       --              --        --         (4)
                           ------    ------        ------     ------  ------   ------          ------    ------     ------
At December 31, 2002.......    --        --           219        431      19       --              --         9        678
                           ======    ======        ======     ======  ======   ======          ======    ======     ======

Net book amount
At December 31, 2002....... 2,776     1,255         3,796        830     138      159           1,609       248     10,811
At December 31, 2001....... 2,722     1,139         4,504        929     162      266           1,287       954     11,963
                           ======    ======        ======     ======  ======   ======          ======    ======     ======


----------

(a)  Own shares are held in Employee Share  Ownership  Plans (ESOPs) to meet the
     future  requirements of the employee share plans (see Note 35) and prior to
     award under the Long Term  Performance  Plan (see Note 36). At December 31,
     2002 the ESOPs held 18,673,675  shares  (34,005,910  shares at December 31,
     2001) for the employee share schemes and 3,901,317 shares (7,673,056 shares
     at December 31, 2001) for the Long Term Performance  Plan. The market value
     of these  shares at December  31, 2002 was $154  million  ($323  million at
     December 31, 2001).

(b)  The market  value of listed  investments  at  December  31, 2002 was $1,661
     million ($1,284 million at December 31, 2001).

(c)  Other investments are not publicly traded.




                                     F - 35

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 23 -- Inventories


                                                                             At December 31,
                                                                          -------------------
                                                                             2002         2001
                                                                          -------      -------
                                                                               ($ million)

                                                                                   
Petroleum.......................................................            7,647        5,176
Chemicals.......................................................              966          953
Other...........................................................              675          568
                                                                           ------       ------
                                                                            9,288        6,697
Stores..........................................................              893          934
                                                                           ------       ------
                                                                           10,181        7,631
                                                                           ======       ======
Replacement cost................................................           10,610        7,686
                                                                           ======       ======


Note 24 -- Receivables


                                                    December 31, 2002       December 31, 2001
                                                   ------------------       -----------------
                                                   Within        After       Within      After
                                                   1 year       1 year(a)    1 year     1 year(a)
                                                   ------       ------       ------      ------
                                                                    ($ million)

                                                                           
Trade receivables..........................        18,798           --       15,436         --
                                                   ======       ======       ======     ======

Other receivables:
  Joint ventures...........................            70           --           32         --
  Associated undertakings..................           282           96          236         49
  Prepayments and accrued income...........         2,716        1,771        2,143        789
  Taxation recoverable.....................            94            9          335          8
  Pension prepayment.......................            --        3,899           --      3,417
  Other....................................         4,945          470        3,806        418
                                                   ------       ------       ------     ------
                                                    8,107        6,245        6,552      4,681
                                                   ======       ======       ======     ======


     Provisions for doubtful debts deducted from Trade receivables amounted to
$445 million ($290 million at December 31, 2001).

----------

(a) See Note 50 -- US generally accepted accounting principles.

Note 25 -- Current assets -- investments


                                                                          At December 31,
                                                                       -------------------
                                                                          2002         2001
                                                                       -------      -------
                                                                            ($ million)

                                                                                   
Publicly traded -- UK........................................               32           49
                -- Foreign...................................               29           30
                                                                        ------       ------
                                                                            61           79
Not publicly traded..........................................              154          371
                                                                        ------       ------
                                                                           215          450
                                                                        ======       ======
Stock exchange value of publicly traded investments..........               61           88
                                                                        ======       ======



                                      F - 36

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 26 -- Financial instruments

     The Group co-ordinates certain key activities on a global basis in order to
optimize its financial position and performance. These include the management of
the currency,  maturity and interest rate profile of finance debt,  cash,  other
significant  financial  risks and  relationships  with banks and other financial
institutions.  International  oil and natural  gas  trading and risk  management
relating to business  operations  are carried out by the Group's oil and natural
gas trading units.

     The main  financial  risks faced by the Group  through its normal  business
activities are market risk,  credit risk and liquidity risk. These risks and the
Group's approach to dealing with them are discussed below.

Market risk

     Market risk is the  possibility  that changes in currency  exchange  rates,
interest rates or oil and natural gas prices will adversely  affect the value of
the Group's financial assets,  liabilities or expected future cash flows. Market
risks  are  managed  using  a  range  of  derivatives.  The  Group  also  trades
derivatives in conjunction with these risk management activities.

     All derivative activity, whether for risk management or trading, is carried
out by  specialist  teams  which have the  appropriate  skills,  experience  and
supervision.  These teams are subject to close financial and management control,
meeting  generally  accepted  industry practice and reflecting the principles of
the Group of Thirty Global  Derivatives  Study  recommendations.  A Trading Risk
Management  Committee  has  oversight of the quality of internal  control in the
Group's trading units.  Independent  control functions  monitor  compliance with
BP's policies. The control framework includes prescribed trading limits that are
reviewed regularly by senior management, daily monitoring of risk exposure using
value-at-risk principles, marking trading exposures to market and stress testing
to assess the exposure to potentially extreme market situations.

     For  market  risk  management  and  trading,  conventional  exchange-traded
derivative  instruments  such  as  futures  and  options  are  used  as  well as
non-exchange-traded  instruments such as swaps,  'over-the-counter'  options and
forward contracts.

     Where  derivatives  constitute a hedge, the Group's exposure to market risk
created by the  derivative is offset by the opposite  exposure  arising from the
asset,  liability,  cash flow or transaction  being hedged.  By contrast,  where
derivatives are held for trading  purposes,  changes in market risk factors give
rise to realized  and  unrealized  gains and  losses,  which are  recognized  in
earnings in the current period.

     Currency   exchange   rates:   Fluctuations  in  exchange  rates  can  have
significant effects on the Group's reported profit. The effects of most exchange
rate  fluctuations are absorbed in business  operating  results through changing
cost  competitiveness,  lags in market  adjustment  to movements  in rates,  and
conversion differences accounted for on specific  transactions.  For this reason
the total effect of exchange rate fluctuations is not identifiable separately in
the Group's reported profit.


                                      F - 37

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 26 -- Financial instruments (continued)

     The main underlying  economic  currency of the Group's cash flows is the US
dollar. This is because BP's major product, oil, is priced internationally in US
dollars.  BP's foreign exchange  management  policy is to minimize  economic and
significant  transactional exposures arising from currency movements against the
US  dollar.  The Group  co-ordinates  the  handling  of foreign  exchange  risks
centrally,  by netting  off  naturally  occurring  opposite  exposures  wherever
possible,  to reduce the risks,  and then  dealing  with any  material  residual
foreign exchange risks.  Significant  residual non-dollar  exposures are managed
using a range of derivatives.

     In  addition,  most Group  borrowings  are in US dollars or are hedged with
respect to the US dollar.

     Interest  rates:  The Group is exposed to interest  rate risk on short- and
long-term  floating rate instruments and as a result of the refinancing of fixed
rate  finance  debt.  Consequently,  as well as managing  the  currency  and the
maturity of debt, the Group manages interest expense through the balance between
generally  lower-cost  floating rate debt, which has inherently higher risk, and
generally more expensive, but lower-risk,  fixed rate debt. The Group is exposed
predominantly  to US dollar LIBOR (London  Inter-Bank Offer Rate) interest rates
as borrowings are mainly denominated in, or are swapped into, US dollars.

     The Group uses derivatives to manage the balance between fixed and floating
rate debt.  During 2002,  the  proportion of floating rate debt was in the range
41-60% of total net debt outstanding.

     Oil and  natural  gas prices: BP's  trading  function  uses  financial  and
commodity  derivatives as part of the overall  optimization  of the value of the
Group's equity oil  production  and as part of the  associated  trading of crude
oil,  products and related  instruments.  They also use  financial and commodity
derivatives to manage certain of the Group's exposures to price  fluctuations on
natural gas transactions.

Credit risk

     Credit risk is the potential  exposure of the Group to loss in the event of
non-performance  by a  counterparty.  The credit risk  arising  from the Group's
normal commercial  operations is controlled by individual operating units within
guidelines. In addition, as a result of its use of derivatives, to manage market
risk, the Group has credit  exposures  through its dealings in the financial and
specialized  oil and natural gas markets.  The Group controls the related credit
risk  through  credit  approvals,   limits,  use  of  netting  arrangements  and
monitoring  procedures.  Counterparty  credit  validation,  independent  of  the
dealers, is undertaken before contractual commitment.

Concentrations of credit risk

     The primary activities of the Group are oil and natural gas exploration and
production,  gas and power marketing and trading, oil refining and marketing and
the manufacture  and marketing of chemicals.  The Group's  principal  customers,
suppliers and financial institutions with which it conducts business are located
throughout  the world.  The credit  ratings of interest  rate and currency  swap
counterparties  are all of at least  investment  grade.  The  credit  quality is
actively managed over the life of the swap.


                                      F - 38

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 26 -- Financial instruments (continued)

Liquidity risk

     Liquidity risk is the risk that suitable sources of funding for the Group's
business  activities may not be available.  The Group has long-term debt ratings
of Aa1 and AA+ assigned  respectively  by Moody's and  Standard and Poor's.  The
Group has access to a wide range of funding at  competitive  rates  through  the
capital markets and banks. It co-ordinates  relationships with banks,  borrowing
requirements,  foreign exchange requirements and cash management centrally.  The
Group  believes  it has  access  to  sufficient  funding  and also  has  undrawn
committed  borrowing   facilities  to  meet  currently   foreseeable   borrowing
requirements.

     At December 31, 2002 the Group had substantial amounts of undrawn borrowing
facilities available,  including committed facilities of $3,600 million expiring
in 2003 ($3,400 million at December 31, 2001 expiring in 2002). These facilities
are with a number of  international  banks and borrowings under them would be at
pre-agreed  rates.  The Group  expects to renew  these  facilities  on an annual
basis.  Certain  of  these  facilities  support  the  Group's  commercial  paper
programme.

Financial instruments

     Financial  instruments comprise primary financial  instruments (cash, fixed
and current asset investments,  debtors, creditors, finance debt and provisions)
and derivative financial instruments (interest rate contracts,  foreign exchange
contracts,  oil price contracts and natural gas price contracts).  Interest rate
contracts  include  futures  contracts,  swap  agreements  and options.  Foreign
exchange  contracts include  forwards,  futures  contracts,  swap agreements and
options.  Oil and natural gas price contracts are those that require  settlement
in cash and include  futures  contracts,  swap  agreements and options.  Oil and
natural gas price  contracts  that require  physical  delivery are not financial
instruments.  However,  if it is normal market practice for a particular type of
oil and  natural  gas  contract,  despite  having  contract  terms that  require
settlement by delivery, to be extinguished other than by physical delivery (e.g.
by cash payment) it is called a cash-settled  commodity  contract.  Contracts of
this type are included with derivatives in the disclosures in Notes 27 and 28.

     With the exception of the table of currency  exposures  shown on page F-41,
short-term debtors and creditors that arise directly from the group's operations
have been excluded from the disclosures  contained in this note, as permitted by
Financial   Reporting   Standard  No.  13   'Derivatives   and  Other  Financial
Instruments: Disclosures'.

Maturity profile of financial liabilities

     The profile of the maturity of the  financial  liabilities  included in the
Group's balance sheet is shown in the table below.




                                            December 31, 2002                     December 31, 2001
                                -------------------------------------   ------------------------------------
                                                   Other                                  Other
                                   Finance     financial                   Finance    financial
                                      debt   liabilities        Total         debt  liabilities        Total
                                ----------   -----------   ----------   ----------  -----------   ----------
                                                                 ($ million)

                                                                                    
Due within: 1 year...........       10,086            --       10,086        9,090           --        9,090
            1 to 2 years.....          913           597        1,510        1,460          699        2,159
            2 to 5 years.....        5,083           332        5,415        2,858          798        3,656
            Thereafter.......        5,926         2,218        8,144        8,009        1,278        9,287
                                 ---------     ---------    ---------    ---------    ---------    ---------
                                    22,008         3,147       25,155       21,417        2,775       24,192
                                 =========     =========    =========    =========    =========    =========




                                      F - 39

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 26 -- Financial instruments (continued)

Interest rate and currency of financial liabilities

     The interest rate and currency profile of the financial  liabilities of the
Group,  at December 31,  after  taking into account the effect of interest  rate
swaps, currency swaps and forward contracts, is set out below.



                                   Fixed rate                    Floating rate           Interest free
                    --------------------------------------   ----------------------  ---------------------
                                        Weighted                                         Weighted
                         Weighted   average time                  Weighted           average time
                          average      for which                   average                  until
                    interest rate  rate is fixed    Amount   interest rate    Amount     maturity   Amount     Total
                    -------------  -------------    ------   -------------    ------ ------------   ------     -----
                               (%)        (Years)($ million)            (%) ($ million)    (Years)($ million)($ million)
                                                                                      
At December 31, 2002
Finance debt
  US dollar............         7             7     7,818                2    13,287           --       --    21,105
  Sterling.............        --            --        --                4       103           --       --       103
  Other currencies.....         7            11       317                5       483           --       --       800
                                                  -------                    -------               -------   -------
                                                    8,135                     13,873                    --    22,008
                                                  -------                    -------               -------   -------
Other financial liabilities
  US dollar............         6            6        392                8       776           5     1,205     2,373
  Sterling.............        --           --         --               --        --           6       171       171
  Other currencies.....        --           --         --               --        --           2       603       603
                                                  -------                    -------               -------   -------
                                                      392                        776                 1,979     3,147
                                                  -------                    -------               -------   -------
Total                                               8,527                     14,649                 1,979    25,155
                                                  =======                    =======               =======   =======
At December 31, 2001
Finance debt
  US dollar............         7            8     11,603                2     9,365          --        --    20,968
  Sterling.............        --           --         --                4       133          --        --       133
  Other currencies.....        10           29        122                6       194          --        --       316
                                                  -------                    -------               -------   -------
                                                   11,725                      9,692                    --    21,417
                                                  -------                    -------               -------   -------
Other financial liabilities
  US dollar............        10            6         21                8       778           4     1,528     2,327
  Sterling.............        --           --         --               --        --           3       114       114
  Other currencies.....        --           --         --               --        --           2       334       334
                                                  -------                    -------               -------   -------
                                                       21                        778                 1,976     2,775
                                                  -------                    -------               -------   -------
Total                                              11,746                     10,470                 1,976    24,192
                                                  =======                    =======               =======   =======




                                                                                                       December 31,
                                                                                                  ------------------
                                                                                                     2002       2001
                                                                                                  -------    -------
                                                                                                      ($ million)
                                                                                                         
Analysis of the above financial liabilities by balance sheet caption:
Current liabilities-- falling due within one year
-- Finance debt.................................................................                   10,086      9,090
Noncurrent liabilities
-- Finance debt.................................................................                   11,922     12,327
-- Accounts payable and accrued liabilities.....................................                    1,953      1,673
Provisions for liabilities and charges
-- Other provisions.............................................................                    1,194      1,102
                                                                                                  -------    -------
                                                                                                   25,155     24,192
                                                                                                  =======    =======



                                      F - 40

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 26 -- Financial instruments (continued)

     The other financial liabilities comprise various accruals, sundry creditors
and  provisions  relating  to the Group's  normal  commercial  operations,  with
payment dates spread over a number of years.

     The Group aims for a balance between floating and fixed interest rates and,
in 2002,  the  proportion of floating rate debt was in the range 41-60% of total
net debt  outstanding.  Aside from debt issued in the US municipal bond markets,
interest  rates on  floating  rate debt  denominated  in US  dollars  are linked
principally  to London  Inter-Bank  Offer Rate  (LIBOR),  while rates on debt in
other  currencies  are based on local  market  equivalents.  The Group  monitors
interest rate risk using a process of sensitivity analysis.  Assuming no changes
to the finance debt and hedges described above, it is estimated that a change of
1% in the general  level of interest  rates on January 1, 2003 would change 2003
profit before tax by approximately $130 million.

     Interest  rate  swaps  and  futures  are used by the  Group to  modify  the
interest  characteristics  of its  long-term  finance  debt  from a  fixed  to a
floating rate basis or vice versa.  The following  table  indicates the types of
instruments used and their weighted average interest rates as at December 31.



                                                                              December 31,
                                                                         ----------------------
                                                                          2002             2001
                                                                         -----            -----
                                                                     ($ million except percentages)


                                                                                      
Receive fixed rate swaps-- notional amount.......................        3,789              999
Average receive fixed rate ......................................          5.0%             5.6%
Average pay floating rate........................................          1.5%             2.3%
Pay fixed rate swaps-- notional amount...........................        2,169            2,914
Average pay fixed rate...........................................          6.6%             6.6%
Average receive floating rate....................................          1.5%             2.3%
Futures contracts -- notional amount.............................           --              760
Average pay fixed rate...........................................           --              2.7%


Currency exchange rate risk

     The monetary  assets and monetary  liabilities  of the Group in  currencies
other  than  in the  functional  currency  of  individual  operating  units  are
summarized below. These currency exposures arise from normal trading activities.
As at December 31, 2002 and 2001, these exposures were as shown below.



                                                       Net foreign currency monetary assets (liabilities)
                                                 -------------------------------------------------------------
                                                 US dollar     Sterling         Euro        Other        Total
                                                 ---------     --------     --------     --------     --------
                                                                         ($ million)
                                                                                           
At December 31, 2002
US dollar........................................       --          323            2          301          626
Sterling.........................................      412           --          409          (33)         788
Other............................................     (717)         (10)        (194)         (49)        (970)
                                                  --------     --------     --------     --------     --------
                                                      (305)         313          217          219          444
                                                  ========     ========     ========     ========     ========
At December 31, 2001
US dollar........................................       --         (193)          10          (15)        (198)
Sterling.........................................       69           --          237          182          488
Other............................................     (487)        (241)          (3)         (27)        (758)
                                                  --------     --------     --------     --------     --------
                                                      (418)        (434)         244          140         (468)
                                                  ========     ========     ========     ========     ========





                                      F - 41

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 26 -- Financial instruments (concluded)

     In accordance with its policy for managing its foreign  exchange rate risk,
the Group  enters into  various  types of foreign  exchange  contracts,  such as
currency swaps,  forwards and options.  The fair values and carrying  amounts of
these derivatives are shown in the fair value table in Note 28.

Interest rate and currency of financial assets

     The  following  table shows the interest  rate and currency  profile of the
Group's material financial assets.




                                   Fixed rate                    Floating rate           Interest free
                    --------------------------------------   ----------------------  ---------------------
                                        Weighted                                         Weighted
                         Weighted   average time                  Weighted           average time
                          average      for which                   average                  until
                    interest rate  rate is fixed    Amount   interest rate    Amount     maturity   Amount     Total
                    -------------  -------------    ------   -------------    ------ ------------   ------     -----
                               (%)        (Years)($ million)            (%) ($ million)    (Years)($ million)($ million)
                                                                                      

At December 31, 2002
US dollar.............          3              2       180               1       873           2     1,094      2,147
Sterling..............          7              2        94               5       171           2       235        500
Other currencies......          2              1        34               1       208           1     1,264      1,506
                                                   -------                   -------               -------    -------
                                                       308                     1,252                 2,593      4,153
                                                   =======                   =======               =======    =======

At December 31, 2001
US dollar.............          3              1        92               2       574           2     2,319      2,985
Sterling..............          7              2        81               4        11           2       762        854
Other currencies......          5              1       181               5       264           1       192        637
                                                  -------                    -------               -------    -------
                                                      354                        849                 3,273      4,476
                                                  =======                    =======               =======    =======





                                                                                                December 31,
                                                                                             -----------------
                                                                                               2002       2001
                                                                                            -------    -------

                                                                                                ($ million)
                                                                                                   
Analysis of the above financial assets by balance sheet caption:
Fixed assets -- investments.....................................................              1,995      2,403
Current assets
-- Receivables -- amounts falling due after more than one year..................                423        265
-- Investments..................................................................                215        450
-- Cash at bank and in hand.....................................................              1,520      1,358
                                                                                            -------    -------
                                                                                              4,153      4,476
                                                                                            =======    =======


     The  floating  rate  financial  assets earn  interest at various  rates set
principally with respect to LIBOR or the local market equivalent.

     Fixed asset  investments  included in the table above are held for the long
term and have no maturity  period.  They are excluded  from the  calculation  of
weighted average time until maturity.



                                      F - 42

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 27 -- Derivative financial instruments

     In the  normal  course  of  business  the  group is a party  to  derivative
financial  instruments  (derivatives) with off balance sheet risk,  primarily to
manage its  exposure to  fluctuations  in foreign  currency  exchange  rates and
interest  rates,  including  management of the balance  sheet  floating rate and
fixed rate debt. The Group also manages certain of its exposures to movements in
oil and  natural  gas prices.  In  addition,  the Group  trades  derivatives  in
conjunction with these risk management activities.

Risk management

     Gains and  losses on  derivatives  used for risk  management  purposes  are
deferred and recognized in earnings or as adjustments  to carrying  amounts,  as
appropriate,  when the underlying debt matures or the hedged transaction occurs.
When an anticipated  transaction is no longer likely to occur or finance debt is
terminated  before  maturity,  any deferred  gain or loss that has arisen on the
related derivative is recognized in the income statement, together with any gain
or loss on the terminated item. Where such derivatives used for hedging purposes
are  terminated  before the  underlying  debt matures or the hedged  transaction
occurs,  the  resulting  gain or loss is recognized on a basis which matches the
timing and accounting  treatment of the underlying hedged item. The unrecognized
and  carried-forward  gains and losses on derivatives used for hedging,  and the
movements therein, are shown in the following table.



                                                             Not recognized          Carried forward in the
                                                             in the accounts              balance sheet
                                                        -------------------------     ------------------------
                                                         Gains    Losses    Total     Gains    Losses    Total
                                                       -------   -------  -------   -------   -------  -------
                                                                             ($ million)

                                                                                       
Gains and losses at January 1, 2002..................      109      (235)    (126)      113      (327)    (214)
  of which accounted for in income in 2002...........       60       (19)      41        50      (162)    (112)
Gains and losses at December 31, 2002................      526      (450)      76       352       (28)     324
  of which expected to be recognized in income
  in 2003............................................       96       (51)      45       200       (14)     186

Gains and losses at January 1, 2001..................      303      (302)       1        56      (443)    (387)
  of which accounted for in income in 2001...........      203      (154)      49        22      (194)    (172)
Gains and losses at December 31, 2001................      109      (235)    (126)      113      (327)    (214)
  of which expected to be recognized in income
  in 2002............................................       60       (19)      41        50      (162)    (112)


Trading activities

     The Group maintains  active trading  positions in a variety of derivatives.
This activity is  undertaken in  conjunction  with risk  management  activities.
Derivatives  held for trading purposes are marked-to-market and any gain or loss
recognized in the income statement. For traded derivatives,  many positions have
been  neutralized,  with trading  initiatives being concluded by taking opposite
positions to fix a gain or loss, thereby achieving a zero net market risk.



                                      F - 43

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 27 -- Derivative financial instruments (continued)

     The following table shows the fair value at December 31, of derivatives and
other financial  instruments held for trading  purposes.  The fair values at the
year end are not  materially  unrepresentative  of the position  throughout  the
year.



                                                                                December 31,
                                                             -------------------------------------------------
                                                                       2002                      2001
                                                             -----------------------   -----------------------
                                                             Fair value   Fair value   Fair value   Fair value
                                                                  asset    liability        asset    liability
                                                             ----------   ----------   ----------   ----------
                                                                                 ($ million)
                                                                                           
Interest rate contracts...................................           --           --           --           --
Foreign exchange contracts................................           29          (17)          14          (17)
Oil price contracts.......................................          440         (418)         248         (222)
Natural gas price contracts...............................        1,112         (955)         799         (787)
                                                               --------     --------     --------     --------
                                                                  1,581       (1,390)       1,061       (1,026)
                                                               ========     ========     ========     ========


     The Group measures its market risk exposure, i.e. potential gain or loss in
fair values,  on its trading  activity  using  value-at-risk  techniques.  These
techniques are based on a variance/covariance  model or a Monte Carlo simulation
and make a  statistical  assessment  of the market risk  arising  from  possible
future changes in market values over a 24-hour  period.  The  calculation of the
range of  potential  changes in fair value takes into  account a snapshot of the
end-of-day  exposures,  and the  history of  one-day  price  movements  over the
previous 12 months, together with the correlation of these price movements.  The
potential  movement in fair values is  expressed  to three  standard  deviations
which is  equivalent  to a 99.7%  confidence  level.  This means that,  in broad
terms,  one would expect to see an increase or a decrease in fair values greater
than the value at risk on only one occasion per year if the portfolio  were left
unchanged.

     The Group  calculates  value at risk on all  instruments  that are held for
trading  purposes  and that  therefore  give an  exposure  to market  risk.  The
value-at-risk  model takes account of derivative  financial  instruments such as
interest  rate  forward  and futures  contracts,  swap  agreements,  options and
swaptions,  foreign exchange forward and futures contracts,  swap agreements and
options and oil price futures, swap agreements and options. Financial assets and
liabilities  and  physical  crude oil and refined  products  that are treated as
trading  positions are also included in these  calculations.  The  value-at-risk
calculation  for oil and natural gas price  exposure also includes  cash-settled
commodity contracts such as forward contracts.

     The following table shows values at risk for trading activities.



                                                               Years ended December 31,
                                    --------------------------------------------------------------------------
                                                     2002                                   2001
                                    ------------------------------------ -------------------------------------
                                       High      Low   Average  Year end     High       Low   Average Year end
                                    -------  -------   -------   -------  -------   -------   -------  -------
                                                                    ($million)

                                                                             
Interest rate trading..........          --       --        --        --        1        --        --       --
Foreign exchange trading.......           2       --         1        --        3        --         1       --
Oil price trading..............          34       14        23        19       29        10        18       17
Natural gas price trading......          18        1         6         9       21         4        10        9




                                      F - 44

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 27 -- Derivative financial instruments (concluded)

     The  presentation  of trading  results  shown in the table  below  includes
certain activities of BP's trading function which involves the use of derivative
financial  instruments in conjunction with physical and paper trading of oil and
natural gas. It is considered that a more  comprehensive  representation  of the
Group's oil and natural gas price trading activities is given by aggregating the
gain or loss on such derivatives together with the gain or loss arising from the
physical and paper trades to which they relate,  representing  the net result of
the trading portfolio.



                                                                   Years ended December 31,
                                                                   ----------------------
                                                                      2002           2001
                                                                    ------         ------
                                                                  Net gain       Net gain
                                                                    (loss)         (loss)
                                                                    ------         ------
                                                                          ($ million)
                                                                                
Oil price trading.......................................               597            684
Natural gas price trading...............................               199            276
Interest rate trading...................................                --              1
Foreign exchange trading................................                90             81
                                                                    ------         ------
                                                                       886          1,042
                                                                    ======         ======


Note 28 -- Fair values of financial assets and liabilities

     The estimated fair value of the Group's  financial  instruments is shown in
the table below. The table also shows the 'net carrying amount' of the financial
asset or liability. This amount represents the net book value, i.e. market value
when acquired or later marked-to-market. Interest rate contracts include futures
contracts,  swap  agreements and options.  Foreign  exchange  contracts  include
forward and futures contracts,  swap agreements and options. Oil and natural gas
price  contracts  include  futures  contracts,  swap  agreements and options and
cash-settled commodity contracts such as forward contracts.

     Short-term  debtors  and  creditors  that arise  directly  from the Group's
operations  have been excluded from the  disclosures  contained in this note, as
permitted by Financial Reporting Standard No.13 'Derivatives and Other Financial
Instruments: Disclosures'.





                                      F - 45

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 28 -- Fair values of financial assets and liabilities (continued)

     The fair value and carrying amounts of finance debt shown below exclude the
effects of currency swaps,  interest rate swaps and forward contracts (which are
included for  presentation  in the balance sheet).  Long-term  borrowings in the
table  below  include  debt that  matures in the year from  December  31,  2002,
whereas in the  balance  sheet  long-term  debt of current  maturity is reported
under amounts falling due within one year.  Long-term borrowings also include US
Industrial  Revenue/Municipal Bonds classified on the balance sheet as repayable
within one year.



                                                                              December 31,
                                                 ------------------------------------------------------------------------
                                                                 2002                                2001
                                                 -----------------------------------  -----------------------------------
                                                                        Net carrying                         Net carrying
                                                   Net fair value             amount    Net fair value             amount
                                                 asset (liability)  asset (liability) asset (liability)  asset (liability)
                                                 ----------------   ----------------  ----------------   ----------------
                                                                              ($ million)
                                                                                                      
Primary financial instruments
Fixed assets -- investments..........................       2,047              1,995             2,400             2,403
Current assets
-- Other receivables-- amounts falling
     due after more than one year....................         423                423               265               265
-- Investments.......................................         215                215               459               450
-- Cash at bank and in hand..........................       1,520              1,520             1,358             1,358
Finance debt
-- Short-term borrowings.............................      (5,504)            (5,504)           (5,185)           (5,185)
-- Long-term borrowings..............................     (15,476)           (14,609)          (14,875)          (14,360)
-- Net obligations under finance leases..............      (2,183)            (2,172)           (1,619)           (1,608)
Noncurrent liabilities
-- Accounts payable and accrued liabilities..........      (1,953)            (1,953)           (1,673)           (1,673)
Provisions for liabilities and charges
-- Other provisions..................................      (1,194)            (1,194)           (1,102)           (1,102)

Derivative financial or commodity instruments
Risk management -- interest rate contracts...........         (63)                --              (139)               --
                -- foreign exchange contracts........         416                277              (251)             (264)
                -- oil price contracts...............           9                  9                --                --
                -- natural gas price contracts.......           5                  5              (259)             (259)
Trading         -- interest rate contracts...........          --                 --                --                --
                -- foreign exchange contracts........          12                 12                (3)               (3)
                -- oil price contracts...............          22                 22                26                26
                -- natural gas price contracts.......         157                157                12                12




                                      F - 46

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 28 -- Fair values of financial assets and liabilities (concluded)

     The following  methods and assumptions were used by the Group in estimating
its fair value disclosures for its financial instruments:

     Fixed  assets -  Investments: The carrying  amount  reported in the balance
sheet for unlisted fixed asset  investments  approximates  their fair value. The
fair value of listed fixed asset investments has been determined by reference to
market prices.

     Current  assets - Other  receivables - amounts  falling due after more than
one year:  The fair value of other  receivables  due after one year is estimated
not to be materially different from its carrying value.

     Current  assets -  Investments  and Cash at bank and in hand:  The carrying
amount reported in the balance sheet for unlisted current asset  investments and
cash at bank and in hand approximates their fair value. The fair value of listed
current asset investments has been determined by reference to market prices.

     Finance  debt: The carrying  amount of the Group's  short-term  borrowings,
which mainly comprise commercial paper, bank loans and overdrafts,  approximates
their fair value. The fair value of the Group's long-term borrowings and finance
lease  obligations  is  estimated  using  quoted  prices or, where these are not
available,   discounted  cash  flow  analyses,  based  on  the  Group's  current
incremental borrowing rates for similar types and maturities of borrowing.

     Noncurrent  liabilities - Accounts payable and accrued  liabilities:  These
liabilities are  predominantly  interest-free.  In view of the short maturities,
the reported carrying amount is estimated to approximate the fair value.

     Provisions  for  liabilities  and  charges  - Other  provisions: Where  the
liability will not be settled for a number of years the amount recognized is the
present  value of the  estimated  future  expenditure.  The  carrying  amount of
provisions thus approximates the fair value.

     Derivative financial instruments and cash-settled  commodity contracts: The
fair values of the Group's  interest  rate and foreign  exchange  contracts  are
based on pricing models which take into account  relevant  market data. The fair
values of the Group's oil and natural gas price  contracts  (futures  contracts,
swap agreements, options and forward contracts) are based on market prices.



                                      F - 47

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 29 -- Finance debt



                                                          December 31, 2002                 December 31, 2001
                                                     ----------------------------      ---------------------------
                                                     Within      After                 Within      After
                                                     1 year(a)  1 year      Total      1 year(a)  1 year      Total
                                                     ------     ------      -----      ------     ------      -----
                                                                              ($ million)

                                                                                
Bank loans....................................          476        344        820         371        409        780
Other loans...................................        9,526      9,656     19,182       8,647     10,349     18,996
                                                     ------     ------     ------      ------     ------     ------
Total borrowings..............................       10,002     10,000     20,002       9,018     10,758     19,776
Net obligations under capital leases..........           84      1,922      2,006          72      1,569      1,641
                                                     ------     ------     ------      ------     ------     ------
                                                     10,086     11,922     22,008       9,090     12,327     21,417
                                                     ======     ======     ======      ======     ======     ======

---------------

(a)  Amounts due within one year include current maturities of long-term debt.

     Where  finance debt is swapped into another  currency,  the finance debt is
accounted in the swap currency and not in the original currency of denomination.
Total  finance  debt  includes  an asset of $277  million (a  liability  of $264
million at December  31,  2001) for the  carrying  value of  currency  swaps and
forward contracts.

     Included  within Other loans  repayable  within one year are US  Industrial
Revenue/Municipal  Bonds of $1,881  million  (December 31, 2001 $1,768  million)
with maturity  periods ranging up to 35 years.  They are classified as repayable
within one year, as required  under UK GAAP, as the  bondholders  typically have
the option to tender  these bonds for  repayment on interest  reset  dates.  Any
bonds that are tendered are usually  remarketed and BP has not  experienced  any
significant repurchases. BP considers these bonds to represent long-term funding
when assessing the maturity profile of its finance debt.

     At December  31,  2002,  the Group's  share of third party  finance debt of
joint ventures and associated  undertakings was $457 million  (December 31, 2001
$460 million) and $849 million (December 31, 2001 $1,136 million)  respectively.
These amounts are not reflected in the Group's debt on the balance sheet.



                                      F - 48

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 29 -- Finance debt (continued)



                                              December 31, 2002                      December 31, 2001
                                  -------------------------------------   ------------------------------------
Analysis of borrowings                  Bank         Other                      Bank        Other
by year of repayment                   loans         loans        Total        loans        loans        Total
                                  ----------     ---------    ---------   ----------    ---------    ---------
                                                                    ($ million)

                                                                                       
Due after    10 years............         --         1,417        1,417           42        3,188        3,230
Due within   10 years............          1           371          372          150          312          462
             9 years.............         43           310          353           --           15           15
             8 years.............         --            15           15           --        1,411        1,411
             7 years.............         --         1,699        1,699           --          593          593
             6 years.............         --           516          516           --          879          879
             5 years.............         --         1,603        1,603           --          501          501
             4 years.............        161           344          505           24        1,542        1,566
             3 years.............         19         2,671        2,690           15          626          641
             2 years.............        120           710          830          178        1,282        1,460
                                   ---------     ---------    ---------    ---------    ---------    ---------
                                         344         9,656       10,000          409       10,349       10,758
             1 year..............        476         9,526       10,002          371        8,647        9,018
                                   ---------     ---------    ---------    ---------    ---------    ---------
                                         820        19,182       20,002          780       18,996       19,776
                                   =========     =========    =========    =========    =========    =========


     Amounts  included above  repayable by  instalments  part of which falls due
after five years from December 31, are as follows:



                                                                                            At December 31,
                                                                                         --------------------
                                                                                            2002         2001
                                                                                         -------      -------
                                                                                              ($ million)

                                                                                                    
After five years.......................................................                      541          120
Within five years......................................................                      103        1,071
                                                                                          ------       ------
                                                                                             644        1,191
                                                                                          ======       ======


     Interest  rates on  borrowings  repayable  wholly or partly  more than five
years from December 31, 2002 range from 1% to 12% with a weighted average of 4%.
The weighted average interest rate on finance debt is 4%.



                                      F - 49

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 29 -- Finance debt (continued)

Obligations under capital leases

     The future  minimum lease  payments  together with the present value of the
net minimum lease payments were as follows:



                                                                             December 31,
                                                                                     2002
                                                                            -------------
                                                                              ($ million)
                                                                                   
2003.................................................................                 106
2004.................................................................                 204
2005.................................................................                 211
2006.................................................................                 218
2007.................................................................                 203
Thereafter...........................................................               3,481
                                                                              -----------
                                                                                    4,423
Less: amount representing lease interest.............................              (2,417)
                                                                              -----------
Present value of net minimum capital lease payments..................               2,006
                                                                              ===========
of which   -- due within one year....................................                  84
           -- due after one year.....................................               1,922
                                                                              -----------



                                      F - 50

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 29 -- Finance debt (concluded)

     The following  information is presented in compliance with the requirements
of US GAAP.

Bank and other loans -- long-term



                                                         Weighted average
                                                         interest rate at
                                                            December 31,              December 31,
                                                        -------------------       -------------------
                                                          2002         2001         2002         2001
                                                        ------       ------       ------       ------
                                                                  (%)                 ($ million)
                                                                                     
US dollar........................................            5            5        9,796       10,617
Sterling.........................................            4            4           26           19
Other currencies.................................            9            9          178          122
                                                                                  ------       ------
                                                                                  10,000       10,758
                                                                                  ======       ======



Bank and other loans -- short-term


                                                                                      December 31,
                                                                                   ------------------
                                                                                    2002         2001
                                                                                  ------       ------
                                                                                      ($ million)
                                                                                          
Current maturities of long-term debt...................................            2,535        1,993
Commercial paper.......................................................            4,853        4,634
Bank loans.............................................................              476          371
Other..................................................................            2,138        2,020
                                                                                  ------       ------
                                                                                  10,002        9,018
                                                                                  ======       ======




                                                                                    Weighted average
                                                                                      interest rate
                                                                                     at December 31,
                                                                                   ------------------
                                                                                    2002         2001
                                                                                   -----       ------
                                                                                          (%)
                                                                                             
Commercial paper.......................................................                1            2
Bank loans and other borrowings........................................                4            4
US Industrial Revenue/Municipal bonds..................................                1            2




                                      F - 51

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 30 -- Accounts payable and accrued liabilities



                                                                  December 31, 2002         December 31, 2001
                                                                 -------------------       -------------------
                                                                 Within        After       Within        After
                                                                 1 year       1 year       1 year       1 year
                                                                 ------       ------       ------       ------
                                                                                  ($ million)

                                                                                     
Trade payables.......................................            17,454           --       13,129           --
                                                                 ======       ======       ======       ======
Other accounts payable and accrued liabilities:
  Joint ventures.....................................                22           --           21           --
  Associated undertakings............................               287           12          268            4
  Production taxes...................................               421        1,455          254        1,346
  Taxation on profits................................             3,420           --        3,456           --
  Social security....................................                81           --           63           --
  Accruals and deferred income.......................             5,763        1,002        4,843        1,029
  Dividends..........................................             1,398           --        1,289           --
  Other..............................................             7,369          986        5,201          707
                                                                 ------       ------       ------       ------
                                                                 18,761        3,455       15,395        3,086
                                                                 ======       ======       ======       ======


Note 31 -- Other provisions



                                                               Unfunded            Other
                                                                pension   postretirement
                             Decommissioning   Environmental      plans         benefits      Other       Total
                             ---------------    ------------    -------       ----------    -------     -------
                                                                  ($ million)

                                                                                    
At January 1, 2002.............        3,304           2,098      1,743            2,664      1,673      11,482
Exchange adjustments...........          250              28        362               --         63         703
Acquisitions...................           --              20      1,051               36         --       1,107
New provisions.................          308             312        356              276        333       1,585
Unwinding of discount..........          106              52         --               --         12         170
Change in discount rate........          333              36         --               --          6         375
Utilized/deleted...............         (133)           (424)      (366)            (214)      (399)     (1,536)
                                     -------         -------    -------          -------    -------     -------
At December 31, 2002                   4,168           2,122      3,146            2,762      1,688      13,886
                                     =======         =======    =======          =======    =======     =======


     The Group makes full provision for the future cost of  decommissioning  oil
and natural gas  production  facilities  and related  pipelines  on a discounted
basis at the commencement of production.  At December 31, 2002 the provision for
the costs of  decommissioning  these production  facilities and pipelines at the
end of their economic lives was $4,168 million  ($3,304  million at December 31,
2001).  The provision has been estimated using existing  technology,  at current
prices and discounted  using a real discount rate of 2.5% (2001 3%). These costs
are expected to be incurred over the next 30 years. While the provision is based
on the best  estimate of future costs and the economic  lives of the  facilities
and  pipelines,  there is  uncertainty  regarding  both the amount and timing of
incurring these costs.  The estimated  decommissioning  costs on an undiscounted
basis are approximately $6,500 million.



                                      F - 52

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 31 -- Other provisions (concluded)

     Provisions  for  environmental  remediation  are made  when a  clean-up  is
probable and the amount reasonably  determinable.  Generally this coincides with
commitment  to a formal plan of action or, if earlier,  on divestment or closure
of inactive sites. The provision for  environmental  liabilities at December 31,
2002 was $2,122 million ($2,098 million at December 31, 2001). The provision has
been estimated using existing technology, at current prices and discounted using
a real discount rate of 2.5% (2001 3%).  These costs are expected to be incurred
over the next 10 years. The extent and cost of future remediation programmes are
inherently  difficult  to  estimate.  They  depend on the scale of any  possible
contamination, the timing and extent of corrective actions, and also the Group's
share of liability.  The estimated  environmental costs on an undiscounted basis
are approximately $2,300 million.

     The Group also holds  provisions  for  potential  future  awards  under the
long-term  performance  plans,  expected rental shortfalls on surplus properties
and sundry  other  liabilities.  To the extent  that these  liabilities  are not
expected  to be  settled  within  the  next  three  years,  the  provisions  are
discounted using a real discount rate of 2.5% (2001 3%).

Note 32 -- Capital and reserves


                                                             Paid
                                                Share          in     Merger      Other    Retained
                                              capital     surplus    reserve   reserves    earnings      Total
                                            ---------   ---------  --------- ----------   ---------  ---------
                                                                        ($ million)

                                                                                   
At January 1, 2002..........................    5,629       4,014     26,983        223      37,518     74,367
Prior year adjustment -
  change in accounting policy...............       --          --         --         --      (9,206)    (9,206)
                                            ---------   ---------  --------- ----------   ---------  ---------
Restated                                        5,629       4,014     26,983        223      28,312     65,161
Currency translation differences
  (net of tax)..............................       --          --         --         --       3,333      3,333
Employee share schemes......................        9         129         --         --          --        138
ARCO........................................        3          54         50        (50)         --         57
Repurchase of ordinary share capital........      (25)         25         --         --        (750)      (750)
Qualifying Employee Share
  Ownership Trust (QUEST)...................       --          21         --         --         (21)        --
Profit for the year.........................       --          --         --         --       6,845      6,845
Dividends...................................       --          --         --         --      (5,375)    (5,375)
                                            ---------   ---------  --------- ----------   ---------  ---------
At December 31, 2002........................    5,616       4,243     27,033        173      32,344     69,409
                                            =========   =========  ========= ==========   =========  =========


     The  movements  in the Group's  share  capital  during the year are set out
above.  All movements are  quantified in terms of the number of BP shares issued
or repurchased.

     Employee share schemes:  During the year  33,820,750  ordinary  shares were
issued under the BP, Amoco and Burmah Castrol employee share schemes.

     ARCO:  12,894,348  ordinary  shares were issued in respect of ARCO employee
share option schemes.

     Repurchase  of  ordinary   share   capital:   The  Company   purchased  for
cancellation  100,140,987  ordinary  shares  for a total  consideration  of $750
million.


                                      F - 53

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 33 -- Retained earnings

     Retained earnings of $32,344 million ($28,312 million at December 31, 2001)
include the following amounts, the distribution of which is limited by statutory
or other restrictions:


                                                                                   December 31,
                                                                               ------------------
                                                                                2002         2001
                                                                              ------       ------
                                                                                   ($ million)
                                                                                     
Parent company........................................................         9,547       15,547
Subsidiary undertakings...............................................         5,620        2,696
Joint ventures and associated undertakings............................           870        1,345
                                                                              ------       ------
                                                                              16,037       19,588
                                                                              ======       ======


     Cumulative net exchange  losses (net of tax) of $1,209 million are included
in retained earnings ($4,542 million losses at December 31, 2001).

     There were no unrealized currency  translation  differences for the year on
long-term  borrowings used to finance equity  investments in foreign  currencies
(2001 nil and 2000 nil).

Note 34 -- Analysis of consolidated statement of cash flows

Reconciliation  of historical  cost profit  before  interest and tax to net cash
inflow from operating activities



                                                                            Years ended December 31,
                                                                      ----------------------------------
                                                                          2002         2001         2000
                                                                      --------     --------    ---------
                                                                                   ($ million)
                                                                                         
Historical cost profit before interest and tax...................       12,543       14,662       18,627
Depreciation and amounts provided................................       10,401        8,858        7,526
Exploration expenditure written off..............................          385          238          264
Share of profits of joint ventures and associated undertakings...         (966)      (1,194)      (1,853)
Interest and other income........................................         (358)        (478)        (360)
(Profit) loss on sale of fixed assets and businesses
  or termination of operations...................................       (1,166)        (537)        (196)
Charge for provisions............................................        1,277        1,008          702
Utilization of provisions........................................       (1,427)      (1,119)        (969)
(Increase) decrease in inventories...............................       (1,521)       1,490       (1,449)
(Increase) decrease in receivables...............................       (2,672)       1,989       (5,587)
Increase (decrease) in payables..................................        2,846       (2,508)       3,711
                                                                      --------     --------    ---------
Net cash inflow from operating activities........................       19,342       22,409       20,416
                                                                      ========     ========    =========





                                      F - 54

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 34 -- Analysis of consolidated statement of cash flows (concluded)

Financing


                                                                         Years ended December 31,
                                                                    --------------------------------
                                                                       2002         2001         2000
                                                                   --------     --------    ---------
                                                                                ($ million)

                                                                                      
Long-term borrowing...........................................       (3,707)      (1,296)      (1,680)
Repayments of long-term borrowing.............................        2,369        2,602        2,353
Short-term borrowing..........................................       (9,849)      (6,257)      (4,120)
Repayments of short-term borrowing............................       10,451        4,823        4,821
                                                                   --------     --------    ---------
                                                                       (736)        (128)       1,374
Issue of ordinary share capital for employee share schemes....         (195)        (181)        (257)
Repurchase of ordinary share capital..........................          750        1,281        2,001
Stamp duty reserve tax........................................           --           --          295
                                                                   --------     --------    ---------
Net cash (inflow) outflow.....................................         (181)         972        3,413
                                                                   ========     ========    =========


Management of liquid resources

     Liquid resources  comprise current asset  investments which are principally
commercial  paper  issued  by  other  companies.  The net cash  inflow  from the
management of liquid  resources  was $220 million (2001 $211 million  inflow and
2000 $452 million outflow).

Commercial paper

     Net movements in commercial paper are included within short-term borrowings
or repayment of short-term borrowings as appropriate.

Movement in net debt


                                                     Years ended December 31,
                       --------------------------------------------------------------------------------------------
                                           2002                                            2001
                       --------------------------------------------      ------------------------------------------
                                                Current                                          Current
                       Finance                    asset         Net      Finance                   asset        Net
                          debt        Cash  investments        debt         debt       Cash  investments       debt
                       -------      ------  -----------      ------      -------     ------  -----------     ------
                                                              ($ million)

                                                                                    
At January 1..........  (21,417)     1,358          450     (19,609)     (21,190)     1,170          661    (19,359)
Exchange adjustments..      (64)       105          (15)         26           (8)       (53)          --        (61)
Acquisitions..........   (1,002)        --           --      (1,002)         (55)        --           --        (55)
Net cash flow.........     (736)        57         (220)       (899)        (128)       241         (211)       (98)
Partnership interests
  exchanged for BP
  loan notes..........    1,135         --           --       1,135           --         --           --         --
Other movements.......       76         --           --          76          (36)        --           --        (36)
                         ------     ------       ------      ------       ------     ------       ------     ------
At December 31........  (22,008)     1,520          215     (20,273)     (21,417)     1,358          450    (19,609)
                         ======     ======       ======      ======       ======     ======       ======     ======




                                      F - 55

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 35 -- Employee share plans



Employee share options granted during the year                   2002         2001         2000
                                                               ------       ------       ------
                                                                      (options thousands)
                                                                                 
Savings related schemes.................................        9,719        7,901        7,930
Executive Directors' Incentive Plan.....................        2,068        2,598          709
BP Share Option Plan....................................       66,771       58,208       50,461
                                                               ------       ------       ------
                                                               78,558       68,707       59,100
                                                               ======       ======       ======


     The  exercise   prices  for  BP  options   granted  during  the  year  were
(pound)4.52/$6.78  (9,719,005  options) for  savings-related  and similar plans;
(pound)5.67/$8.51  (weighted average price) for Executive  Directors'  Incentive
Plan (2,068,026  options);  and  (pound)5.50/$8.25  (weighted average price) for
66,770,545 options granted under the BP Share Option Plan.

     BP offers most of its employees the  opportunity  to acquire a shareholding
in the company through  savings-related and/or matching share plan arrangements.
Such  arrangements  are now in  place  in  nearly  80  countries.  BP also  uses
long-term  performance  plans (see Note 36) and the granting of share options as
elements of remuneration for executive directors and senior employees.

     During 2002,  share options were granted to the executive  directors  under
the Executive  Directors'  Incentive  Plan (EDIP).  For these options the option
exercise price was the market value (as  determined in accordance  with the plan
rules) on the grant date.  The options  granted to executive  directors  reflect
BP's  performance  in terms of total  shareholder  return (TSR),  that is, share
price  increase with all dividends  reinvested,  relative to the FTSE Global 100
group of companies over the three years  preceding the grant.  Options vest over
three years  (one-third  each after one, two and three years  respectively)  and
have a life of seven years after the grant.

     Share  options  were also granted in 2002 under the BP Share Option Plan to
certain  categories of employees.  Subject to certain vesting  requirements  the
options are exercisable between the third and tenth anniversaries of the date of
grant.  There are no  performance  conditions  attaching to the options  granted
during the year.

     Under the BP ShareSave Plan (a savings-related share option plan) employees
save on a monthly basis over a three- or five-year  period  towards the purchase
of shares at a price  fixed when the  option is  granted.  The  option  price is
usually  set at a 20%  discount  to the market  price at the time of grant.  The
option must be exercised within six months of maturity of the savings  contract;
otherwise  it  lapses.  The  plan is run in the UK and a small  number  of other
countries.

     Under the BP ShareMatch  Plan, BP matches  employees' own  contributions of
shares,  up to a  predetermined  limit.  The shares are then held in trust for a
defined  minimum  period.  The  plan  is run in the  UK  and in  over  60  other
countries.



                                      F - 56

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 35 -- Employee share plans (continued)

     BP does not  recognize  an expense in respect of share  options  granted to
employees.  If the fair  value of  options  granted  in any  particular  year is
estimated and this value  amortized over the vesting  period of the options,  an
indication of the cost of granting  options to employees  can be made.  The fair
value of each share  option  granted has been  estimated  using a  Black-Scholes
option pricing model with the following assumptions:



                                                                                 Years ended December 31,
                                                                            ----------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------

                                                                                                  
Risk-free interest rate................................................          4.0%         5.0%         6.0%
Expected volatility....................................................           26%          26%          33%
Expected life in years.................................................       1 to 5       1 to 5       1 to 5
Expected dividend yield................................................         3.75%         3.0%         3.0%
Weighted average fair value of options granted ($).....................         1.64         2.05         2.33


     The following  table  illustrates the effect on net income and earnings per
share if the Company had applied the fair value  recognition  provisions of FASB
Statement  No. 123,  Accounting  for  Stock-Based  Compensation,  to share based
employee compensation.


                                                                                 Years ended December 31,
                                                                            ----------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                        ($ million)
                                                                                               
Profit for the year applicable to ordinary shares,
  as reported...........................................................       6,843        6,554       10,118
Deduct: Total stock-based employee compensation
        expense determined under fair value based method
        for all awards, net of related tax effects......................         (90)        (102)         (96)
                                                                              ------       ------       ------
Pro forma net income....................................................       6,753        6,452       10,022
                                                                              ======       ======       ======

                                                                                           (cents)
Earnings per share
  Basic -- as reported..................................................       30.55        29.21        46.77
  Basic -- pro forma....................................................       30.15        28.76        46.32

  Diluted -- as reported................................................       30.41        29.04        46.46
  Diluted -- pro forma..................................................       30.01        28.58        46.01


     The company  sponsors a number of savings plans covering most US employees.
Under these plans,  most  employees  may  contribute  up to 100% of their salary
subject  to  certain  regulatory  limits.  Most  employees  are  eligible  for a
dollar-for-dollar  Company matched contribution for the first 7% of eligible pay
contributed  on a before-tax or after-tax  basis,  or a combination of both. The
precise  arrangement may vary in certain business units.  Company  contributions
are initially  invested in a fund  primarily  comprised of BP ADSs but employees
may transfer those amounts and may invest their own  contributions  in more than
200 investment options. The Company's contributions generally vest over a period
of three years. Company contributions to savings plans during the year were $125
million (2001 $125 million and 2000 $101 million).


                                      F - 57

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 35 -- Employee share plans (continued)

     An Employee Share  Ownership Plan (ESOP) was established in 1997 to acquire
BP shares to satisfy future  requirements of certain  employee share plans.  The
Company provides funding to the ESOP. The assets and liabilities of the ESOP are
recognized as assets and  liabilities  of the Company  within the accounts.  The
ESOP has waived its rights to dividends.

     During 2002, the ESOP released  15,332,235  shares (2001 11,508,754  shares
and 2000  9,412,931  shares) for the matching  share  plans.  The cost of shares
released  for these plans has been  charged in these  accounts.  At December 31,
2002, the ESOP held 18,673,675 shares (At December 31, 2001 34,005,910 shares).

     BP has  established a Qualifying  Employee Share Ownership Trust (QUEST) to
support the UK ShareSave  plan.  During the year,  contributions  of $21 million
(2001 $36  million and 2000 $76  million)  were made by the Company to the QUEST
which,  together  with  option-holder  contributions,  were used by the QUEST to
subscribe for new ordinary  shares at market price.  The Company has transferred
the cost of this contribution directly to retained profits and the excess of the
subscription price over nominal value has increased the paid in surplus.

     At December 31, 2002, all the 9,443,842 ordinary shares issued to the QUEST
had been  transferred  to employees  exercising  options  under the UK ShareSave
plan. Under new legislation, the QUEST can no longer be used for ShareSave plans
after December 31, 2002.



                                                                                  Years ended December 31,
                                                                            ----------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                     (shares thousands)
                                                                                               
Shares issued in respect of options exercised during the year:
  Savings related schemes...........................................          10,412        8,842       13,709
  BP, Amoco and Burmah Castrol executive share option plans.........          23,409       24,619       23,280
                                                                            --------     --------    ---------
                                                                              33,821       33,461       36,989
                                                                            ========     ========    =========




                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                              
Options outstanding at December 31:
  BP options (shares thousands) .................                            410,986      373,858      342,509
  Exercise period................................                          2003-2012    2002-2011    2001-2010
  Price (pounds).................................                          1.50-6.40    1.29-6.40    1.29-6.40
  Price (dollars)................................                          3.47-9.97    2.77-9.97    2.77-9.97




                                      F - 58

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 35 -- Employee share plans (concluded)

     The following table  summarizes  share option  transactions  under employee
share plans.



                                                              Years ended December 31,
                                    --------------------------------------------------------------------------
                                             2002                      2001                     2000
                                    ----------------------    ----------------------    ----------------------
                                                  Weighted                  Weighted                  Weighted
                                                   average                   average                   average
                                   Number of      exercise    Number of     exercise    Number of     exercise
                                      shares         price       shares        price       shares        price
                                  ----------    ----------   ----------   ----------   ----------   ----------
                                                       ($)                       ($)                       ($)

                                                                                     
Outstanding at January 1.....    373,857,979          6.20  343,218,324        5.61   323,161,387         4.95
Burmah Castrol...............             --            --           --          --     3,293,317         5.02
Reinstated...................         24,310          5.08        7,152        7.84         3,729         2.94
Granted......................     78,557,576          8.07   68,706,983        8.13    59,100,161         8.17
Exercised....................    (34,130,302)         4.20  (33,592,964)       3.97   (37,029,467)        3.76
Cancelled....................     (7,323,384)         7.59   (4,481,516)       7.37    (5,310,803)        6.72
                                 -----------                -----------               -----------
Outstanding at December 31...    410,986,179          6.70  373,857,879        6.20   343,218,324         5.61
                                 ===========                ===========               ===========
Exercisable at December 31...    239,241,597                241,268,277               229,987,199
                                 ===========                ===========               ===========
Available for grant at
  December 31................  1,159,841,669              1,185,523,186             1,234,983,212
                               =============              =============             =============


     Options  outstanding at December 31, 2002 will be exercisable  between 2003
and 2012.

     For the share options  outstanding and exercisable at December 31, 2002 the
exercise  price ranges and average  remaining  lives were:



                                                     Options  outstanding              Options exercisable
                                           -------------------------------------       -----------------------
                                                          Weighted      Weighted                      Weighted
                                                           average       average                       average
                                            Number of    remaining      exercise        Number of     exercise
                                               Shares         life         price           shares        price
                                           ----------   ----------    ----------       ----------   ----------
                                                          (years)         ($)                            ($)
                                                                                       
Range of exercise prices
$2.27 - $4.61.........................     86,078,177         2.02          3.98       84,902,527        3.97
$4.69 - $6.17.........................     86,230,486         4.53          5.60       81,239,138        5.57
$6.18 - $7.93.........................     75,990,971         5.44          7.56       34,820,867        7.84
$7.98 - $10.10........................    162,686,545         8.21          8.32       38,279,065        8.28
                                          -----------   ----------    ----------      -----------   ----------
                                          410,986,179         5.63          6.70      239,241,597        5.77
                                          ===========   ==========    ==========      ===========   ==========





                                      F - 59

                           BP p.l.c. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)


Note 36 -- Long term performance plans

     During 2002,  the Company  operated two long-term  performance  plans:  the
Executive  Directors' Incentive Plan (EDIP) for executive directors and the Long
Term  Performance  Plan  (LTPP)  for  senior  executives.   Executive  directors
participated  in the LTPP prior to 2002 or to their  appointment as an executive
director.  Both plans are  incentive  schemes  under which the Company may award
shares to  participants  or fund the  purchase  of shares  for  participants  if
long-term  targets are met. Awards were made in 2002 in respect of the 1999-2001
LTPP.

     The costs of potential future awards for both the EDIP and LTPP are accrued
over the three-year performance periods of each plan. The amount charged in 2002
was $51 million  (2001 $80 million and 2000 $119  million).  The value of awards
under the 1999-2001 LTPP made in 2002 was $125 million  (1998-2000  LTPP made in
2001 $61 million and 1997-1999 LTPP made in 2000 $78 million).

     Employee Share Ownership Plans (ESOPs) have been  established to acquire BP
shares to satisfy  any awards made to  participants  under the EDIP and LTPP and
then to hold them for the participants  during the retention period of the plan.
In order to hedge the cost of potential  future  awards the ESOPs may, from time
to time over the performance period of the plans, purchase BP shares in the open
market. The Company provides funding to the ESOPs. The assets and liabilities of
the ESOPs are  recognized as assets and  liabilities of the Company within these
accounts.  The ESOPs have waived  their  rights to  dividends on shares held for
future awards.

     At December 31, 2002 the ESOPs held 3,901,317 shares (at December 31, 2001,
7,673,056 shares) for potential future awards.

Note 37 -- Employee costs and numbers


                                                                         Years ended December 31,
                                                                    --------------------------------
                                                                       2002         2001         2000
                                                                   --------     --------    ---------
                                                                                ($million)
                                                                                      
Employee costs
Wages and salaries............................................        6,519        6,361        6,071
Social security costs.........................................          490          474          410
Pension and other postretirement benefit costs................          440          427          187
                                                                    -------      -------      -------
                                                                      7,449        7,262        6,668
                                                                    =======      =======      =======




                                                                             At December 31,
                                                                    --------------------------------
                                                                       2002         2001         2000
                                                                   --------     --------    ---------
                                                                                     
Number of employees
Exploration and Production....................................       16,800       16,550       16,000
Gas,Power and Renewables......................................        4,400        4,200        3,400
Refining and Marketing (a)....................................       73,350       64,600       67,100
Chemicals.....................................................       17,900       21,950       17,600
Other businesses and corporate................................        2,800        2,850        3,100
                                                                    -------      -------      -------
                                                                    115,250      110,150      107,200
                                                                    =======      =======      =======

---------------

(a)  Includes 30,250 (2001 28,500 and 2000 27,600) service station staff.




                                      F - 60

                           BP p.l.c. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)


Note 37 -- Employee costs and numbers (concluded)



                                                            Rest of                   Rest of
                                                    UK       Europe          USA        World        Total
                                              --------     --------     --------     --------     --------
                                                                                    
Average number of employees

Year ended December 31, 2002
Exploration and Production.................      3,750          800        5,550        6,800       16,900
Gas, Power and Renewables..................        500          850        1,400        1,550        4,300
Refining and Marketing ....................     10,200       21,700       28,650       11,550       72,100
Chemicals..................................      3,200        5,250        6,650        5,150       20,250
Other businesses and corporate.............      1,250           --        1,400          100        2,750
                                              --------     --------     --------     --------     --------
                                                18,900       28,600       43,650       25,150      116,300
                                              ========     ========     ========     ========     ========
Year ended December 31, 2001
Exploration and Production.................      3,550          750        5,700        6,200       16,200
Gas, Power and Renewables..................        600          600        1,350        1,350        3,900
Refining and Marketing ....................     10,400       16,450       27,300       11,750       65,900
Chemicals..................................      3,600        5,750        7,550        3,300       20,200
Other businesses and corporate.............      1,350           --        1,500          100        2,950
                                              --------     --------     --------     --------     --------
                                                19,500       23,550       43,400       22,700      109,150
                                              ========     ========     ========     ========     ========
Year ended December 31, 2000
Exploration and Production.................      3,250          650        4,700        5,700       14,300
Gas, Power and Renewables..................        550          450        1,350          850        3,200
Refining and Marketing ....................      9,600       13,700       25,800       10,700       59,800
Chemicals..................................      3,700        4,600        8,100        1,400       17,800
Other businesses and corporate.............      1,100           --        1,650          150        2,900
                                              --------     --------     --------     --------     --------
                                                18,200       19,400       41,600       18,800       98,000
                                              ========     ========     ========     ========     ========


Note 38 -- Directors' remuneration


                                                                            Years ended December 31,
                                                                       --------------------------------
                                                                          2002         2001         2000
                                                                      --------     --------    ---------
                                                                                   ($ million)
                                                                                            
Total for all directors
Emoluments........................................................          14           17           14
Ex gratia payment.................................................          --           --            1
Non-executive directors retiring in 2001..........................          --            1           --
Gains made on the exercise of share options.......................          --           --            3
Amounts awarded under incentive schemes...........................          14           17           15
                                                                      ========     ========    =========


Emoluments

     These  amounts  comprise  fees  paid  to  the  non-executive  chairman  and
non-executive  directors,  and,  for  executive  directors,  salary and benefits
earned during the relevant financial year, plus bonuses awarded for the year.




                                      F - 61

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 38 -- Directors' remuneration (concluded)

Pension contributions

     Four executive directors participated in a non-contributory  pension scheme
established  for UK staff by a separate  trust fund to which  contributions  are
made by BP based on actuarial advice. Two US executive directors participated in
the BP Retirement Accumulation Plan during 2002.

Non-executive directors retiring in 2002

     The  board  did not  make  any  payment  to Sir  Robert  Wilson,  the  only
non-executive  director  retiring  in 2002,  in view of his  limited  length  of
service.

Non-executive directors retiring in 2001

     In accordance with Article 76 of the Company's Articles of Association, the
board  exercised  its  discretion,  following  the  retirement  of each of those
non-executive  directors  retiring during 2001, to make an ex-gratia  payment in
lieu of superannuation.  The payments made were as follows:  $86,400 to the Lord
Wright of Richmond,  who retired after serving on the board since 1991;  $21,600
to Richard  Ferris,  who retired  after  serving on the board of first Amoco and
then BP since 1981; and $17,280 to Ruth Block,  who retired after serving on the
board of first Amoco and then BP since 1986.  Richard Ferris and Ruth Block also
had accrued certain  entitlements  (which  crystalized at the time of the merger
with Amoco  Corporation) in the Amoco  Restricted  Stock Plan for  Non-Executive
Directors ('the Plan'). The terms of the Plan provided that shares in respect of
service on the board of Amoco  Corporation were to be held in the Plan until the
non-executive director retired at the normal retirement age (70), or in the case
of earlier  retirement the board had a discretion to make an  appropriate  award
based upon length of service.  Those  directors who left the Plan at the time of
the merger had their  entitlements paid out. The operation of the Plan for those
who remained  fell to the  discretion  of the board of BP. Ruth Block retired at
age 70 and following her  retirement  the board  released her shares held in the
Plan in respect of her service at Amoco Corporation to the value of $283,512 (as
at the date of their  release).  Richard  Ferris retired at age 64 and the board
elected to waive restrictions on all those shares held in the Plan in respect of
his service at Amoco  Corporation  to the value of  $293,716  (as at the date of
their release).

Office facilities for former chairmen and deputy chairmen

     It is customary  for the Company to make  available to former  chairmen and
deputy chairmen, who were previously employed executives,  the use of office and
basic secretarial  facilities  following their retirement.  The cost involved in
doing so is not significant.

Note 39 -- Loans to officers

     Miss J C Hanratty has a low  interest  loan of $43,000 made to her prior to
her appointment as Company Secretary on October 1, 1994.




                                      F - 62

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 40 -- Pensions

     Most Group  companies have pension  plans,  the forms and benefits of which
vary with conditions and practices in the countries concerned.  Pension benefits
may be provided through defined  contribution  plans (money purchase schemes) or
defined benefit plans (final salary schemes).  For defined  contribution  plans,
retirement   benefits  are  determined  by  the  value  of  funds  arising  from
contributions  paid in respect of each  employee.  For  defined  benefit  plans,
retirement benefits are based on the employees' pensionable salary and length of
service.  Defined benefit plans may be externally funded or unfunded. The assets
of funded plans are generally held in separately administered trusts.

     Contributions  to funded  defined  benefit  plans are based on advice  from
independent  actuaries  using  actuarial  methods,  the objective of which is to
provide  adequate  funds to meet  pension  obligations  as they  fall  due.  The
cumulative  difference,  since the adoption of Statement of Standard  Accounting
Practice  No.  24  'Accounting   for  Pension  Costs'   (SSAP24),   between  the
contributions  paid by BP to the pension funds and the pension expense  recorded
each year is reflected in the balance  sheet.  If the  cumulative  contributions
exceed  pension  expense the  difference is shown as a prepayment on the balance
sheet.  If the  cumulative  contributions  are less  than  pension  expense  the
difference  is shown as a provision on the balance  sheet.  For unfunded  plans,
where  assets  are not held  with  the  specific  purpose  of  matching  pension
obligations, the accrued liability for pension benefits is included within other
provisions. The majority of the Group's employees are members of defined benefit
plans.  The principal plans are reviewed  annually by the independent  actuaries
and subject to a formal actuarial valuation at least every three years. The date
of the most recent  actuarial  reviews was December  31,  2002.  The date of the
latest  actuarial  valuation for the UK plans was January 1, 2001 and for the US
plans and the unfunded plans in Europe was January 1, 2002.

     The pension  assumptions for the principal pension plans are set out below.
The assumptions  used to evaluate accrued pension benefits at December 31 in any
year are used to determine  pension expense for the following year, that is, the
assumptions  at December 31, 2002 are used to determine the pension  liabilities
at that date and the pension  cost for 2003.  This  applies  for all  accounting
bases described in this note.



                                                                        At December 31,
                                                            -------------------------------------
                                                              2002      2001      2000       1999
                                                            ------    ------    ------     ------
                                                                             (%)
                                                                                 
UK plans:
  Rate of return on assets...........................         6.25       6.0       6.5        6.5
  Discount rate......................................         6.25       6.0       6.5        6.5
  Future salary increases............................          4.0       4.5       5.0        5.0
  Future pension increases...........................          2.5       2.5       3.0        3.0
  Dividend growth....................................          n/a       n/a       n/a        n/a
Other European plans:
  Rate of return on assets...........................          n/a       n/a       n/a        n/a
  Discount rate......................................         5.75       6.2       6.2        6.2
  Future salary increases............................          4.0       3.2       3.2        3.2
  Future pension increases...........................          2.4       2.0       2.1        2.1
  Dividend growth....................................          n/a       n/a       n/a        n/a
US plans:
  Rate of return on assets...........................          8.0      10.0      10.0       10.0
  Discount rate......................................         6.75      7.25       7.5        7.5
  Future salary increases............................          4.0       4.0       4.0        4.0
  Future pension increases...........................          nil       nil       nil        nil
  Dividend growth....................................          n/a       n/a       n/a        n/a


----------
n/a = not applicable


                                      F - 63

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 40 -- Pensions (continued)

     Pension costs for the principal plans have been derived using the projected
unit credit method and by  amortizing  surpluses and deficits on a straight line
basis  over  the  average  expected  remaining  service  lives  of  the  current
employees. An analysis of pension expense is set out below.



                                                                            Years ended December 31,
                                                                      ----------------------------------
                                                                          2002         2001         2000
                                                                      --------     --------    ---------
                                                                                   ($ million)
                                                                                           
Principal plans:
  Regular cost.....................................................        450          397          364
  Settlement, curtailment and special termination benefits.........         30          211          114
  Other variations from regular cost...............................       (520)        (569)        (611)
                                                                        ------       ------       ------
                                                                           (40)          39         (133)
Other defined benefit plans........................................         51           73           38
Defined contribution plans.........................................        153          155          220
                                                                        ------       ------       ------
                                                                           164          267          125
                                                                        ======       ======       ======



     At December 31, 2002, the market value and actuarial value of assets in the
Group's major externally funded pension plans and the market value and actuarial
value of those assets in relation to the benefits that had accrued to members of
those plans,  after allowing for expected future increases in salaries,  are set
out below.



                                                                          UK                        US
                                                                   -----------------        ------------------
                                                                   2002         2001         2002         2001
                                                                 ------       ------      -------      -------
                                                                                             
Market value of plan assets ($ million)..............            15,138       16,880        4,206        5,625
-- as a percentage of accrued benefits...............               111%         132%          62%          91%
Actuarial value of plan assets ($ million)...........            19,074       17,654        5,818        6,315
-- as a percentage of accrued benefits...............               140%         139%          86%         103%
Prepayment ($ million)...............................             2,688        2,138        1,211        1,279



     At December 31, 2002 the obligation for accrued  benefits in respect of the
major unfunded plans in Europe was $3,191  million  ($1,510  million at December
31, 2001). Of this amount,  $2,645 million ($1,317 million at December 31, 2001)
has been provided in these accounts.




                                      F - 64

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 40 -- Pensions (continued)

     The assumed rate of investment  return and discount rate have a significant
effect on the amounts reported. One percentage point change in these assumptions
for the principal plans would have the following effects:



                                                                                 1-Percentage     1-Percentage
                                                                               point increase   point decrease
                                                                                -------------    -------------
                                                                                        ($ million)
                                                                                                    
Investment return:
  Effect on pension expense in 2002....................................                  (240)             240
Discount rate:
  Effect on pension expense in 2002....................................                  (320)             275
  Effect on pension obligation at December 31, 2002....................                (3,575)           3,625


     The group  continues  to account for pensions in  accordance  with SSAP 24.
However,  there  is  a  new  standard,   Financial  Reporting  Standard  No.  17
'Retirement  Benefits'  (FRS 17),  which  changes  the basis of  accounting  for
pensions and other  postretirement  benefits and requires certain disclosures in
the periods prior to adoption.  The  additional  disclosures  for the year ended
December 31, 2002 are shown in the following tables.





                                      F - 65

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 40 -- Pensions (continued)

     The  expected  long-term  rates of return and market  values of the various
categories of asset held by the  significant  defined benefit plans and the main
assumptions used to evaluate plan liabilities at December 31, on an FRS 17 basis
are set out below.


                                                                      At December 31,
                                                     ----------------------------------------------------
                                                              2002                          2001
                                                     ----------------------        ----------------------
                                                    Expected                      Expected
                                                   long-term                     long-term
                                                     rate of         Market        rate of         Market
                                                      return          value         return          value
                                                     -------        -------        -------        -------

                                                         (%)    ($ million)            (%)    ($ million)
                                                                                      
UK plans:
Equities........................................        7.5          10,815           7.5          12,228
Bonds...........................................        5.0           2,263           5.5           2,449
Property........................................        6.5           1,352           6.5           1,057
Cash............................................        4.0             708           4.5           1,146
                                                                    -------                       -------
                                                                     15,138                        16,880

Present value of plan liabilities...............                     14,822                        12,746
                                                                    -------                       -------
Surplus in the plans............................                        316                         4,134
Deferred tax....................................                        (95)                       (1,240)
                                                                    -------                       -------
                                                                        221                         2,894
                                                                    =======                       =======
Other European plans:
Equities........................................        n/a              --           n/a              --
Bonds...........................................        n/a              --           n/a              --
Property........................................        n/a              --           n/a              --
Cash............................................        n/a              --           n/a              --
                                                                    -------                       -------
                                                                         --                            --

Present value of plan liabilities...............                      3,191                         1,510
                                                                    -------                       -------
Deficit in the plans............................                     (3,191)                       (1,510)
Deferred tax....................................                      1,244                           589
                                                                    -------                       -------
                                                                     (1,947)                         (921)
                                                                    =======                       =======
US plans:
Equities........................................        8.5           3,371          11.0           4,537
Bonds...........................................        5.5             720           7.0             942
Property........................................        8.0              49           8.0              51
Cash............................................        3.5              66           4.0              95
                                                                    -------                       -------
                                                                      4,206                         5,625
Present value of plan liabilities...............                      6,765                         6,146
                                                                    -------                       -------
Deficit in the plans............................                     (2,559)                         (521)
Deferred tax....................................                        896                           182
                                                                    -------                       -------
                                                                     (1,663)                         (339)
                                                                    =======                       =======





                                      F - 66

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 40 -- Pensions (continued)


                                                                                              At December 31,
                                                                                            ------------------
                                                                                             2002         2001
                                                                                           ------       ------
                                                                                                     (%)
Other main assumptions for FRS17 disclosures as at December 31
                                                                                                    
UK plans
  Discount rate for plan liabilities...................................                      5.75          6.0
  Rate of increase in salaries.........................................                       4.0          4.5
  Rate of increase for pensions in payment.............................                       2.5          2.5
  Rate of increase in deferred pensions................................                       2.5          2.5
  Inflation............................................................                       2.5          2.5

Other European plans
  Discount rate for plan liabilities...................................                      5.75          6.2
  Rate of increase in salaries.........................................                       4.0          3.2
  Rate of increase for pensions in payment.............................                       2.4          2.0
  Rate of increase in deferred pensions................................                       2.4          2.0
  Inflation............................................................                       2.5          2.0

US plans
  Discount rate for plan liabilities...................................                      6.75         7.25
  Rate of increase in salaries.........................................                       4.0          4.0
  Rate of increase for pensions in payment.............................                       nil          nil
  Rate of increase in deferred pensions................................                       nil          nil
  Inflation............................................................                       2.5          3.0




                                      F - 67

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 40 -- Pensions (continued)


                                                                               Year ended December 31, 2002
                                                                            ----------------------------------
                                                                                            Other
                                                                                  UK     European           US
                                                                            --------     --------    ---------
                                                                                         ($ million)
                                                                                                
Analysis of the amount charged to operating
  profit on an FRS 17 basis
Current service cost...................................................          278           22          150
Past service cost......................................................           --            4           38
Settlement, curtailment and special termination benefits...............           --          (81)          75
                                                                              ------       ------       ------
Total operating charge.................................................          278          (55)         263
                                                                              ======       ======       ======
Analysis of the amount that would be credited (charged) to
  other finance income on an FRS 17 basis
Expected return on pension plan assets.................................        1,204           --          530
Interest on pension plan liabilities...................................         (773)        (155)        (421)
                                                                              ------       ------       ------
Net return (expense)...................................................          431         (155)         109
                                                                              ======       ======       ======
Analysis of the amount that would be recognized in the
  statement of total recognized gains and losses on an FRS 17 basis
Actual return less expected return on pension plan assets..............       (3,874)          --       (1,305)
Experience gains and losses arising on the plan liabilities............          212          (67)        (290)
Change in assumptions underlying the present value of
  the plan liabilities.................................................         (480)        (242)        (343)
                                                                              ------       ------       ------
Actuarial loss recognized in statement of total
  recognized gains and losses..........................................       (4,142)        (309)      (1,938)
                                                                              ======       ======       ======

Movement in surplus (deficit) during the the year on an FRS 17 basis
Surplus (deficit) in plans at January 1, 2002..........................        4,134       (1,510)        (521)
Movement in year:
  Current service cost.................................................         (278)         (22)        (150)
  Past service cost....................................................           --           (4)         (38)
  Settlement, curtailment and special termination benefits.............           --           81          (75)
  Acquisitions.........................................................           --       (1,037)         (14)
  Other finance income.................................................          431         (155)         109
  Actuarial loss.......................................................       (4,142)        (309)      (1,938)
  Employers' contributions.............................................            3          184           68
  Exchange adjustments.................................................          168         (419)          --
                                                                              ------       ------       ------
Surplus (deficit) in plans at December 31, 2002........................          316       (3,191)      (2,559)
                                                                              ======       ======       ======





                                      F - 68

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 40 -- Pensions (continued)


                                                                                   At December 31, 2002
                                                                             --------------------------------
                                                                                            Other
                                                                                  UK     European          US
                                                                            --------     --------   ---------

                                                                                              
History of experience gains and losses which would
  be recognized on an FRS 17 basis
Difference between the expected and actual return on plan assets:
  Amount ($ million)...................................................       (3,874)         n/a      (1,305)
  Percentage of plan assets............................................          (26)%        n/a         (31)%
Experience gains and losses on plan liabilities:
  Amount ($ million)...................................................          212          (67)       (290)
  Percentage of the present value of the plan liabilities..............            1%          (2)%        (4)%
Total amount recognized in statement of total recognized
  gains and losses:
  Amount ($ million)...................................................       (4,142)        (309)     (1,938)
  Percentage of the present value of the plan liabilities..............          (28)%        (10)%       (29)%
                                                                              ======       ======      ======




                                                                            At December 31,
                                                             -------------------------------------------------
                                                                       2002                     2001
                                                             -----------------------   -----------------------
                                                                          Profit and                Profit and
                                                                        loss account              loss account
                                                             Net assets      reserve   Net assets      reserve
                                                             ----------   ----------   ----------   ----------
                                                                                  ($ million)
                                                                                           
Group net assets and reserve reconciliation
As reported..........................................            70,047       32,344       65,759       28,312
SSAP 24 pension prepayment (net of deferred tax).....            (2,669)      (2,669)      (2,328)      (2,328)
SSAP 24 pension provision (net of deferred tax)......             2,883        2,883        1,524        1,524
FRS 17 pension asset (net of deferred tax)...........               221          221        2,894        2,894
FRS 17 pension liability (net of deferred tax).......            (3,610)      (3,610)      (1,260)      (1,260)
                                                                 ------       ------       ------       ------
Including FRS 17 pension assets and liabilities
  (net of deferred tax)..............................            66,872       29,169       66,589       29,142
                                                                 ======       ======       ======       ======






                                      F - 69

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 40 -- Pensions (continued)

     Further  information in respect of the Group's  principal  defined  benefit
pension plans required under FASB  Statement of Financial  Accounting  Standards
No. 132 --  `Employers'  Disclosures  about  Pensions  and Other  Postretirement
Benefits' is set out below.



                                                                      At December 31,
                                                          ---------------------------------------
                                                            2002       2001       2000       1999
                                                          ------     ------     ------     ------
                                                                               (%)
                                                                                   
Main assumptions for the principal plans
UK plans:
  Discount rate........................................     5.75        6.0        6.5        6.5
  Expected return on plan assets.......................      7.0        6.0        6.5        6.5
  Rate of increase in salaries.........................      4.0        4.5        5.0        5.0
Other European plans:
  Discount rate........................................     5.75        6.2        6.2        6.2
  Expected return on plan assets.......................      n/a        n/a        n/a        n/a
  Rate of increase in salaries.........................      4.0        3.2        3.2        3.2
US plans:
  Discount rate........................................     6.75       7.25        7.5        7.5
  Expected return on plan assets.......................      8.0       10.0       10.0       10.0
  Rate of increase in salaries.........................      4.0        4.0        4.0        4.0


----------
n/a = not applicable



                                                                            Years ended December 31,
                                                                       --------------------------------
Pension expense                                                           2002         2001         2000
                                                                      --------     --------    ---------
                                                                                   ($ million)
                                                                                         
Principal plans:
  Service cost -- benefits earned during year....................          450          397          364
  Interest cost on projected benefit obligation..................        1,349        1,309        1,211
  Expected return on plan assets.................................       (1,676)      (1,717)      (1,625)
  Amortization of transition asset...............................          (64)         (66)         (72)
  Recognized net actuarial gain..................................         (206)        (169)        (203)
  Recognized prior service cost..................................           77           74           78
  Curtailment and settlement (gains) losses......................          (46)          36         (119)
  Special termination benefits...................................           76          175          233
                                                                        ------       ------       ------
                                                                           (40)          39         (133)
Other defined benefit plans......................................           51           73           38
Defined contribution plans.......................................          153          155          220
                                                                        ------       ------       ------
Total pension expense............................................          164          267          125
                                                                        ======       ======       ======





                                      F - 70

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 40 -- Pensions (concluded)


                                                       UK              Other European                US
                                                -----------------     -----------------      -----------------
                                                 2002        2001       2002       2001        2002       2001
                                               ------      ------     ------     ------      ------     ------
                                                                          ($ million)

                                                                                      
Benefit obligation at January 1...........     12,746      13,213      1,510      1,438       6,146      5,546
Service cost..............................        278         255         22         12         150        130
Interest cost.............................        773         811        155         89         421        409
Plan amendments...........................         --          --          4         --          38         16
Curtailments, settlements and
  special termination benefits............         --          --        (81)        --          75        199
Actuarial (gain) loss.....................        269        (646)       309        (42)        672        536
Acquisitions..............................         --          --      1,037        189          14        101
Plan participants' contributions..........         29          26         --         --          --         --
Benefit payments..........................       (687)       (546)      (184)      (101)       (751)      (791)
Exchange adjustment.......................      1,414        (367)       419        (75)         --         --
                                               ------      ------     ------     ------      ------     ------
Benefit obligation at December 31.........     14,822      12,746      3,191      1,510       6,765      6,146
                                               ------      ------     ------     ------      ------     ------

Fair value of plan assets at January 1....     16,880      19,617         --         --       5,625      6,970
Actual return on plan assets..............     (2,671)     (1,689)        --         --        (736)      (682)
Acquisitions..............................         --          --         --         --          --         91
Plan participants' contributions..........         29          26         --         --          --         --
Employers' contributions..................          3          27         --         --          68         46
Settlement payments.......................         --          --         --         --          --         (9)
Benefit payments..........................       (687)       (546)        --         --        (751)      (791)
Exchange adjustment.......................      1,584        (555)        --         --          --         --
                                               ------      ------     ------     ------      ------     ------
Fair value of plan assets
  at December 31..........................     15,138      16,880         --         --       4,206      5,625
                                               ------      ------     ------     ------      ------     ------

Funded status.............................        316       4,134     (3,191)    (1,510)     (2,559)      (521)
Unrecognized transition (asset)
  obligation..............................        (85)       (154)        44         51          (1)        (1)
Unrecognized net actuarial (gain) loss....      1,766      (2,537)       499        141       3,699      1,777
Unrecognized prior service cost...........        691         695          3          1          72         24
                                               ------      ------     ------     ------      ------     ------
Net amount recognized.....................      2,688       2,138     (2,645)    (1,317)      1,211      1,279
                                               ======      ======     ======     ======      ======     ======

Prepaid benefit cost
  (accrued benefit liability)...............    2,688       2,138     (3,042)    (1,454)     (2,062)      (147)
Intangible asset..........................         --          --         13         26         124         86
Accumulated other
  comprehensive income....................         --          --        384        111       3,149      1,340
                                               ------      ------     ------     ------      ------     ------
                                                2,688       2,138     (2,645)    (1,317)      1,211      1,279
                                               ======      ======     ======     ======      ======     ======






                                      F - 71

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 41 -- Other postretirement benefits

     Certain Group  companies in the USA provide  postretirement  healthcare and
life  insurance  benefits  to  their  retired  employees  and  dependants.   The
entitlement  to these  benefits is usually  based on the  employee  remaining in
service until retirement age and completion of a minimum period of service.  The
plans  are  funded  to a  limited  extent  and the  accrued  net  liability  for
postretirement  benefits  is  included  within  other  provisions.  The  cost of
providing  postretirement benefits is assessed annually by independent actuaries
using  the  projected  unit  credit  method.  The date of the  latest  actuarial
valuation was January 1, 2002.

     The assumptions used in calculating the charge for postretirement  benefits
are consistent with those shown in Note 40 for US pension plans.

     The charge to income for postretirement benefits is as follows:


                                                                      Years ended December 31,
                                                                ----------------------------------
                                                                    2002         2001         2000
                                                                --------     --------    ---------
                                                                             ($ million)
                                                                                       
Service cost-- benefits earned during year....................        37           31           25
Interest cost on projected benefit obligation.................       219          187          148
Expected return on plan assets................................        (4)          (5)          (5)
Recognized net actuarial (gain) loss..........................        25           (6)         (46)
Amortization of prior service cost recognized.................        (4)         (15)         (20)
Curtailment (gain) loss.......................................         3          (32)         (40)
                                                                  ------       ------       ------
Postretirement benefit expense................................       276          160           62
                                                                  ======       ======       ======


     At  December  31,  2002  the  independent  actuaries  have  reassessed  the
obligation  for  postretirement  benefits at $4,326 million  ($3,080  million at
December 31, 2001).  The discount rate used to assess the obligation at December
31,  2002  was  6.75%  (7.25%  at  December  31,   2001).   The   provision  for
postretirement  benefits at December 31, 2002 was $2,762 million ($2,664 million
at December 31, 2001).

Assumed future healthcare cost trend rate


                                                                   Years ended December 31,
                                             -----------------------------------------------------------------
                                                                                                          2009
                                                                                                           and
                                                                                                    subsequent
                                                2003      2004      2005     2006      2007      2008    years
                                             -------   -------   -------  -------   -------   -------  -------

                                                                                     
Beneficiaries aged under 65.................      12%       11%        9%       8%        7%        6%       5%
Beneficiaries aged over 65..................      15%       14%       12%      10%        8%        7%       6%


     The  assumed  healthcare  cost trend rate has a  significant  effect on the
amounts reported. A  one-percentage-point  change in the assumed healthcare cost
trend rate would have the following effects:



                                                                            1-Percentage     1-Percentage
                                                                          point increase   point decrease
                                                                           -------------    -------------
                                                                                    ($ million)

                                                                                              
Effect on total of service and interest cost in 2002.......................           52              (41)
Effect on postretirement obligation at December 31, 2002...................          587             (476)





                                      F - 72

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 41 -- Other postretirement benefits (continued)

     As indicated in Note 40 -- Pensions,  certain  additional  disclosures  are
required by FRS 17 for the periods prior to adoption. The additional disclosures
for the year ended December 31, 2002 are set out below:



                                                                                       At December 31,
                                                                      -----------------------------------------------
                                                                                2002                     2001
                                                                      ---------------------    ----------------------
                                                                       Expected                 Expected
                                                                      long-term                long-term
                                                                        rate of       Market     rate of       Market
                                                                         return        value      return        value
                                                                      ---------      -------   ---------      -------
                                                                             (%)  ($ million)         (%)  ($ million)
                                                                                                   
Equities........................................................            8.5           24        11.0           30
Bonds...........................................................            5.5            9         7.0           11
                                                                                     -------                  -------
                                                                                          33                       41
Present value of plan liabilities...............................                       4,326                    3,080
                                                                                     -------                  -------
Other postretirement benefit liability before deferred tax.....                       (4,293)                  (3,039)
Deferred tax....................................................                       1,503                    1,124
                                                                                     -------                  -------
                                                                                      (2,790)                  (1,915)
                                                                                     =======                  =======






                                      F - 73

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 41 -- Other postretirement benefits (continued)


                                                                                          Year ended
                                                                                        December 31,
                                                                                                2002
                                                                                        ------------
                                                                                          ($ million)
                                                                                             
Analysis of the amount that would be charged to operating profit on an FRS 17 basis
Current service cost....................................................................          37
Settlement, curtailment and special termination benefits................................         (78)
                                                                                               -----
Total operating charge..................................................................         (41)
                                                                                               =====
Analysis of the amount that would be charged to other finance costs
  on an FRS 17 basis
Expected return on plan assets..........................................................           4
Interest on plan liabilities............................................................        (219)
                                                                                               -----
Net return (expense)....................................................................        (215)
                                                                                               =====
Analysis of the amount that would be recognized in the statement
  of total recognized gains and losses on an FRS 17 basis
Actual return less expected return on plan assets.......................................          (8)
Experience gains and losses arising on the plan liabilities.............................         (89)
Change in assumptions underlying the present value of the plan liabilities..............      (1,165)
                                                                                               -----
Actuarial loss recognized in statement of total recognized gains and losses.............      (1,262)
                                                                                               =====
Movement in deficit during the year on an FRS 17 basis
Deficit in plans at January 1, 2002.....................................................      (3,039)
Movement in year:
  Current service cost..................................................................         (37)
  Settlement, curtailment and special termination benefits..............................          78
  Acquisitions..........................................................................         (36)
  Other finance income..................................................................        (215)
  Employers' contributions..............................................................         218
  Actuarial loss........................................................................      (1,262)
                                                                                               -----
Deficit in plans at December 31, 2002...................................................      (4,293)
                                                                                               =====

                                                                                          Year ended
                                                                                        December 31,
                                                                                                2002
                                                                                        ------------
History of experience gains and losses which would be recognized
  on an FRS 17 basis
Difference between the expected and actual return on plan assets:
  Amount ($ million)....................................................................          (8)
  Percentage of plan assets.............................................................         (24)%
Experience gains and losses on plan liabilities:
  Amount ($ million)....................................................................         (95)
  Percentage of the present value of the plan liabilities...............................          (2)%
Total amount recognized in statement of total recognized gains and losses:
  Amount ($ million)....................................................................      (1,262)
  Percentage of the present value of the plan liabilities...............................         (29)%
                                                                                               =====




                                      F - 74

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 41 -- Other postretirement benefits (concluded)



                                                                               At December 31,
                                                             -------------------------------------------------
                                                                       2002                      2001
                                                             -----------------------   -----------------------
                                                                          Profit and                Profit and
                                                                        loss account              loss account
                                                             Net assets      reserve   Net assets      reserve
                                                             ---------- ------------   ---------- ------------
                                                                                ($million)
                                                                                            
Group net assets and reserve reconciliation
As reported.............................................         70,047       32,344       65,759       28,312
SSAP 24 other postretirement benefit provision
  (net of deferred tax).................................          1,795        1,795        1,732        1,732
FRS 17 other postretirement benefit provision
  (net of deferred tax).................................         (2,790)      (2,790)      (1,914)      (1,914)
                                                                 ------       ------       ------       ------
Including FRS 17 other postretirement benefits liability
  (net of deferred tax).................................         69,052       31,349       65,577       28,130
                                                                 ======       ======       ======       ======


     Further  information  presented in compliance with the requirements of FASB
Statement of Financial Accounting  Standards No. 132 -- 'Employers'  Disclosures
about Pensions and Other Postretirement Benefits' is set out below.



                                                                               2002         2001
                                                                            -------      -------
                                                                                 ($ million)

                                                                                     
Benefit obligation at January 1......................................         3,080        2,562
Service cost.........................................................            37           31
Interest cost........................................................           219          187
Plan amendments......................................................            --           78
Settlement, curtailment and special termination benefits.............           (78)         (30)
Actuarial loss.......................................................         1,255          476
Acquisitions.........................................................            36           --
Benefit payments.....................................................          (223)        (224)
                                                                             ------       ------
Benefit obligation at December 31....................................         4,326        3,080
                                                                             ------       ------

Fair value of plan assets at January 1...............................            41           49
Actual return on plan assets.........................................            (4)          (3)
Benefit payments.....................................................            (4)          (5)
                                                                             ------       ------
Fair value of plan assets at December 31.............................            33           41
                                                                             ------       ------

Funded status........................................................        (4,293)      (3,039)
Unrecognized net actuarial (gain) loss...............................         1,580          349
Unrecognized prior service cost......................................           (49)          26
                                                                             ------       ------
Provision for postretirement benefits................................        (2,762)      (2,664)
                                                                             ======       ======







                                      F - 75

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 42 -- Joint ventures and associated undertakings

     The significant joint ventures and associated  undertakings of the BP Group
at December 31, 2002 are shown in Note 47.  Transactions  between these entities
and the Group are summarized below.

Sales to joint ventures and associated undertakings



                                                          2002                      2001               2000
                                                ---------------------     ---------------------      -------
                                                               Amount                    Amount
                                                        receivable at             receivable at
                           Product                 Sales  December 31        Sales  December 31        Sales
                           -------               ------- ------------      ------- ------------      -------
                                                      ($ million)                ($ million)       ($ million)
                                                                                   
Joint ventures

BP Solvay Polyethylene
  Europe                   Chemicals feedstocks      308           55           24           24           --
Pan American Energy        Crude oil                 124           10          121            5          101
BP/Mobil                   Crude oil and products     --           --           --           --        2,933
Watson Cogeneration        Natural gas               118            5          177            3           87

Associated undertakings

BP Solvay Polyethylene
  North America            Chemicals feedstocks      143           14           20           20           --
China American
  Petrochemical Co.        Chemicals feedstocks      117           22           92            2           --
Erdoelchemie               Chemicals feedstocks       --           --          250           --          718
Ruhrgas                    Natural gas                98           --          124           11           78



Purchases from joint ventures and associated undertakings



                                                          2002                      2001               2000
                                                ---------------------     ---------------------      -------
                                                               Amount                    Amount
                                                           payable at                payable at
                           Product             Purchases  December 31    Purchases  December 31    Purchases
                           -------              -------- ------------     -------- ------------     --------
                                                      ($ million)                ($ million)      ($ million)
                                                                                    
Joint ventures

Pan American Energy        Crude oil                 200           12          178           14          139
BP/Mobil                   Crude oil and products     --           --           --           --        1,762
Watson Cogeneration        Electricity and steam      94           10          187            7          129

Associated undertakings

Abu Dhabi Marine Areas     Crude oil                 504           55          555           37          671
Abu Dhabi Petroleum Co.    Crude oil                 759           77          820           47          948
BP Solvay Polyethylene
  North America            Chemicals feedstocks        7            1           --           --           --
China American             Petrochemicals             77           15           16           --           --
  Petrochemical Co.
Erdoelchemie               Petrochemicals             --           --           50           --          114
Ruhrgas                    Natural gas                 5           --           18           --           --







                                      F - 76

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 42 -- Joint ventures and associated undertakings (concluded)

     On July 31, 2002 BP sold its 25.5% of  Ruhrgas,  previously  an  associated
undertaking.  The sales and purchases shown above occurred in the period to July
31, 2002.

     On November 1, 2001,  the BP Solvay  Polyethylene  Europe joint venture was
formed. The sales figures for 2001 are from November 1, 2001.

     On May 2, 2001 BP purchased the outstanding 50% of Erdoelchemie, previously
an associated undertaking.  From that date it was fully consolidated.  The sales
and purchases shown above occurred in the period to May 1, 2001.

     The  pan-European  refining and marketing joint venture with ExxonMobil was
dissolved on August 1, 2000. Within the BP/Mobil joint venture,  BP operated and
had a 70% interest in the fuels  refining and marketing  operation and had a 49%
interest in the lubricants  business.  On  dissolution,  BP acquired most of the
ExxonMobil assets used by the fuels refining and marketing operation.  The sales
and purchases shown above occurred in the period to August 1, 2000.

Note 43 -- Contingent liabilities

     There  were  contingent  liabilities  at  December  31,  2002 in respect of
guarantees and  indemnities  entered into as part of the ordinary  course of the
group's  business.  No material  losses are likely to arise from such contingent
liabilities.

     Approximately 200 lawsuits were filed in State and Federal Courts in Alaska
seeking  compensatory  and punitive  damages arising out of the Exxon Valdez oil
spill in Prince  William  Sound in March  1989.  Most of those suits named Exxon
(now ExxonMobil), Alyeska Pipeline Service Company (Alyeska), which operates the
oil terminal at Valdez,  and the other oil companies which own Alyeska.  Alyeska
initially  responded to the spill until the response was taken over by Exxon. BP
owns a 47% interest  (reduced  during 2001 from 50% by a sale of 3% to Phillips)
in Alyeska through a subsidiary of BP America Inc. and briefly  indirectly owned
a further 20%  interest in Alyeska  following  BP's  combination  with  Atlantic
Richfield  Company  (ARCO).  Alyeska and its owners have  settled all the claims
against them under these lawsuits.  Exxon has indicated that it may file a claim
for contribution against Alyeska for a portion of the costs and damages which it
has incurred.  If any claims are asserted by Exxon which affect  Alyeska and its
owners, BP will defend the claims vigorously.

     Since 1987,  Atlantic Richfield Company (ARCO), a current subsidiary of BP,
has  been  named as a  co-defendant  in  numerous  lawsuits  brought  in the USA
alleging  injury to persons and property  caused by lead  pigment in paint.  The
majority of the lawsuits have been abandoned or dismissed as against ARCO.  ARCO
(and in one case two of its  affiliates)  is named in these  lawsuits as alleged
successor to International  Smelting & Refining which,  along with a predecessor
company,  manufactured  lead  pigment  during the period  1920-1946.  Plaintiffs
include individuals and governmental  entities.  Several of the lawsuits purport
to be class actions. The lawsuits (depending on plaintiff) seek various remedies
including:  compensation to lead-poisoned children; cost to find and remove lead
paint from  buildings;  medical  monitoring  and  screening  programmes;  public
warning and education on lead hazards;  reimbursement  of government  healthcare
costs and special education for lead-poisoned citizens; and punitive damages. No
case has been settled or tried to conclusion. While the amounts claimed could be
substantial  and it is not  possible  to  predict  the  outcome  of these  legal
actions,  ARCO believes that it has valid defences and it intends to defend such
actions vigorously.  Consequently, BP believes that the impact of these lawsuits
on the Group's results of operations,  financial  position or liquidity will not
be material.



                                      F - 77

                           BP p.l.c. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)


Note 43 -- Contingent liabilities (concluded)

     The Group is subject to numerous national and local  environmental laws and
regulations concerning its products, operations and other activities. These laws
and  regulations  may require the Group to take future  action to remediate  the
effects  on the  environment  of prior  disposal  or  release  of  chemicals  or
petroleum substances by the Group or other parties. Such contingencies may exist
for various sites including  refineries,  chemical plants,  oil fields,  service
stations,  terminals and waste disposal sites.  In addition,  the Group may have
obligations  relating to prior asset sales or closed  facilities.  The  ultimate
requirement for  remediation and its cost are inherently  difficult to estimate.
However, the estimated cost of known environmental obligations has been provided
in these accounts in accordance with the Group's accounting policies.  While the
amounts  of future  costs  could be  significant  and could be  material  to the
Group's  results of  operations in the period in which they are  recognized,  BP
does not expect these costs to have a material  effect on the Group's  financial
position or liquidity.

     The Group generally restricts its purchase of insurance to situations where
this is required  for legal or  contractual  reasons.  This is because  external
insurance is not considered an economic means of financing losses for the Group.
Losses will  therefore be borne as they arise rather than being spread over time
through  insurance  premia with  attendant  transaction  costs.  The position is
reviewed periodically.

     The parent company has issued guarantees under which amounts outstanding at
December 31, 2002 were $19,952  million (at December 31, 2001 $19,900  million),
including  $19,896 million (at December 31, 2001 $19,843  million) in respect of
borrowings by its subsidiary  undertakings and $56 million (at December 31, 2001
$57  million) in respect of  liabilities  of other third  parties.  In addition,
other group companies have issued guarantees under which amounts  outstanding at
December  31, 2002 were $338  million  (at  December  31, 2001 $327  million) in
respect of borrowings of joint  ventures and  associated  undertakings  and $237
million (at December 31, 2001 $218 million) in respect of  liabilities  of other
third parties.

Note 44 -- Capital commitments

     Authorized  future  capital   expenditure  by  group  companies  for  which
contracts  had been placed at December 31, 2002  amounted to $5,966  million (at
December 31, 2001 $4,712 million).






                                      F - 78

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 45 -- New accounting standard for deferred tax

     With  effect  from  January  1,  2002 BP has  adopted  Financial  Reporting
Standard No.19  'Deferred Tax' (FRS 19). This standard  generally  requires that
deferred  tax should be  provided  on a full  liability  basis  rather than on a
restricted  liability  basis as required  by  Statement  of Standard  Accounting
Practice  No.15  'Accounting  for Deferred Tax'. The adoption of FRS 19 has been
treated as a change in accounting policy.

     Under  FRS  19  deferred  tax  is  recognized  in  respect  of  all  timing
differences  that have  originated  but not  reversed at the balance  sheet date
where  transactions  or events have occurred at that date that will result in an
obligation  to pay  more,  or a  right  to pay  less,  tax  in  the  future.  In
particular:

     --   Provision is made for tax on gains  arising from the disposal of fixed
          assets that have been rolled over into replacement assets, only to the
          extent that, at the balance sheet date,  there is a binding  agreement
          to dispose of the replacement assets concerned.  However, no provision
          is made where,  on the basis of all available  evidence at the balance
          sheet date,  it is more likely than not that the taxable  gain will be
          rolled over into replacement  assets and charged to tax only where the
          replacement assets are sold.

     --   Provision is made for deferred tax that would arise on  remittance  of
          the retained  earnings of overseas  subsidiaries,  joint  ventures and
          associated  undertakings only to the extent that, at the balance sheet
          date, dividends have been accrued as receivable.

     Deferred tax assets are recognized only to the extent that it is considered
more likely than not that there will be suitable  taxable profits from which the
underlying timing differences can be deducted.

     Deferred tax is measured on an undiscounted basis at the tax rates that are
expected to apply in the periods in which timing differences  reverse,  based on
tax rates and laws enacted or substantively enacted at the balance sheet date.

     As a consequence of adopting FRS 19, acquisitions  have been restated as if
the new  standard  applied at that time.  This leads to the  creation  of higher
deferred tax liabilities and greater amounts of goodwill on those acquisitions.

     The change in  accounting  policy has resulted in a prior year  adjustment.
Shareholders'  funds at January 1, 2001 have been reduced by $7,832  million and
the tax charge for the year ended December 31, 2001 increased by $1,358 million.
The provision for deferred tax has been increased by $10,047 million at December
31, 2001.  Profit for the current year has been  reduced by  approximately  $750
million as a result of the change in accounting policy.

     Comparative  information for 2001 and 2000 has been restated to reflect the
changes described above.





                                      F - 79

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 45 -- New accounting standard for deferred tax (continued)



Years ended December 31,                                            As restated               As reported
                                                             -----------------------    ----------------------
                                                                   2001         2000         2001         2000
                                                             ----------   ----------   ----------  -----------
                                                                                ($ million)
                                                                                           
Turnover..................................................      175,389      161,826      175,389      161,826
Less: Joint ventures......................................        1,171       13,764        1,171       13,764
                                                                 ------       ------       ------       ------
Group turnover............................................      174,218      148,062      174,218      148,062
Replacement cost of sales.................................      147,001      120,797      146,893      120,720
Production taxes..........................................        1,689        2,061        1,689        2,061
                                                                 ------       ------       ------       ------
Gross profit..............................................       25,528       25,204       25,636       25,281
Distribution and administration expenses..................       10,918        9,331       10,918        9,331
Exploration expense.......................................          480          599          480          599
                                                                 ------       ------       ------       ------
                                                                 14,130       15,274       14,238       15,351
Other income..............................................          694          805          694          805
                                                                 ------       ------       ------       ------
Group replacement cost operating profit...................       14,824       16,079       14,932       16,156
Share of profits of joint ventures........................          443          808          443          808
Share of profits of associated undertakings...............          760          792          760          792
                                                                 ------       ------       ------       ------
Total replacement cost operating profit (a)...............       16,027       17,679       16,135       17,756
Profit (loss) on sale of businesses or termination
  of operations...........................................          (68)         132          (68)         132
Profit (loss) on sale of fixed assets.....................          603           88          603           88
                                                                 ------       ------       ------       ------
Replacement cost profit before interest and tax...........       16,562       17,899       16,670       17,976
Inventory holding gains (losses)..........................       (1,900)         728       (1,900)         728
                                                                 ------       ------       ------       ------
Historical cost profit before interest and tax............       14,662       18,627       14,770       18,704
Interest expense..........................................        1,670        1,770        1,670        1,770
                                                                 ------       ------       ------       ------
Profit before taxation....................................       12,992       16,857       13,100       16,934
Taxation..................................................        6,375        6,648        5,017        4,972
                                                                 ------       ------       ------       ------
Profit after taxation.....................................        6,617       10,209        8,083       11,962
Minority shareholders' interest -- equity.................           61           89           73           92
                                                                 ------       ------       ------       ------
Profit for the year*......................................        6,556       10,120        8,010       11,870
Dividend requirements on preference shares*...............            2            2            2            2
                                                                 ------       ------       ------       ------
Profit for the year applicable to ordinary shares*........        6,554       10,118        8,008       11,868
                                                                 ======       ======       ======       ======
Profit per ordinary share -- cents
Basic.....................................................        29.21        46.76        35.70        54.85
Diluted...................................................        29.04        46.46        35.48        54.48
                                                                 ======       ======       ======       ======
Dividends per ordinary share-- cents......................         22.0         20.5         22.0         20.5
                                                                 ======       ======       ======       ======
Average number outstanding of 25 cents ordinary
  shares (in thousands)...................................   22,435,737   21,638,280   22,435,737   21,638,280
                                                             ==========   ==========   ==========   ==========



---------------

* A summary of the  adjustments  to profit for the year of the Group which would
be required if generally accepted accounting principles in the United States had
been applied instead of those generally  accepted in the United Kingdom is given
in Note 50.




                                      F - 80

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 45 -- New accounting standard for deferred tax (concluded)



                                                               As restated               As reported
                                                        ----------------------    ----------------------
                                                             2001         2000         2001         2000
                                                        ---------    ---------    ---------   ----------
                                                                          ($ million)
                                                                                    
(a)  Total replacement cost operating profit
     Exploration and Production.......................     12,361       13,972       12,417       14,012
     Gas, Power and Renewables (b)....................        488          532          521          571
     Refining and Marketing...........................      3,573        3,486        3,625        3,523
     Chemicals........................................        128          760          128          760
     Other businesses and corporate (b)...............       (523)      (1,071)        (556)      (1,110)
                                                           ------       ------       ------       ------
                                                           16,027       17,679       16,135       17,756
                                                           ======       ======       ======       ======


(b)  Restatement  is  related  to the  transfer  of the  solar,  renewables  and
     alternative  fuels  activities from Other  businesses and corporate to Gas,
     Power and Renewables - see Note 46.



Balance sheet at December 31, 2001                                            Restated     Reported
                                                                              --------     --------
                                                                                   ($ million)
                                                                                      
Fixed assets
  Intangible assets...........................................                  16,489       15,593
  Tangible assets.............................................                  77,410       77,410
  Investments.................................................                  11,963       12,047
                                                                                ------       ------
                                                                               105,862      105,050
                                                                                ------       ------
Current assets.....................................................             36,108       36,108
Creditors - amounts falling due within one year....................             37,614       37,614
                                                                                ------       ------
Net current liabilities............................................             (1,506)      (1,506)
                                                                                ------       ------
Total assets less current liabilities..............................            104,356      103,544
Creditors - amounts falling due after more than one year...........             15,413       15,413
Provisions for liabilities and charges
Deferred taxation.............................................                  11,702        1,655
Other provisions..............................................                  11,482       11,482
                                                                                ------       ------
Net assets.........................................................             65,759       74,994
Minority shareholders' interest....................................                598          627
                                                                                ------       ------
BP shareholders' interest...........................................            65,161       74,367
                                                                                ======       ======

Statement of total recognized gains and losses
                                                                              Restated     Reported
                                                                              --------     --------
                                                                                   ($ million)
For the year ended December 31, 2001
Profit for the year................................................              6,556        8,010
Currency translation differences (net of tax)......................               (828)        (908)
                                                                                ------       ------
Total recognized gains and losses..................................              5,728        7,102
                                                                                ======       ======

For the year ended December 31, 2000
Profit for the year................................................             10,120       11,870
Currency translation differences (net of tax)......................             (2,340)      (2,508)
                                                                                ------       ------
Total recognized gains and losses..................................              7,780        9,362
                                                                                ======       ======




                                      F - 81

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 46 -- Transfer of solar, renewables and alternative fuels activities

     With effect from January 1, 2002,  the solar,  renewables  and  alternative
fuels activities were transferred from Other Businesses and Corporate to Gas and
Power.  To reflect this transfer,  Gas and Power has been renamed Gas, Power and
Renewables  from the same date.  Comparative  information  for 2001 and 2000 has
been restated to reflect this change.


                                                                 As restated                 As reported
                                                         -------------------------   -------------------------
                                                         Gas, Power          Other   Gas, Power          Other
                                                                and     businesses          and     businesses
                                                         Renewables  and corporate   Renewables  and corporate
                                                         ----------  -------------   ----------  -------------
                                                                            ($ million)
                                                                                            
December 31, 2001
Turnover..............................................       39,442            549       39,208            783
                                                           --------       --------     --------       --------
Group replacement cost operating profit...............          304           (598)         337           (631)
Joint ventures........................................           --             --           --             --
Associated undertakings...............................          184             75          184             75
                                                           --------       --------     --------       --------
Total replacement cost operating profit...............          488           (523)         521           (556)
Exceptional items.....................................           --            166           (1)           167
                                                           --------       --------     --------       --------
Replacement cost profit before interest and tax.......          488           (357)         520           (389)
                                                           --------       --------     --------       --------

Inventory holding gains (losses)......................          (81)            --          (81)            --
                                                           --------       --------     --------       --------
Capital expenditure and acquisitions..................          492            430          359            563
                                                           --------       --------     --------       --------
Operating capital employed............................        3,125          1,489(a)     2,764          1,850
                                                           --------       --------     --------       --------
Tangible assets.......................................        1,644          1,351        1,419          1,576
                                                           --------       --------     --------       --------
Number of employees -- year end.......................        4,200          2,850        1,950          5,100
                                                           --------       --------     --------       --------
Number of employees -- average........................        3,900          2,950        1,800          5,050
                                                           ========       ========     ========       ========


December 31, 2000
Turnover..............................................       21,203             59       21,013            249
                                                           --------       --------     --------       --------
Group replacement cost operating profit...............          370         (1,113)         409         (1,152)
Joint ventures........................................           --             --           --             --
Associated undertakings...............................          162             42          162             42
                                                           --------       --------     --------       --------
Total replacement cost operating profit...............          532         (1,071)         571         (1,110)
Exceptional items.....................................            2            213            1            214
                                                           --------       --------     --------       --------
Replacement cost profit before interest and tax.......          534           (858)         572           (896)
                                                           --------       --------     --------       --------

Inventory holding gains (losses)......................           11             --           11             --
                                                           --------       --------     --------       --------
Number of employees -- year end... ...................        3,400          3,100        1,600          4,900
                                                           --------       --------     --------       --------
Number of employees -- average........................        3,200          2,900        1,500          4,600
                                                           ========       ========     ========       ========


---------------

(a)  Before FRS 19 Deferred Tax restatement of $84 million.



                                      F - 82

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 47 -- Summarized  financial  information  on joint  ventures and associated
undertakings

     A summarized statement of income and assets and liabilities based on latest
information  available,  with  respect to the  Group's  equity  accounted  joint
ventures and associated undertakings, is set out below:



                                                                       Years ended December 31,
                                                                  --------------------------------
                                                                     2002         2001         2000
                                                                 --------     --------    ---------
                                                                              ($ million)

                                                                                    
Sales and other operating revenue...........................       22,457       27,503       45,335
Gross profit................................................        4,180        5,164        8,968
Profit for the year.........................................        2,049        3,105        4,219
                                                                 ========     ========    =========




                                                                                     December 31,
                                                                                 ------------------
                                                                                  2002         2001
                                                                                ------       ------
                                                                                     ($ million)

                                                                                       
Fixed and other assets......................................                    17,350       25,175
Current assets..............................................                     6,895       14,402
                                                                                ------       ------
                                                                                24,245       39,577
Current liabilities.........................................                    (6,344)     (10,022)
Noncurrent liabilities......................................                    (6,894)      (9,365)
                                                                                ------       ------
Net assets..................................................                    11,007       20,190
                                                                                ======       ======




                                      F - 83

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 47 -- Summarized financial information on associated undertakings and joint
ventures (concluded)

     The more important joint ventures and associated  undertakings of the Group
at December 31, 2002 and the percentage of ordinary share capital owned or joint
venture interest (to nearest whole number) are:



                                                        Country of
                                                %       incorporation      Principal activities
                                                --      ----------         ----------------
                                                                 
Associated undertakings

Abu Dhabi
Abu Dhabi Marine Areas......................    37      England            Crude oil production
Abu Dhabi Petroleum Co......................    24      England            Crude oil production

Russia
Rusia Petroleum.............................    29      Russia             Exploration and production
Sidanco.....................................    25      Russia             Integrated oil operations

Taiwan
China American Petrochemical Co.............    50      Taiwan             Chemicals

USA
BP Solvay Polyethylene North America........    49      USA                Chemicals

                                                        Principal place
                                                %       of business        Principal activities
                                                --      ----------         ----------------
Joint ventures

BP Solvay Polyethylene Europe...............    50      Europe             Chemicals
CaTO Finance Partnership....................    50      UK                 Finance
Lukarco.....................................    46      Kazakhstan         Exploration and production, pipelines
Malaysia - Thailand Joint Development Area..    25      Thailand           Exploration and Production
Pan American Energy.........................    60      Argentina          Exploration and Production
Unimar Company Texas (Partnership)..........    50      Indonesia          Exploration and Production
Watson Cogeneration.........................    51      USA                Power generation






                                      F - 84

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 48 -- Oil and natural gas exploration and production activities (a)

Capitalized costs at December 31


                                                                Rest of                   Rest of
                                                        UK       Europe          USA        World        Total
                                                  --------     --------     --------     --------     --------
                                                                            ($ million)
                                                                                       
2002
Gross capitalized costs:
  Proved properties..............................   26,804        4,029       46,996       24,604      102,433
  Unproved properties............................      294          179        1,045        3,669        5,187
                                                    ------       ------       ------       ------       ------
                                                    27,098        4,208       48,041       28,273      107,620
Accumulated depreciation.........................   16,394        2,591       22,613       12,653       54,251
                                                    ------       ------       ------       ------       ------
Net capitalized costs............................   10,704        1,617       25,428       15,620       53,369
                                                    ======       ======       ======       ======       ======

2001
Gross capitalized costs:
  Proved properties..............................   23,627        2,912       42,868       21,488       90,895
  Unproved properties............................      313          120        1,426        3,677        5,536
                                                    ------       ------       ------       ------       ------
                                                    23,940        3,032       44,294       25,165       96,431
Accumulated depreciation.........................   13,320        1,883       19,508       10,980       45,691
                                                    ------       ------       ------       ------       ------
Net capitalized costs............................   10,620        1,149       24,786       14,185       50,740
                                                    ======       ======       ======       ======       ======

2000
Gross capitalized costs:
  Proved properties..............................   24,319        2,683       38,494       19,607       85,103
  Unproved properties............................      482           73        1,754        3,449        5,758
                                                    ------       ------       ------       ------       ------
                                                    24,801        2,756       40,248       23,056       90,861
Accumulated depreciation.........................   13,182        1,797       18,204        8,933       42,116
                                                    ------       ------       ------       ------       ------
Net capitalized costs............................   11,619          959       22,044       14,123       48,745
                                                    ======       ======       ======       ======       ======








                                      F - 85

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 48 -- Oil  and  natural  gas  exploration  and  production  activities  (a)
(continued)

Costs incurred for the year ended December 31


                                                                Rest of                   Rest of
                                                        UK       Europe          USA        World        Total
                                                  --------     --------     --------     --------     --------
                                                                            ($ million)
                                                                                          
2002
Acquisition of properties:
  Proved.........................................       --            4           --           59           63
  Unproved.......................................       --           --           29            8           37
                                                    ------       ------       ------       ------       ------
                                                        --            4           29           67          100
Exploration and appraisal costs (b)..............       28           68          441          571        1,108
Development costs................................      895          219        3,618        2,503        7,235
                                                    ------       ------       ------       ------       ------
Total costs......................................      923          291        4,088        3,141        8,443
                                                    ======       ======       ======       ======       ======

2001
Acquisition of properties:
  Proved.........................................       --           --           --           47           47
  Unproved.......................................        4           --           20          193          217
                                                    ------       ------       ------       ------       ------
                                                         4           --           20          240          264
Exploration and appraisal costs (b)..............      109           80          295          618        1,102
Development costs................................      930          271        3,723        1,934        6,858
                                                    ------       ------       ------       ------       ------
Total costs......................................    1,043          351        4,038        2,792        8,224
                                                    ======       ======       ======       ======       ======

2000
Acquisition of properties:
  Proved.........................................    2,838           --        8,962        2,036       13,836
  Unproved.......................................       14           --          499        1,786        2,299
                                                    ------       ------       ------       ------       ------
                                                     2,852           --        9,461        3,822       16,135
Exploration and appraisal costs (b)..............       86           67          676          466        1,295
Development costs................................      808          153        2,328        1,274        4,563
                                                    ------       ------       ------       ------       ------
Total costs......................................    3,746          220       12,465        5,562       21,993
                                                    ======       ======       ======       ======       ======








                                      F - 86

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 48 -- Oil  and  natural  gas  exploration  and  production  activities  (a)
(continued)


Results of operations for the year ended December 31


                                                                Rest of                   Rest of
                                                        UK       Europe          USA        World        Total
                                                  --------     --------     --------     --------     --------
                                                                            ($ million)
                                                                                        
2002
Turnover (c):
  Third parties..................................    2,249          465        1,321        2,497        6,532
  Sales between businesses.......................    3,169          594        7,857        4,952       16,572
                                                    ------       ------       ------       ------       ------
                                                     5,418        1,059        9,178        7,449       23,104
                                                    ------       ------       ------       ------       ------
Exploration expense..............................       27           47          258          312          644
Production costs.................................      662          101        1,419          950        3,132
Production taxes.................................      279            7          288          670        1,244
Other costs (d)..................................      315           36        1,558        1,494        3,403
Depreciation.....................................    1,875          154        3,129        1,544        6,702
                                                    ------       ------       ------       ------       ------
                                                     3,158          345        6,652        4,970       15,125
                                                    ------       ------       ------       ------       ------
Profit before taxation (e).......................    2,260          714        2,526        2,479        7,979
Allocable taxes..................................    1,375          412          890          887        3,564
                                                    ------       ------       ------       ------       ------
Results of operations ...........................      885          302        1,636        1,592        4,415
                                                    ======       ======       ======       ======       ======

2001
Turnover (c):
  Third parties..................................    2,979          564        1,642        2,581        7,766
  Sales between businesses.......................    3,003          462        9,645        4,892       18,002
                                                    ------       ------       ------       ------       ------
                                                     5,982        1,026       11,287        7,473       25,768
                                                    ------       ------       ------       ------       ------
Exploration expense..............................       14           22          256          188          480
Production costs.................................      878           91        1,379          915        3,263
Production taxes.................................      559           17          384          688        1,648
Other costs (d)..................................       25           33        1,743        1,534        3,335
Depreciation.....................................    1,353          115        3,090        1,115        5,673
                                                    ------       ------       ------       ------       ------
                                                     2,829          278        6,852        4,440       14,399
                                                    ------       ------       ------       ------       ------
Profit before taxation (e).......................    3,153          748        4,435        3,033       11,369
Allocable taxes..................................    1,046          306        1,463        1,201        4,016
                                                    ------       ------       ------       ------       ------
Results of operations ...........................    2,107          442        2,972        1,832        7,353
                                                    ======       ======       ======       ======       ======




                                      F - 87

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 48 -- Oil  and  natural  gas  exploration  and  production  activities  (a)
(continued)


Results of operations for the year ended December 31 (continued)



                                                                Rest of                   Rest of
                                                        UK       Europe          USA        World        Total
                                                  --------     --------     --------     --------     --------
                                                                            ($ million)
                                                                                        
2000
Turnover (c):
  Third parties..................................    3,538          926        4,242        2,446       11,152
  Sales between businesses.......................    3,191          138        6,755        5,593       15,677
                                                    ------       ------       ------       ------       ------
                                                     6,729        1,064       10,997        8,039       26,829
                                                    ------       ------       ------       ------       ------
Exploration expense..............................       36           42          257          264          599
Production costs.................................      772           86        1,311          786        2,955
Production taxes.................................      641            6          437          911        1,995
Other costs (d)..................................       74            6        1,624        1,889        3,593
Depreciation.....................................    1,453           98        2,446          748        4,745
                                                    ------       ------       ------       ------       ------
                                                     2,976          238        6,075        4,598       13,887
                                                    ------       ------       ------       ------       ------
Profit before taxation (e).......................    3,753          826        4,922        3,441       12,942
Allocable taxes..................................    1,127          355        1,712        1,376        4,570
                                                    ------       ------       ------       ------       ------
Results of operations ...........................    2,626          471        3,210        2,065        8,372
                                                    ======       ======       ======       ======       ======


----------

     The Group's share of joint ventures' and associated  undertakings'  results
of  operations  in 2002 was a profit of $372 million (2001 $246 million and 2000
$293  million)  after  deducting a tax charge of $110 million (2001 $138 million
tax charge and 2000 $97 million tax charge).

     The Group's  share of joint  ventures'  and  associated  undertakings'  net
capitalized  costs at December 31, 2002 was $4,350  million  (December  31, 2001
$3,325 million and December 31, 2000 $3,354 million).

     The Group's share of joint  ventures' and  associated  undertakings'  costs
incurred in 2002 was $850 million (2001 $419 million and 2000 $1,490 million).

(a)  This note relates to the requirements  contained within the UK Statement of
     Recommended Practice 'Accounting for Oil and Gas Exploration,  Development,
     Production  and  Decommissioning  Activities'.   Mid-stream  activities  of
     natural  gas  gathering  and  distribution  and the  operation  of the main
     pipelines and tankers are excluded.  The main mid-stream activities are the
     Alaskan  transportation  facilities,  the Forties  Pipeline  system and the
     Central Area Transmission  System. The Group's share of joint ventures' and
     associated  undertakings'  activities  is  excluded  from  the  tables  and
     included in the footnotes,  with the exception of the Abu Dhabi  operations
     which are  included  in the income and  expenditure  items  above.  Profits
     (losses)  on  sale  of  fixed  assets  and  businesses  or  termination  of
     operations  relating to the oil and natural gas  exploration and production
     activities,  which  have been  accounted  as  exceptional  items,  are also
     excluded.

(b)  Includes   exploration  and  appraisal  drilling  expenditure  and  licence
     acquisition costs which are capitalized  within intangible fixed assets and
     geological and geophysical exploration costs which are charged to income as
     incurred.

(c)  Turnover represents sales of production excluding royalty oil where royalty
     is payable in kind.



                                      F - 88

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 48 -- Oil  and  natural  gas  exploration  and  production  activities  (a)
(concluded)


(d)  Includes cost of royalty  oil not taken in kind,  property  taxes and other
     government take.

(e)  The  exploration and production  total  replacement  cost operating  profit
     comprises:


                                                                Rest of                   Rest of
                                                        UK       Europe          USA        World        Total
                                                  --------     --------     --------     --------     --------
                                                                          ($ million)
                                                                                       
    Year ended December 31, 2002
    Exploration and production activities
    -- Group (as above).....................         2,260          714        2,526        2,479        7,979
    -- Equity-accounted entities............            --           --           16          466          482
    Midstream activities....................           266           --          293          186          745
                                                  --------     --------     --------     --------     --------
    Total replacement cost operating profit          2,526          714        2,835        3,131        9,206
                                                  ========     ========     ========     ========     ========

    Year ended December 31, 2001
    Exploration and production activities
    -- Group (as above).....................         3,153          748        4,435        3,033       11,369
    -- Equity-accounted entities............            --           --           --          384          384
    Midstream activities....................           271           --          138          199          608
                                                  --------     --------     --------     --------     --------
    Total replacement cost operating profit          3,424          748        4,573        3,616       12,361
                                                  ========     ========     ========     ========     ========

    Year ended December 31, 2000
    Exploration and production activities
    -- Group (as above).....................         3,753          826        4,922        3,441       12,942
    -- Equity-accounted entities............            --           --           --          390          390
    Midstream activities....................           290           --          152          198          640
                                                  --------     --------     --------     --------     --------
    Total replacement cost operating profit          4,043          826        5,074        4,029       13,972
                                                  ========     ========     ========     ========     ========


Note 49 -- Business and geographical analysis

     BP has four  reportable  operating  segments -- Exploration and Production;
Gas, Power and Renewables;  Refining and Marketing;  and Chemicals.  Exploration
and  Production's  activities  include oil and natural gas exploration and field
development  and  production  (upstream  activities),   together  with  pipeline
transportation and natural gas processing (midstream activities). Gas, Power and
Renewables  activities include marketing and trading of natural gas, natural gas
liquids, new market development, LNG and solar and renewables. The activities of
Refining  and  Marketing  include oil supply and trading as well as refining and
marketing (downstream  activities).  Chemicals activities include petrochemicals
manufacturing and marketing.

     The  Group  is  managed  on  a  unified  basis.   Reportable  segments  are
differentiated  by the  activities  that each  undertakes  and the products they
manufacture and market.

     The  accounting  policies  of  operating  segments  are the  same as  those
described in Note 1,  Accounting  Policies.  Performance  is evaluated  based on
replacement  cost operating profit or loss,  which excludes  exceptional  items,
inventory  holding gains and losses,  interest income and expense,  taxation and
minority shareholders' interests.

     Sales between  segments are made at prices that  approximate  market prices
taking  into  account  the  volumes  involved.




                                      F - 89

                           BP p.l.c. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)


Note 49 -- Business and geographical analysis (continued)

By business


                                                        Gas                               Other
                                   Exploration        Power    Refining              businesses
                                           and          and         and                     and
                                    Production   Renewables   Marketing   Chemicals   corporate(a)  Eliminations      Total
                                   -----------   ----------   ---------   ---------   ---------     ------------      -----
                                                                          ($ million)
                                                                                                  
2002
Group turnover -- third parties......    7,197       36,037     122,470      12,507         510               --    178,721
               -- sales between
                  businesses(b)......   18,556        1,320       3,366         557          --          (23,799)        --
                                       -------      -------     -------     -------     -------          -------    -------
                                        25,753       37,357     125,836      13,064         510          (23,799)   178,721
                                       -------      -------     -------     -------      ------          -------

Share of sales by joint ventures.....                                                                                 1,465
                                                                                                                  ---------
                                                                                                                    180,186
                                                                                                                  ---------
Equity accounted income (c)..........      611         107          204         (12)         52                         962
                                       -------     -------      -------     -------      ------                     -------
Total replacement cost operating
  profit (loss)(d)...................    9,206         354          872         515        (701)                     10,246
Exceptional items (e)................     (726)      1,551          613        (256)        (14)                      1,168
Inventory holding gains (losses).....        3          51        1,049          26          --                       1,129
                                       -------     -------      -------     -------      ------                     -------
Historical cost profit (loss) before
  interest and tax...................    8,483       1,956        2,534         285        (715)                     12,543
                                       -------     -------      -------     -------      ------                     -------

Total assets (f).....................   72,801       6,927       55,815      16,595       6,987                     159,125
Operating capital employed (g).......   62,117       2,642       31,006      12,631         490                     108,886
Depreciation and amounts provided(h).    6,799         117        2,658         749          78                      10,401
Capital expenditure and acquisitions(i)  9,699         408        7,753         823         428                      19,111



2001
Group turnover -- third parties.....     8,569      36,488      117,330      11,282         549              --     174,218
               -- sales between
                  businesses (b)....    19,660       2,954        2,903         233          --         (25,750)         --
                                       -------     -------      -------     -------     -------          -------    -------
                                        28,229      39,442      120,233      11,515         549         (25,750)    174,218
                                       -------     -------      -------     -------     -------         -------

Share of sales by joint ventures....                                                                                  1,171
                                                                                                                  ---------
                                                                                                                    175,389
                                                                                                                  ---------

Equity accounted income (c).........       559       184           278         107          75                        1,203
                                       -------   -------        -------     -------     -------                     -------
Total replacement cost operating
  profit(loss) (d)..................    12,361       488         3,573         128        (523)                      16,027
Exceptional items (e)...............       195        --           471        (297)        166                          535
Inventory holding gains (losses)....        (6)      (81)       (1,583)       (230)         --                       (1,900)
                                       -------   -------       -------     -------      ------                      -------
Historical cost profit (loss) before
  interest and tax..................    12,550       407         2,461        (399)       (357)                      14,662
                                       -------   -------       -------     -------      ------                      -------

Total assets (f)....................    70,017     5,775        43,553      15,098       7,527                      141,970
Operating capital employed (g)......    60,146     3,125        25,319      11,996       1,405                      101,991
Depreciation and amounts provided (h)    6,043        67         2,302         588          96                        9,096
Capital expenditure and acquisitions(i)  8,861       492         2,415       1,926         430                       14,124






                                      F - 90

                           BP p.l.c. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)


Note 49 -- Business and geographical analysis (continued)

By business (continued)


                                                        Gas                               Other
                                   Exploration        Power    Refining              businesses
                                           and          and         and                     and
                                    Production   Renewables   Marketing   Chemicals   corporate(a)  Eliminations   Total
                                   -----------   ----------   ---------   ---------   ---------     ------------   -----
                                                                          ($ million)
                                                                                                  
2000
Group turnover-- third parties......    14,155     20,857       101,960      11,031          59              --     148,062
              -- sales between
                 businesses (b).....    16,787        346         5,923         216          --         (23,272)         --
                                       -------    -------       -------     -------     -------         -------     -------
                                        30,942     21,203       107,883      11,247          59         (23,272)    148,062
                                       -------    -------       -------     -------      ------         -------
Share of sales by joint ventures....                                                                                 13,764
                                                                                                                  ---------
                                                                                                                    161,826
                                                                                                                  ---------
Equity accounted income (c).........       613       162            599         184          42                       1,600
                                       -------   -------        -------     -------      ------                     -------
Total replacement cost operating
  profit (loss) (d).................    13,972       532          3,486         760      (1,071)                     17,679
Exceptional items (e)...............       119         2             98        (212)        213                         220
Inventory holding gains (losses)....         4        11            620          93          --                         728
                                       -------   -------        -------     -------      ------                     -------
Historical cost profit (loss) before
  interest and tax..................    14,095       545          4,204         641        (858)                     18,627
                                       -------   -------        -------     -------      ------                     -------

Total assets (f)....................    66,405     6,997         46,288      13,674      11,498                     144,862
Operating capital employed (g)......    57,001     3,208         28,307      11,008       2,094                     101,618
Depreciation and amounts provided (h)    5,196        55          1,752         704          83                       7,790
Capital expenditure and acquisitions(i)  6,383       376          8,693       1,585      30,576                      47,613



By geographical area


                                                          Rest of               Rest of
                                                   UK(j)   Europe        USA      World  Eliminations      Total
                                             --------    --------   --------   --------  ------------     ------
                                                                          ($ million)
2002
                                                                                       
Group turnover --  third parties (k)........   34,075      38,538     78,282     27,826            --    178,721
               --  sales between areas......   14,673       7,980      2,099      6,575       (31,327)        --
                                              -------     -------    -------    -------       -------    -------
                                               48,748      46,518     80,381     34,401       (31,327)   178,721
                                              -------     -------    -------    -------       -------
Share of sales by joint ventures............      129         298        236        802            --      1,465
                                                                                                         -------
                                                                                                         180,186
                                                                                                         -------
Equity accounted income (c).................       (5)        131        225        611                      962
                                              -------     -------    -------    -------                  -------
Total replacement cost operating
  profit (d)................................    1,696       1,703      2,890      3,957                   10,246
Exceptional items (e).......................      (88)      1,817       (242)      (319)                   1,168
Inventory holding gains (losses)............       88         283        640        118                    1,129
                                              -------     -------    -------    -------                  -------
Historical cost profit before
  interest and tax..........................    1,696       3,803      3,288      3,756                   12,543
                                              -------     -------    -------    -------                  -------
Total assets (f)............................   33,016      25,012     63,982     37,115                  159,125
Operating capital employed (g)..............   20,949      11,877     48,256     27,804                  108,886
Depreciation and amounts provided (h).......    2,821         867      4,780      1,933                   10,401
Capital expenditure and acquisitions (i)....    1,637       6,556      6,095      4,823                   19,111






                                      F - 91

                           BP p.l.c. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)


Note 49 -- Business and geographical analysis (continued)

By geographical area (continued)


                                                          Rest of               Rest of
                                                   UK(j)   Europe        USA      World  Eliminations      Total
                                             --------    --------   --------   --------  ------------     ------
                                                                          ($ million)
                                                                                       
2001
Group turnover -- third parties (k).........   34,151      29,098     83,757     27,212            --    174,218
               -- sales between areas.......   13,467       7,603        939      6,699       (28,708)        --
                                              -------     -------    -------    -------       -------    -------
                                               47,618      36,701     84,696     33,911       (28,708)   174,218
                                              -------     -------    -------    -------       -------
Share of sales by joint ventures............       13          30        318        810            --      1,171
                                                                                                         -------
                                                                                                         175,389
                                                                                                         -------
Equity accounted income (c).................       11         235        309        648                    1,203
                                              -------     -------    -------    -------                  -------
Total replacement cost operating
  profit (d)................................    2,668       1,814      6,941      4,604                   16,027
Exceptional items (e).......................     (319)         33        289        532                      535
Inventory holding gains (losses)............     (225)       (444)    (1,014)      (217)                  (1,900)
                                              -------     -------    -------    -------                  -------
Historical cost profit before
  interest and tax..........................    2,124       1,403      6,216      4,919                   14,662
                                              -------     -------    -------    -------                  -------
Total assets (f)............................   29,951      15,287     63,150     33,582                  141,970
Operating capital employed (g)..............   19,477       7,346     45,188     29,980                  101,991
Depreciation and amounts provided (h).......    2,159         513      4,937      1,487                    9,096
Capital expenditure and acquisitions (i)....    2,128       1,787      6,160      4,049                   14,124


2000
Group turnover   --  third parties (k)......   34,430      18,642     70,255     24,735            --    148,062
                 --  sales between areas....   10,970       1,911        829      6,279       (19,989)        --
                                              -------     -------    -------    -------       -------    -------
                                               45,400      20,553     71,084     31,014       (19,989)   148,062
                                              -------     -------    -------    -------       -------
Share of sales by joint ventures............    3,314      12,316        270        686        (2,822)    13,764
                                                                                                         -------
                                                                                                         161,826
                                                                                                         -------
Equity accounted income (c).................      144         525        290        641                    1,600
                                              -------     -------    -------    -------                  -------
Total replacement cost operating
  profit (d)................................    3,773       2,013      7,219      4,674                   17,679
Exceptional items (e).......................       12         (19)       459       (232)                     220
Inventory holding gains (losses)............      103         107        387        131                      728
                                              -------     -------    -------    -------                  -------
Historical cost profit before
  interest and tax..........................    3,888       2,101      8,065      4,573                   18,627
                                              -------     -------    -------    -------                  -------
Total assets (f)............................   35,713      14,584     63,145     31,420                  144,862
Operating capital employed (g)..............   20,093       7,087     45,661     28,777                  101,618
Depreciation and amounts provided (h).......    1,945         373      4,165      1,307                    7,790
Capital expenditure and acquisitions (i)....    7,438       2,041     34,037      4,097                   47,613






                                      F - 92

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 49 -- Business and geographical analysis (concluded)

---------------

(a)  Other businesses and corporate  comprises  Finance,  the Group's coal asset
     and aluminium  asset,  its investment in PetroChina  and Sinopec,  interest
     income and costs relating to corporate activities worldwide.

(b)  Sales and transfers between  businesses are made at prices that approximate
     market prices taking into account the volumes involved.

(c)  Equity  accounted  income  (loss)  represents  the Group's  share of income
     (loss) before exceptional items,  inventory gains (losses) interest expense
     and taxes of joint ventures and associated undertakings.

(d)  Replacement  cost operating  profit is before  inventory  holding gains and
     losses  and  interest  expense,  which  is  attributable  to the  corporate
     function.  Transfers  between  Group  companies  are  made at  prices  that
     approximate market prices taking into account the volumes involved.

(e)  Exceptional  items comprise  profit or loss on the sale of fixed assets and
     sale of businesses or  termination  of operations of $1,168 million in 2002
     (2001 $535 million profit and 2000 $220 million profit).

(f)  Total assets  comprise fixed and current assets and include  investments in
     joint ventures and associated  undertakings  analyzed between activities as
     follows:



                                             Gas                                  Other
                       Exploration         Power     Refining                businesses
                               and           and          and                       and
                        Production    Renewables    Marketing    Chemicals    corporate(a)     Total
                         ---------    ----------    ---------    ---------    ---------    ---------
                                                           ($ million)
                                                                        
2002................         5,687           210        1,452        1,252           56        8,657
                         ---------     ---------    ---------    ---------    ---------    ---------
2001................         5,326           857        1,675        1,416           20        9,294
                         ---------     ---------    ---------    ---------    ---------    ---------
2000................         5,093           744        1,220        1,155           47        8,259
                         ---------     ---------    ---------    ---------    ---------    ---------



(g)  Operating  capital employed  comprises net assets before deducting  finance
     debt and liabilities for current and deferred  taxation.

(h)  Depreciation   consists  of  charges  for   depreciation,   depletion   and
     amortization  of property,  plant and  equipment,  exploration  expense and
     amounts provided against fixed asset investments.

(i)  Capital expenditure and acquisitions  includes $170 million in 2000 for the
     BP/Mobil joint venture.

(j)  United  Kingdom  area  includes the UK-based  international  activities  of
     Refining and Marketing.

(k)  Turnover  to third  parties  is stated by  origin  which is not  materially
     different from turnover by destination.





                                      F - 93

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 50 -- US generally accepted accounting principles

     The  consolidated  financial  statements  of the BP Group are  prepared  in
accordance  with UK GAAP which  differs in certain  respects  from US GAAP.  The
principal  differences between US GAAP and UK GAAP for BP Group reporting relate
to the following:

(a)  Group consolidation

     Where the Group conducts activities through a joint arrangement that is not
     carrying on a trade or business in its own right,  the Group  accounts  for
     its own  assets,  liabilities  and  cash  flows  of the  activity  measured
     according  to the terms of the  arrangement.  For the Group this  method of
     accounting  applies to certain oil and natural gas activities and undivided
     interests in pipelines.  US GAAP permits  these  activities to be accounted
     for by proportional consolidation, which is equivalent to UK GAAP.

     Joint ventures and associated  undertakings are accounted for by the equity
     method.  UK GAAP  requires the  consolidated  financial  statements to show
     separately the Group  proportion of operating  profit or loss,  exceptional
     items, inventory holding gains or losses,  interest expense and taxation of
     joint ventures and associated  undertakings.  In addition the Group's share
     of turnover of joint  ventures  should be disclosed.  For US GAAP the after
     tax profits or losses (i.e.  operating  results  after  exceptional  items,
     inventory  holding  gains or losses,  interest  expense and  taxation)  are
     included in the income statement as a single line item.

     UK  GAAP  requires  the  Group's  share  of  the  gross  assets  and  gross
     liabilities  of joint ventures to be shown on the face of the balance sheet
     whereas under US GAAP the net investment is included as a single line item.







                                      F - 94

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

     The  following  summarizes  the  reclassifications  for joint  ventures and
associated undertakings necessary to accord with US GAAP.



                                                                         Year ended December 31, 2002
                                                                 ---------------------------------------------
                                                                         As                            US GAAP
     Increase (decrease) in caption heading                        reported  Reclassification     presentation
                                                                 ----------  ----------------     ------------
                                                                                  ($ million)
                                                                                               
     Consolidated statement of income
     Other income.................................................      641               563            1,204
     Share of profits of JVs and associated undertakings..........      962              (962)              --
     Exceptional items before taxation............................    1,168                (2)           1,166
     Inventory holding gains (losses).............................    1,129                (2)           1,127
     Interest expense.............................................    1,279              (141)           1,138
     Taxation.....................................................    4,342              (262)           4,080
     Profit for the year..........................................    6,845                --            6,845




                                                                         Year ended December 31, 2001
                                                                 ---------------------------------------------
                                                                         As                            US GAAP
     Increase (decrease) in caption heading                        reported  Reclassification     presentation
                                                                 ----------  ----------------     ------------
                                                                                  ($ million)
                                                                                               
     Consolidated statement of income
     Other income.................................................      694               692            1,386
     Share of profits of JVs and associated undertakings..........    1,203            (1,203)              --
     Exceptional items before taxation............................      535                 2              537
     Inventory holding gains (losses).............................   (1,900)                7           (1,893)
     Interest expense.............................................    1,670              (205)           1,465
     Taxation.....................................................    6,375              (297)           6,078
     Profit for the year..........................................    6,556                --            6,556


 

                                                                         Year ended December 31, 2000
                                                                 ---------------------------------------------
                                                                         As                            US GAAP
     Increase (decrease) in caption heading                        reported  Reclassification     presentation
                                                                 ----------  ----------------     ------------
                                                                                  ($ million)
                                                                                               
     Consolidated statement of income
     Other income.................................................      805             1,416            2,221
     Share of profits of JVs and associated undertakings..........    1,600            (1,600)              --
     Exceptional items before taxation............................      220               (24)             196
     Inventory holding gains (losses).............................      728              (229)             499
     Interest expense.............................................    1,770              (218)           1,552
     Taxation.....................................................    6,648              (219)           6,429
     Profit for the year..........................................   10,120                --           10,120






                                      F - 95

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 50 -- US generally accepted accounting principles (continued)

(b)  Income statement

     The  income   statement   prepared  under  UK  GAAP  shows  sub-totals  for
     replacement  cost profit before  interest and tax,  historical  cost profit
     before interest and tax and profit after taxation. These line items are not
     recognized under US GAAP.

(c)  Exceptional items

     Under UK GAAP certain exceptional items are shown separately on the face of
     the income  statement  after operating  profit.  These items are profits or
     losses on the sale of fixed assets and businesses or sale or termination of
     operations and fundamental restructuring charges. Under US GAAP these items
     are classified as operating income or expenses.

(d)  Deferred taxation/Business combinations

     US GAAP requires the  recognition  of a deferred tax asset or liability for
     the tax  effects of  differences  between the  assigned  values and the tax
     bases of assets  acquired and  liabilities  assumed in a purchase  business
     combination,  whereas under UK GAAP no such deferred tax asset or liability
     is  recognized.  Under US GAAP the  deferred  tax  asset  or  liability  is
     amortized  over the same period as the assets and  liabilities  to which it
     relates.

     The adjustments to profit for the year and to BP shareholders' interest to
     accord with US GAAP are summarized below.



     Increase (decrease) in caption heading                              Years ended December 31,
                                                                     --------------------------------
                                                                        2002         2001         2000
                                                                    --------     --------    ---------
                                                                                 ($million)

                                                                                          
     Replacement cost of sales.................................          852        1,091          706
     Taxation .................................................         (537)        (276)        (777)
     Profit for the year.......................................         (315)        (815)          71
                                                                    ========     ========    =========




                                                                                      At December 31,
                                                                                    ------------------
                                                                                     2002         2001
                                                                                   ------       ------
                                                                                        ($ million)

                                                                                           
     Tangible assets...........................................                     7,408        7,032
     Deferred taxation.........................................                     7,486        6,789
     BP shareholders' interest.................................                       (78)         243
                                                                                   ======       ======






                                      F - 96

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

(d)  Deferred taxation/Business combinations (concluded)

     The major  components of deferred tax  liabilities  and assets on a US GAAP
     basis were as follows:


                                                                                      December 31,
                                                                                 ------------------
                                                                                  2002         2001
                                                                                ------       ------
                                                                                     ($ million)

                                                                                      
     Depreciation......................................................        (22,472)     (19,709)
     Other taxable temporary differences...............................         (2,731)      (1,110)
                                                                                ------       ------
     Total deferred tax liabilities....................................        (25,203)     (20,819)
                                                                                ------       ------
     Petroleum revenue tax.............................................            567          383
     Decommissioning and other provisions..............................          5,030        2,446
     Tax credit and loss carry forward.................................          1,823        1,487
     Other deductible temporary differences............................            423          668
                                                                                ------       ------
     Gross deferred tax assets.........................................          7,843        4,984
     Valuation allowance...............................................         (1,726)      (1,474)
                                                                                ------       ------
     Net deferred tax assets...........................................          6,117        3,510
                                                                                ------       ------
     Net deferred tax liability*.......................................        (19,086)     (17,309)
                                                                                ======       ======



----------
* Primarily noncurrent.

(e)  Provisions

     UK GAAP requires provisions for decommissioning,  environmental liabilities
     and onerous  contracts to be determined on a discounted basis if the effect
     of the time value of money is  material.  Unwinding of the discount and the
     effect of a change in the discount rate is included in interest  expense in
     the period.  When a  decommissioning  provision is set up, a tangible fixed
     asset of the same amount is also recognized and is subsequently depreciated
     as  part  of the  capital  costs  of the  facilities.  Under  US  GAAP  (i)
     environmental  liabilities are discounted only where the timing and amounts
     of payments are fixed and reliably  determinable  and (ii)  provisions  for
     decommissioning  are  provided  on a  unit-of-production  basis  over field
     lives; there is no corresponding tangible fixed asset.

     The adjustments to profit for the year and to BP shareholders'  interest to
     accord with US GAAP are summarized below.



     Increase (decrease) in caption heading                                       Years ended December 31,
                                                                             --------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                         ($ million)

                                                                                                  
     Replacement cost of sales.........................................          334          523          340
     Interest expense..................................................         (212)        (238)        (189)
     Taxation..........................................................         (130)        (103)         (83)
     Profit for the year...............................................            8         (182)         (68)
                                                                            ========     ========    =========




                                      F - 97

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 50 -- US generally accepted accounting principles (continued)

(e)  Provisions (concluded)


                                                                                  At December 31,
                                                                                ------------------
                                                                                 2002         2001
                                                                               ------       ------

                                                                                    ($ million)

                                                                                        
     Tangible assets...................................................        (1,297)        (785)
     Provisions........................................................           412          780
     Deferred taxation.................................................          (621)        (511)
     BP shareholders' interest.........................................        (1,088)      (1,054)
                                                                               ======       ======


(f)  Impairment

     Both UK and US GAAP require that long-lived assets and certain identifiable
     intangibles  to be held and used by an entity be  reviewed  for  impairment
     whenever  events or changes in  circumstances  indicate  that the  carrying
     amount of an asset may not be recoverable.  US GAAP requires, in performing
     the review for recoverability, the entity to estimate the future cash flows
     expected to result from the use of the asset and its eventual  disposition.
     If the sum of the  expected  future  cash flows  (undiscounted  and without
     interest  charges)  is less  than the  carrying  amount  of the  asset,  an
     impairment loss is recognized. Otherwise, no impairment loss is recognized.
     Measurement of an impairment  loss for long-lived  assets and  identifiable
     intangibles  that an  entity  expects  to hold and use is based on the fair
     value of the assets.

     For UK GAAP to the extent that the carrying  amount exceeds the recoverable
     amount,  that is the higher of net realizable  value and value in use (fair
     value) the fixed asset is written down to its recoverable amount.

     UK GAAP permits assets and liabilities  acquired on a business  combination
     to be revised in the year following that in which the acquisition was made.
     US GAAP does not permit such adjustments.

     In 2001 a revision of $911 million to the  previously  reported fair values
     for tangible fixed assets relating to the 2000 acquisition of ARCO under UK
     GAAP has been reflected as a charge for impairment under US GAAP.

     The  adjustments  to profit  for the year to accord  with US GAAP are shown
     below. There is no impact on BP shareholders'  interest.  The consequential
     Balance Sheet  adjustments are reflected in (d) Deferred  taxation/Business
     combinations and (h) Goodwill and intangible assets.



     Increase (decrease) in caption heading                                       Years ended December 31,
                                                                             --------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                         ($ million)
                                                                                               
     Replacement cost of sales.........................................           --        1,150           --
     Taxation..........................................................           --         (239)          --
     Profit for the year...............................................           --         (911)          --
                                                                            ========     ========     ========






                                      F - 98

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 50 -- US generally accepted accounting principles (continued)

(g)  Sale and leaseback

     The sale and leaseback of an office  building in Chicago,  Illinois in 1998
     was  treated as a sale for UK GAAP  whereas for US GAAP it was treated as a
     financing transaction.

     A  provision  was  recognized  under  UK GAAP in 1999 to cover  the  likely
     shortfall on rental income from subletting the Chicago office building.  As
     the original  sale and  leaseback was not treated as a sale for US GAAP the
     provision  has been  reversed  for US GAAP.  A further  provision  has been
     recognized in 2002 under UK GAAP, which has also been reversed for US GAAP.

     Under UK GAAP the profit  arising on the sale and  operating  leaseback  of
     certain  railcars  in 1999 was taken to  income in the  period in which the
     transaction   occurs.   Under  US  GAAP  this  profit  was  not  recognized
     immediately but amortized over the term of the operating lease.

     The  adjustments  to profit for the year and BP  shareholders'  interest to
     accord with US GAAP are summarized below.



     Increase (decrease) in caption heading                             Years ended December 31,
                                                                   --------------------------------
                                                                      2002         2001         2000
                                                                  --------     --------    ---------
                                                                               ($ million)

                                                                                         
     Replacement cost of sales...............................          (40)          51           49
     Taxation................................................           16          (15)         (15)
     Profit for the year.....................................           24          (36)         (34)
                                                                  ========     ========    =========




                                                                                     At December 31,
                                                                                   ------------------
                                                                                    2002         2001
                                                                                  ------       ------
                                                                                       ($ million)
                                                                                            
     Tangible assets...................................................              161          171
     Other accounts payable and accrued liabilities....................               27           30
     Provisions........................................................             (117)         (65)
     Finance debt......................................................              413          413
     Deferred taxation.................................................              (56)         (73)
     BP shareholders' interest.........................................             (106)        (134)
                                                                                  ======       ======





                                      F - 99

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 50 -- US generally accepted accounting principles (continued)

(h)  Goodwill and intangible assets

     Various differences in the basis for determining goodwill between UK and US
     GAAP result in goodwill  for US GAAP  reporting  differing  from the amount
     recognised under UK GAAP.

     On January 1, 2002 the Group  adopted  Statement  of  Financial  Accounting
     Standards No. 142 'Goodwill and Other Intangible  Assets' (SFAS 142) for US
     GAAP  reporting.  This  standard  eliminates  the  requirement  to amortize
     goodwill and indefinite lived intangible  assets.  Rather,  such assets are
     subject to  periodic  impairment  testing.  Intangible  assets that are not
     deemed to have an  indefinite  life  continue  to be  amortized  over their
     estimated useful lives. Amortization of goodwill charged to income under UK
     GAAP has been reversed for US GAAP.

     The adjustments to profit for the year and to BP shareholders'  interest to
     accord with US GAAP are summarized below.



     Increase (decrease) in caption heading                               Years ended December 31,
                                                                     --------------------------------
                                                                        2002         2001         2000
                                                                    --------     --------    ---------
                                                                                 ($ million)
                                                                                          
     Replacement cost of sales.................................       (1,302)         (60)         (43)
     Taxation..................................................           --           --           --
     Profit for the year.......................................        1,302           60           43
                                                                    ========     ========    =========




                                                                                      At December 31,
                                                                                    ------------------
                                                                                     2002         2001
                                                                                   ------       ------
                                                                                        ($ million)
                                                                                          
     Intangible assets.........................................                       (84)      (1,414)
     Deferred taxation.........................................                        --           --
     BP shareholders' interest.................................                       (84)      (1,414)
                                                                                   ======       ======





                                      F - 100

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

(h) Goodwill and intangible assets (continued)

     Profit  for the year,  as  adjusted  to  accord  with US GAAP,  to  exclude
     amortization of goodwill no longer being amortized  pursuant to SFAS 142 is
     shown below.


                                                                                     Year ended
                                                                                     December 31,
                                                                                  ------------------
                                                                                   2002         2001
                                                                                 ------       ------
                                                                                      ($ million)
                                                                                       
  Profit for the year applicable to ordinary shares as
    adjusted to accord with US GAAP, as reported...............................   4,162       10,181
  Add back goodwill amortization...............................................   1,228          788
                                                                                 ------       ------
  Profit for the year as adjusted to accord with US GAAP, as adjusted..........   5,390       10,969
                                                                                 ------       ------

    Per ordinary share-- cents
      Basic-- as reported......................................................   18.55        47.05
      Adjustment...............................................................    5.47         3.64
                                                                                 ------       ------
      Basic-- as adjusted......................................................   24.02        50.69
                                                                                 ------       ------
      Diluted-- as reported....................................................   18.44        46.74
      Adjustment...............................................................    5.44         3.62
                                                                                 ------       ------
      Diluted-- as adjusted....................................................   23.88        50.36
                                                                                 ------       ------

    Per American Depositary Share -- cents
      Basic-- as reported......................................................  111.30       282.30
      Adjustment...............................................................   32.82        21.84
                                                                                 ------       ------
      Basic-- as adjusted......................................................  144.12       304.14
                                                                                 ------       ------
      Diluted-- as reported....................................................  110.64       280.44
      Adjustment...............................................................   32.64        21.72
                                                                                 ------       ------
      Diluted-- as adjusted....................................................  143.28       302.16
                                                                                 ------       ------






                                      F - 101

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

(h)  Goodwill and intangible assets (concluded)

     Changes to exploration  expenditure,  goodwill and other intangible assets,
     as adjusted to accord with US GAAP, during the year ended December 31, 2002
     are shown below.



                                                           Exploration                        Other
                                                           expenditure     Goodwill     intangibles     Total
                                                           -----------     --------     -----------     -----
                                                                               ($ million)
                                                                                           
Net book amount
At January 1, 2002...................................            5,334        9,453             588    15,375
Amortization expense.................................             (385)          --            (189)     (574)
Acquisitions.........................................               --          545              --       545
Other movements......................................               (5)         356              89       440
                                                                 -----       ------           -----    ------
At December 31, 2002.................................            4,944       10,354             488    15,786
                                                                 =====       ======           =====    ======

     Amortization expense relating to other intangibles is expected to be in the
     range $100-$200 million in each of the succeeding five years.

     During the second quarter of 2002 the Group completed a goodwill impairment
     review using the two-step  process  prescribed  in SFAS 142. The first step
     includes a comparison of the fair value of a reporting unit to its carrying
     value, including goodwill. Where the carrying value exceeds the fair value,
     the goodwill of the reporting unit is  potentially  impaired and the second
     step is then completed in order to measure the impairment  loss, if any. No
     impairment charge resulted from this review.

(i)  Derivative financial instruments and hedging activities

     On January 1, 2001 the Group  adopted  Statement  of  Financial  Accounting
     Standards  No. 133  'Accounting  for  Derivative  Instruments  and  Hedging
     Activities'  (SFAS 133) as amended by  Statement  Nos.  137 and 138, for US
     GAAP reporting.

     SFAS 133, as amended,  requires that all derivative instruments be recorded
     on the  balance  sheet at their  fair  value.  Changes in the fair value of
     derivatives  are  recorded  each  period  in  current   earnings  or  other
     comprehensive  income,  depending on whether a derivative  is designated as
     part of a hedge  transaction and, if it is, the type of hedge  transaction.
     To the extent  certain  criteria are met,  SFAS 133  permits,  but does not
     require, hedge accounting.

     In the  normal  course  of  business  the  Group is a party  to  derivative
     financial  instruments with off-balance sheet risk, primarily to manage its
     exposure to  fluctuations in foreign  currency  exchange rates and interest
     rates,  including management of the balance between floating rate and fixed
     rate debt. The Group also manages  certain of its exposures to movements in
     oil and natural gas prices.  In addition,  the Group trades  derivatives in
     conjunction with these risk management activities.



                                    F - 102

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

(i)  Derivative financial instruments and hedging activities (concluded)

     All oil price  derivatives and all derivatives held for trading are carried
     on the  Group's  balance  sheet at fair  value  with  changes in that value
     recognized  in  earnings  of the  period  for both UK and US GAAP.  Certain
     financial  derivatives  used to manage  foreign  currency and interest rate
     risk that qualify for hedge accounting  under UK GAAP are  marked-to-market
     under SFAS 133. For these  derivatives,  the cumulative  effect of adopting
     SFAS 133 resulted in a pre-tax charge to income, as adjusted to accord with
     US GAAP,  of $27 million  ($18 million  after tax).  Under US GAAP the fair
     values of derivative financial  instruments are shown as current assets and
     liabilities as appropriate.

     The Group has a number of long-term  natural gas contracts  which have been
     in place for many years.  The pricing  structure for those contracts is not
     directly  related  to the market  price of natural  gas but to the price of
     other  commodities or indices,  such as fuel oil or consumer price indices.
     On the basis of SFAS 133  Implementation  Issue C11,  these  contracts have
     been marked to market with effect from July 1, 2001.

     In October  2002,  the FASB  Emerging  Issues Task Force  (EITF)  reached a
     consensus  with  regards  to EITF  Issue  No.  02-3,  'Issues  Involved  in
     Accounting  for  Contracts  Under  EITF  Issue No.  98-10  'Accounting  for
     Contracts Involved in Energy Trading and Risk Management Activities'' (EITF
     02-3).  Under this consensus trading  inventories should be recorded on the
     balance sheet at historical  cost.  The Group marks trading  inventories to
     market at the balance sheet date. Thus a UK/US GAAP difference arises which
     impacts both profit for the year and BP  shareholders'  interest due to the
     difference in inventory valuations.

     The adjustments to profit for the year and to BP shareholders'  interest to
     accord with US GAAP are summarized below.



     Increase (decrease) in caption heading                               Years ended December 31,
                                                                     --------------------------------
                                                                        2002         2001         2000
                                                                    --------     --------    ---------
                                                                                 ($ million)
                                                                                        
     Replacement cost of sales....................................      (842)         481           --
     Taxation.....................................................       302         (168)          --
     Profit for the year before cumulative
       effect of accounting change................................       540         (313)          --
     Cumulative effect of accounting change,
       net of taxation............................................        --         (362)          --
     Profit for the year..........................................       540         (675)          --
                                                                      ======       ======       ======




                                                                                      At December 31,
                                                                                    ------------------
                                                                                     2002         2001
                                                                                   ------       ------
                                                                                        ($ million)
                                                                                          
     Inventories..................................................                   (209)          --
     Accounts payable and accrued liabilities.....................                    (13)       1,038
     Deferred taxation............................................                    (61)        (363)
     BP shareholders' interest....................................                   (135)        (675)
                                                                                   ======       ======



                                      F - 103

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 50 -- US generally accepted accounting principles (continued)

(j)  Gain arising on asset exchange

     For UK GAAP the transaction  with Solvay in 2001, which led to the exchange
     of  businesses  for an  interest  in a  joint  venture  and  an  associated
     undertaking,  has been treated as an asset swap which does not give rise to
     a gain or loss.  Under  US GAAP  the  transaction  has  been  treated  as a
     disposal and  acquisition  at fair value which gives rise to a pre-tax gain
     on disposal of $242 million ($157 million after tax).

     The adjustments to profit for the year and to BP shareholders' interest to
     accord with US GAAP are summarized below.



     Increase (decrease) in caption heading                                Years ended December 31,
                                                                      --------------------------------
                                                                         2002         2001         2000
                                                                     --------     --------    ---------
                                                                                  ($ million)
                                                                                          
     Profit (loss) on sale of fixed assets and
       businesses or termination of operations....................         --          242           --
     Replacement cost of sales....................................         27           --           --
     Taxation.....................................................         (9)          85           --
     Profit for the year..........................................        (18)         157           --
                                                                     ========     ========    =========




                                                                                       At December 31,
                                                                                     ------------------
                                                                                      2002         2001
                                                                                    ------       ------
                                                                                         ($ million)
                                                                                              
     Intangible assets............................................                     167          188
     Accounts payable and accrued liabilities.....................                     (52)         (54)
     Deferred taxation............................................                      77           85
     BP shareholders' interest....................................                     142          157
                                                                                    ======       ======


(k)  Ordinary shares held for future awards to employees

     Under UK GAAP,  Company shares held by an Employee Share  Ownership Plan to
     meet future  requirements  of employee  share  schemes are  recorded in the
     balance sheet as Fixed assets --  investments.  Under US GAAP,  such shares
     are recorded in the balance sheet as a reduction of shareholders' interest.

     The adjustment to BP shareholders' interest to accord with US GAAP is shown
     below.



                                                                                       At December 31,
                                                                                     ------------------
     Increase (decrease) in caption heading                                           2002         2001
                                                                                    ------       ------
                                                                                         ($ million)
                                                                                             
     Fixed assets - Investments........................................               (159)        (266)
     BP shareholders' interest.........................................               (159)        (266)
                                                                                    ======       ======






                                      F - 104

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

(l)  Dividends

     Under UK GAAP,  dividends are recorded in the year in respect of which they
     are  announced or declared by the board of  directors to the  shareholders.
     Under US GAAP,  dividends are recorded in the period in which dividends are
     declared.

     The adjustment to BP shareholders' interest to accord with US GAAP is shown
     below.



                                                                               At December 31,
                                                                             ------------------
     Increase (decrease) in caption heading                                   2002         2001
                                                                            ------       ------
                                                                                 ($ million)
                                                                                   
     Other accounts payable and accrued liabilities....................     (1,398)      (1,288)
     BP shareholders' interest.........................................      1,398        1,288
                                                                            ======       ======


(m)  Investments

     Under UK GAAP  certain of the Group's  equity  investments  are reported as
     either fixed asset or current asset  investments and carried on the balance
     sheet  at  cost  subject  to  review  for  impairment.  For US  GAAP  these
     investments are classified as available-for-sale  securities.  Consequently
     they are reported at fair value, with unrealized  holding gains and losses,
     net of tax,  reported  in  accumulated  other  comprehensive  income.  If a
     decline in fair value below cost is 'other than  temporary'  the unrealized
     loss is accounted for as a realized loss and charged against income.

     The adjustment to BP shareholders' interest to accord with US GAAP is shown
     below.



                                                                                At December 31,
                                                                              ------------------
     Increase (decrease) in caption heading                                    2002         2001
                                                                             ------       ------
                                                                                  ($ million)
                                                                                        
     Fixed assets - investments........................................          52           (3)
     Deferred taxation.................................................          18           (1)
     BP shareholders' interest.........................................          34           (2)
                                                                             ======       ======






                                      F - 105

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

(n)  Additional minimum pension liability

     Where a pension plan has an unfunded  accumulated  benefit  obligation,  US
     GAAP  requires  such amount to be  recognized as a liability in the balance
     sheet.  The adjustment  resulting from the  recognition of any such minimum
     liability,  including the elimination of amounts previously recognized as a
     prepaid  benefit cost, is reported as an intangible  asset to the extent of
     unrecognized  prior  service  cost with the  remaining  amount  reported in
     comprehensive income.

     The adjustments to accumulated other comprehensive income (BP shareholders'
     interest) to accord with US GAAP are summarized below.



                                                                                   At December 31,
                                                                                 ------------------
     Increase (decrease) in caption heading                                       2002         2001
                                                                                ------       ------
                                                                                     ($ million)

                                                                                          
     Intangible assets.................................................            137          112
     Other receivables falling due after more
       than one year...................................................         (1,211)      (1,015)
     Noncurrent liabilities -- accounts payable and
       accrued liabilities.............................................          2,459          548
     Deferred taxation.................................................         (1,247)        (509)
     BP shareholders' interest.........................................         (2,286)        (942)
                                                                                ======       ======


(o)  Balance sheet

     Under  USGAAP  Trade  and  Other  receivables  due after one year of $6,245
     million at  December  31,  2002  ($4,681  million at  December  31,  2001),
     included  within current  assets,  would have been classified as noncurrent
     assets.  Borrowing  under US Industrial  Revenue/Municipal  Bonds of $1,881
     million   ($1,768  million at December 31, 2001)  included  within  Current
     Liabilities -- falling due within one year would,  under US GAAP, have been
     classified as noncurrent  liabilities.  The provision for deferred taxation
     is primarily in respect of noncurrent items.




                                      F - 106

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 50 -- US generally accepted accounting principles (continued)

     The following is a summary of the adjustments to profit for the year and to
BP  shareholders'  interest  which  would  be  required  if  generally  accepted
accounting principles in the United States (US GAAP) had been applied instead of
those generally accepted in the United Kingdom (UK GAAP).

     These results are stated using the first-in  first-out  method of inventory
valuation.

Profit for the year


                                                                                  Years ended December 31,
                                                                             --------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                      ($ million except
                                                                                     per share amounts)

                                                                                               
Profit as reported in the consolidated statement of income.............        6,845        6,556       10,120
Deferred taxation/business combinations (d)............................         (315)        (815)          71
Provisions (e).........................................................            8         (182)         (68)
Impairment (f).........................................................           --         (911)          --
Sale and leaseback (g).................................................           24          (36)         (34)
Goodwill and intangible assets (h).....................................        1,302           60           43
Derivative financial instruments (i)...................................          540         (313)          --
Gain arising on asset exchange (j).....................................          (18)         157           --
Other..................................................................           11           10           51
                                                                            --------     --------    ---------
Profit for the year before cumulative effect of accounting
  change as adjusted to accord with US GAAP............................        8,397        4,526       10,183
Cumulative effect of accounting change:
  Derivative financial instruments (i).................................           --         (362)          --
                                                                            --------     --------    ---------
Profit for the year as adjusted to accord with US GAAP.................        8,397        4,164       10,183
Dividend requirements on preference shares.............................            2            2            2
                                                                            --------     --------    ---------
Profit for the year applicable to ordinary shares as
  adjusted to accord with US GAAP......................................        8,395        4,162       10,181
                                                                            ========     ========    =========
Profit for the year as adjusted:
Per ordinary share-- cents
  Basic-- before cumulative effect of accounting change................        37.48        20.16        47.05
  Cumulative effect of accounting change...............................           --        (1.61)          --
                                                                            --------     --------    ---------
                                                                               37.48        18.55        47.05
                                                                            --------     --------    ---------
  Diluted-- before cumulative effect of accounting change..............        37.30        20.04        46.74
  Cumulative effect of accounting change...............................           --        (1.60)          --
                                                                            --------     --------    ---------
                                                                               37.30        18.44        46.74
                                                                            --------     --------    ---------
Per American Depositary Share - cents (ii)
  Basic-- before cumulative effect of accounting change................       224.88       120.96       282.30
  Cumulative effect of accounting change...............................           --        (9.66)          --
                                                                            --------     --------    ---------
                                                                              224.88       111.30       282.30
                                                                            --------     --------    ---------
  Diluted-- before cumulative effect of accounting change..............       223.80       120.24       280.44
  Cumulative effect of accounting change...............................           --        (9.60)          --
                                                                            --------     --------    ---------
                                                                              223.80       110.64       280.44
                                                                            --------     --------    ---------





                                      F - 107

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

BP shareholders' interest


                                                                                        December 31,
                                                                                    ------------------
                                                                                     2002         2001
                                                                                   ------       ------
                                                                                        ($ million)

                                                                                          
BP shareholders' interest as reported in the consolidated balance sheet.........   69,409       65,161
Deferred taxation/business combinations (d).....................................      (78)         243
Provisions (e)..................................................................   (1,088)      (1,054)
Sale and leaseback (g)..........................................................     (106)        (134)
Goodwill and intangible assets (h)..............................................      (84)      (1,414)
Derivative financial instruments (i)............................................     (135)        (675)
Gain arising on asset exchange (j)..............................................      142          157
Ordinary shares held for future awards to employees (k).........................     (159)        (266)
Dividends (l)...................................................................    1,398        1,288
Investments (m).................................................................       34           (2)
Additional minimum pension liability (n)........................................   (2,286)        (942)
Other...........................................................................      (48)         (40)
                                                                                   ------       ------
BP shareholders' interest as adjusted to accord with US GAAP....................   66,999       62,322
                                                                                   ======       ======


(i)  The profit  reported  under UK GAAP for years ended  December  31, 2001 and
     2000 has been  restated  to reflect  the  adoption  of FRS19.  Consequently
     certain of the adjustments in the UK/US GAAP  reconciliation have also been
     restated.  Profit and BP Shareholders' interest, as adjusted to accord with
     US GAAP, are unaffected by the adoption of FRS 19.

(ii) One American Depositary Share is equivalent to six ordinary shares.

Comprehensive income

     The components of comprehensive income, net of related tax are as follows:



                                                                                  Years ended December 31,
                                                                             --------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                         ($ million)

                                                                                               
Profit for the period as adjusted to accord with US GAAP...............        8,397        4,164       10,183
Currency translation differences.......................................        3,333         (828)      (2,340)
Net unrealized gain (loss) on investments..............................           36          110         (112)
Additional minimum pension liability...................................       (1,344)        (797)          (1)
                                                                            --------     --------    ---------
Comprehensive income...................................................       10,422        2,649        7,730
                                                                            ========     ========    =========



     Accumulated  other  comprehensive  income at December  31,  2002  comprised
currency translation losses of $1,377 million (losses $4,710 million at December
31, 2001),  pension  liability  adjustments  of $2,286  million ($942 million at
December 31, 2001) and net  unrealized  gains on investments of $34 million gain
($2 million loss at December 31, 2001).



                                      F - 108

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 50 -- US generally accepted accounting principles (continued)

Consolidated statement of cash flows

     The Group's financial  statements include a consolidated  statement of cash
flows in  accordance  with the revised UK  Financial  Reporting  Standard  No. 1
(FRS1).  The  statement  prepared  under FRS1  presents  substantially  the same
information  as that  required  under FASB  Statement  of  Financial  Accounting
Standards No. 95 'Statement of Cash Flows' (SFAS 95).

     Under FRS1 cash flows are  presented  for (i)  operating  activities;  (ii)
dividends from joint ventures;  (iii)  dividends from  associated  undertakings;
(iv) servicing of finance and returns on investments; (v) taxation; (vi) capital
expenditure and financial investment;  (vii) acquisitions and disposals;  (viii)
dividends;  (ix) financing; and (x) management of liquid resources. SFAS 95 only
requires  presentation  of cash flows from  operating,  investing  and financing
activities.

     Cash  flows  under FRS1 in respect of  dividends  from joint  ventures  and
associated  undertakings,  taxation  and  servicing  of finance  and  returns on
investments are included  within  operating  activities  under SFAS 95. Interest
paid includes payments in respect of capitalized  interest,  which under SFAS 95
are included in capital expenditure under investing activities. Cash flows under
FRS1 in  respect of capital  expenditure  and  acquisitions  and  disposals  are
included in  investing  activities  under SFAS 95.  Dividends  paid are included
within financing activities.  All short-term  investments are regarded as liquid
resources  for  FRS1.  Under  SFAS  95  short-term   investments  with  original
maturities  of three  months  or less are  classified  as cash  equivalents  and
aggregated  with cash in the cash  flow  statement.  Cash  flows in  respect  of
short-term  investments  with  original  maturities  exceeding  three months are
included in operating activities.





                                      F - 109

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

     The statement of consolidated cash flows presented in accordance with SFAS
95 is as follows:



                                                                                  Years ended December 31,
                                                                             --------------------------------
                                                                                2002         2001         2000
                                                                            --------     --------    ---------
                                                                                         ($ million)
                                                                                              
Operating activities
Profit after taxation..................................................        6,922        6,617       10,209
Adjustments to reconcile profit after tax to net cash provided by
  operating activities
  Depreciation and amounts provided....................................       10,401        8,858        7,526
  Exploration expenditure written off..................................          385          238          264
  Share of profits of joint ventures and associated
    undertakings less dividends received...............................            3          (60)        (377)
  (Profit) loss on sale of businesses and fixed assets.................       (1,166)        (537)        (196)
  Working capital movement (a).........................................       (1,416)       1,319       (2,848)
  Deferred taxation....................................................        1,194        1,244        1,564
  Other................................................................         (280)        (111)      (1,538)
                                                                            --------     --------    ---------
Net cash provided by operating activities..............................       16,043       17,568       14,604
                                                                            --------     --------    ---------


Investing activities
Capital expenditures...................................................      (12,216)     (12,295)     (10,220)
Acquisitions, net of cash acquired.....................................       (4,324)      (1,210)      (6,265)
Investment in associated undertakings..................................         (971)        (586)        (985)
Net investment in joint ventures.......................................         (354)        (497)        (218)
Proceeds from disposal of assets.......................................        6,782        2,903       11,362
                                                                            --------     --------    ---------
Net cash used in investing activities..................................      (11,083)     (11,685)      (6,326)
                                                                            --------     --------    ---------
Financing activities
Proceeds from shares issued (repurchased)..............................         (555)      (1,100)      (2,039)
Proceeds from long-term financing......................................        3,707        1,296        1,680
Repayments of long-term financing......................................       (2,369)      (2,602)      (2,353)
Net (decrease) increase in short-term debt.............................         (602)       1,434         (701)
Dividends paid -- BP shareholders......................................       (5,264)      (4,827)      (4,415)
               -- Minority shareholders................................          (40)         (54)         (24)
                                                                            --------     --------    ---------
Net cash used in financing activities..................................       (5,123)      (5,853)      (7,852)
                                                                            --------     --------    ---------
Currency translation differences relating to cash
  and cash equivalents.................................................           90          (53)         (50)
                                                                            --------     --------    ---------
Increase (decrease) in cash and cash equivalents.......................          (73)         (23)         376
Cash and cash equivalents at beginning of year.........................        1,808        1,831        1,455
                                                                            --------     --------    ---------
Cash and cash equivalents at end of year...............................        1,735        1,808        1,831
                                                                            ========     ========    =========
----------
(a) Working capital:
     Inventories (increase) decrease...................................       (1,521)       1,490       (1,449)
     Receivables (increase) decrease...................................       (2,750)       1,905       (5,501)
     Current liabilities -- excluding finance debt increase (decrease).        2,855       (2,076)       4,102
                                                                            --------     --------    ---------
                                                                              (1,416)       1,319       (2,848)
                                                                            ========     ========    =========




                                      F - 110

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

Impact of new US accounting standards

     New US accounting  standards  adopted:  The Group has adopted  Statement of
Financial Accounting Standards No. 141 'Business Combinations' (SFAS 141) for US
GAAP reporting with effect from January 1, 2002.  Under SFAS 141, the pooling of
interest  method of accounting is no longer  permitted.  Also on January 1, 2002
the  Group  adopted  Statement  of  Financial   Accounting   Standards  No.  144
'Accounting  for the  Impairment or Disposal of  Long-Lived  Assets' (SFAS 144).
SFAS 144 retains the  requirement to recognize an impairment loss only where the
carrying value of a long-lived  asset is not recoverable  from its  undiscounted
cash flows and to  measure  such loss as the  difference  between  the  carrying
amount and fair value of the asset.  SFAS 144,  among other things,  changes the
criteria that have to be met in order to classify an asset as held-for-sale  and
requires that operating losses from discontinued operations be recognized in the
period that the losses are incurred rather than as of the measurement date.

     The adoption of SFAS 141 and SFAS 144 had no impact on profit,  as adjusted
to  accord  with  US  GAAP,  for  the  year  ended  December  31,  2002 or on BP
shareholders'  interest,  as adjusted to accord  with US GAAP,  at December  31,
2002.

     Asset  retirement  obligations:  In June  2001,  the  Financial  Accounting
Standards Board (FASB) issued  Statement of Financial  Accounting  Standards No.
143 'Accounting for Asset Retirement  Obligations' (SFAS 143). SFAS 143 requires
companies  to  record  liabilities  equal  to the  fair  value  of  their  asset
retirement  obligations  when  they are  incurred  (typically  when the asset is
installed at the production location). When the liability is initially recorded,
companies capitalize an equivalent amount as part of the cost of the asset. Over
time the  liability is accreted for the change in its present value each period,
and the  initial  capitalized  cost is  depreciated  over the useful life of the
related asset. SFAS 143 is effective for accounting periods beginning after June
15, 2002.

     The  cumulative  effect of adopting SFAS 143 at January 1, 2003 will result
in an after tax  credit to  income,  as  adjusted  to  accord  with US GAAP,  of
approximately  $1,700 million.  The effect of adoption also included an increase
in total  assets,  as  adjusted to accord with US GAAP,  of  approximately  $660
million  and a  reduction  in total  liabilities,  as adjusted to accord with US
GAAP,  of  approximately  $1,040  million.  It is expected that there will be an
additional  charge to profit, adjusted to accord  with US GAAP,  in the range of
$200 to $250 million in future periods.

     Costs associated with exit or disposal  activities:  In June 2002, the FASB
issued Statement of Financial Accounting Standards No. 146 'Accounting for Costs
Associated with Exit or Disposal  Activities' (SFAS 146). SFAS 146 requires that
a liability for costs associated with an exit or disposal activity be recognized
only when the  liability  is  incurred,  rather  than at the date of an entity's
commitment  to an exit plan.  SFAS 146 requires  that the liability be initially
measured at fair value.  SFAS 146 is effective  for exit or disposal  activities
that are initiated after December 31, 2002.

     Contracts involved in energy trading activities:  In October 2002, the FASB
Emerging Issues Task Force (EITF) reached a consensus which rescinded EITF Issue
No.  98-10,  'Accounting  for  Contracts  Involved  in Energy  Trading  and Risk
Management  Activities'  (EITF  98-10).  As a  result  of  this  consensus,  all
energy-related,  non-derivative  contracts  (such  as  transportation,  storage,
tolling,  and  requirements  contracts  that do not  meet  the  definition  of a
derivative)  and  trading  inventories  that  are  accounted  for at fair  value
pursuant  to EITF  98-10  will no longer be  accounted  for at fair  value  upon
application  of the consensus.  Rather,  such contracts will be accounted for as
executory contracts on an accruals basis.


                                      F - 111

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (continued)

     The consensus is applicable  for all contracts  executed  after October 25,
2002.  Application  of the consensus to contracts  existing prior to October 26,
2002 is  required  to be  accounted  for as a  cumulative  effect of a change in
accounting principle effective for periods beginning after December 15, 2002.

     For BP's reporting under UK GAAP,  energy-related  non-derivative contracts
associated  with trading  activities  are marked to market with gains and losses
recognized in the income statement.

     The  cumulative  effect of adopting  the  consensus at January 1, 2003 will
result in an after tax credit to income,  as adjusted to accord with US GAAP, of
approximately $50 million.

     Stock-based  compensation:  In December 2002, the FASB issued  Statement of
Financial Accounting Standards No. 148 'Accounting for Stock-Based  Compensation
-  Transition  and  Disclosure'  (SFAS 148).  SFAS 148 amends SFAS 123 to permit
alternative  methods of  transition  for  adopting a fair value based  method of
accounting for stock-based employee compensation.  Under UK GAAP, the Group uses
the intrinsic value method to account for stock-based employee compensation.

     Guarantees:  In November 2002, the FASB issued FASB  Interpretation  No. 45
'Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect   Guarantees   of   Indebtedness   of  Others'   (Interpretation   45).
Interpretation 45 elaborates on existing disclosure  requirements for guarantees
and clarifies  that a guarantor is required to recognize,  at the inception of a
guarantee,  a  liability  for the fair  value of the  obligation  undertaken  in
issuing the guarantee.  The initial  recognition and  measurement  provisions of
Interpretation  45 apply on a prospective basis to guarantees issued or modified
after December 31, 2002.

     Consolidation:  In January 2003, the FASB issued FASB Interpretation No. 46
'Consolidation   of   Variable   Interest   Entities'    (Interpretation    46).
Interpretation   46  clarifies  the   application   of  existing   consolidation
requirements  to entities  where a  controlling  financial  interest is achieved
through arrangements that do not involve voting interests.  Under Interpretation
46, a  variable  interest  entity is  consolidated  if a company is subject to a
majority of the risk of loss from the variable interest  entity's  activities or
entitled to receive a majority of the entity's residual returns.  Interpretation
46 applies to variable  interest  entities created or acquired after January 31,
2003.   For   variable   interest   entities   existing  at  January  31,  2003,
Interpretation  46 is effective for accounting  periods beginning after June 15,
2003.

     The Company is  currently  carrying  out the  analysis  necessary  to adopt
Interpretation  46 in the  third  quarter  of 2003 for  existing  entities.  The
Company  does not expect  that the  adoption  of  Interpretation  46 will have a
significant  effect  on  profit,  as  adjusted  to  accord  with US GAAP,  or BP
shareholders' interest, as adjusted to accord with US GAAP.




                                      F - 112

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 50 -- US generally accepted accounting principles (concluded)

Impact of new UK Accounting Standards

     Retirement  benefits:  In December 2000, the UK Accounting  Standards Board
issued Financial Reporting Standard No. 17 'Retirement  Benefits' (FRS 17). This
standard was to be fully  effective for  accounting  periods  ending on or after
June 22, 2003 with certain of the disclosure  requirements effective for periods
prior to 2003.  However,  in November  2002, the UK Accounting  Standards  Board
issued an amendment to FRS 17, which defers full adoption  until January 1, 2005
although the  disclosure  requirements  apply to periods  prior to 2005.  FRS 17
requires  that  financial  statements  reflect  at fair  value  the  assets  and
liabilities  arising from an employer's  retirement benefit  obligations and any
related  funding.  The  operating  costs of  providing  retirement  benefits are
recognized  in the  period in which they are earned  together  with any  related
finance costs and changes in the value of related  assets and  liabilities.

     The  pro  forma   impact  of  adopting   this   standard  on  pensions  and
postretirement  benefits  is shown  in  Notes  40 and 41 of  Notes to  Financial
Statements.

Impact of International Accounting Standards

     In June 2002, the European Union Council of Ministers  adopted a Regulation
which will  require  the Group to prepare  its  primary  consolidated  financial
statements in accordance with International Accounting Standards (IAS) beginning
January 1, 2005,  with  restatement  of prior periods  presented.  IAS differ in
several respects from UK and US GAAP. In addition,  significant revisions to IAS
are currently  being  contemplated  and other  revisions may be adopted prior to
January 1, 2005. The Group has not determined the effects of adopting IAS.

Note 51 -- Condensed consolidating information on certain US Subsidiaries

     BP p.l.c. fully and  unconditionally  guarantees the payment obligations of
its 100% owned subsidiary BP Exploration  (Alaska) Inc. under the BP Prudhoe Bay
Royalty  Trust.  The  following  financial  information  for BP  p.l.c.,  and BP
Exploration   (Alaska)   Inc.  and  all  other   subsidiaries   on  a  condensed
consolidating  basis is  intended  to  provide  investors  with  meaningful  and
comparable  financial  information about BP p.l.c. and its subsidiary issuers of
debt securities and is provided  pursuant to Rule 3-10 of Regulation S-X in lieu
of the separate  financial  statements of each subsidiary  issuer of public debt
securities.  Investments include the investments in subsidiaries  recorded under
the equity  method for the  purposes of the  condensed  consolidating  financial
information.  Equity income of  subsidiaries is the Group's share of replacement
cost  operating  profit  related  to  such  investments.  The  eliminations  and
reclassifications  column  includes  the  necessary  amounts  to  eliminate  the
intercompany  balances  and  transactions  between  BP  p.l.c.,  BP  Exploration
(Alaska) Inc. and other subsidiaries.






                                      F - 113

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)

Note 51 --  Condensed  consolidating  information  on  certain  US  Subsidiaries
(continued)

Income statement


                                                    Issuer    Guarantor
                                               -----------    ---------
                                                        BP                                  Eliminations
                                               Exploration                      Other                and
                                               (Alaska)Inc    BP p.l.c.  subsidiaries  reclassifications   BP Group
                                               -----------    ---------  ------------  -----------------   --------
                                                                           ($ million)
                                                                                             
Year ended December 31, 2002
Turnover.........................................    2,356           --       180,122             (2,292)   180,186
Less: Joint ventures.............................       --           --         1,465                 --      1,465
                                                   -------      -------       -------            -------    -------
Group turnover...................................    2,356           --       178,657             (2,292)   178,721
Replacement cost of sales........................    1,459           --       156,516             (2,447)   155,528
Production taxes.................................      199           --         1,075                 --      1,274
                                                   -------      -------       -------            -------    -------
Gross profit.....................................      698           --        21,066                155     21,919
Distribution and
  administration expenses........................       12          997        11,623                 --     12,632
Exploration expense..............................       18           --           610                 16        644
                                                   -------      -------       -------            -------    -------
                                                       668         (997)        8,833                139      8,643
Other income.....................................       31          752           446               (588)       641
                                                   -------      -------       -------            -------    -------
Group replacement cost
  operating profit...............................      699         (245)        9,279               (449)     9,284
Share of profits of joint ventures...............       --           --           346                 --        346
Share of profits of associated undertakings......       --           --           616                 --        616
Equity-accounted income of subsidiaries..........      283       10,847            --            (11,130)        --
                                                   -------      -------       -------            -------    -------
Total replacement cost
  operating profit...............................      982       10,602        10,241            (11,579)    10,246
Profit (loss) on sale of businesses
  or termination of operations...................       --        2,686         2,606             (3,498)     1,794
Profit (loss) on sale of fixed assets............       (4)        (601)         (622)               601       (626)
                                                   -------      -------       -------            -------    -------
Replacement cost profit
  before interest and tax........................      978       12,687        12,225            (14,476)    11,414
Inventory holding gains (losses).................        9        1,129         1,129             (1,138)     1,129
                                                   -------      -------       -------            -------    -------
Historical cost profit
  before interest and tax........................      987       13,816        13,354            (15,614)    12,543
Interest expense.................................       93        1,712         1,602             (2,128)     1,279
                                                   -------      -------       -------            -------    -------
Profit before taxation...........................      894       12,104        11,752            (13,486)    11,264
Taxation.........................................      344        4,342         4,065             (4,409)     4,342
                                                   -------      -------       -------            -------    -------
Profit after taxation............................      550        7,762         7,687             (9,077)     6,922
Minority shareholders' interest..................       --           --            77                 --         77
                                                   -------      -------       -------            -------    -------
Profit for the year..............................      550        7,762         7,610             (9,077)     6,845
                                                   =======      =======       =======            =======    =======






                                      F - 114

                           BP p.l.c. AND SUBSIDIARIES

                   NOTES TO FINANCIAL STATEMENTS (Continued)

Note 51 --  Condensed  consolidating  information  on  certain  US  Subsidiaries
(continued)

Income statement (continued)

     The following is a summary of the  adjustments to the profit for the period
which would be required  if  generally  accepted  accounting  principles  in the
United States (US GAAP) had been applied instead of those generally  accepted in
the United Kingdom.


                                                    Issuer    Guarantor
                                               -----------    ---------
                                                        BP                                  Eliminations
                                               Exploration                      Other                and
                                               (Alaska)Inc    BP p.l.c.  subsidiaries  reclassifications   BP Group
                                               -----------    ---------  ------------  -----------------   --------
                                                                           ($ million)
                                                                                             
Year ended December 31, 2002
Profit as reported...............................      550        7,762         7,610             (9,077)     6,845
Adjustments:
  Deferred taxation/business
    combinations.................................     (129)        (315)         (232)               361       (315)
  Provisions.....................................       (1)           8             9                 (8)         8
  Sale and leaseback.............................       --           24            24                (24)        24
  Goodwill.......................................       --        1,302         1,302             (1,302)     1,302
  Derivative financial instruments...............      (50)         540           540               (490)       540
  Gain arising on asset exchange.................       --          (18)          (18)                18        (18)
  Other..........................................       --           11            11                (11)        11
                                                   -------      -------       -------            -------    -------
Profit for the year as adjusted to
  accord with US GAAP............................      370        9,314         9,246            (10,533)     8,397
                                                   =======      =======       =======            =======    =======









                                      F - 115

                           BP p.l.c. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)


Note 51 --  Condensed  consolidating  information  on  certain  US  Subsidiaries
(continued)

Income statement (continued)


                                                    Issuer    Guarantor
                                               -----------    ---------
                                                        BP                                  Eliminations
                                               Exploration                      Other                and
                                               (Alaska)Inc    BP p.l.c.  subsidiaries  reclassifications   BP Group
                                               -----------    ---------  ------------  -----------------   --------
                                                                           ($ million)
                                                                                             
Year ended December 31, 2001
Turnover.........................................    1,919           --       175,389             (1,919)   175,389
Less: Joint ventures.............................       --           --         1,171                 --      1,171
                                                   -------      -------       -------            -------    -------
Gro