Interim Results - Part 1

BP PLC 7 August 2001 PART 1 BP p.l.c. Group Results Second Quarter and Half Year 2001 London 7 August 2001 FOR IMMEDIATE RELEASE RECORD SECOND QUARTER AND FIRST HALF PRODUCTION UP - DIVIDEND INCREASED --------------------------------------------------------------------------- Second First Second Quarter Quarter Quarter First Half 2000 2001 2001 $ million 2001 2000 % ======================= ==================== Replacement cost profit 2,791 3,437 3,032 before exceptional items 6,469 5,468 442 45 114 Special items(a) 159 472 377 644 653 Acquisition amortization(b) 1,297 377 ----------------------- -------------------- Pro forma result adjusted 3,610 4,126 3,799 for special items 7,925 6,317 ======================= ==================== 10.80 12.58 11.92 - per ordinary share (pence) 24.50 19.41 26% 16.54 18.36 16.92 - per ordinary share (cents) 35.28 30.47 16% 0.99 1.10 1.02 - per ADS (dollars) 2.12 1.83 ======================= ==================== o BP's pro forma result, adjusted for special items, was a second quarter record at $3,799 million compared to $3,610 million a year ago. For the half year, the result was a record $7,925 million, compared to $6,317 million. The result per share was up by 16%. In sterling terms the increase was 26%. Replacement cost profit, before exceptional items, for the second quarter and half year was $3,032 million and $6,469 million respectively, compared to $2,791 million and $5,468 million a year ago. o Return on average capital employed, on a pro forma basis and adjusted for special items, was 23% in the second quarter compared to 21% a year ago. o The first half results reflect the generally favourable trading environment, portfolio changes and performance improvements. Compared to a year ago, strength in refining margins and gas prices largely offset weakness in the chemicals environment. o First half year and second quarter oil and gas production were up 9% and 4% respectively. Even on a consistent current portfolio basis the increases were 1% and 2%. We are on track to deliver the growth target for the year, continuing the rapid turnaround in production growth from the low point last year. o In July, BP announced a deal with E.ON which, subject to regulatory approval, will enhance our position in the European downstream market. o The company purchased for cancellation 32 million of its own shares during the quarter, at a cost of $283 million. o Quarterly dividend up 4.8% at 5.5 cents per share ($0.33 per ADS). First half dividend was 10.75 cents per share, compared with 10.0 cents per share a year ago. BP Group Chief Executive, Lord Browne, commented: ' Performance improvements in the first half year continue on track to deliver our targets. Our disciplined approach to cost management and investment selection is delivering profitable growth. I am especially delighted with the growth in oil and gas production and the quality of the downstream performance. All of this has given us the ability to increase the dividend.' The pro forma result, adjusted for special items, has been derived from the company's reported UK GAAP accounting information but is not in itself a recognized UK or US GAAP measure. This financial performance information and measures derived therefrom, shown above and elsewhere in the document, is provided in order to enable investors to evaluate better both the company's current performance, in the context of past performance, and its performance against that of its competitors. (a) The special items refer to non-recurring charges and credits. The special items for the quarter and half year comprise, in Refining and Marketing, Burmah Castrol integration costs and rationalization costs in the European commercial business, and bond redemption charges. (b) Depreciation and amortization relating to the fixed asset revaluation adjustment and goodwill consequent upon the ARCO and Burmah Castrol acquisitions. Summary Quarterly Results Exploration and Production's second quarter result was up by 8% on a year ago, reflecting an 11% increase in gas production, higher North American gas prices and lower exploration expense. ARCO synergies have been fully achieved. There were discoveries offshore Trinidad, Egypt and the Gulf of Mexico. Developments have been approved in Angola, Egypt, Alaska, Norway, Azerbaijan and Trinidad and in July a further 9.7% stake has been acquired in the Tangguh gas project in Indonesia. In Gas and Power, the quarter's result reflected further improvement in marketing and trading. The record Refining and Marketing result reflected higher refining margins, the Burmah Castrol acquisition, the consolidation of the fuels business in Europe and continued unit cost improvements. ARCO synergies have been fully achieved and Burmah Castrol synergies are on track. The Chemicals' result was down from the first quarter as margins and costs remained under pressure from high feedstock and energy prices in a period of demand weakness, and some plants suffered operational problems. Interest expense for the quarter and half year reflected lower interest rates, after adjusting for bond redemption charges. The pro forma effective tax rate on replacement cost profit, before exceptional items, was 28% for the half year. Capital expenditure, excluding acquisitions, for the quarter was $3.3 billion, and $5.8 billion for the half year. This is consistent with a 2001 outcome of around $13 billion. Total capital expenditure for the two periods was $3.8 billion and $6.3 billion. Net debt at the end of the quarter was $18.8 billion. The pro forma ratio of net debt to net debt plus equity was 25%. Net cash outflow for the quarter was $2,136 million, reflecting continuing strong operating cash flow, offset by higher tax payments and capital expenditure. For the half year there was a net cash inflow of $1,080 million. --------- The commentaries above and following are based on the pro forma replacement cost operating results for the quarter and half year, before exceptional items, adjusted for special items. The results of ARCO and Burmah Castrol have been included with effect from 14 April and 7 July 2000 respectively. The European fuels business has been consolidated with effect from 1 August 2000. Reconciliation of Reported Results to Pro Forma Results Adjusted for Special Items Pro Forma Result Pro Forma Result adjusted for ----- 2Q 2001 --------------- adjusted for special items special items ------------------- 2Q 1Q 2Q Special Acq. Reported First Half 2000 2001 2001 Items* Amort+ Earnings $ million 2001 2000 =========================================== ============== Exploration and 3,627 5,136 3,918 - 477 3,441 Production 9,054 6,854 114 112 173 - - 173 Gas and Power 285 256 Refining and 1,394 994 1,762 109 176 1,477 Marketing 2,756 1,978 370 81 9 - - 9 Chemicals 90 629 Other businesses (149) (127) (128) - - (128) and corporate (255) (360) ------------------------------------------- -------------- RC operating 5,356 6,196 5,734 109 653 4,972 profit 11,930 9,357 ------------------------------------------- -------------- (403) (436) (391) 50 - (441)Interest expense (827) (699) (1,306)(1,623)(1,523) (45) - (1,478)Taxation (3,146) (2,236) (37) (11) (21) - - (21)MSI (32) (105) ------------------------------------------- -------------- RC profit before 3,610 4,126 3,799 114 653 3,032 exceptional items 7,925 6,317 ------------------------------------------- -------------- 171 Exceptional items before tax (72)Taxation on exceptional items ----- 3,131 RC profit after exceptional items 40 Stock holding gains (losses) ----- 3,171 HC profit ===== * The special items refer to non-recurring charges and credits. The special items for the quarter and half year comprise, in Refining and Marketing, Burmah Castrol integration costs and rationalization costs in the European commercial business, and bond redemption charges. + Acquisition amortization is depreciation and amortization relating to the fixed asset revaluation adjustment and goodwill consequent upon the ARCO and Burmah Castrol acquisitions. Net special and exceptional items before tax were $12 million credit and $167 million credit for the second quarter and half year respectively. Operating Results Second First Second Quarter Quarter Quarter First Half 2000 2001 2001 2001 2000 ======================= ============== Replacement cost 4,337 5,499 4,972 operating profit ($m) 10,471 8,298 ----------------------- -------------- Replacement cost profit 2,791 3,437 3,032 before exceptional items ($m) 6,469 5,468 ----------------------- -------------- Profit after exceptional items ($m) 2,811 3,542 3,131 Replacement cost 6,673 5,364 3,024 3,304 3,171 Historical cost 6,475 6,109 ----------------------- -------------- Per ordinary share (cents) Pro forma result 16.54 18.36 16.92 adjusted for special items 35.28 30.47 RC profit before 12.60 15.29 13.51 exceptional items 28.80 26.38 HC profit after 13.59 14.70 14.12 exceptional items 28.82 29.47 Per ADS (cents) Pro forma result 99.24 110.16 101.52 adjusted for special items 211.68 182.82 RC profit before 75.60 91.74 81.06 exceptional items 172.80 158.28 HC profit after 81.54 88.20 84.72 exceptional items 172.92 176.82 ----------------------- -------------- Dividends per ordinary share 5.00 5.25 5.50 cents 10.75 10.0 3.352 3.665 3.911 pence 7.576 6.572 30.0 31.5 33.0 Dividends per ADS (cents) 64.5 60.0 ----------------------- -------------- EBITDA(a) (cents) 30.27 33.90 32.46 per ordinary share 66.36 58.74 181.62 203.40 194.76 per ADS 398.16 352.44 ----------------------- -------------- Adjusted EBITDA(b) (cents) 31.46 34.22 32.00 per ordinary share 66.22 58.21 188.76 205.32 192.00 per ADS 397.32 349.26 ======================= ============== (a) Profit for the period before interest, tax, depreciation and amortization. (b) Replacement cost profit before exceptional items, adjusted for special items, and before interest, tax, depreciation and amortization. Operating Statistics Second First Second Quarter Quarter Quarter First Half 2000 2001 2001 2001 2000 ======================= ============= Crude oil and natural gas liquids production (mb/d) (Net of Royalties) 519 511 471 UK 491 550 88 97 92 Rest of Europe 95 90 705 722 742 USA 732 749 585 607 580 Rest of World 593 550 ----------------------- ------------- Total crude oil and 1,897 1,937 1,885 liquids production 1,911 1,939 ======================= ============= Natural gas production (mmcf/d) (Net of Royalties) 1,630 2,152 1,690 UK 1,920 1,688 99 169 121 Rest of Europe 144 142 3,188 3,467 3,550 USA 3,509 2,760 2,777 3,107 3,193 Rest of World 3,150 2,412 ----------------------- ------------- 7,694 8,895 8,554 Total natural gas production 8,723 7,002 ======================= ============= Gas sales volumes (mmcf/d) 2,424 3,395 2,481 UK 2,938 2,396 148 251 201 Rest of Europe 226 168 6,239 8,001 8,516 USA 8,259 5,512 5,006 7,403 6,839 Rest of World 7,121 4,709 ----------------------- -------------- 13,817 19,050 18,037 Total gas sales volumes 18,544 12,785 ======================= ============== NGL sales volumes (mb/d) - - - UK - - - - - Rest of Europe - - 129 221 206 USA 214 125 138 207 171 Rest of World 189 184 ----------------------- -------------- 267 428 377 Total NGL sales volumes 403 309 ======================= ============== Operating Statistics (continued) Second First Second Quarter Quarter Quarter First Half 2000 2001 2001 2001 2000 ======================= ============= Oil sales volumes (mb/d) Refined products 227 259 270 UK 265 225 781 1,082 1,031 Rest of Europe 1,057 774 1,898 1,874 1,954 USA 1,914 1,624 459 579 601 Rest of World 590 446 ----------------------- -------------- 3,365 3,794 3,856 Total marketing sales 3,826 3,069 2,071 2,159 2,022 Trading/supply sales 2,090 1,846 ----------------------- -------------- 5,436 5,953 5,878 Total refined product sales 5,916 4,915 6,271 4,482 4,131 Crude oil 4,307 6,383 ----------------------- -------------- 11,707 10,435 10,009 Total oil sales 10,223 11,298 ======================= ============== Chemicals production (kte) 658 730 799 UK 1,529 1,525 1,692 1,688 1,796 Rest of Europe 3,484 3,332 2,562 2,257 2,108 USA 4,365 5,181 577 702 618 Rest of World 1,320 1,154 ----------------------- -------------- 5,489 5,377 5,321 Total production 10,698 11,192 ======================= ============== Exploration and Production 2Q 1Q 2Q First Half 2000 2001 2001 $ million 2001 2000 ================= ============== 3,019 4,680 3,441 Replacement cost operating profit 8,121 6,222 259 - - Special items - 283 349 456 477 Acquisition amortization 933 349 ----------------- -------------- Pro forma operating result 3,627 5,136 3,918 adjusted for special items 9,054 6,854 ================= ============== Results include: 168 169 81 Exploration expense 250 299 ----------------- -------------- 24.98 24.80 24.74 BP average oil realizations(a) ($/bbl) 24.77 25.30 26.88 25.75 27.39 Brent Oil Price ($/bbl) 26.57 26.89 28.96 28.71 27.88 West Texas Intermediate oil price ($/bbl) 28.30 28.91 ================= ============== BP average 2.51 4.96 3.43 natural gas realizations ($/mcf) 4.21 2.33 3.44 7.08 4.66 Henry Hub gas price(b) ($/mmBtu) 5.86 2.98 ================= ============== (a) Crude oil and natural gas liquids. (b) Henry Hub First of the Month Index. The record second quarter pro forma result, adjusted for special items, increased by 8% on a year ago. The improved result reflected an 11% increase in gas production, higher North American gas prices and lower exploration expense. ARCO synergies have been fully achieved. For the half year the result also reflected portfolio changes. Total hydrocarbon production for the quarter was up 4% on the second quarter of 2000, with natural gas volumes up by 11% and oil production stable. Even on a consistent current portfolio basis, the increase was 2%. This continues the recent quarterly achievement of a continuously improving growth rate. For the half year, the total production was up 9% and on a consistent current portfolio basis the increase was 1%. During the quarter, production started up at the Nile and Mica fields in the Gulf of Mexico. In July the Tambar field in Norway started production. In support of growth, capital expenditure during the quarter was $2.4 billion and $4.3 billion for the half year, up 78% on a year ago. The Kizomba development in Angola was approved along with developments for an NGL plant in Egypt and the Milne Point extension project in Alaska. In July, the Valhal flank development offshore Norway, the Azeri Chirag Gunashli phase one development in Azerbaijan and the Atlas Methanol Plant in Trinidad were approved. Exploration and Production (continued) During the quarter, there was a discovery at Cashima (BP 100% and operator) offshore Trinidad. The Cashima 1 well, which is the first of four exploratory wells planned for 2001, discovered an estimated one trillion cubic feet of gas. There were also discoveries in Egypt and in the Gulf of Mexico. In the quarter, BP (67% and operator) successfully bid for one block in the UKCS 19th round, adjacent to the block won in the Faeroes in 2000. In addition, BP signed an agreement to take a 25% interest in Saudi Arabia's largest gas development, the Core Venture 1 project. In June, BP announced the sale of its 9.5% stake in the Kashagan discovery offshore Kazakhstan. Shortly after the quarter end, BP acquired a further 9.7% stake in the Tangguh LNG project in Indonesia. This increases BP's share of the project to around 50%. Gas and Power 2Q 1Q 2Q First Half 2000 2001 2001 $ million 2001 2000 =================== ============== 114 112 173 Replacement cost operating profit 285 256 - - - Special items - - - - - Acquisition amortization - - ------------------- -------------- Pro forma operating result 114 112 173 adjusted for special items 285 256 =================== ============== The pro forma result for the second quarter was $173 million compared with $114 million a year ago, reflecting an improved marketing and trading performance. The half year's result similarly reflected stronger marketing and trading, partly offset by pressure on NGL margins. During the quarter, Heads of Agreement have been signed for the development of China's first liquefied natural gas (LNG) import terminal at Guangdong. BP also submitted an initial investment proposal on behalf of a consortium to develop a 4,200 kilometre west-east pipeline. Agreement has been reached with Statoil to purchase 1.6 billion cubic metres of gas per annum for 15 years with effect from 1 October. This is the first significant contract for gas supplies to the UK from the Norwegian continental shelf since the Frigg contract in 1977. In North America BP announced an agreement in principle for a strategic alliance with the Energy East Corporation, enabling the two parties to pool their combined expertise in natural gas acquisition and supply management. In the USA, BP increased its stake in Green Mountain Energy Company, a leading marketer of cleaner and renewable energy, from 18.5% to 22.9%. The original equity stake was acquired during 2000. Refining and Marketing 2Q 1Q 2Q First Half 2000 2001 2001 $ million 2001 2000 ================= ============= 1,183 753 1,477 Replacement cost operating profit 2,230 1,767 141 53 109 Special items 162 141 70 188 176 Acquisition amortization 364 70 ----------------- ------------- Pro forma operating result 1,394 994 1,762 adjusted for special items 2,756 1,978 ================= ============= 4.69 4.25 5.78 Global Indicator Refining Margin(a)($/bbl) 5.02 3.56 ----------------- ------------- Refinery throughputs (mb/d) 265 310 315 UK 313 273 535 693 623 Rest of Europe 658 528 1,853 1,522 1,642 USA 1,582 1,573 368 386 375 Rest of World 380 360 ----------------- ------------- 3,021 2,911 2,955 Total throughput 2,933 2,734 ================= ============= (a) The Global Indicator Refining Margin (GIM) 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. The pro forma result, after adjusting for special items, for the second quarter was $1,762 million, a quarterly record, and up by $368 million or 26% on the same period last year. The special items comprised Burmah Castrol integration costs and restructuring costs for the commercial business in Europe. The half year result, also a record, was up 39% on a year ago. The main drivers of the improvement in both periods were higher refining margins, the impact of consolidation of the fuels joint venture in Europe, the Burmah Castrol acquisition and unit cost reductions. ARCO synergies have been fully achieved and Burmah Castrol synergies are on track. US refining margins were particularly strong for some of the quarter due to tight supply in the US Midwest and on the West Coast. Marketing sales in the second quarter increased by 15% versus a year ago reflecting consolidation of the European fuels business; this factor, together with the roll-out of BP Connect stores, led to an increase in store sales of 17%. The roll-out of BP Connect continued during the quarter with over 155 BP Connect stores now open in the UK, USA, Australia and New Zealand. BP's leadership position in clean fuels continues to grow with BP now providing clean fuels to 72 cities. In July BP announced that, subject to regulatory approval, it is to acquire a majority stake in Veba Oil which owns Aral, Germany's biggest fuels retailer. Also in July BP announced that it had reached an agreement with Tesoro Petroleum Corporation to sell the Mandan, North Dakota and Salt Lake City, Utah refineries in the USA, with associated storage, pipeline, distribution and gasoline marketing operations, for $677 million, excluding working capital. The agreement is subject to regulatory approval. Chemicals 2Q 1Q 2Q First Half 2000 2001 2001 $ million 2001 2000 ================= ============= 320 81 9 Replacement cost operating profit 90 579 50 - - Special items - 50 - - - Acquisition amortization - - ----------------- ------------- Pro forma operating result 370 81 9 adjusted for special items 90 629 ================= ============= 132 106 103(b)Chemicals Indicator Margin(a) ($/te) 104(b) 123 ================= ============= (a) The Chemicals Indicator Margin (CIM) is a weighted average of externally-based product margins. It is based on market data collected by 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 broader range of products than our previous indicator. Among the products and businesses covered in the CIM are olefins and derivatives, aromatics and derivatives, linear alpha olefins, acetic acid, vinyl acetate monomer and nitriles. Not included are fabrics and fibres, plastic fabrications, poly alpha olefins, anhydrides, engineering polymers and carbon fibres, speciality intermediates, and the remaining parts of the solvents and acetyls businesses. (b) Provisional. The data for the second quarter is based on two months' actuals and one month of provisional data. Chemicals' pro forma result for the second quarter was $9 million, down from $81 million in the first quarter. The second quarter and first half 2001 results were sharply down on a year ago, reflecting the severe deterioration in the trading environment. The results for the second quarter and half year include $19 million and $40 million respectively for restructuring costs. In the second quarter, polymer margins and costs remained under pressure from high feedstock and energy prices in a period of demand weakness. This was exacerbated by operational problems at three crackers which have since been resolved. Production in the second quarter benefited from full ownership of Erdolchemie from 1 May 2001, but was adversely impacted by the cracker problems at Grangemouth in Scotland, Lavera in France and Chocolate Bayou in Texas, USA. In aggregate, second quarter production of 5,321 ktes was similar to the previous quarter and 3% below the same quarter in 2000. First half 2001 volumes were 4% down on the first half of 2000. In response to the trading environment, actions are underway to improve returns by focusing the portfolio, reducing capital expenditure and implementing additional cost reductions. Other Businesses and Corporate 2Q 1Q 2Q First Half 2000 2001 2001 $ million 2001 2000 ================= ============= (299) (127) (128) Replacement cost operating loss (255) (526) 150 - - Special items - 166 - - - Acquisition amortization - - ----------------- ------------- Pro forma operating result (149) (127) (128) adjusted for special items (255) (360) ================= ============= Other Businesses and Corporate comprises Finance, BP Solar, the group's coal asset and aluminium asset, its investments in PetroChina and Sinopec, interest income and costs relating to corporate activities. BP Solar production for the half year was 26% higher than a year ago. Exceptional Items 2Q 1Q 2Q First Half 2000 2001 2001 $ million 2001 2000 ================= ============= Profit (loss) on sale of fixed assets and 161 218 171 businesses and termination of operations 389 4 (141) (113) (72) Taxation charge (185) (108) ----------------- ------------- 20 105 99 Exceptional items after taxation 204 (104) ================= ============= Exceptional items for the second quarter include the profit on sale of the Kashagan discovery in Kazakhstan and loss on the sale of the Carbon Fibers business in the USA. 2001 Dividends BP today announced a second quarterly dividend for 2001 of 5.5 cents per ordinary share. Holders of ordinary shares will receive 3.911 pence per share and holders of American Depository Receipts (ADRs) $0.33 per ADS share. The dividend is payable on 10 September 2001 to shareholders on the register on 17 August 2001. Participants in the Dividend Reinvestment Plan (DRIP) or the DRIP facility in the US Direct Access Plan will receive the dividend in the form of shares, also on 10 September 2001. The third quarter 2001 results and dividend will be announced on 6 November 2001. Half Year Review The Half Year Review will be published in the Financial Times and Wall Street Journal (Europe) on Friday, 10 August 2001. Outlook BP Group Chief Executive, Lord Browne, concluded: 'The oil market remains essentially balanced. Oil prices have fallen from their peaks, but OPEC production cuts earlier in the year have prevented oversupply. Oil consumption is expected to recover seasonally in the coming months. OPEC's actions in regard to supply may support prices within its current target price range. US natural gas prices have fallen sharply in the face of seasonally lower demand and increasing supply, with rapid stock to building. Prices have returned to levels close parity with fuel oil. Refining margins have experienced volatility as product inventories have recovered and margins are likely to settle at levels somewhat lower than recent historic highs. Retail margins have recently risen but are likely to soften owing to competitive pressure. Chemicals margins remain depressed as a result of weak demand and excess capacity. 'BP's focus is now on delivering profitable organic growth, while taking advantage of any structural opportunities which the market presents. We will continue our particular focus on cost and investment discipline to enable these plans to be realized within our financial framework. In the chemicals business, we are responding to the current trading environment by reducing investment in petrochemicals and implementing additional cost reductions.' ---------------------------------------------------------------------- The foregoing discussion, in particular the statements under 'Outlook', focuses on certain trends and general market and economic conditions and outlook on production levels or rates, prices, margins and currency exchange rates and, as such, are forward-looking statements that involve risk and uncertainty that could cause actual results and developments to differ materially from those expressed or implied by this discussion. By their nature, trends and outlook on production, price, margin and currency exchange rates are difficult to forecast with any precision, and there are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including future levels of industry product supply, demand and pricing; currency exchange rates; political stability and economic growth in relevant areas of the world; development and use of new technology and successful partnering; the actions of competitors, natural disasters and other changes to business conditions. Additional information, including information on factors which may affect BP's business, is contained in BP's Annual Report and Accounts for 2000 and in the Annual Report on Form 20-F filed with the US Securities and Exchange Commission. ----------------------------------------------------------------------

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