EARNINGS / British Petroleum Company P.L.C.
THE BRITISH PETROLEUM COMPANY p.l.c.
GROUP RESULTS JANUARY - DECEMBER 1997
Fourth Third Fourth
Quarter Quarter Quarter HIGHLIGHTS Year
1996 1997 1997 1997 1996
Replacement cost
operating profit
1,738 1,746 1,573 Dollars million 7,086 6,540
Replacement cost profit
before exceptional items
1,113 1,126 1,065 Dollars million 4,628 4,087
Profit after
exceptional items
Replacement cost
540 1,111 1,031 Dollars million 4,571 3,354
Historical cost
789 1,169 983 Dollars million 4,051 3,981
Earnings per ADR:
Replacement cost profit
before exceptional items
1.19 1.18 1.11 Dollars 4.87 4.37
Historical cost profit
after exceptional items
0.84 1.24 1.02 Dollars 4.26 4.26
Dividends per ADR
0.547 0.588 0.599 Dollars 2.301 1.971
Oil price - North Sea
average realizations
23.1 18.3 18.4 Dollars per barrel 19.1 20.4
BP Group Chief Executive, Mr. John Browne, commented:
- Quarterly dividend increased to 5.75 pence per share. Total dividend for
1997 up 13 percent.
- The year's replacement cost profit, before exceptional items,
was $4,628 million, representing an increase of 13 percent over the
record set last year. The fourth quarter result of
$1,065 million was 4 percent down on a year ago; this decrease
largely equates to adverse currency effects arising from
both a continuation of sterling strength seen throughout
1997, and also Asian currency weakness in the quarter.
- The group's performance enhancement program continues to
increase year-on-year underlying results, with volume increases
and cost efficiencies leading to underlying performance
improvements broadly double the year's objective of $300
million. The fourth quarter result was achieved despite a fall
in average oil prices of around $4 per barrel compared with
last year.
- Strong cash generation in 1997 permitted a reduction in net
debt of $413 million. This was achieved after financing higher
capital expenditure, including the acquisition of a 10 percent
interest in A O Sidanco, a major Russian integrated oil
company, and purchases for the employee share scheme programs.
- Year-end net debt stood at $6.9 billion and the net debt to net
debt plus equity ratio at 23 percent.
Key Business Features of the Quarter
- Exploration and Production's dollar result, although down
on a year ago when oil prices were some $4 a barrel
higher, benefited from new production and lower
exploration expense. During the fourth quarter, four new
fields came onstream and the Russian partnership with
Sidanco was announced. These fourth quarter events
completed an excellent year, with exploration success in
Angola, Alaska, Australia, Norway and the Gulf of Mexico,
and the successful bid for new licence blocks in the Gulf
of Mexico.
- The Refining and Marketing operating profit increased
compared with a year ago, against a backdrop of
significantly weaker refining margins. This increase was
achieved through continuing improvements in refinery
performance, increased marketing volumes and higher
merchandizing income, and the benefits of the downstream
joint venture with Mobil.
- The Chemicals' result was similar to last year's with the
benefit of improved volumes and margins offset by the
effect of the strength of sterling against the
deutschmark. Compared to the previous quarter the result
was lower, in spite of a 6 percent increase in volumes, due
to lower margins and Asian currency weakness.
Dividends
- A quarterly dividend of 5.75 pence per share was announced. The
increase for the year is 13 percent, with the fourth quarter dividend
10 percent higher than a year ago. For those shareholders electing
to receive dividends in shares instead of cash, the share dividend
is based on the net cash dividend of 5.75 pence plus the
associated tax credit, a total of 7.1875 pence per share. Based
upon the price used for allocating shares under the Share
Dividend Plan, this represents 25 percent more than the net cash
dividend.
OUTLOOK
Crude oil prices declined during the fourth quarter and were, on average,
significantly below the levels of a year ago. Prices in 1998 have remained
under pressure, with OPEC production increases, uncertainties about Asian
economic growth and the mild winter in the northern hemisphere leading to
substantially increased inventory levels. The trend of future prices will
depend on supply side response to this situation and demand development.
Upstream, it is expected that 1998 production will show a significant
increase over 1997. It will reflect a full year's production from the new
fields commissioned in 1997, and new field start-ups in the second half of
1998 in U.K. waters, the U.S. North Slope and South America.
Downstream, relatively high OECD product inventories are likely to exert
some pressure on margins, in spite of the lag effect of lower oil prices.
In Chemicals, underlying economic growth is expected to remain firm in the
key European and U.S. markets. However, competitive pressures are likely to
increase throughout 1998 as significant new capacity comes on stream in the
U.S., Middle East and Asia. A key uncertainty is the impact on demand growth
of recent events in some Asian countries. In addition, the strength of the
pound sterling remains a competitive issue.
DETAILED REVIEW OF BUSINESSES
Exploration and Production
4Q 3Q 4Q Year
1996 1997 1997 1997 1996
Replacement cost
1,315 1,099 1,136 operating profit $m 4,854 4,778
Results include:
138 75 86 Exploration expense $m 326 317
Average realizations
23.1 18.3 18.4 : North Sea $/bbl 19.1 20.4
21.9 17.3 18.3 : Alaskan North Slope (ANS) $/bbl 19.0 19.7
1,286 1,208 1,309 Oil production mb/d 1,251 1,241
1,665 1,391 1,654 Natural gas production mmcf/d 1,663 1,535
1,573 1,448 1,594 Total production mboe/d 1,538 1,506
The year's result of $4,854 million showed an increase of $76 million over
1996. Benefits from improved production more than compensated for the impact
of lower oil prices, down by $1 a barrel from 1996.
The quarter's replacement cost operating profit of $1,136 million, showed
a decrease of $179 million compared with the equivalent quarter last year,
when oil prices were some $4 a barrel higher. Improved production and lower
exploration expense partially compensated for the impact of the lower prices.
During the quarter, production started at three new fields. Foinaven (BP
72 percent and operator) became the first field onstream in the deepwater
Atlantic margin west of Shetland. In the North Sea, the Erskine field (BP 50
percent) started production using an unmanned installation linked to the
Lomond platform. In the Gulf of Mexico, the Troika field (BP 33.3 percent)
started production from sub-sea facilities in 2,700 feet of water.
In November, oil began to flow from a fourth field, Chirag-Azeri (BP 17.1
percent) in the Caspian Sea. Production will be recorded early in 1998 when
the line to shore has been filled. During the quarter, BP also signed a major
offshore exploration and production agreement (BP 9.5 percent) with the
Republic of Kazakhstan granting rights to offshore acreage in the North
Caspian. This follows the successful completion of the three-year seismic
survey conducted under an earlier agreement.
Also in November, BP announced the formation of a strategic partnership
with Sidanco, which involved the purchase of a 10 percent interest for $571
million, of which $484 million was paid in 1997, and the acquisition by BP of
45 percent of Sidanco's 60 percent interest in Rusia, an Irkutsk-based company
with major oil and natural gas discoveries in East Siberia. In return for its
interest in this first major joint venture of the partnership, BP will meet
$172 million of the future costs of the appraisal program for the Rusia
discoveries.
Refining and Marketing
4Q 3Q 4Q Year
1996 1997 1997 1997 1996
Replacement cost
264 432 268 operating profit $m 1,492 1,059
Indicative worldwide industry
2.3 1.9 1.3 average refining margin $/bbl 1.8 2.2
1,733 1,790 1,760 Refinery throughputs mb/d 1,797 1,730
1,934 2,074 2,063 Marketing sales mb/d 2,043 1,868
Operating profit for the year was $1,492 million, the year-on-year
increase of 41 percent reflecting continuing operating improvements in both
refining and marketing, a good trading performance, and the benefit of the
Mobil joint venture in Europe. The impact of the environment has been mixed,
with better BP refining margins and improved retail margins in the U.K.,
offset by an increase in competitive pressures in the U.S. and Australasia
retail markets, and the impact of dollar strength.
Fourth quarter operating profit of $268 million was at a similar level to
last year's, despite the considerably less favorable refining environment.
This effect was offset by improvements in both marketing and refining
performance, and the benefits generated by the downstream joint venture with
Mobil.
During the quarter, progress in implementing the Mobil joint venture
continued according to plan, with sales volumes 6 percent higher than a year
ago. There have been further developments in our retail partnership strategy,
with first sites opening in Portugal and Japan. As part of ongoing retail
network rationalization, BP agreed in November to sell its network of 48
service stations in Thailand to Caltex.
Commercial marketing operations were further developed during the quarter
via acquisition and agreements in the LPG and aviation businesses.
The refining repositioning strategy continues on course. Crude oil
processing at the Pernis site in Rotterdam has now been terminated, and the
refurbished crude unit at the Europoort site has commenced operations. Both
of these actions are part of the plan for moving to a single processing site
for Rotterdam refining operations by the end of 1998. A review of options in
respect of the Lavera refinery in France has indicated that the sale or
closure anticipated as part of BP's global refinery network rationalization,
announced two years ago, is no longer the optimal solution and the refinery
will continue in operation within the BP/Mobil joint venture for the
foreseeable future. In Germany, the new refining company Bayernoil, created by
the merger of the RVI refinery (BP 62.5 percent) and ERN (Neustadt) refinery
(Mobil 50 percent), was established on January 1, 1998.
CHEMICALS
4Q 3Q 4Q Year
1996 1997 1997 1997 1996
Replacement cost
170 224 184 operating profit $m 794 743
Production volumes
2,210 2,304 2,447 ('000 tonnes) kte 9,336 8,330
Operating profit for the year of $794 million and for the fourth quarter
of $184 million has improved over the previous year as a result of improved
volumes and higher margins, despite results being adversely affected by the
strength of sterling and a weaker deutschmark, and Asian currency weakness in
the fourth quarter.
Chemical production in 1997 benefited from capacity expansions brought
onstream towards the end of 1996. This resulted in a year-on-year production
increase of 12 percent, with fourth quarter production 11 percent higher than
a year ago.
During the quarter, BP agreed to buy Styrenix Kunstsoffe, the styrene
plastics business owned by the German chemicals company Huls, part of the Veba
group. The deal will make BP Chemicals one of the largest styrenics producers
in Europe. Under the agreement BP will become the owner of two operations at
Marl, Germany and Trelleborg, Sweden. Annual production capacity at Marl is
380 kte of styrene, 420 kte of ethyl benzene, 180 kte of expandable
polystyrene and 250 kte of cumene. Annual production capacity at Trelleborg is
70 kte of polystyrene.
Also announced during the quarter were plans for a world-scale production
plant (BP 100 percent) for 1.4 butanediol based on the new GEMINOX technology
developed jointly by BP and Lurgi Ol-Gas-Chemie GmbH. The preferred plant
location is BP's Lima site in the U.S. and construction is planned to begin by
the end of 1998 with completion scheduled for 2000.
Other businesses and corporate
4Q 3Q 4Q Year
1996 1997 1997 1997 1996
Replacement cost
(11) (9) (15) operating loss $m (54) (40)
Other Businesses and Corporate comprises BP Finance, BP Solar, the group's
remaining nutrition and coal assets, interest income and costs relating to
corporate activities worldwide.
Exceptional Items
4Q 3Q 4Q Year
1996 1997 1997 1997 1996
Loss on sale or termination
(106) (17) (147) of operations $m (172) (273)
Refinery network
- - 71 rationalization $m 71 -
European joint
(532) - - venture implementation $m - (532)
(638) (17) (76) Sub-total $m (101) (805)
59 2 42 Taxation credit $m 44 66
Minority shareholders'
6 - - interest (MSI) $m - 6
Exceptional items
(573) (15) (34) after taxation and MSI $m (57) (733)
The major element of the loss on sale or termination of operations in the
fourth quarter comprises the costs of terminating base oil manufacturing
operations at Llandarcy in the U.K.. The decision to continue operating the
Lavera fuels refinery in France gives rise to the fourth quarter exceptional
credit in respect of the write-back of the relevant provisions.
GROUP FINANCE AND TAXATION
Interest expense for the year was $486 million, compared to $641 million
in 1996. The 1996 figure included net special charges of $74 million relating
to early redemption of debt. On an underlying basis, interest expense was 14
percent lower than in 1996 due to the combined effects of lower debt and
interest rates. Interest expense for the fourth quarter of 1997 was $117
million, compared with $140 million in the equivalent quarter of 1996.
Taxation charged in the year, other than production taxes, was
$1,915 million, compared with $1,727 million in 1996. Taxation charged in the
fourth quarter was $349 million, compared with $420 million in the same
quarter of 1996. The effective tax rate on replacement cost profit, before
exceptional items, for the year was 30 percent, the same as that for 1996, and
continues to benefit from the utilization of past tax losses and the write-
back of Advance Corporation Tax. It is expected that the effective tax rate
will continue at or around this level during 1998.
Underlying net cash inflow in the fourth quarter and the year was $390
million and $386 million below the levels of the previous year respectively.
This is after adjusting for the final payments during 1996 in respect of the
1994 Alaskan tax settlement. For both periods, higher operating cash flow due
to lower working capital requirements was more than offset by higher capital
expenditure and acquisitions and lower disposal proceeds.
The group's finance debt is almost entirely in U.S. Dollars. Net debt,
i.e. debt less cash and liquid resources, was reduced by $413 million during
the year. Net debt at the end of December was $6.9 billion and the ratio of
net debt to net debt plus equity 23 percent.
INCOME ADJUSTED FOR SPECIAL ITEMS
Adjusted Adjusted
Results ------- 4Q 1997 ----------- Results
4Q 3Q Adjusted Special Reported Year
1996 1997 Results ItemsA Results $ million 1997 1996
Exploration and
1,315 1,099 1,136 - 1,136 Production 4,854 4,778
Refining and
264 432 268 - 268 Marketing 1,492 1,059
170 224 184 - 184 Chemicals 794 743
Other businesses
(11) (9) (15) - (15) and corporate (54) (40)
RC operating
1,738 1,746 1,573 - 1,573 profit 7,086 6,540
(140) (125) (117) - (117)Interest expense (486) (567)
(479) (493) (391) - (391)Taxation (1,959) (1,816)
(6) (2) - - - MSI (13) (19)
RC profit before
exceptional
1,113 1,126 1,065 - 1,065 items 4,628 4,138
Exceptional items
(76) before tax
Taxation on
42 exceptional items
RC profit after
1,031 exceptional items
Inventory holding
(48) gains (losses)
983 HC profit
A: The special items refer to non-recurring charges and credits reported
in the quarter.
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