Net (favourable) unfavourable impact of non-operating items and fair value accounting effects, net of tax(c)
Underlying replacement cost profit(b)
Replacement cost profit
- per ordinary share (cents)
- per ADS (dollars)
Underlying replacement cost profit
- per ordinary share (cents)
- per ADS (dollars)
BP's fourth-quarter replacement cost (RC) profit was $2,139 million, compared with $7,606 million for the same period in 2011. After adjusting for a net loss from non-operating items of $1,825 million and net unfavourable fair value accounting effects of $20 million (both on a post-tax basis), underlying RC profit for the fourth quarter was $3,984 million, compared with $4,986 million for the same period in 2011. Underlying RC profit for the fourth quarter included $4,359 million of underlying RC profit before interest and tax for Upstream, $1,390 million for Downstream, $224 million for TNK-BP, a loss of $447 million for Other businesses and corporate and a $428 million consolidation adjustment to eliminate unrealised profit in inventory.
For the full year, RC profit was $11,993 million, compared with $23,900 million in 2011. After adjusting for a net loss from non-operating items of $5,300 million and net unfavourable fair value accounting effects of $345 million (both on a post-tax basis), underlying RC profit for the full year was $17,638 million, compared with $21,658 million for the same period in 2011. RC profit or loss for the group, underlying RC profit or loss and fair value accounting effects are non-GAAP measures and further information is provided on pages 6, 21 and 23.
The group income statement included a net adverse impact relating to the Gulf of Mexico oil spill, on a pre-tax basis, of $4,132 million for the fourth quarter (which included $3.85 billion in relation to the agreement with the US government to settle all federal criminal charges) and $5,014 million for the full year. All amounts relating to the Gulf of Mexico oil spill have been treated as non-operating items. For further information on the Gulf of Mexico oil spill and its consequences see pages 3 - 5, Note 2 on pages 26 - 33 and Legal proceedings on pages 37 - 46.
Including the impact of the Gulf of Mexico oil spill, net cash provided by operating activities for the fourth quarter and full year was $6.3 billion and $20.4 billion respectively, compared with $5.0 billion and $22.2 billion in the same periods of 2011. Excluding amounts related to the Gulf of Mexico oil spill, net cash provided by operating activities for the fourth quarter and full year was $5.7 billion and $22.8 billion respectively, compared with $6.2 billion and $29.0 billion for the same periods of 2011. We expect to see net cash provided by operating activities of between $30 billion and $31 billion in 2014(d), consistent with the cash flow objectives we set in 2011 as part of our 10-point plan.
Net debt at the end of the quarter was $27.5 billion, compared with $29.0 billion at the end of 2011. The ratio of net debt to net debt plus equity at the end of the quarter was 18.7% compared with 20.5% at the end of 2011. We will continue to target a net debt ratio in the 10-20% range, while uncertainties remain. Net debt is a non-GAAP measure. See page 7 for further information.
BP today announced a quarterly dividend of 9 cents per ordinary share ($0.54 per ADS), which is expected to be paid on 28 March 2013. The corresponding amount in sterling will be announced on 18 March 2013. A scrip dividend alternative is available, allowing shareholders to elect to receive their dividend in the form of new ordinary shares and ADS holders in the form of new ADSs. Details of the scrip dividend programme are available at bp.com/scrip
The effective tax rate (ETR) on replacement cost profit for the fourth quarter was 48%, compared with 30% for the same period in 2011. For the full year the ETR on replacement cost profit was 37%, compared with 33% in 2011. The increase for both periods was mainly due to the impact of the provision for the settlement with the US government, which is not tax deductible and is a non-operating item. For 2013, the underlying ETR (which excludes non-operating items and fair value accounting effects) is expected to be in the range of 36% to 38% compared with 30% in 2012. The increase in the forecast rate is mainly due to a lower level of equity-accounted income in 2013, which is reported net of tax in the income statement.
Total capital expenditure for the fourth quarter and full year was $7.1 billion and $24.3 billion respectively, of which organic capital expenditure(e) was $6.6 billion and $23.1 billion respectively. In 2013, we expect organic capital expenditure to be around $24 billion to $25 billion as we invest to grow in the Upstream. From 2014 through to the end of the decade, we expect a range for organic capital expenditure of between $24 billion and $27 billion per annum.
Disposal proceeds were $6.8 billion for the quarter and $11.4 billion for the full year. Excluding the agreed sale of our 50% interest in TNK-BP to Rosneft, BP has now announced disposals for a total of $38 billion since the beginning of 2010, reaching our target a year earlier than expected. Cumulative proceeds over the three years to 31 December 2012 have been $31.1 billion and we expect to receive the substantial majority of the remaining proceeds during 2013. Looking forward, we expect to make divestments of between $2 billion and $3 billion on average per annum on an ongoing basis.
The charge for depreciation, depletion and amortization was $12.5 billion in 2012 and we expect this to be around $0.5 billion to $1.0 billion higher in 2013. The increase reflects the expected ramp-up of production from higher-margin Upstream assets, and the planned commissioning of the Whiting refinery modernization project in the second half of the year.
Finance costs and net finance income or expense relating to pensions and other post-retirement benefits were a charge of $284 million for the fourth quarter, compared with $261 million for the same period in 2011. For the full year, the respective amounts were $924 million and $983 million. In 2013, when we adopt the revised version of IAS 19 'Employee Benefits', we will be required to apply the same rate of return on plan assets as we use to discount our pension liabilities. We expect this accounting change to adversely impact our quarterly earnings by approximately $260 million on a pre-tax basis, with no impact on cash flow.
BP will report its estimates of proved reserves at 31 December 2012 on an SEC basis in its Annual Report and Form 20-F to be published in early March. BP expects these estimates to show a reserve replacement ratio, excluding acquisitions and disposals, in the range of 75-85% on a combined basis of subsidiaries and equity-accounted entities(b), with net additions to reserves in 2012 being wholly or predominantly from equity-accounted entities(b).
On 16 January 2013, there was a terrorist attack at the In Amenas natural gas site in Algeria. In Amenas is owned and managed by a joint venture consisting of the Algerian state oil and gas company Sonatrach, BP and Statoil. Following the incident, BP removed non-essential workers from Algeria as a precautionary and temporary measure. We are working with our partners to assess the impact of the incident and intend to resume activities when it is safe to do so. BP remains committed to operating in Algeria, where we have high-quality assets and have been present for over 60 years.
(a)Profit attributable to BP shareholders.
(b)See footnote (a) on page 6 for definitions of RC profit and underlying RC profit.
(c)See pages 22 and 23 respectively for further information on non-operating items and fair value accounting effects.
(d)Adjusted to remove TNK-BP dividends from 2011 and 2014 operating cash flow;2014 includes BP's estimate of Rosneft dividend; 2014 includes the impact of payments in respect of the settlement of all federal criminal and securities claims with the US government; BP's assumption for 2014 is $100/bbl oil, $5/mmBtu Henry Hub gas. The projection does not reflect any cash flows relating to other liabilities, contingent liabilities, settlements or contingent assets arising from the Gulf of Mexico oil spill, which may or may not arise at that time.
(e)Organic capital expenditure excludes acquisitions and asset exchanges, and expenditure associated with deepening our US natural gas and North Sea asset bases (see page 20).
Forward-looking statements - cautionary statement
This presentation and the associated slides and discussion contain forward-looking statements, particularly those regarding: the expected impact of BP's reshaping of its portfolio on its reported results and underlying performance in 2013; the prospects for financial momentum in 2013 and 2014; BP's plans to complete 15 major start-ups by the end of 2014; the expected timing of completion of the Rosneft transaction; the expected impact and future prospects of BP's reloaded portfolio, including the prospects for earnings and operating cash flow in 2013; the timing of and prospects for the Whiting refinery modernisation project, including future prospects for operating cash flow; BP's expectations regarding key global energy trends to 2030; the expected level of reported production in the first quarter of 2013; the expected financial impact of refinery turnarounds in the first quarter of and full-year 2013; the expected level of petrochemicals margins in the 2013; the expected level of the quarterly charge in Other Businesses and Corporate; the future impacts of BP's divestment programme, including the impact on reported production in 2013; prospects for the completion of planned and announced divestments, including the Texas City and Carson refineries, and the timing for the receipt of and quantum of disposal proceeds; the expected future levels of gearing and net debt; the expected level of full-year underlying and reported production in 2013
the level of full-year capital expenditure for 2013; the level of depreciation, depletion and amortization in 2013; the expected full-year effective tax rate in 2013; the expected impact of BP's adoption of new accounting standards, including expectations regarding the impact of new reporting standards for pensions accounting on 2013 earnings; the anticipated increase by more than 50% in operating cash flow by 2014; the expected level of organic capital expenditure to the end of the decade; BP's future per annum divestment plans; expectations regarding the quarterly dividend payment and future distributions to shareholders; BP's intentions to use part of the proceeds from the Rosneft transaction to offset dilution to earnings per share; the prospects for and expected timing of certain investigations, claims, settlements and litigation outcomes; the timing of future MDL 2179 proceedings; the expected source of funding for the settlement agreements with the Plaintiffs' Steering Committee (PSC); BP's expectations about its ability to manage payments in respect of the DOJ and SEC settlements within its current financial framework; BP's expectations regarding the prospects for value creation in Rosneft; expectations regarding the '10-point plan';
BP's plans to increase upstream reinvestment; BP's plans to test 10 new material opportunities and to add two new provinces to BP's portfolio each decade; expectations regarding production ramp-up and maximum production rates at PVSM and Skarv; the prospects for, timing and composition of future projects including expected Final Investment Decisions, start up, completion, timing of production, level of production and margins; the expected amount and nature of major projects that BP plans to progress through 2020; prospects for BP's ramp-up of its rig fleet; expectations regarding the average cash margins of projects delivered out to 2017 in comparison to 2011, and prospects for cash margin growth throughout the decade; the expected future contribution to production of fields already producing and of oil fields or gas fields with oil-linked prices; BP's expectations about generating half of its operating cash through to 2020 from its operations in Angola, Azerbaijan, the Gulf of Mexico and the North Sea; BP's plans to complete its re-positioning of its Fuels portfolio by 2014 and to focus future investments and efficiency programs on the expansion of cash margin capability; BP's plans to expand its Lubricants business and to continue to invest in brand, technology and customer relationships; and BP's plans to expand the position of its Petrochemicals business in Asia and to further develop the commercialisation of Petrochemicals proprietary technologies.
By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will or may occur in the future. Actual results may differ from those expressed in such statements, depending on a variety of factors including the actions of regulators and the timing of the receipt of governmental and regulatory approvals; strategic and operational decisions by Rosneft's management and board of directors; the timing of bringing new fields onstream and of project start-ups; the timing of and prospects for ramp up of major projects and higher margin assets; maintenance outages; the impact of reserves reviews; the timing of divestments; future levels of industry product supply; demand and pricing; OPEC quota restrictions; PSA effects; operational problems; general economic conditions; political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; regulatory or legal actions including the types of enforcement action pursued and the nature of remedies sought; the impact on our reputation following the Gulf of Mexico oil spill; exchange rate fluctuations; development and use of new technology; the success or otherwise of partnering; the actions of competitors, trading partners, creditors, rating agencies and others; natural disasters and adverse weather conditions; changes in public expectations and other changes to business conditions; wars and acts of terrorism or sabotage; and other factors discussed under "Principal risks and uncertainties" in our Stock Exchange Announcement for the period ended 30 June 2012 and under "Risk factors" in our Annual Report and Form 20-F 2011 as filed with the US Securities and Exchange Commission.
Reconciliations to GAAP - This presentation also contains financial information which is not presented in accordance with generally accepted accounting principles (GAAP). A quantitative reconciliation of this information to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found on our website at www.bp.com.
Statement of Assumptions - The operating cash flow projection for 2014 stated on slides 21 and 40 of this presentation assumes an oil price of $100 per barrel and a Henry Hub gas price of $5/mmBtu in 2014. The projection has been adjusted to (i) remove TNK-BP dividends from 2011 operating cash flow and 2014 estimated operating cash flow; (ii) include BP's estimate of Rosneft dividends in 2014; and (iii) include in 2014 estimated operating cash flow the impact of payments in respect of the settlement of all criminal and securities claims with the U.S. government. The projection does not reflect any cash flows relating to other liabilities, contingent liabilities, settlements or contingent assets arising from the Gulf of Mexico oil spill which may or may not arise at that time. As disclosed in the Stock Exchange Announcement, we are not today able to reliably estimate the amount or timing of a number of contingent liabilities.
Cautionary note to US investors - U.S. investors are urged to consider closely the disclosures in our Form 20-F, SEC File No. 1-06262. This form is available on our website at www.bp.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or by logging on to their website at www.sec.gov. Tables and projections in this presentation are BP projections unless otherwise stated.