DGAP-News: bp Annual Report and Form 20-F 2020Source: EQS
The Company announces that the
In compliance with 9.6.1 of the Listing Rules, on
This document will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Company Secretary's Office
Tel: +44 (0)20 7496 4000
The Disclosure Guidance and Transparency Rules (DTR) require that an announcement of the publication of an Annual Report should include the disclosure of such information from the Annual Report as is of a type that would be required to be disseminated in a Half-yearly Report in compliance with the DTR 6.3.5(2) disclosure requirement. Accordingly the following disclosures are made in the Appendices below. References to page numbers and notes to the accounts made in the following Appendices, refer to page numbers and notes to the accounts in the
APPENDIX A - AUDIT REPORTS
Audited financial statements for 2020 are contained in the
APPENDIX B - DIRECTORS' RESPONSIBILITY STATEMENT
Statement of directors' responsibilities
* The consolidated financial statements, prepared on the basis of IFRS as issued by the IASB, IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU and in accordance with the provisions of the Companies Act 2006 as applicable to companies reporting under international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the group.
* The parent company financial statements, prepared in accordance with
* The management report, which is incorporated in the strategic report and directors' report, includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties that they face.
Strategic and commercial risks
Prices and markets - our financial performance is impacted by fluctuating prices of oil, gas and refined products, technological change, exchange rate fluctuations, and the general macroeconomic outlook.
Oil, gas and product prices are subject to international supply and demand and margins can be volatile. Political developments, increased supply from new oil and gas or alternative low carbon energy sources, technological change, global economic conditions, public health situations (including the continued impact of the COVID-19 pandemic or any future epidemic or pandemic) and the influence of
Exchange rate fluctuations can create currency exposures and impact underlying costs and revenues. Crude oil prices are generally set in US dollars, while products vary in currency. Many of our major project development costs are denominated in local currencies, which may be subject to fluctuations against the US dollar.
Access, renewal and reserves progression - inability to access, renew and progress upstream resources in a timely manner could adversely affect our long-term replacement of reserves.
Focused renewal of our reserve base in line with our strategy depends on our ability to progress upstream resources from our existing portfolio and access new resource in our core areas, generating future opportunities for oil and natural gas production. Competition for access to investment opportunities, heightened political and economic risks where we operate, unsuccessful exploration activity, technical challenges and capital commitments may adversely affect our reserve replacement. This, and our ability to progress upstream resources at a level in line with our strategic outlook for hydrocarbon production, could impact our future production and financial performance.
Major project delivery - failure to invest in the best opportunities or deliver major projects successfully could adversely affect our financial performance.
We face challenges in developing major projects, particularly in geographically and technically challenging areas. Poor investment choice, efficiency or delivery, or operational challenges at any major project that underpins production or production growth could adversely affect our financial performance.
Geopolitical - exposure to a range of political developments and consequent changes to the operating and regulatory environment could cause business disruption.
We operate and may seek new opportunities in countries, regions and cities where political, economic and social transition may take place. Political instability, changes to the regulatory environment or taxation, international trade disputes and barriers to free trade, international sanctions, expropriation or nationalization of property, civil strife, strikes, insurrections, acts of terrorism, acts of war and public health situations (including the continued impact of the COVID-19 pandemic or any future epidemic or pandemic) may disrupt or curtail our operations or development activities. These may in turn cause production to decline, limit our ability to pursue new opportunities, affect the recoverability of our assets or cause us to incur additional costs, particularly due to the long-term nature of many of our projects and significant capital expenditure required. Events in or relating to
Liquidity, financial capacity and financial, including credit, exposure - failure to work within our financial framework could impact our ability to operate and result in financial loss.
Failure to accurately forecast or work within our financial framework could impact our ability to operate and result in financial loss. Trade and other receivables, including overdue receivables, may not be recovered, divestments may not be successfully completed and a substantial and unexpected cash call or funding request could disrupt our financial framework or overwhelm our ability to meet our obligations.
An event such as a significant operational incident, legal proceedings or a geopolitical event in an area where we have significant activities, could reduce our financial liquidity and our credit ratings. Credit rating downgrades could potentially increase financing costs and limit access to financing or engagement in our trading activities on acceptable terms, which could put pressure on the group's liquidity.
Joint arrangements and contractors - varying levels of control over the standards, operations and compliance of our partners, contractors and sub-contractors could result in legal liability and reputational damage.
We conduct many of our activities through joint arrangements, associates or with contractors and sub-contractors where we may have limited influence and control over the performance of such operations. Our partners and contractors are responsible for the adequacy of the resources and capabilities they bring to a project. If these are found to be lacking, there may be financial, operational or safety exposures for
Digital infrastructure and cyber security - breach or failure of our or third parties' digital infrastructure or cyber security, including loss or misuse of sensitive information could damage our operations, increase costs and damage our reputation.
The energy industry is subject to fast-evolving risks from cyber threat actors, including nation states, criminals, terrorists, hacktivists and insiders. A breach or failure of our or third parties' digital infrastructure - including control systems - due to breaches of our cyber defences, or those of third parties, negligence, intentional misconduct or other reasons, could seriously disrupt our operations. This could result in the loss or misuse of data or sensitive information, injury to people, disruption to our business, harm to the environment or our assets, legal or regulatory breaches and legal liability. Furthermore, the rapid detection of attempts to gain unauthorized access to our digital infrastructure, often through the use of sophisticated and co-ordinated means, is a challenge and any delay or failure to detect could compound these potential harms. These could result in significant costs including fines, cost of remediation or reputational consequences.
Climate change and the transition to a lower carbon economy - developments in policy, law, regulation, technology and markets, including societal and investor sentiment, related to the issue of climate change could increase costs, constrain our operations and affect our business plans and financial performance.
Laws, regulations, policies, obligations, government actions, social attitudes and customer preferences relating to climate change and the transition to a lower carbon economy, including the pace of change to any of these factors, and also the pace of the transition itself, could have adverse impacts on our business including on our access to and realization of competitive opportunities in any of our strategic focus areas, a decline in demand for, or constraints on our ability to sell certain products, constraints on production and supply and access to new reserves, adverse litigation and regulatory or litigation outcomes, increased costs from compliance and increased provisions for environmental and legal liabilities.
Investor preferences and sentiment are influenced by environmental, social and corporate governance (ESG) considerations including climate change and the transition to a lower carbon economy. Changes in those preferences and sentiment could affect our access to capital markets and our attractiveness to potential investors, potentially resulting in reduced access to financing, increased financing costs and impacts upon our business plans and financial performance.
Technological improvements or innovations that support the transition to a lower carbon economy, and customer preferences or regulatory incentives that alter fuel or power choices, could impact demand for oil and gas. Depending on the nature and speed of any such changes and our response, these changes could increase costs, reduce our profitability, reduce demand for certain products, limit our access to new opportunities, require us to write down certain assets or curtail or cease certain operations, and affect investor sentiment, our access to capital markets, our competitiveness and financial performance.
Policy, legal regulatory, technological and market developments related to climate change could also affect future price assumptions used in the assessment of recoverability of asset carrying values including goodwill, the judgement as to whether there is continued intent to develop exploration and appraisal intangible assets, the timing of decommissioning of assets and the useful economic lives of assets used for the calculation of depreciation and amortization. See Financial statements - Note 1 and Climate change and the environment on page 52.
Competition - inability to remain efficient, maintain a high-quality portfolio of assets, innovate and retain an appropriately skilled workforce could negatively impact delivery of our strategy in a highly competitive market.
Our strategic progress and performance could be impeded if we are unable to control our development and operating costs and margins, if we fail to scale our businesses at pace, or to sustain, develop and operate a high-quality portfolio of assets efficiently. Furthermore, as we transition from an
Crisis management and business continuity - failure to address an incident effectively could potentially disrupt our business.
Our business activities could be disrupted if we do not respond, or are perceived not to respond, in an appropriate manner to any major crisis or if we are not able to restore or replace critical operational capacity.
Insurance - our insurance strategy could expose the group to material uninsured losses.
Safety and operational risks
Process safety, personal safety, and environmental risks - exposure to a wide range of health, safety, security and environmental risks could cause harm to people, the environment and our assets and result in regulatory action, legal liability, business interruption, increased costs, damage to our reputation and potentially denial of our licence to operate.
Technical integrity failure, natural disasters, extreme weather or a change in its frequency or severity, human error and other adverse events or conditions, including breach of digital security, could lead to loss of containment of hydrocarbons or other hazardous materials. This could also lead to constrained availability of resources used in our operating activities, as well as fires, explosions or other personal and process safety incidents, including when drilling wells, operating facilities and those associated with transportation by road, sea or pipeline. There can be no certainty that our operating management system or other policies and procedures will adequately identify all process safety, personal safety and environmental risks or that all our operating activities, including acquired businesses, will be conducted in conformance with these systems. See Safety on page 59.
Such events or conditions, including a marine incident, or inability to provide safe environments for our workforce and the public while at our facilities, premises or during transportation, could lead to injuries, loss of life or environmental damage. As a result we could face regulatory action and legal liability, including penalties and remediation obligations, increased costs and potentially denial of our licence to operate. Our activities are sometimes conducted in hazardous, remote or environmentally sensitive locations, where the consequences of such events or conditions could be greater than in other locations.
Drilling and production - challenging operational environments and other uncertainties could impact drilling and production activities.
Our activities require high levels of investment and are sometimes conducted in challenging environments such as those prone to natural disasters and extreme weather, which heightens the risks of technical integrity failure. The physical characteristics of an oil or natural gas field, and cost of drilling, completing or operating wells is often uncertain. We may be required to curtail, delay or cancel drilling operations or stop production because of a variety of factors, including unexpected drilling conditions, pressure or irregularities in geological formations, equipment failures or accidents, adverse weather conditions and compliance with governmental requirements.
Security - hostile acts against our staff and activities could cause harm to people and disrupt our operations.
Acts of terrorism, piracy, sabotage and similar activities directed against our operations and facilities, pipelines, transportation or digital infrastructure could cause harm to people and severely disrupt operations. Our activities could also be severely affected by conflict, civil strife or political unrest.
Product quality - supplying customers with off-specification products could damage our reputation, lead to regulatory action and legal liability, and impact our financial performance.
Failure to meet product quality specifications could cause harm to people and the environment, damage our reputation, result in regulatory action and legal liability, and impact financial performance.
Compliance and control risks
Ethical misconduct and non-compliance - ethical misconduct or breaches of applicable laws by our businesses or our employees could be damaging to our reputation, and could result in litigation, regulatory action and penalties.
Incidents of ethical misconduct or non-compliance with applicable laws and regulations, including anti-bribery and corruption and anti-fraud laws, trade restrictions or other sanctions, could damage our reputation, and result in litigation, regulatory action, penalties and potentially affect our licence to operate.
Regulation - changes in the law and regulation could increase costs, constrain our operations and affect our business plans and financial performance.
Our businesses and operations are subject to the laws and regulations applicable in each country, state or other regional or local area in which they occur. These laws and regulations result in an often complex, uncertain and changing legal and regulatory environment for our global businesses and operations. Changes in laws or regulations, including how they are interpreted and enforced, can and does impact all aspects of our business.
Royalties and taxes, particularly those applied to our hydrocarbon activities, tend to be high compared with those imposed on similar commercial activities. In certain jurisdictions there is also a degree of uncertainty relating to tax law interpretation and changes. Governments may change their fiscal and regulatory frameworks in response to public pressure on finances, resulting in increased amounts payable to them or their agencies.
Changes in law or regulation could increase the compliance and litigation risk and costs, reduce our profitability, reduce demand for or constrain our ability to sell certain products, limit our access to new opportunities, require us to divest or write down certain assets or curtail or cease certain operations, or affect the adequacy of our provisions for pensions, tax, decommissioning, environmental and legal liabilities. Changes in laws or regulations could result in the nationalization, expropriation, cancellation, non-renewal or renegotiation of our interests, assets and related rights. Potential changes to pension or financial market regulation could also impact funding requirements of the group. Following the
We are subject to operational risk around our treasury and trading activities in financial and commodity markets, some of which are regulated. Failure to process, manage and monitor a large number of complex transactions across many markets and currencies while complying with all regulatory requirements could hinder profitable trading opportunities. There is a risk that a single trader or a group of traders could act outside of our delegations and controls, leading to regulatory intervention and resulting in financial loss, fines and potentially damaging our reputation. See Financial statements - Note 29.
Reporting - failure to accurately report our data could lead to regulatory action, legal liability and reputational damage.
External reporting of financial and non-financial data, including reserves estimates, relies on the integrity of the control environment, our systems and people operating them. Failure to report data accurately and in compliance with applicable standards could result in regulatory action, legal liability and damage to our reputation.
APPENDIX D - RELATED PARTY TRANSACTIONS
Extract from Note 16 Investments in joint ventures,
The terms of the outstanding balances receivable from joint ventures are typically 30 to 45 days. The balances are unsecured and will be settled in cash. There are no significant provisions for doubtful debts relating to these balances and no significant expense recognized in the income statement in respect of bad or doubtful debts. Dividends receivable are not included in the table above.
Extract from Note 17 Investments in associates,
Transactions between the group and its associates are summarized below.
In addition to the transactions shown in the table above, in 2018
The terms of the outstanding balances receivable from associates are typically 30 to 45 days. The balances are unsecured and will be settled in cash. There are no significant provisions for doubtful debts relating to these balances and no significant expense recognized in the income statement in respect of bad or doubtful debts. Dividends receivable are not included in the table above.
The majority of purchases from associates relate to crude oil and oil products transactions with Rosneft. Sales to associates are related to various entities.
Transactions between the group and its significant joint ventures and associates are summarized in Financial statements - Note 16 and Note 17. In the ordinary course of its business, the group enters into transactions with various organizations with which some of its directors or executive officers are associated. Except as described in this report, the group did not have any material transactions or transactions of an unusual nature with, and did not make loans to, related parties in the period commencing
APPENDIX E - IMPORTANT EVENTS DURING THE YEAR
For a full glossary of terms, see
1. Extracted in full and unedited text from the Chairman's letter,
Dear fellow shareholders,
2020: the year of the pandemic
Because demand for energy is closely linked to human activity, our sector was deeply affected. The combination of a steep fall in share values for almost all oil and gas companies and a new
As chairman of your board, I am conscious of my responsibilities to
The board was unanimous in its support for this course of action, which will help establish
2020 was also tough for our people. My board colleagues and I are proud of them. Their commitment - on rigs, in refineries, across retail stations and everywhere else in
Change of this scale necessitated a reorganization of how we work. That reorganization will ultimately see close to 10,000 colleagues leaving
Macro-economic developments have only strengthened the board's belief that the direction in which we are taking
A year of engagement
2020 was therefore a year of engagement with our stakeholders, and I am grateful for the inputs we received - which helped us shape our new strategy, financial frame and investor proposition, sustainability frame and position on biodiversity. We will keep listening, and we count on you to share your feedback with us as we travel the road to net zero together.
Evolution of the board
Finally, I thank you, our shareholders. I am grateful both for the continued support we received during 2020, and also for the support of our new shareholders. During 2020, we received investment and other endorsement from those who told us they would not have considered supporting
The year 2020 will be remembered above all for the pain, sadness and loss of life caused by COVID-19. At
Responding to brutal conditions
We began our transformation from an international oil company to an integrated energy company against this backdrop, along with lower oil and gas prices, lower refining margins and unprecedented falls in demand for our retail and aviation fuels. Our response included lowering costs, strengthening the balance sheet with an innovative hybrid bond issue, and advancing our strategy to become a more diversified, resilient and lower carbon company. As part of our strategy planning process, we reviewed our portfolio and development plans. This work - informed by
For shareholders, all this was reflected in a reset dividend and a diminished share price. I recognize the financial impact this must have had on you. However, I wholeheartedly believe we will not just restore, but will enhance the long-term sustainable value of your company through the actions we are taking to reinvent
Performing while transforming
The loss of
* Most importantly - our safety performance continued to improve.
* Reliability of 94% for
* Capital was reset and we delivered at the lower end of the range.
* We made good progress towards our net debt target, including the contribution from high grading our portfolio and
* New oil and gas production came on from four major projects« - in
* Natural gas from the Shah Deniz field in the
* And we doubled our retail network in growth markets to around 2,700 retail sites, plus the addition of around 300 strategic convenience sites.
This performance is even more remarkable given that we have been carrying out the most extensive reorganization in
We are now more centralized, more agile, and better integrated. This enables us to maximize value creation in a rapidly evolving market through economies of scale, and by exploiting synergies and driving continuous improvement in operational performance.
We are now organized around four business groups.
* Production & operations is the operating heart of the company - and is focusing our resilient hydrocarbons portfolio on value.
* Customers & products is growing our convenience and mobility offers for an increasing number of customers.
* Gas & low carbon energy is growing to help meet rapidly increasing clean energy demand.
* Innovation & engineering acts as a catalyst, opening up new and disruptive business models and driving our digital transformation.
And our trading & shipping business and regions, cities & solutions team knit together the offers of our four core groups to drive greater value creation.
Completing our transformation to a net zero
We now have offshore wind partnerships in the US with Equinor and in the
A compelling investor proposition
We are fully focused at all times on the bottom line of the business - on executing our strategy while operating safely, reliably and with discipline. We continue to build resilience and strength in the balance sheet as conditions remain challenging and uncertain while vaccines
roll out, the pandemic recedes, and economies look to recover. At the same time, we are transforming to create value from the energy transition over the long term.
We see tremendous business opportunity in providing people with the reliable, affordable, clean energy they want and need. Our net zero ambition is clearly the right thing for society, but we know it does not give us a free pass in a fast-changing world. We have to show you the evidence that we can compete fiercely and add value - in service of the compelling investor proposition we believe we offer:
* Committed distributions - including the dividend as the number one priority;
* Profitable growth; and
* Sustainable value.
This is all in service of growing long-term shareholder value, that is our job. And I promise to keep you well informed as we execute our plans. As ever, thank you for your continued support - I will never take that for granted. And I look forward to any feedback you might have.
Chief executive officer
Financial and operating performance
After adjusting RC loss for a net charge for non-operating items of
The profit for the year ended
In 2019 the net charge was
See pages 304 and 305 for more information on non-operating items and fair value accounting effects.
Adjusting for inventory holding impacts, non-operating items and fair value accounting effects, the underlying ETR in 2020 was lower than in 2019, mainly reflecting the exploration write-offs with a limited deferred tax benefit and the reassessment of deferred tax asset recognition. The underlying ETR for 2021 is expected to be higher than 40% but is sensitive to the impact that volatility in the current environment may have on the geographical mix of the group's profits and losses. Underlying ETR is a non-GAAP measure. A reconciliation to GAAP information is provided on page 348.
Upstream's activities included oil and natural gas exploration, field development and production; midstream transportation, storage and processing; and the marketing and trading of natural gas, including liquefied natural gas (LNG), together with power and natural gas liquids (NGLs). For further details of Upstream's activities during the year see page 308.
Downstream's activities covered convenience and mobility offers, including next-gen mobility to our customers. It also included the refining, manufacturing, marketing, transportation, and supply and trading of crude oil, petroleum, lubricants and petrochemicals products.
The Rosneft segment result includes equity-accounted earnings arising from
Other businesses and corporate comprised the biofuels and wind businesses, the group's shipping and treasury functions, and corporate activities worldwide.
a Realizations are based on sales by consolidated subsidiaries« only, which excludes equity-accounted entities.
b Includes condensate.
c All traded days average.
RC loss before interest and tax for the segment included a net non-operating charge of
The 2019 result included a net non-operating charge of
After adjusting for non-operating items and fair value accounting effects, the underlying RC result before interest and tax was lower in 2020 compared with 2019. This primarily reflected lower liquids and gas realizations and the impact of writing down certain exploration intangible carrying values.
RC profit before interest and tax for 2020 included a net non-operating gain of
After adjusting for non-operating items and fair value accounting effects, underlying RC profit before interest and tax for the year was
The fuels business reported a lower underlying RC profit before interest and tax compared with 2019, due to an exceptionally weak refining environment, with COVID-19 restrictions impacting refining utilization and fuel volumes. The 2020 result also reflects a higher contribution from supply and trading.
Our fuels marketing business demonstrated continued resilience, delivering significant profit in 2020, despite COVID-19 - which adversely impacted retail fuel and aviation volumes by 14% and 50% respectively.
Refining loss in 2020 reflects the continued impact of historically low industry margins. Although refining availability was strong at 96%, utilization was around 6% lower than 2019, due to the impact of COVID-19 on demand. These factors were partially offset by a lower level of turnaround activity and lower costs.
In the fourth quarter of 2020, we announced plans to cease production at our
We continued to redefine convenience in 2020, delivering a 6% growth in convenience gross margin. We also expanded our retail network by more than 1,400 sites, to a total of 20,300, including more than 1,900 strategic convenience sites. And we completed the formation of Jio-
We also progressed our electrification agenda, growing our network to 10,100
The lubricants business reported a lower underlying RC profit before interest and tax compared with 2019 and this reflected significant COVID-19 demand impacts, with volumes 15% lower for the year. We continued to expand our service offer in 2020, growing the number of Castrol branded independent workshops by more than 4,000 to over 28,000 globally.
The petrochemicals business reported a lower underlying RC profit before interest and tax compared with 2019, reflecting the impact of COVID-19 on demand and a significantly weaker margin environment. In December we completed the divestment of
For more information see Additional information for Downstream on page 318.
After adjusting for non-operating items, the underlying RC profit before interest and tax in 2020 primarily reflected lower oil prices and unfavourable foreign exchange and adverse duty lag effects compared with 2019 underlying profit.
Financial and operating performance for 2020 also reflected the increased average economic interest that
For more information see Additional information for Rosneft on page 320.
Other businesses and corporate
After adjusting for non-operating items and fair value accounting effects, the underlying RC loss before interest and tax for the year ended
Outlook for 2021
* Oil demand is anticipated to recover in 2021. The speed and degree of the rebound depends on governments' policies and individuals' self-imposed actions as vaccine distribution proceeds. 46
* Oil prices have risen since the end of October, supported by vaccine rollout programmes and continued active supply management by OPEC+ countries. Prices are expected to remain subject to the decisions of OPEC+, confidence in efforts to manage the rollout of vaccination and further virus control measures.
* We expect the US gas market to tighten in 2021 as supply declines and demand for LNG exports recovers. The current tightness on global LNG markets and higher US gas prices will lift other regional gas prices.
* US gas markets are likely to benefit from lower production and a recovery in international LNG demand driven by demand in
* In Downstream we expect the outlook for the first part of the year to remain challenged due to COVID-19, but to improve. While COVID-19 has had material impacts at the start of the year, with increased restrictions resulting in lower product demand, we expect this uncertainty to improve subject to the successful rollout of vaccination and virus control measures. Industry refining margins and utilization continue to remain restrained by uncertainty about the pace of demand recovery. The weak margin environment combined with continued capacity additions in developing markets has prompted a raft of third-party closure announcements. However, these closures are unlikely to be sufficient to see a sustained rebound in margins to pre-COVID levels in 2021.
* Full-year 2021 underlying production is expected to be slightly higher than 2020 due to the ramp-up of major projects, primarily in gas regions, partly offset by the impacts of reduced capital investment and decline in lower-margin gas assets. Reported production is expected to be lower due to the impact of the ongoing divestment programme.
* Other businesses and corporate charges for 2021, excluding non-operating items, fair value accounting effects and foreign exchange volatility impact, are expected to be
Cash flow and net debt information
a This does not form part of
Operating cash flow
Movements in working capital adversely impacted cash flow in the year by
Operating cash flow for the year ended
Movements in working capital adversely impacted cash flow in the year by
Net cash used in investing activities
The decrease mainly reflected lower capital expenditure, particularly due to payments of
Total capital expenditure for 2020 was
Total divestment and other proceeds for 2020 amounted to
Total divestment and other proceeds for 2019 amounted to
Total dividends distributed to shareholders in 2020 were
Group reserves and production
Total hydrocarbon production for the group was 8% lower compared with 2019. The decrease comprised an 11% decrease (6% decrease for liquids and 16% decrease for gas) for subsidiaries and a 2% decrease (4% decrease for liquids and 2% increase for gas) for equity-accounted entities.
a Because of rounding, some totals may not agree exactly with the sum of their component parts.