20th Apr 2006 12:20
BP PLC20 April 2006 ADDRESS TO SHAREHOLDERS AT THE ANNUAL GENERAL MEETING OF BP p.l.c. ON APRIL 20, 2006 BY PETER SUTHERLAND, KCMG, CHAIRMAN AND LORD BROWNE, GROUP CHIEF EXECUTIVE Introduction by Peter Sutherland Good morning ladies and gentlemen. Thank you for joining us at the 97th AnnualGeneral Meeting of BP p.l.c. here at the ExCeL Centre in London's Docklands. Seated on the stage with me in the front row are John Browne, Group ChiefExecutive; Byron Grote, Chief Financial Officer, DeAnne Julius, Chairman of theRemuneration Committee, David Jackson, our Company Secretary; Ian Prosser,Deputy Chairman and senior independent director - Ian is also Chairman of theAudit Committee and Walter Massey, Chairman of the Ethics and EnvironmentAssurance Committee. Regrettably Erroll Davis is unable to join us as he has been required to attendto urgent business in Atlanta, Georgia. All the other current members of theBoard are on stage with us. Michael Wilson, whose name appears in the Notice of Meeting being proposed forre-election, stood down as a Director of the Company at the end of February.Michael has been appointed by the Canadian Government as their Ambassador inWashington DC. He was thus unable to continue to serve on our Board. Michael Miles is joining us for the last time as he is standing down as aDirector at the conclusion of the meeting. Now, as you will have seen from the Notice of Meeting that you received a monthor so ago, we have given more detail on the nature of an Annual General Meetingand how you can best participate in our discussions. You will also see from the Notice that we have changed the order in which we aretaking today's business. Last year a number of you suggested that we begin byconsidering the performance and plans of the Company rather than leave thisuntil the formal items of business have been had been transacted. So this ishow we will begin today. After my introductory remarks, Lord Browne will make a presentation on ourbusiness performance and strategy by way of introduction to the firstResolution. We will then take questions. Many of you will have noticed that the Notice of Meeting has become a lengthierdocument. The goal has been to try to provide shareholders in a single documentwith all the materials they need to attend and participate here today. This isjust one of a number of initiatives we have taken in developing our corporatereporting. BP's corporate reports address a series of different audiences. The AnnualReport has now become a lengthy compliance-focussed document, made even longerby the required disclosures of the recently adopted International FinancialReporting Standards. The Annual Review, which is taken by the vast majority of our shareholders, is ashorter more accessible format. It is intended to provide the key informationthat shareholders require. The Company is described in a more editorial style than the Annual Report. TheDirectors' Remuneration Report appears in summary form and we have removed thelengthy Governance report from the Review. For this reason we have set out bothreports in full in the Notice of Meeting. We would certainly welcome your views on whether we have got the balance right. So what of BP in 2005? As I said in my letter to you in the Annual Report this has been a trulychallenging year. John Browne will shortly be describing the Company and its strategy. He willalso reflect on the challenges which our Executive team have had to face overthe past 12 months. Internal and external events have had an impact on theGroup - some positive, some negative. Let me say at the outset that John andhis Executive team have done an excellent job in often challengingcircumstances. We have a sound strategy in which we have confidence. It is delivering valuefor shareholders and we believe it will continue to do so for the long term. Our work as a Board in the last year has clearly demonstrated that we have to beable to work on the scrutiny and shaping of strategy while at the same timecarrying out detailed monitoring of the Group's operational activity andperformance. There has been a tendency in the period following the Higgs Report and thereview of the Combined Code for boards to see themselves falling into one of twocategories. The Strategic Board to support and encourage entrepreneurial activity and theMonitoring Board which must act as a corporate policeman, a gatekeeper toExecutive Management. A high performing Board must do both. It must be able tocontribute to the strategic debate while ensuring that detailed issues ofcontrol are addressed. I believe that we are striking just the right balance asa Board. The advent of sustained high oil prices has made us look at the shape of ourbusiness through a different lens. The continued development of the Group overthe next five to ten years, and beyond, has been a major area of strategic focusfor the Board throughout the year. This clearly continues. Our core strategy remains unchanged but it has to berefined. Access to reserves, the impact of rapid economic growth in China andIndia, alternative forms of energy production and developments in technology areall issues which are being actively considered. We are a business with a longstride. We must extend our strategic view to a distant horizon. All of the Board Committees, which bear the brunt of the Board's monitoringactivity have been very fully occupied. A report on the work of each committeeis included in our Board Performance Report. We are endeavouring to developthese reports so that shareholders get a real insight into the work that isdone. The Audit Committee met 12 times in the year; the Ethics and EnvironmentAssurance Committee, met seven times. This reflects the substantial businessthat these Committees have to consider and the not insubstantial time requiredfor preparations. Certainly the advent of IFRS added to the work of the AuditCommittee this year. The tragic incident at Texas City required the EEAC toconsider specifically the causes of the incident and the implications for theGroup as a whole. Separately the Chairman's Committee and the Nominations Committee have beenactive to ensure that Director succession, both Executive and Non-executive,takes place in an orderly manner. Last year I used this meeting as an opportunity to comment positively on theadvent of the Operating and Financial Review. I explained that we believed thatdialogue was required as companies sought to find the right balance in terms ofdisclosure. BP is, I believe, rightly proud of the suite of reports we make available toshareholders and other interested parties. We have received very positivefeedback. Corporate reporting is once again under discussion as part of the Government'sCompany Law Reform agenda. In all of this it is important for companies andtheir shareholders that there is clarity over what has to be done and whatresponsibility Boards have to take for their actions, decisions and disclosures. It is vital that we have the right Company Law Framework going forward. I amnot convinced that legislators have yet got the balance right in the clausespresently under debate in order to allow companies to act in a commercialmanner, creating value for the benefit of their shareholders and society as awhole without needless burdens of red-tape and process. Having spoken of the value we must create for shareholders, you will recall thatlast year we made a step-change in the dividend that we pay. Since thenshareholders have seen further incremental increases. The dividend forms only part of our distribution to shareholders. The otherform of distribution is the share buy-back programme. I believe that buyingback shares benefits all shareholders by reducing the number of shares in issueand thereby supporting the value of our shares. The combination of dividend andbuy-back strikes a balance between the needs of our different shareholders. Wevalue those shareholders as long-term holders who I believe are receiving anexcellent return on their investment. As I have already mentioned, Michael Wilson left the Board in February. Michaeljoined the BP Board in 1998 at the time of the Amoco Merger, having served onthe Amoco Board since 1993. He had a distinguished political career between1974 and 1993 and a fine business career subsequently. He had a keen interestin corporate governance matters being the Chairman of the Canadian Coalition ofGood Governance. Michael brought all the strengths from his political andbusiness background to our Board and Committee deliberations. Michael Miles retires from the Board today. Michael joined the Board in 1994 ata time when BP was a very different Company to that which we see today.Michael's broad business perspective, gained from an impressive business career,has been invaluable to the Board. His knowledge of the Far East has beenparticularly important. Michael has also made a significant contribution as aDirector of the Company's Pension Scheme. Both Michael Miles and Michael Wilson sat on the Audit and the Ethics andEnvironment Assurance Committees where their background and experience have beena source of wisdom and insight. I should like to thank them on your behalf fortheir dedicated service and on a personal note, I would wish to acknowledgetheir contributions and thank them for their unswerving support over the years. We shall miss both of them and wish them and their wives Margaret and Carol wellin the future. As a result of these departures. Tom McKillop has now joined the Ethics andEnvironment Assurance Committee. We are reviewing the composition of all theBoard's Committees and I look forward to reporting to you on this next year. So, to the business of the meeting. We have a formidable agenda to consider,with twenty two resolutions. You will know that it is now our practice, in theinterests of transparency and good governance, that all directors should offerthemselves for re election annually. This decision clearly adds to the numberof resolutions before the meeting. However, I do believe that we should be able to move through the resolutionstoday in a timely manner, while ensuring that all present whether shareholders,proxies or corporate representatives have a full opportunity to discuss thebusiness before the meeting and gain an insight into the performance of thecompany. So as permitted by the Company's Articles of Association, I propose to proceedas follows: firstly, with your agreement, I will take the Notice of Meeting asread. Secondly, in order that we can move directly to our discussions I now proposeResolutions 1 to 16 and 18 to 22 as set out in the Notice of Meeting. Havingexplained the circumstances of Michael Wilson's departure from the Board, therewill obviously be no poll on Resolution 17. At the end of the meeting, after our discussions, a poll on each resolution willtake place as required by our Articles of Association. May I draw to your attention Resolutions 20 and 22 which are proposed as SpecialResolutions; that means that to be effective the resolution needs to be passedby a three quarters majority of those voting on the poll. Ladies and gentlemen, let us now move directly to our consideration of BP'sperformance in 2005 under Resolution 1 the Annual Report and Accounts.. As I mentioned earlier John Browne will now describe the Group's performance in2005 and consider the forthcoming year. Remarks by John Browne Chairman, Ladies and Gentlemen, good morning. It's a great pleasure to see somany people here. Thank you very much for coming and thank you for yourcontinued support which we very much appreciate. This morning I'd like to cover our performance in 2005, our strategy which isunchanged, and the outlook for the next three years including the prospects fordividends and returns to shareholders. Those prospects are very encouraging.I'll also talk briefly about some of the highlights of what's to come in thenext year or two because we're moving into a period which should be veryexciting for BP. First then 2005. In many ways 2005 was a year of mixed fortunes for BP. In some respects it was avery difficult year. Just over a year ago we lost 15 people and injured many more in the accident atour refinery in Texas City in the United States. That was an event which weare absolutely determined should never happen again. In the last twelve monthsa great deal of work has been done to identify exactly what happened, and why. We've conducted an extremely thorough internal enquiry, and among a number ofsteps, we've established an independent panel of advisers under the former USSecretary of State James Baker, to study the safety systems, and the safetyculture at all our US refineries. On the basis of the work that's been done, Ifeel confident that we've learnt some very important lessons, and that thoselessons are being applied across our operations, not just in the US, but rightaround the world. 2005 was also a difficult year because of the circumstances in which we wereworking. Continued war in the Middle East, terrorism around the world includinghere in London, the aftermath of the Tsunami, and disruption in the US andelsewhere, caused by the hurricanes. In the face of all those circumstances the BP team responded magnificently. In times of difficulty maintaining energy supplies is very important, and ineach case we managed to keep supplies flowing with minimal disruption. That's agreat credit to the staff of this company. In terms of financial and operating results, 2005 was a very good year. Ourfinancial results demonstrate the effectiveness of our strategy: • a record profit of $19bn; • a record free cash flow of $25bn; • a strong balance sheet with gearing at17 percent, well below our target range of 20 to 30 percent; • replacement under UK SORP of 100 percent of our production, with new proved reserves, and another strong year of exploration success. This is the thirteenth consecutive year that we have replaced 100 percent or more of our production; • divestment of Innovene, yielding cash proceeds of $8.3bn; and • the launch of the BP Alternative Energy business; • with the free cashflow generated, distributions of some $19bn of cash to shareholders; • and finally, an increase in the sterling and dollar dividend per share of 26 percent year on year. The growth in our dividends per share was the highest among the supermajors, andour total distributions to shareholders were some 50 percent higher than theaverage for our peer group. The results we delivered in 2005 were helped, ofcourse, by the strength of the external environment - with high prices and goodmargins. But these results couldn't have been delivered if we hadn't established strongpositions in the past when oil prices were low, or without sustained levels ofinvestment, and a continuing process of performance improvement. Each of thosesteps helped us to reap the benefits of a strong environment in 2005. Looking ahead we believe the environment will continue to be favourable. Theoil market in particular is still tight, with spare capacity below the historicaverage and much uncertainty over the security of production from a number ofdifferent countries including Iran, Iraq and Nigeria. Prices could remain wellabove $40 a barrel for a considerable period of time, but predicting the futureis a dangerous game, and we prefer to be prudent and to test long terminvestments on the basis of prices of no more than $25 a barrel. We believe we have the right strategy and we're determined to maintain thediscipline we've followed so far - investing for the future, but also returningfunds to our shareholders. In the exploration and production business, our strategy is unchanged and it isto grow production with steadily improving returns by: • building leadership positions in a limited number of the world's most prolific hydrocarbon basins; • focusing on the largest fields which are likely to have the lowest unit costs and managing the decline of existing producing fields and when necessary divesting assets which are no longer competitive. We carry forward significant momentum, including the planned start up of morethan 20 new projects over the next three years, underpinning our productiongrowth. Our base of proven reserves and non-proven resources has grown to 59 billion bblof oil equivalent up by 18 billion bbl or 44 percent versus 5 years ago. In gas we operate a fully integrated business. We are currently the 2nd largestgas producer, and the 2nd largest player in LNG amongst the international oilcompanies. LNG is rapidly growing in significance in the portfolio. In the refining and marketing business our strategy is: • to increase investment in our advantaged refining base to enhance flexibility, reliability and margins; • to secure low cost feedstocks through access to the right infrastructure, and through the application of our supply and trading skills; • and to improve marketing margins through carefully focused offers to the consumer, and through a programme designed to reduce unit cash costs in this part of the business by 10 percent by 2008. In addition we're also developing a new business in alternative energy to meetthe changing long term needs of a world in which both energy security, and therisks of environmental damage resulting from climate change, are likely to bemajor challenges that we shouldn't ignore. Our goal is to use advances inscience and engineering to provide new sources of energy which are both greenand local, with the focus here being in the power sector, the source of40percent of global greenhouse gases. Our objective from all these steps is to fulfil the purpose of the business - toprovide customers with the goods and services they need in a sustainable way ata price they can afford. This means satisfying the need for a sustainableenvironment. And this is part of being a company that works consistently inways that help to sustain the development of the world, meeting the growingdemand for energy, and that helps deliver economic growth. To underpin the delivery of these strategic objectives, we've developed a tenpoint business plan. It begins with safety and operational integrity and withthe selection, development and motivation of people. Those are the absoluteessentials for the future strength of the business. We aim to strengthen thequality of our operational activity and to achieve excellence in operationaldelivery at every level. As I have mentioned we intend to develop our capabilities in preparation for aworld which will need a lower carbon energy future, and to build the technologyand engineering skills necessary to deliver that, and all our other businessgoals. Then we have a number of specific financial objectives. We are determined to control costs, with the aim of keeping the growth of cashcosts below the level of inflation. We plan to maintain the total organiccapital spend to around $15bn in '06, then grow it at about $0.5bn a year to '08. Of course, if we found important acquisitions to make, then these would beadditional to these amounts. We will continue to high grade our portfolio withdivestments of around $3bn a year. There are two key outcomes from all that. First we expect production to grow,with improving margins, by about 4 percent a year to 2010. The growth rate will,of course, vary as a result of divestments. And longer term, given the qualityand magnitude of our resource base, that strong production growth shouldcontinue well beyond 2010. Secondly on the basis of that growth, and successful cost discipline, we expectto deliver further improvements in the rate of Return on Average CapitalEmployed relative to our peer group. All the steps necessary to deliver thoseoutcomes are underway. The benefits they bring will be managed within the disciplined financialframework which we have developed over many years. I've talked about the levelof capital expenditure we anticipate. Our approach to the level of gearing isunchanged. We believe that a gearing band of 20 percent to 30 percent is theright level at which to maintain an efficiently leveraged balance sheet, whileensuring protection against the possibility of lower prices. At the beginning of this year our borrowing was below this level because of theproceeds from the sale of Innovene. Let me now turn to distributions. Our dividend policy remains unchanged. It isto grow the dividend per share progressively. In pursuing this policy and insetting the levels of dividends, the Board is guided by several considerations,including: • the prevailing circumstances of the Group; • the investment requirements, and • the trading environment. We have paid out a total of $29.1bn dollars of dividends over the past 5 years.During this period, the dividends per share in dollar terms have grown by about13 percent p.a. For the last twenty years, on average, our rate of growth ofdividends per share has been 3-4 percent above the rate of inflation. Our primary objective is to deliver sustainable growth in free cash flow and todistribute it in order to enhance shareholder returns. How much we deliver willbe driven by the price and margin environment in which we operate. But if oilprices stayed at today's level - that is over $60/bbl, we estimate that thiscould rise to around $65bn, over the next 3 years. All that should mean that for the company and for you as shareholders, as I mayhave said before, the best is yet to come. We have not reached the limits of what is possible and the company hastremendous momentum. To illustrate what I mean let me finish by focusing on justfour of the things which are happening now which will help shape the BP of 2006and beyond, and which will help to produce the sort of returns and dividendsI've talked about. First the BTC pipeline from Baku in Azerbaijan through Georgia to Ceyhan on theTurkish Mediterranean coast. That is one of the great engineering projects ofthe world. It is on schedule to come onstream this year and eventually deliverup to 1 mmbd of oil to the world market, to help to underpin energy security. Second the refinery at Texas City. This is now coming back onstream, and weare determined that it will be a model of performance and safety, and, ofcourse, a very important contributor to the provision of secure supplies withinthe United States. The third example is on the other side of the world. This year we are one thirdinto completion of the development of one of the world's great gas fields atTannguh in Papua, Indonesia. That field holds 12 trillion cubic feet of gas, andwill entrench our position as one of the largest producers and suppliers ofnatural gas in the world. It will also help to build our position in Asia andthe Pacific Coast of the US - two of the fastest growing regions in the world,with first gas by around the end of 2008. And the fourth example is here in the UK, where as part of our strategy todevelop alternative energy we hope to proceed this year with investment in thefirst project to produce carbon free electricity at Peterhead in Scotland. Thatproject uses the technology of sequestration - separating carbon from hydrogen;reinjecting the carbon into the Miller field in the North Sea to improve therate of recovery of oil and taking the hydrogen to an onshore power station togenerate clean electricity. This and similar projects will produce energy whichis local and green - with huge commercial potential for the future. Those are just four examples. I could quote many more. I believe theyillustrate the creative energy and dynamism of a company that is doing well, butwhich is determined to do even better. We know that we cannot achieve this without your support. Thank you very much. - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BP