14th Apr 2005 13:03
BP PLC14 April 2005 ADDRESS TO SHAREHOLDERS AT THE ANNUAL GENERAL MEETING OF BP p.l.c. ON APRIL 14, 2005 BY PETER SUTHERLAND, KCMG, CHAIRMAN, AND LORD BROWNE, GROUP CHIEF EXECUTIVE Introduction by Peter Sutherland Good morning ladies and gentlemen. Welcome. Thank you for joining us at the96th Annual General Meeting of BP p.l.c. here at the Royal Festival Hall. I am Peter Sutherland. Seated on the stage with me in the front row, on myleft, are John Browne, group chief executive; Byron Grote, chief financialofficer; DeAnne Julius, chairman of the Remuneration Committee; and Sir RobinNicholson, her predecessor as chairman of the Remuneration Committee. To my right, in the front row, are David Jackson, our company secretary; IanProsser, deputy chairman, senior independent director and chairman of the AuditCommittee; and Walter Massey, chairman of the Ethics and Environment AssuranceCommittee. Regrettably our newest director Douglas Flint is unable to join us today due toa long standing prior engagement. Also Michael Wilson has been required toattend to urgent business in Canada, which means that he too cannot be with us.Both Douglas and Michael have asked me to give their apologies to the meeting.All the other members of the Board are on the stage with us. Our two longest serving directors are joining us for the last time. Sir RobinNicholson and Chuck Knight are standing down as directors at the conclusion ofthe meeting. Before we move to any business, I have a brief safety message for you. In theunlikely event that an emergency evacuation is required, the House Manager willmake an announcement from this stage. Please remain in your seats until theannouncement has been completed. The hall stewards will direct you to yournearest safe exit. Please keep your admission ticket with you at all times. Safety is of prime importance to all of us at BP. Safety briefings such as theone that I have just given precede all our meetings at external venues. Westrive to ensure that all those who work for us or with us may carry out theirwork without harm. The explosion last month at our refinery in Texas City, our largest refinery inthe United States is a tragic and shocking reminder of the consequences ofthings going wrong. 15 people were killed and many more, around 70, wereinjured as a result of the explosion and the fire. Some seriously. On behalfof the Board, I and indeed all of BP, take this opportunity to offer our sincerecondolences to the families of those concerned, to our colleagues and to thecommunity of Texas City. Events such as this demonstrate that however good the team and the processesthat have been developed, we can never be complacent. I am not going to comment further on Texas City as it is now a matter ofinvestigations, by BP and by the State and Federal Authorities in the UnitedStates. We will report on this fully when we are able to do so. So what of BP in 2004? A number of adjectives have been used to describe theperformance of the Company against a background of sustained high oil and gasprices. All are entirely appropriate for what, financially, has been the bestyear in BP's history. John Browne will shortly be describing the company and its strategy. Theexcellent achievements so far confirms that creating a company with global reachwas the right strategy. It is the Board's confidence in this strategy and the position of the Groupgenerally that underpins our decision to make a step-change in the dividend thatwe pay to shareholders. Our policy of returning value to shareholders throughdividends and buybacks will continue. John will be commenting on this issue inhis remarks. From my perspective the buyback programme and the increaseddividend gives all shareholders the opportunity to be part of the success of theCompany and addresses the concerns that were raised at our meeting last year. BP's business is both global and complex. It places huge demands on theintellect and stamina of the executives who lead the Company. We are fortunateto have an executive team of such great quality lead by an exemplary chiefexecutive. These are words that I do not use lightly. A business like ours wouldbe difficult to manage without individuals such as these. This is the first year in which British companies have had to meet therequirements of the new Combined Code. We have taken this opportunity todescribe the activities of the Board and its committees in even greater detail.We have also endeavoured to give more detailed descriptions of the individualmembers of the Board and the contributions that they make. You will see that wehave changed the membership of some of our committees; and as a consequence ofRobin Nicholson's retirement, De Anne Julius has taken the chair of theremuneration committee. I am sure that we will develop the manner in which we report these matters toyou our shareholders. It is important to remember that the goal of the HiggsReport on improving corporate governance was to increase the transparency overhow companies governed themselves, to give an insight into the effectiveness ofthe board and the manner in which the directors, particularly thenon-executives, discharge their roles. The idea was not to create a newcompliance industry! The advent of the Operating and Financial Review in the coming years will createa similar challenge. Companies will need to shape disclosure in such a way thatit stays relevant and focussed. Shareholders can reasonably expect to have adescription of the material risks and uncertainties which face the company inwhich they have invested. Just as with the Revised Combined Code it may take alittle time for companies to find the right balance, dialogue in this area issomething which should be encouraged. Perhaps I am being unduly optimistic when I say that the goal should be thatreporting should become a pleasure and not a chore. Companies stand at thecentre of the economy. They should be pleased to describe what they do to theirowners and rightly demonstrate that they are a force for good rather than thecontrary position which is often portrayed. From these remarks you will know that reporting is important to BP. Companiesmust be transparent when it comes to how they are governed and how they conducttheir business. We have moved from a time when it was simply enough to assert that all was well. Companies now need to show rather than to simply tell. Not only do we wish toreport fully to our shareholders, but we take pride in describing to others,whom our activities touch, the steps that we are taking to be responsive totheir interests. The BP Sustainability Report 2004 covering the period toDecember 2004 was published on Monday of this week. You will be able to findcopies of this Report outside the Hall. The Sustainability Report is a furtherdevelopment in transparency for our business. I commend it to you. In last year's Annual Report, I described the plans we had for Board succession. Two new non-executive directors have joined the board since the last AGM. TomMcKillop joined us in June last year and Douglas Flint in January this year.Tony Burgmans, of course had joined us in February 2004. These are threeimportant appointments which reinforce the Board's skills. Each of these newdirectors brings a very broad experience of global business whilst being able tomake specific contributions in the fields of technology and engineering, financeand accounting and marketing. I trust that you will join me in welcoming them. During the summer Dick Olver stood down as an executive director on beingappointed Chairman of BAE Systems PLC. Dick had an eminent career with BPspanning some 30 years. He joined the Board in 1998 when he took overresponsibility for the upstream business. In 2003 he became Deputy ChiefExecutive. We certainly miss Dick's robust, yet measured contributions to ourdiscussions. He already seems to have his hands full at BAE! Dick has ourthanks, and our best wishes go to him and Pam for the future. In July we were pleased to welcome Iain Conn to the Board. Iain is responsiblefor a wide portfolio of activities within BP including Technology, Health andSafety, Environmental matters and Human Resources; together with Regionalresponsibility for Europe and Russia. Iain was previously accountable for thePetrochemicals segment. Iain, together with Tom and Douglas, substantiallyreinforces the Celtic representation around the Board table! Today we say farewell to Robin Nicholson and Chuck Knight. It is difficult todescribe the contributions that both these men have made to BP and its Board.Both joined the board in October 1987, at this time British Petroleum p.l.c. wasa very different company to the BP of today. The intervening years have seen adramatic transformation of the company. Their perspective on this period ofremarkable growth and evolution has been invaluable to the Board and I believeto John and his management team. Chuck was the first US national to join the BP board as a non-executivedirector. He has led his business, Emerson, from success to success and isrightly now recognised as one of the leading businessmen in the United States.Chuck has been a source of great wisdom and business insight to the board. Likewise, Robin has made an immense contribution to BP. Recently he has been thechairman of the Remuneration Committee, leading the wide ranging review ofremuneration policies for executive directors and the successful development ofpolicy on the renewal of the new long term plan which is before you today. Robin has also chaired the BP Technology Advisory Committee on behalf of theBoard where his training and scientific background utilised to the full havemade a major contribution to our thinking and developments in this area. I amdelighted that Robin has agreed to continue in this role after his retirementfrom the Board. In these brief words it is not possible to sum up the contributions that Chuckand Robin have made. They leave with all our thanks; and with best wishes tothem and to Yvonne and Joanne for the future. So, to the business of the meeting. We have a formidable agenda to consider,some twenty four resolutions. You will know from our meeting last year that inthe interests of transparency and good governance, it was agreed that alldirectors should offer themselves for re-election annually. This decision hasclearly added to the number of resolutions before the meeting today. Indeed ashareholder commented last year, that he intended to vote against the necessarychange to the Articles as he was appalled at the thought of spending hoursdiscussing the appointment of each director. I do believe, however, that we should be able to move through all of theresolutions today in a timely manner, while ensuring that all present whethershareholders, proxies or corporate representatives have a full opportunity todiscuss the business before the meeting and gain an insight into the performanceof the company. Now, I will ask John Browne to speak on our performance in 2004, and the yearahead. Remarks by Lord Browne Thank you, Peter. Ladies and Gentlemen, it is again a great pleasure to beable to report to you about the purpose, strategy, results and some futureprospects of your company. Our purpose is to provide better goods and services in the form of light, heat,power and mobility to the increasing numbers of people around the world who bothwant and can afford these things, and through this activity, to delivershareholder value on a long-term basis. To succeed, we need to do this in a way which is profitable, consistent andsustainable. To deliver profitable performance, we provide high qualityproducts in an effective way - maximising revenues and minimising costs. Todeliver consistent performance, we invest at a rate which supports anappropriate level of long-term growth, while balancing this with your returns. To deliver sustainable performance: we invest for the long-term; attract andretain the best people; work with others towards a sustainable naturalenvironment; and build trust through relationships built on mutual advantagewhich bring benefits to everyone concerned. In enacting our strategy, we must also act responsibly, both in our businessoperations as well as in the actions we take on those important external issueswhere our contribution can make a difference. Climate change is a good example. A more complete outline of whatresponsibility means for BP is provided in the Sustainability Report which Ilaunched earlier this week in London and copies of which are provided for youtoday. 2004 was an outstanding year for our company. Our financial results for 2004demonstrate the effectiveness of our strategy: • replacement cost profit of $15.4 billion, a record, up by 24 per cent; • strong post tax cash flow of $23 billion, up 43 per cent; • a quarterly dividend of 8.5 cents per share, up by 26 per cent; • share buybacks of over $7.5 billion; • and a strong balance sheet with gearing at 22 per cent, at the bottom of our target range. Those achievements have been helped by favourable trading conditions. But theycouldn't have been delivered without the internal improvements which have beenachieved over the last decade. Those are down to strategy and to thedisciplined way in which we've pursued it. And that approach will continue. Webelieve we have the right strategy and we are determined to maintain thediscipline we've followed so far. So 2004 was an outstanding year for BP but, of course, that success has beenovershadowed by the explosion at our refinery in Texas City a month ago. AsPeter has said, several people died and many were injured. Our immediatepriority is to support and help the bereaved, the injured, and all thoseaffected. We are conducting our own detailed investigation into the accident in parallelwith the investigations being carried out by various US authorities. We willpublish the results of our investigation. We want to know exactly what wentwrong and to use that knowledge to improve our safety procedures there andeverywhere else. I visited Texas City the day after the accident and I talked to some of thepeople most directly affected. I think it was the saddest and most moving dayof my entire career in BP. I want to reiterate what I said then. I deeply regret this tragic event. BPtakes responsibility for what happens at its sites. We want BP to be a safeplace to work. So as well as mourning for those we have lost, we are determinedto learn from this tragedy and improve our safety record. Now let me go back to 2004 and talk about the context in which we have beenoperating. World economic growth in 2004 was strong and oil demand growth was the strongestit has been for almost 30 years. Oil demand was met without interruption, butthe level of spare capacity - that is, production held back by OPEC - was belowhistoric levels. 2005 is expected to show more moderate oil demand growth as world economicgrowth reverts to trend, although over the first three months of the year demandhas remained strong and oil prices have reflected that by averaging over $47 abarrel. The prospects for oil price will depend on the strength of underlying supply,demand growth, OPEC politics and perception of risk to political stability inthe key producing areas. On supply, non-OPEC production is expected to continue to grow in aggregate.For the next three years, this net growth is estimated to be about 1 millionbarrels per day each year - broadly similar to the average increase over thelast five years. Growth in Russian production is expected to continue, but at asomewhat slower pace than in the recent past. And OPEC's total productioncapacity should also grow. The level of demand will determine how much spare capacity is available. If theannual increase in demand reverted to its historic norm, increased OPEC capacityshould allow for a gradual rebuilding of global spare capacity to a level morelike the 3 million barrels per day that has prevailed for the last decade. We've concluded on the basis of the supply/demand balance and OPEC's five yeartrack record of maintaining production discipline, that oil prices are likely tohave a support level of around $30 a barrel for at least the medium term. As far as BP is concerned, we are continuing to use an oil price of $20 a barrelfor the purpose of testing projects and planning our activity level in theExploration and Production segment. This allows us to maintain a portfolio ofactivities with strong returns. Turning now to strategy. A key strategic judgement is striking the balancebetween the level of investment and the level of cash we distribute toshareholders. This balance is driven by consideration of the appropriate level of growth inwhat is a maturing industry. Too fast a growth rate is likely to beunsustainable, and too low a growth rate could hand competitive advantage toothers. But growth is not an end in itself. The essence of our strategy is to keepproviding better goods and services in a highly competitive way. Our challengeis to add new sources of cash flow to existing ones with the new sources havingcash returns at least as good as the existing ones. We've identified a strongset of opportunities to do that over the medium and longer term. The outcome of all this is that we have confidence in BP's ability to performsustainably, not just for the next few years but for the longer term. Let me summarise the operations and prospects for our four main businesses.Turning first to Exploration and Production 2004 was the twelfth consecutive year in which our reserves have been replacedat over 100 per cent as presented under UK Statement of Recommended Practice ("SORP"). We've made major discoveries in Egypt, Sakhalin in Russia, and in the deepwaterGulf of Mexico, which are creating exciting opportunities for the future. We'vealso made significant discoveries in Trinidad and in Angola. In total we addedover 1 billion barrels oil equivalent of resources in 2004. At the end of 2004 our reserves, under SORP, stood at 18.6 billion barrels ofoil equivalent. On top of those reserves we have a portfolio of non provedresources of over twice that amount - some 39 billion barrels of oil equivalent.We have a strong track record of converting these resources into reserves, andadding new resources from success in exploration. This significant base is of high quality, and gives us confidence that it hasthe potential to continue to grow production over at least the next ten yearseven if we don't go into new geographic areas. This underpins our confidence inthe future. Now a brief word on our significant set of 15 new major projects in our newprofit centres, primarily the deep water Gulf of Mexico, the Caspian, Angola,Trinidad and Algeria. These are on track to add significantly to production in 2005 and beyond. Earlythis year we approved our share of the investment in the Tangguh gas project inPapua, Indonesia and later this year we expect to approve further developmentsin Angola and Australia. Turning now to Russia. Oil production by TNK-BP grew by 14 per cent in 2004 andwe expect production to continue to grow by around 5 per cent in 2005. Capital expenditure in TNK-BP, which continues to be self-funding, grew to $1.5billion in 2004 and is forecast to increase further, to approximately $1.8billion in 2005, as new prospects are developed for the future. Now, over 18 months into the joint venture with Alfa Access-Renova, significantpositive changes have taken place in TNK-BP's organisation, the system ofinternal control, the ability to plan, the approach to safety and environmentalissues, and the application of new technologies. While there are alwaysuncertainties, our constructive relationship with Russia and our joint venturecontinues to strengthen. Since the formation of TNK-BP, the total investment we've made has been $5.3billion and total dividends we've received have been $2.2 billion. Overall for the E&P business, production is on track with our previousestimates; the absolute level will depend on price, divestments and otherfactors such as unusual weather effects. Production grew by 11 per cent in 2004to 3.9 million barrels oil equivalent per day. Our expectation for 2005, based on our $20 a barrel planning basis, is thatreported production will be between 4.1 and 4.2 million barrels of oilequivalent per day before any divestments. Turning now to the Refining and Marketing Segment. Firstly, refining. Once wehave divested the Lavera and Grangemouth refineries the majority of ourremaining refining capacity will be located in the United States. That refiningcapacity is structurally advantaged, and when compared to competitors, ourrefineries are in the top quartile on margins and return on investment. In Europe, without Lavera and Grangemouth, our position should improveconsiderably. We've built this strong portfolio by focusing on the quality,flexibility and location of our refineries. In retail we continue to improve our products and services and will only operatewhere we have competitive advantage. We continue to rationalise our networkwith the divestment of 700 underperforming sites in 2004, and will continue toget out of weaker market positions. In the places we're investing, we are seeing significant growth above market inour store sales, including on our BP Connect sites. The sales of our premiumgasoline and diesel, Ultimate, also continue to grow strongly. We still enjoy anumber one position in the UK with a 16 per cent market share. Now turning to gas. Our global gas sales increased to 32 billion cubic feet perday in 2004. Going forward, we expect medium term growth of 2 to 3 per cent ayear which is in line with growth in global gas demand. We continue to be the leading gas marketer in North America - our number onemarket, anchored by strong upstream positions in the Gulf of Mexico, theMid-Continent, the Rockies, Canada, and Trinidad. And our plans for LNG are on track both in the Atlantic Basin and in the PacificBasin, where we're concluding sales agreements with China, Mexico and SouthKorea for the gas from Tangguh in Indonesia. Next, Petrochemicals and first, Olefins and Derivatives. Almost all of ourexisting interests in these activities will form the basis for the new holdingcompany, called Innovene, which we plan to divest. Innovene will also includethe refineries at Grangemouth and Lavera, and that will allow it to captureadditional synergy value across the two sites. The formation of Innovene isproceeding on track for divestment during the second half of 2005, probably byway of an IPO, subject to market conditions and necessary approvals. In the high growth Aromatics and Acetyls business, BP enjoys leading marketshares and technologies. The business produces important building blocks forproducts which enhance our daily lives - products such as light weight bottlesfor carbonated drinks. We are retaining this business and investing in it tomaintain our leadership position. We expect capital expenditure in 2005 to be around $14 billion; the exact levelwill depend on the level of the dollar and our continuing track record ofoffsetting normal underlying inflation of around 2 per cent per annum. Proceedsfrom divestments, with the exception of those from Innovene, are not presentlyexpected to be large. Let me now turn to distributions. The Group's dividend policy is toprogressively increase your dividend. In pursuing this policy, we're guided byseveral considerations, including: • the prevailing conditions of the Group; • our future investment patterns and sustainability; • and finally, the future trading environment. These considerations led us to the conclusion that the Group should make asignificant one time step change in the level of the quarterly dividend from the7.1 to 8.5 cents per share to be paid in the first quarter of 2005. We expectto grow the dividend from this point in line with our view of future sustainableperformance. We estimate that this level of dividend allows us to maintainprudent earnings cover even if oil prices went down to $20 a barrel. We determine and pay our dividend in the functional currency of the Group,namely dollars. However, many of our shareholders, including most of you herewith us today, are sterling based and clearly the dollar's weakness has had animpact on your sterling cash flows. This one time step change will be to yourbenefit. This new level of dividend means that dollar based investors will have seen a 26per cent increase in the dividend paid in the first quarter compared with lastyear. For sterling investors the increase is 23 per cent. And, we remain committed to returning 100 per cent of excess free cash flow toour investors so long as oil prices remain above $20 a barrel, all other thingsbeing appropriate. We could use some of the excess free cash flow, for example, for materialacquisitions if we saw opportunities which fitted the strategy, but we see nosuch opportunities at present. Between the completion of the Arco acquisition in 2000 and the end of March thisyear we've bought back some 1.8 billion shares for $15.6 billion, reducing thenumber of shares in issue by around 8 per cent. To summarise. 2004 was an excellent year for BP. Our success so far is due tothe combination of strategy and discipline. Over the past few years we've builta strong base for the Group with material assets and markets into which we'reinvesting. Importantly, in spite of the significantly better than expected tradingconditions, we are maintaining a disciplined approach to the execution of ourstrategy, and consequently making sure that excess free cash flows areappropriately distributed to shareholders. None of this could have been achieved without the outstanding team of 103,000 BPpeople that it's my privilege to lead. Some of them are with us here today and Iwould like to thank every one of them for the major contribution they've made toour success. And I would like to thank you, our shareholders, for thecontinuing confidence you have shown in us. There is growing momentum in our activities and growing confidence in ourfuture. Our commitment to the combination of strategy and discipline, todeliver long term shareholder value, is unchanged. And that's why I can stillsay with great confidence that the best is yet to come. Thank you very much. - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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