17th Apr 2008 12:40
BP PLC17 April 2008 ADDRESS TO SHAREHOLDERS AT THE ANNUAL GENERAL MEETING OF BP p.l.c. ON APRIL 17, 2008 BY PETER SUTHERLAND, KCMG, CHAIRMAN AND TONY HAYWARD, GROUP CHIEF EXECUTIVE Introduction by Peter Sutherland Good morning ladies and gentlemen. Welcome. Thank you for joining us at the99th Annual General Meeting of BP p.l.c. here at the ExCeL Centre in London'sDocklands. I am pleased to tell you that the whole board is present for our meeting today.I am very pleased to welcome Tony Hayward to his first AGM as chief executive ofthe company. After some thoughts from me, Tony will give us his perspective onwhere BP stands today and the challenges that it faces. Let me say at the outset that Tony was chosen unanimously by the board as theCEO. He has assembled around him a great team in whom the board has greatconfidence to take BP forward and to regain its position of leadership in theindustry. Last year when we were together I said that the year then passed had been one ofthe most varied and turbulent in the company's long history. There had been arecord oil price and strong financial results. We had also faced a series ofregulatory issues mainly in the USA. So where are we a year on? The oil price is even higher and appears set to remain high. Our financialperformance has not been good. Our assets have not been there to benefit fromthe high price of oil when needed. It has been a year of change. A year of rebuilding. A year which we ended inmuch better shape than when we started. Tony's new management team is now starting to create the momentum to move thecompany forward, to be able to benefit from the great assets and great strategicpositions that have been created over the years. Texas City and Whitingrefineries are back on stream. Atlantis and Great Plutonio are now producingoil and gas. Thunderhorse will be in production before the end of the year.These are important achievements that are recognised by the company and themarket alike. There has been change within the company. Tony's focus on the 'Forward Agenda'will ensure that the company is 'match fit' to face the coming challenges from amarket which is coming to terms with the realities of a high oil price. Tonywill comment on this shortly. Your board has gone through some change, and will go through more next year as Iretire at next year's AGM. Whilst its members may change, the role which the board plays does not alter.We must continue to reinforce the values of the company and set the appropriate'tone from the top.' As a board we have, over the year, looked at the way weoperate and taken steps to improve the way in which we work so that we are ableto respond, particularly to the strategic challenges that are facing the group. It is very clear that the industry finds itself at an inflexion point. The highoil price coupled with the geopolitical developments of recent years mean thatBP has to adapt in its strategy and operations to meet the challenges of thischanging world. These are exciting times but they can be risky too. I am verypleased to say that the team at the top is working well in getting to grips withthese issues. The strengths of your board shows itself in the way in which it can deal withever changing geopolitical issues. BP's unique position in Russia is oneexample of this. Our position there is important and our activities continue todemonstrate our long term commitment to the country. We need to work withinthat system for our mutual benefit. Safety remains a key issue for this board. I am very pleased that the work ofthe Safety, Ethics and Environment Assurance Committee (SEEAC) has continuedthis year and benefited from the particular focus given to this topic byexecutive management through the creation and operation of the Group OperationsRisk Committee. The SEEAC's work has been complemented in the area of process safety by theappointment of Mr Duane Wilson who now advises the board, through the SEEAC, onthe implementation of recommendations of the Baker panel which looked into thestate of process safety at our U.S. refineries and which reported in January oflast year. Mr Wilson will be making his first annual report to the board nextmonth, which will be summarised in the Sustainability Report to be published inMay this year. I am pleased to report that as a group we have made good progress over the yearin safety but we must never be complacent. Nor must we focus on safety to the exclusion of other issues with which ourcompany has to deal. The environment and climate change in particular remaincentral to our engagement and our strategy. I mentioned earlier that we, as a board, have reviewed the way in which we work. This was an important exercise as it ensured that all who sit around the BPboard table have a clear view of our purpose and approach this as one team. Iwould therefore reinforce one important point. BP has a strong board. It hasdone in the past and it has now. The board is clearly focused on its tasks andI will be proud to have served you on this board when I hand over in a year'stime. I can say that the search for my successor is progressing well under the carefuleye of Sir Ian Prosser, and we are hopeful that we will be able to make anannouncement well in advance of the next AGM. During the year we have continued our policy of returning value to shareholders. In pursuit of that policy and given the board's confidence in greater cashflows will come from our strong asset base we decided to increase the dividendcomponent of our distribution to shareholders. We increased the dividend in thefourth quarter of 2007 by 31 per cent on the previous year. Our aim remainsthrough our progressive dividend policy to increase dividends in line with theunderlying growth of the business. Last year I paid tribute to the work and the career of John Browne. As you allknow John resigned from the company on May 1, 2007. The circumstances of John'sresignation in no way reflect the huge contribution to the group he made duringhis career. I again wish to thank John on behalf of you all for his greatachievements. Walter Massey retires from the Board today. Walter joined the BP board at thetime of the Amoco merger in 1998 and has made a significant contribution to itswork as chairman of the safety, ethics and environment assurance committee. Walter has, firstly on the Amoco board and latterly on the BP board, brought amixture of scientific excellence with good business common sense. He has been afine board member and a great colleague. He will be sorely missed and, onbehalf of the board, I would like to thank him for all he has done and wish bothShirley Anne and Walter well in the future. I am pleased separately to announce that Sir William Castell will succeed Walteras chair of the SEEAC. John Manzoni agreed with the board that he would step down as a director onAugust 31, 2007. He has taken up a senior position in the industry in Canada.John has shown the most immense commitment and dedication to BP through a periodof long and loyal service. David Allen retired as a director on March 31, 2008. David has served on theboard since 2003 and was group chief of staff until January 1, 2008. He hasmade a significant contribution to the group in many key areas, mostparticularly in shaping and applying corporate strategy. Our thanks go to John and David for all their years of loyal service. I am very pleased to welcome Cynthia Carroll and George David as newnon-executive directors. Both are here for our meeting today. Cynthia, whojoined the board in June 2007, is the chief executive of Anglo American plc andhas broad experience of the global extractive industries, having previouslyworked at Alcan and Amoco. George was appointed in February 2008. He is thechairman of United Technologies Corporation and so has substantial experience ofglobal industry. Both bring an added North American dimension to our board andcomplementary set of skills. So, ladies and gentlemen we have a formidable agenda to consider, with sometwenty one resolutions. However, I do believe that we should be able to movethrough the resolutions today in a timely manner, giving you opportunity forfull and appropriate participation. The notice of meeting contains the text of each resolution and the supportingnotes are designed to give further clarification and background. Information oneach of the directors who are offering themselves for election and re-electioncan also be found there. A full description on how the meeting is to beconducted appears on page 5 of the Notice of Meeting. 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 21 as set out in the Notice of Meeting. A poll on eachresolution will take place as required by our Articles of Association at the endof the meeting. The procedure is set out on page 5 of the Notice of Meeting.May I draw to your attention Resolutions 18, 19 and 21 which are proposed asSpecial Resolutions; that means that to be effective the resolution needs to bepassed by a three quarters majority of those voting on the poll. Before introducing the first Resolution I would like to touch briefly on thedistribution of shareholder documents this year. Following last year'sresolution on electronic communications, and our subsequent consultation withshareholders, our principal method of communicating with shareholders is nowelectronic. We have been able to save around 36 per cent in the UK alone onprinting this year by reducing the number of paper documents produced. If youwould like to see how easy it is to use the BP website to find any of ourpublications there are stands available near the shareholder enquiry desk withstaff ready to assist you. I am also very pleased to say that we are webcastingour AGM for the first time this year. Our goal is clear. We want to make sure that you the shareholder receivesinformation about the company in the detail that you require delivered by themeans which you select. Ladies and gentlemen, let us now discuss BP's performance in 2007 underResolution 1 the Annual Report and Accounts. As I mentioned earlier Tony Hayward will now review the year. Remarks by Tony Hayward Thank you Peter. Ladies and gentlemen, good morning. It's good to see so manyfamiliar faces here. This is my first annual meeting as chief executive and it'san honour and privilege to be in this role as BP enters its 100th year. I first joined BP as a young geologist in 1982 and my career with the companyhas taken me from the North Sea, to the interior of China and the mountains andjungles of South America. I've had a great time. Since being nominated as chiefexecutive last year I've visited many of our operations worldwide - andeverywhere I have felt a real sense of pride about this company, its people, itsoperations and basically what it stands for. But that sense of pride does not mean I suffer any illusions. After achallenging few years, BP needs to raise its game. So today, I want to look tothe future and share with you my confidence about how we intend to do just that. Let me begin with 2007. BP's replacement cost profit for 2007 was down 22 percent to $17.3 billion. That number tells you a lot. It came at a time when theexternal trading environment was, by and large, extremely robust. The oil pricehit a record of $96 at year end and BP's average liquid realisation in 2007 roseby more than $8 to $67.45. Our competitors were more successful at exploitingthis environment than we were. The root cause of our financial performance is to be found in our operations.When I took over as chief executive last May, I said that we would focus onthree basic priorities: safety, people, and performance. Everyone at BPunderstands those priorities. And while I am in this role they will remain thepriorities. Safety is our number one priority and in 2007 our overall safety recordcontinued to improve. Over the last eight years our safety performance accordingto the standard industry measure has improved threefold and is now among thebest in our industry. Our intense focus on process safety continues. We are making good progress inaddressing the recommendations of the Baker Panel and have begun to implement anew Operating Management System across all of BP's operations. This is aimed atensuring that our operations across the world look and feel the same everywhere- and perform to the same high standard. Great people are at the heart of everything that makes BP distinctive. Our staffhave to deal with a tremendous amount of change right now - and I'd like tothank them all for their hard work and commitment. We all share a desire torestore the company's performance. We are taking action to continually build the capability of our people. In 2003we established a Projects Academy at the Massachusetts Institute of Technologywhich has trained almost 250 of our senior project staff and made a significantimpact on our major project delivery. Over the last year we have established anOperations Academy - along the same lines - which will train our operationsstaff in the new common operating system. We have also embarked on an extensive recruitment effort, adding two thousandengineers last year. Graduate recruitment has also been stepped up and is nowrunning at 750 a year, up from less than 300 three years ago. These new recruitsare the future of BP. When it comes to performance, missing revenues are being progressively restoredand we're taking action to reduce complexity. There is much more work to dohere, but the operational momentum which began to build at the end of 2007continued into the first quarter of 2008 and should begin to feed through intothe bottom line in the second half of 2008 and into 2009. 2007 saw us stabilise our operations and meet some important milestones. In Exploration & Production, we started up nine projects - six in the fourthquarter alone - including the delayed Atlantis platform in the deepwater Gulf ofMexico, Greater Plutonio in Angola, the Cashima and Mango natural gas fieldsoffshore Trinidad, and King, in the Gulf of Mexico - which at 5,500 ft below sealevel is the world's deepest subsea pump. In 2007 we continued to add to our resource base. Gross resource additions in2007 amounted to 2.4 billion barrels of oil equivalent. Our 2007 reservereplacement ratio at year-end prices was 112 per cent on an SEC basis. This isthe 14th year in a row that we have reported a reserve replacement ratio of morethan 100 per cent - a track record which is unequalled in the industry. During 2007, we also made significant progress in restoring availability at bothour Texas City and Whiting refineries in the US. Since the end of the yearWhiting has been restored to its full capacity and we've successfully restartedthe sour crude distillation unit at Texas City. Over the past six months, wealso completed the largest turnarounds in the history of both our Toledo andCarson refineries in the US - both important achievements in ensuring theintegrity and reliability of our plant. In Alternative Energy, we are creating material growth options with a portfolioof low carbon energy sources including solar, wind, hydrogen power, biofuels,clean coal and carbon capture and storage. We have invested more than $1.5billion since 2005 and in 2008 plan to invest a further $1.5 billion. In thefourth quarter of 2007 we achieved another success by starting operations atCedar Creek, one of the largest wind facilities in the US. It is because of these improvements in operational performance that the boardfelt it was right to increase the dividend in the fourth quarter of 2007 by 31per cent on the previous year. That was a statement of confidence in the future. Over the last month or so we have set out a very clear medium-term strategywhich is based on four things: Firstly, upstream growth. Our Exploration & Production segment, led by AndyInglis, has a portfolio of future projects that gives us great confidence in thefuture. Over the last few years we have focused on a new wave of access, gainingopportunities in Algeria, Oman, Libya, Colombia, Pakistan, Canadian heavy oiland coal bed methane. In Russia, with TNK-BP, we have a unique position in oneof the world's most prolific hydrocarbon provinces. In the Gulf of Mexico we are on course to start-up Thunderhorse, the world'slargest semi-submersible platform - by the end of 2008. Despite the challengesof the last three years, when Thunderhorse starts up it will be a powerfulsymbol of the new projects which BP is bringing onstream. Between 2007 and 2009 we expect to bring onstream more than 25 projects adding650,000 barrels a day of new production. These new projects reflect building momentum in our operational delivery. Thisis planned to continue through 2012 when we expect production of around 4.3mbarrels per day, assuming a $60 oil price. Looking further to the future - the scale and quality of our resource base givesus confidence that we can maintain production at not less than four millionbarrels a day until 2020 without any further exploration success or new access.We confidently expect to do better than that. Secondly, the turnaround of the downstream business. The Refining & Marketingteam, under the leadership of Iain Conn, has embarked on a major intervention torestore the performance of our downstream business: to restore refiningavailability; to simplify the business by focusing on just six geographicallybased fuels value chains; and to improve the cost efficiency of the business.As part of the repositioning of this business we have announced plans to sellour company-owned company-operated convenience sites in the US. Thirdly, corporate simplification. There is a significant competitive gap withour peers. If we are going to close that gap, BP needs to undergo a process ofchange as big as anything it has achieved in the last twenty years. Our way of doing business is too complex, we are overly bureaucratic, notconsistent enough and our costs are too high. In October last year we announceda Forward Agenda to simplify BP and to fundamentally change the company cultureand our way of operating. BP now has just two main business segments: Exploration & Production andRefining & Marketing. This will simplify both our corporate governance anddecision making. Our objective is to reduce the corporate overhead by between 15-20 per cent. Weare starting from the top with fewer layers of management and a smallercorporate infrastructure. We are cutting bureaucracy, eliminating unnecessaryinternal processes and strengthening our frontline operations. The final element of our strategy is realising value for shareholders in ourAlternative Energy business. BP rightly won great respect when, in 1998, itbecame the first oil major to recognise the importance of tackling climatechange. Since 2001 what many now call "Clean Tech" has become the fastestgrowing sector of the energy market, growing by 30 per cent a year globally -and thanks to our early move BP's alternative energy business is one of thebiggest players in this area. Alternative Energy is an innovative business, still in the investment phase.Our objective over the course of 2008 and beyond is to create equity value forour shareholders by raising this business's visibility. We will examine a numberof options, including joint ventures, partnerships and even, where appropriate,partial public offerings. Ladies and gentlemen, I believe we have a compelling medium term strategy. Butmy confidence in the future is based on more than the near term outlook. Ifundamentally believe in this business and in BP. There are those who are beginning to question the very purpose of largeintegrated international oil companies like BP. I strongly disagree with them. To misquote Mark Twain "Reports of our death aregreatly exaggerated." We are supplying a growth market. The demand for energy - to power the basicneeds of life: light, heat and mobility - continues to expand. TheInternational Energy Agency forecast an increase of more than 50 per cent inglobal energy demand between now and 2030. Furthermore, as far as humanity'sbig challenges are concerned - climate change, energy security and energypoverty - we're a big part of the solution, not part of the problem. For the last thirty years, the state-backed national oil companies of the MiddleEast, Russia and elsewhere, have controlled more than 90 per cent of the world'soil reserves. There is nothing new in that. And that period has been accompaniedby the development of a vast global market in traded oil and, increasingly,natural gas. That market is a remarkable thing. It keeps the world's energy flowing, evenduring periods of crisis. And it is international oil companies which help tomake that market work. BP plays its part by building partnerships with resourceholders and deploying our powerful competitive advantages: our know-how, skillin managing risky projects, technology, capital, a global brand and ourunwavering commitment to the principle of mutual advantage - to do the rightthing. International oil companies have always operated on the frontiers of theindustry. And that is where BP is happiest, doing the tough stuff that otherscannot or choose not to do. From our roots in those Edwardian days when thecompany was formed, prospecting for oil among the dunes of Persia - it is thesame frontier spirit that is evident today as we develop the deep waters ofAngola, the Gulf of Mexico and Egypt; it is evident in the Baku-Tbilisi-Ceyhanpipeline, constructed across three nations emerging from the shadow of the ColdWar; and it is to be found in Russia and China, where we are among the biggestforeign energy investors. Today, we continue to push technological frontiers, exploiting tight gas,increasing reserves through enhanced oil recovery techniques, developingadvanced seismic imaging techniques and pioneering research into the nextgeneration of biofuels - which will based on more efficient molecules and willnot be derived from food crops. These are just a few examples of the newtechnologies at the heart of BP. So - the frontier is where our role is. It is by pushing the energy frontier, bymoving into new markets and new geographies and by applying our know-how and newtechnology, that BP has for almost one hundred years generated its returns. So I'd like to end where I began: on a note of pride. One of the advantages ofhaving a long history is that you can get a sense of perspective. Every decadeor so, BP has had to reinvent itself. That was the case when we lost our assetsin the Middle East, when we moved into Alaska and the North Sea in the 1970s andthen again in the late 1990s when we created the modern BP. We are in the midstof one of those periods now. This company has a vital role to play in the next one hundred years, just as itdid in the previous one hundred. There is no doubt about that. What we have todo right now is to make BP perform. And that ladies and gentlemen is what my team and I intend to do. Thank you. - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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