12th Apr 2007 12:35
BP PLC12 April 2007 ADDRESS TO SHAREHOLDERS AT THE ANNUAL GENERAL MEETING OF BP p.l.c. ON APRIL 12, 2007 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 98th 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; Tony Hayward our CEO designate; Byron Grote, chief financial officer;DeAnne Julius, chairman of the Remuneration Committee; David Jackson, ourcompany secretary; Ian Prosser, deputy chairman and senior independent director- Ian is also chairman of the Audit Committee - and Walter Massey, chairman ofthe Safety, Ethics and Environment Assurance Committee. I am pleased to say that John Bryan now has been able to join us and all thecurrent members of the Board are on stage with us. So, ladies and gentlemen, what are my reflections on the year just passed? Well certainly in my experience it has been one of the most varied and probablyturbulent in BP's long history. We have seen a record oil price and strongfinancial results. We have seen the Group face, and continue to face, a seriesof regulatory issues in the US - a perfect storm, if you like, but mostly of ourown making. But we are also seeing the end of a remarkable era as John Browne, our chiefexecutive, is to retire in July of this year. He has been an outstanding CEOand I will talk more about him later. Let me say at the outset that BP is a great company. It has a great portfolioof assets and excellent people. We have a sound strategy. Your Board isdetermined that each one of the company's some 100,000 employees, spread aroundthe globe, aspire to the same high ideals and values. This is not aboutperception - it is about reality. For BP people, the right thing to do is ...the right thing. For many years, BP has been a greatly admired Group reflecting its strategicvision, its determined execution and its high aspirations in areas such assafety, environment and the community. I remain proud to be chairman of thatcompany. As I have said, we set ourselves high standards in the way in which we interactwith the communities in which we operate. Since the Texas City incident, overtwo years ago now, we have, in some of the areas in our business, failed to liveup to those standards. It is therefore vital, that we, as a Board, reinforce the values of the Companyand set the appropriate "tone from the top". This is an important role that weplay. Your Board, this Board, is very conscious of that unique role which itdischarges on behalf of you, the shareholders. The governance and leadershipfor which the Board is responsible is key in setting the values that Imentioned. So as the Company faces more and varied challenges so must we, as aBoard, up our own game. Reflecting on the recent past it is clear that the governance of a company ofthe scale and scope of BP represents a major challenge. Indeed I have beenasked by some shareholders whether the Group has now reached a size where it issimply too big to be governed effectively. My answer is emphatically in thenegative. Clarity over the role that the Board plays and the tasks it has todischarge is key to the work of the Board. In recent times, the role of the Board has been described as either strategic ormonitoring. This was an issue upon which I commented last year. How does aBoard ensure that it is able to monitor the risks which the Company faces whilstat the same time reinforcing its entrepreneurial leadership to grow theorganisation to create greater value for you the shareholders? These arequestions which we as a Board address meeting after meeting. It is clear to methough that this Board has the strength and the skills and the independence tobe able to discharge the tasks that are required of it. We do however have to learn as we go along. We do not have the perfect solutionnor perfect answers to all the issues that face us. It is for that reason thatwe, with the executive management, agreed that we would implement therecommendations of the Baker Panel Report into the context of the tragedy atTexas City. Let me remind you: the Baker Panel, chaired by James Baker, wascommissioned by the Company, on the recommendation of the US authorities, toexamine the culture of safety at our US facilities. If the Baker Panel had acriticism of the Board it was not that it had failed to meet normal standardsbut that it had failed to excel in the way the Panel believed that it should asan industry leader. The Baker Panel also believed that it would help the Board if the Boardappointed a separate expert to advise it on the way in which the Companyimplemented the Baker Panel recommendations. The Baker Panel clearly saw thatthe Company had potential to become an industry leader around the issues ofprocess safety and to aid the Company and the Board in that task we accepted therecommendation of expert help. It is for this reason that I am particularly pleased to be able to report thatwe have made good progress in identifying a person to take on this role. We arecurrently finalising the details and expect to make an announcement in May. As a Board we continue to evaluate our own performance and indeed the way weoperate. We want to ensure that we receive the right information so that we candischarge our monitoring duties and that the Executive team has got the rightsystem of internal control so that it too is picking up the right signals. The challenge is to ensure that the Board discharges both of its functions. Itwould be all too easy for the Board to require the Company to turn in on itselfto become ultra cautious and risk adverse. This is not the nature of BP. With the price of oil remaining higher thanpeople would have expected three or four years ago, there are new and differentchallenges to this organisation. We have done well to establish our positionacross the world in seven major areas. Issues in the United States have made usfocus on our dealings at both federal and state level in that continent. But we also made a major investment in Russia through our acquisition of half ofTNK-BP four years ago. This is a major strategic investment on our behalf andwe as a Board, need to understand the implications of the system within Moscow.Real opportunities for growth are rarer than they used to be and thus the Boardneeds to be in a position to back executive initiatives which will it isbelieved really carry the Company forward in the next ten to fifteen years. Clearly we must ensure that the issues that have occurred in the United Statesare dealt with in a responsible and timely fashion. We must learn what we needto learn. But we must also make sure that we are able to spot the opportunitiesto take this Company forward wherever in the world they may arise. Just as the world continues to evolve, so too does the Board. John Bryanretires from the Board today. He sat on the Audit and the RemunerationCommittees where his background and experience have been a source of wisdom andinsight. I should like to thank him on your behalf for his dedicated serviceand on a personal note, I would wish to acknowledge his contribution and thankhim for his unswerving support over the years. We shall miss him and wish himand his wife well in the future. Two directors have been appointed since we met last year. Sir William Castelland Andy Inglis. Bill joined the Board in July last year. He has substantialexperience in the worlds of business and science having been chief executive ofAmersham International for 14 years. He was subsequently president and chiefexecutive office at GE Healthcare and remains on the GE Board as a non-executivedirector. He is presently chairman of the Wellcome Trust. Bill sits on boththe Audit and Safety, Ethics and Environment Assurance Committees. Andy joined the Board in February. He is now managing director of theExploration and Production segment. Andy joined BP in 1980 and following aseries of commercial roles in BP exploration, he became chief of staff for E&Pand was subsequently responsible for BP's activities in the deepwater Gulf ofMexico. In 1999 following the BP Amoco merger, Andy was appointed vicepresident, US western gas business unit, a position he held until 2004 when hewas appointed deputy chief executive of exploration and production. Andy joinedthe Board in February to allow Tony Hayward to focus on the handover of the roleof chief executive to him by John Browne. Tony will become CEO on August 1, 2007. The Board has been through a verythorough process in determining John's successor as CEO. All the candidateswere tested and compared in a very rigorous manner. It was the unanimousconclusion of the Board that Tony Hayward should become the new CEO. Tony, ofcourse, has been a director since 2003 and has been responsible for Explorationand Production since that time. Tony joined BP as a graduate in 1982 and hashad an exceptional career principally in the upstream business. I know that youwill all join the Board in wishing Tony well in his new role. Whilst he will not be leaving the Company until July, this is John Browne's lastappearance before you at an AGM. John has had an exemplary career at BPspanning over 40 years, the last twelve as chief executive. Earlier this yearwhen his decision to stand aside was announced I said that John was the greatestBritish businessman of his generation who had transformed BP into one of thelargest energy groups in the world. It is really difficult for me to say moreand certainly I would not want to say less. BP is a great Company. It was as a result of John's strategic vision that BP isthe Company that it is today. It is he who led the consolidation of theindustry nearly ten years ago. This was, and is, a massive achievement. I knowthat I speak for the Board, indeed Board members past and present, when I paytribute to John's intellect, leadership and skills. On a personal note I have enjoyed working with John. As in any relationship wehave had our occasional ups and downs but we have worked together for nearly aslong as he has been CEO and for me it has been an invigorating and rewardingexperience. I believe I speak for the Board and indeed all shareholders and employees when Isay "thank you, John" for all you have done for this Company, and wish you wellfor the future. Before introducing the first Resolution I would like to touch briefly on thedocuments which we have sent to you recently. Corporate reporting practicecontinues to evolve and indeed is set to do so further. I mentioned last yearthat we continued to differentiate our Annual Review and Annual Reportdocuments; with the Annual Review providing the information required by the vastmajority of our shareholders. We have taken a further step this year to endeavour to streamline the reportingprocesses that we have to comply with on both sides of the Atlantic by producinga document as our Annual Report that can be used in both markets. We also haveto provide a Business Review in the Annual Report which meets the requirementsof UK Company Law. Reporting practice is set to evolve further next year with the opportunity toenhance our use of e-communications as the method of communication with ourshareholders. Our goal is clear. We want to make sure that you, theshareholder, receive information about the company in the detail that yourequire, delivered by the means which you select. Ladies and gentlemen, let us now discuss BP's performance in 2006 underResolution 1 the Annual Report and Accounts. John Browne will now review theyear. Remarks by John Browne As always, it is a great pleasure to see so many people here including so manyold friends and colleagues. This is my last Annual General Meeting as chief executive and I would like tothank you all for your support over the last 12 years, for your confidence, andfor your patience. Companies like BP exist only if we can both provide the goods and services whichpeople want to buy, and if we can secure the trust of those who want to investtheir savings with us. Your support has been indispensable and without it we couldn't have grown, orextended our reach into new areas of the world, or taken the first steps towardsthe next generation of energy supplies, as we tackle the combined challenges ofenergy security and climate change. So thank you. What I would like to do is first to cover our performance in 2006; then reflecton how BP has changed in the last 12 years and finally look to the future. Ibelieve that the fundamentals of BP - our strategy, our assets and the highstandards of our people - are something we should all be proud of. 2006 was a challenging year. We achieved a number of significant milestones andexcellent financial results. However, much of the team's energy and effortswere directed to the short and long term resolution of various operationalissues, notably the aftermath of the Texas City incident. Safety has been for many years our top priority. Given that fact, the events ofthe last two years have been truly humbling. I will return to this importantsubject and our progress in turning BP, in the long term, into a leader inprocess safety in a moment. I will now review the other significant milestones achieved during 2006: • Our reserves replacement ratio, calculated in accordancewith SEC guidance, was 113 per cent on a combined basis, excluding the effectsof acquisitions and disposals. • We continued our strong track record with 10 newdiscoveries including Kaskida, Titania, Urano and the Uvat area. We secured anew access option in Pakistan and an initial presence in India and morerecently, in Oman. • We started nine new upstream projects, notably theBaku-Tbilisi-Ceyhan oil pipeline and gas condensates from In Amenas in Algeria; • We re-started Texas City safely and have so far achieved aproduction rate of about 250,000 barrels per day; • We commissioned the first LNG receiving terminal atGuangdong, China; • We made significant progress in Alternative Energy,building momentum in wind and solar through capacity increases; and • We announced plans to invest $3 billion at the Whitingrefinery in the US to process heavy crudes from Canada. The trading environment was volatile in 2006 and softened significantly in thefourth quarter. Energy prices were driven higher during the summer by fearsabout political risk to supplies, but fell back by the year end, due, in part,to a rise in OPEC's surplus capacity and to a relatively warm winter. The relative price of gas declined by an even greater amount and wassignificantly weaker compared to 2005. Our refining indicator margin alsopeaked at over $12 in the second quarter of 2006, before narrowing to $6.30 inthe fourth quarter. And retail fuel margins also narrowed significantly towardsthe year end. Turning to our financials, despite the weaker environment towards the end of theyear, we delivered a record replacement cost profit of $22.3 billion, up 15 percent over 2005. • This is equivalent to 111.1 cents per share, up 22 per centover 2005, showing the additional benefits of share buybacks. • The post tax operating cash flow was $28.2 billion, up 5per cent over 2005. • We distributed $23.2 billion to shareholders; including$15.5 billion in share buybacks, thereby reducing shares in issue by around 6per cent; • We realised $6.3 billion from disposals; and • Our financial condition is strong with gearing ending theyear at 20 per cent - at the bottom of our target range of 20 per cent to 30 percent. I know that for those of you who attend the annual meeting, the dividend isparticularly important. Total dividends paid during the year were 38.4 cents ashare or 21.104 pence a share, up 10 per cent on 2005. But despite having record results, BP had several disappointments in 2006. We had two oil spills in Alaska, the start-up of the Thunder Horse field in theGulf of Mexico was further delayed, with a knock-on impact on Atlantis, andinvestigations commenced into allegations of improper trading activities in theUS. We have taken specific actions to learn from and understand these events andissues, and to respond to them. Such incidents severely test a company's valuesand its people. And a good company recognises where things have gone wrong andtakes responsibility and then makes strenuous efforts to put things right. Ihope we will emerge with some credit for our responses, for admitting where wehave failed, and for our determination to put things right. I would particularly like to mention the report by former US Secretary of StateJames Baker into the safety at our US refineries, which was published inJanuary. The Baker panel was established by BP at the recommendation of theChemical Safety Board, following the terrible accident at Texas City in 2005. BPhas committed to implementing the report's recommendations and we are consultingwith the panel on how best to do that. As the report acknowledges, BP has madesignificant changes to its process safety systems since the accident at TexasCity. But we can do more. And we will do more. As I have said before, the Texas City accident happened on my watch. It was thesaddest and darkest day in my working life at BP. We accepted responsibility.The safety of our people is our greatest requirement and the greatest memorialwe can build to the 15 colleagues who died at Texas City is a company, which is,as the Baker report recommends, a leader in process safety. When we look at BP today, I think it is important to step back, and put it in alonger term context. As this is my last AGM as group chief executive, I wouldlike to look back on my 12 year tenure in this position. I would also like toacknowledge the tremendous platform that was left by my predecessor, DavidSimon, on which we have sought to build this great company. The starting point is strategy. During the last decade, we have operated astrategy based on economies of scale, quality of assets and being responsive tomarket trends. This has created a company with tremendous scope and scale. Ouraim is to build our position in some of the world's largest oil and gas fields,to focus on advantaged refineries and retail markets, to capture world scale gasmarket positions and to participate in fast-growing markets for gas and thetransition to low carbon power and transport. Since 1995, our total production has grown more than three-fold to 3.9 millionbarrels of oil equivalent a day. At the same time, the share of gas productionhas more than doubled and we are now one of the largest gas producers among themajor international oil companies with production of 8.4 billion cubic feet perday. Our reserves have more than doubled to 17.7 billion barrels of oil equivalent.Between 1995 and 2006, our market capitalisation has more than quadrupled to$220 billion and our share price has outperformed the Footsie Index by 18 percent and S&P by 14 per cent. It is not just the scale of our business which has changed, but where we dobusiness. The number of countries in which we produce more than 100,000 barrelsper day has increased from three in 1995, to eight in 2006. We have alsoestablished a significant footprint in Russia with investments of around $10billion through our joint venture TNK-BP. But there is another, more subtle, way in which BP has evolved since 1995 andthat is through our renewed emphasis on sustainability. Indeed we have writtenit into the genetic code of the company. The concept of sustainability isfundamental to understanding a modern company like BP. It is about explainingour values; our deeply-held belief in the principle of mutual advantage;recognising that business ultimately has a purpose - to serve human needs. Andit is about respecting the communities in which we operate. It is because of the importance of sustainability that for the last 10 years BPhas been one of the first major oil companies to face up to the challenges ofclimate change. And we have not just acknowledged the challenge, we have takenactions. We have been reducing the emissions from our own operations, marketingcleaner products and making substantial commitments to develop our alternativeenergy and biofuels businesses. BP has sustained itself as a company for nearly 100 years. There is much to beproud of and even more to look forward to. I have spent all my working life at BP and this is my last annual meeting as adirector. My successor as chief executive is my friend and colleague, TonyHayward. He is an excellent choice and will be an outstanding chief executive. I believe that you can be confident that BP is heading in the right strategicdirection. But more than that, it is a progressive company, willing, wherenecessary, to learn from mistakes. For the ultimate purpose of business is anoble one: to serve human needs and to advance human development. BP generatesits returns for shareholders by investing to provide energy for the basic thingsof life, such as light, heat and transport and it aspires to do so in anethical, sustainable manner. Finally, Ladies and Gentlemen, I want to say some personal words of thanks. I would like to thank you, our shareholders, for your continued support. Iwould also like to thank Peter Sutherland and all the board, for their guidanceover the last 12 years. And I would especially like to thank the 100,000 BPstaff in 110 countries that it has been my privilege to lead. They have been resilient in the face of great challenges, creative in the faceof immense change and unfailingly loyal and dedicated. Above all, they areuniversally characterised by their willingness to go the extra mile. I amincredibly proud and grateful for everything that every one of them does for BP. 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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