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 Strategy
Focus BP invests in a portfolio of large, lower-cost oil and natural gas fields chosen for their potentially strong return on capital employed, and seeks to manage those assets safely with maximum capital and operating efficiency. We are currently developing six new profit centres in which we have a distinctive position: Trinidad, Angola, Azerbaijan, Gulf of Mexico, Asia Pacific gas and Russia. These new profit centres augment the production assets in our existing profit centres, providing greater reach, investment choice and opportunity for growth. The result for the year of $15,977 million was an improvement of 33% over 2002, reflecting increased production, higher oil and gas prices and a reduction in exploration expense, partly offset by increases in our depreciation charge. Our volume performance was made possible principally by incremental contributions from our TNK-BP joint venture in Russia and growth in the Gulf of Mexico and in our gas business in Trinidad. These production gains were partly offset by decline in our existing profit centres and divestments from our portfolio. Across our portfolio, we advanced several projects from the build stage to the production phase. We also made significant progress on a number of other projects. Capital spending was down slightly compared with 2002 as we continued to exercise capital discipline across our portfolio. In 2003, the operating efficiency of our assets (actual production as a percentage of production capacity) improved to 88% from 87% in 2002. We continued to make progress in our existing profit centres. We increased production in Alaska from a combination of improved drilling and operational efficiency, and in Norway we started production from the Valhall South platform. We replaced reserves in our North American gas business, approved the developments of the Rhum field in the North Sea and North West Temsah in the Nile Delta, and discovered the Saqqara field in the Gulf of Suez. Each of our six new profit centres met or exceeded expectations for performance in 2003. In Trinidad, from where BP has prime access to US and European liquefied natural gas (LNG) markets, we continued to build on our integrated position in 2003. Train 3 started production in April, two months ahead of schedule, and we received government approval for the construction of Train 4, which is now under way. In July, the Kapok field in Trinidad began production, supplying gas to Train 3, and we sanctioned the Cannonball gas development. In Azerbaijan, construction is now well advanced on the development of the Azeri field, and construction of the 1,760-kilometre Baku-Tbilisi-Ceyhan (BTC) pipeline began in May. When complete, which we expect to be in the first half of 2005, the BTC pipeline will export crude oil from the Caspian to world markets, avoiding the creation of additional maritime shipping via the Bosporus Straits. Also in 2003, construction began on the platform to develop the Shah Deniz field, which is expected to produce its first gas in 2006. In the Gulf of Mexico, the Na Kika field started production and the Mardi Gras transportation system commenced operation. At the Holstein field, where oil production is expected to begin in late 2004, the spar is now on the Gulf Coast for the final stage of construction. Other Gulf of Mexico fields – Mad Dog, Thunder Horse and Atlantis – are on track to follow Holstein into production over the next few years. In Angola, a number of other new fields began producing and we progressed several significant projects. The Jasmim and Xikomba fields began producing, the Kizomba A tension leg platform arrived on site and the Dalia and Greater Plutonio projects were sanctioned. During the year, we completed a programme of asset disposals that improved our return on capital employed. The programme generated total proceeds exceeding $4.9 billion and included assets in the US, North Sea, Norway, Malaysia, China and Algeria. New oil and gas discoveries announced in 2003 included finds in Angola, the Gulf of Suez and the deepwater Gulf of Mexico. Recoverable oil and gas from these finds is expected to be around one billion barrels of oil equivalent. BP continued to lead its major competitors in giant field discoveries and reserves replacement ratio. The reserves replacement ratio for the year was 122%, with 1,321 billion barrels of oil equivalent booked through discoveries, extensions, revisions and improved recovery. Reserve replacement exceeded production for the 11th consecutive year. Including equity-accounted entities and the effect of acquisitions and disposals, additions to the year-end reserves were 158% of 2003 production. In August, BP and the Alfa Group and Access-Renova completed the creation of the TNK-BP venture, establishing our newest profit centre and the third largest integrated oil company operating in Russia, in which BP owns a 50% interest. In terms of its scale, TNK-BP is comparable in production size to the former Amoco at the time of our merger. Oil production from TNK-BP grew by about 14% in 2003, contributing in excess of 650,000 barrels of oil a day in the fourth quarter of 2003, and holds the possibility of further strong growth. We expect TNK-BP to offer finding and development costs about half of BP's three-year average, with lifting and non-cash costs that compare favourably with the average of our portfolio. |
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