An overview from the Country President
As in previous years, this annual update focuses on our view of the most significant issues affecting our business in the past financial year and details our performance across a range of indicators. A full report will be published in December 2012.
Before examining our performance it is worth reflecting on four issues, which over the past twelve months, have been uppermost in my mind – the Australian economy, natural disasters, carbon pricing and taxation and the Deepwater Horizon tragedy.
The Australian economy has grown strongly on the back of a resources-led investment boom. This has helped sustain our commercial business, but rising energy costs, wage inflation and skills shortages in Queensland and Western Australia pose challenges to the profitability of our refineries. Two years ago in our submission to the Government’s Energy White Paper process we said that the capacity of Australia’s core infrastructure has been outpaced by the growth in the economy, but the speed with which the situation has become critical is surprising. We believe that resolution of these issues requires policy settings which can deliver a significant increase in public and private sector investment in infrastructure, not just roads and bridges, but also housing, schools and hospitals and skills training.
The January floods in Queensland and Victoria caused loss of life, extensive damage to property and the dislocation of many people’s lives. I’m proud to say that BP’s people rose to this challenge and our business continuity planning paid off. Throughout the worst of the flooding our people looked-out for each other, operated safely and kept fuel supplies flowing. Most importantly we provided vital fuel supplies to Brisbane airport and the emergency services. We also donated to the Relief Fund and provided an airline with free fuel to fly-in emergency responders from other states.
The flooding brought an additional complication when our ethanol supplier in Queensland declared force majeure and this forced a rapid re-introduction of regular unleaded to replace E10 across Queensland. Again, our people handled the transition efficiently and safely without impacting our customers. However, the interruption in ethanol supply has highlighted constraints in the ethanol supply chain and this combined with a 38.1c/l excise duty on imported ethanol and biofuel mandates in NSW has resulted in the retail price of E10 moving closer to that of regular unleaded. As E10 has a lower energy content per litre than regular unleaded this could make the product uncompetitive in the market place – an unfortunate consequence of ill-considered market interventions.
The flooding brought an additional complication when our ethanol supplier in Queensland declared force majeure and this forced a rapid re-introduction of regular unleaded to replace E10 across Queensland. Again, our people handled the transition efficiently and safely without impacting our customers. However, the interruption in ethanol supply has highlighted constraints in the ethanol supply chain and this combined with a 38.1c/l excise duty on imported ethanol and biofuel mandates in NSW has resulted in the retail price of E10 moving closer to that of regular unleaded. As E10 has a lower energy content per litre than regular unleaded this could make the product uncompetitive in the market place – an unfortunate consequence of ill-considered market interventions.
The government introduced its Clean Energy Futures policy in July and BP believes that these proposals meet most of our policy objectives and they are an important first step in transitioning to a low carbon future. However, the new legislation will impose additional costs on our refineries and the challenge is to find ways to reduce emissions without impacting on competitiveness. While some progress was made in reforming the tax system, we believe that by not embracing the directional thrust of the Henry Report – a simple, progressive and sustainable system for the long term – an opportunity has been missed.
The explosion on the Deepwater Horizon drilling rig in April 2010 was a terrible tragedy. Eleven people were killed and oil flowed into the Gulf of Mexico for 87 days, before the well was capped on 15th July 2010.
The explosion on the Deepwater Horizon drilling rig in April 2010 was a terrible tragedy. Eleven people were killed and oil flowed into the Gulf of Mexico for 87 days, before the well was capped on 15th July 2010.
In the immediate aftermath of the explosion, BP launched an investigation, drawing on the expertise of more than 50 technical and other specialists from within BP and the industry. The investigation team concluded that no single cause was responsible for the accident, but a sequence of factors involving a number of different parties, including BP.
http://www.bp.com/sectiongenericarticle.do?categoryId=9036598&contentId=7067574
The investigation team made 26 recommendations specific to drilling, which BP has accepted and is implementing across its worldwide operations. These recommendations include measures to strengthen contractor management, as well as assurance on blowout preventers, well control, pressure testing for well integrity, emergency systems, cement testing, rig audit and verification, and personnel competence.
BP has also made significant structural changes, including the reorganization of its upstream business into exploration, development and production units and the creation of a Global Wells Organization.
BP is also a member of the Marine Well Containment Company which is creating an interim response system aimed at enhancing deepwater safety and environmental protection in the Gulf of Mexico.
Turning to our Australian business, our activities are operated by BP Australia Group Pty Ltd, a company domiciled in Australia. Its ultimate holding company is BP p.l.c. (the BP Group) and the directors of BP Australia Group Pty Ltd have adopted and operate within the BP Group’s governance policies.
http://www.bp.com/sectiongenericarticle800.do?categoryId=9036184&contentId=7066896
These governance policies seek to go beyond regulatory compliance.
As I mentioned in last year’s Sustainability Report, the Deepwater Horizon incident caused concern among staff, customers and other stakeholders. I believe the response of our staff in this uncertain period has been exemplary and I would like to acknowledge their commitment to both safety and business delivery.
At the end of the year we employed 4,670 people, a figure almost unchanged from 2009-10. While, employee turnover has increased by 2 per cent, the average figure masks the disparity between locations as employee voluntary turnover in our refineries was almost 15 per cent higher than elsewhere. A case study on talent wars covers this issue in more detail, but I believe this to be a worrying trend.
Turning to our Australian business, our activities are operated by BP Australia Group Pty Ltd, a company domiciled in Australia. Its ultimate holding company is BP p.l.c. (the BP Group) and the directors of BP Australia Group Pty Ltd have adopted and operate within the BP Group’s governance policies.
http://www.bp.com/sectiongenericarticle800.do?categoryId=9036184&contentId=7066896
These governance policies seek to go beyond regulatory compliance.
As I mentioned in last year’s Sustainability Report, the Deepwater Horizon incident caused concern among staff, customers and other stakeholders. I believe the response of our staff in this uncertain period has been exemplary and I would like to acknowledge their commitment to both safety and business delivery.
At the end of the year we employed 4,670 people, a figure almost unchanged from 2009-10. While, employee turnover has increased by 2 per cent, the average figure masks the disparity between locations as employee voluntary turnover in our refineries was almost 15 per cent higher than elsewhere. A case study on talent wars covers this issue in more detail, but I believe this to be a worrying trend.
We are continuing to make progress in building diversity within the organisation and we are proud to have been awarded a citation as an Employer of Choice for Women by the Equal Employment for Women Australia (EOWA) organisation. We have also signed a Statement of Commitment to develop a Reconciliation Action Plan to further support indigenous communities.
We continue to invest in our Exploration and Production business to both sustain current producing assets and deliver growth going forward. Over the past 12 months the Browse partners decided to commence Front End Engineering and Design (FEED) studies and the Operator (Woodside) signed a native title agreement with local indigenous landowners to site the onshore processing facilities at James Price Point. This agreement includes benefits worth in excess of $1 billion over the life of the precinct. While the decision to develop facilities at James Price Point has been criticised by some stakeholders, BP believes that of the sites considered by the Western Australian government, James Price Point offers the best economic, environmental, and social outcomes.
We’ve also secured exploration acreage offshore South Australia and while drilling activity is unlikely until 2013 at the earliest, we remain committed to ensuring that exploration activity is carried out safely and efficiently. We are deeply conscious of the responsibility that has been placed upon us and understand that we will have to demonstrate to the Regulator and other stakeholders that effective risk management is at the heart of everything we do.
We continue to invest in our Exploration and Production business to both sustain current producing assets and deliver growth going forward. Over the past 12 months the Browse partners decided to commence Front End Engineering and Design (FEED) studies and the Operator (Woodside) signed a native title agreement with local indigenous landowners to site the onshore processing facilities at James Price Point. This agreement includes benefits worth in excess of $1 billion over the life of the precinct. While the decision to develop facilities at James Price Point has been criticised by some stakeholders, BP believes that of the sites considered by the Western Australian government, James Price Point offers the best economic, environmental, and social outcomes.
We’ve also secured exploration acreage offshore South Australia and while drilling activity is unlikely until 2013 at the earliest, we remain committed to ensuring that exploration activity is carried out safely and efficiently. We are deeply conscious of the responsibility that has been placed upon us and understand that we will have to demonstrate to the Regulator and other stakeholders that effective risk management is at the heart of everything we do.
In relation to the seismic survey which will be conducted over the summer 2011/12, the approvals process required that we consult with stakeholders and prepare an Environment Plan to demonstrate that the risk posed to people and the environment by these operations has been reduced to 'as low a level as is reasonably practicable.'
In the refining and marketing sector we continue to invest to reduce risk and capture growth in the commercial sector. Petrol prices, particularly the phenomenon of price cycles, continue to be an issue, but we believe that the ACCC’s annual report on the Australian petroleum industry has been useful in providing an independent and authoritative view of pricing issues and industry performance. We also, in partnership with the Australian Government, continued to expand the footprint of Opal (a low aromatic content fuel designed to combat petrol sniffing) across rural Australia with its introduction earlier this year to service stations in the Goldfields.
Within our Alternative Energy operations, a BP Solar-led consortium was successful in obtaining government funding to develop the Moree Solar Farm as part of the Federal Governments Solar Flagships programme. We believe the Moree Solar Farm will pave the way for more utility scale solar power production in Australia by demonstrating that this proven technology has an important role to play helping Australia transition to a low carbon emission future.
In the refining and marketing sector we continue to invest to reduce risk and capture growth in the commercial sector. Petrol prices, particularly the phenomenon of price cycles, continue to be an issue, but we believe that the ACCC’s annual report on the Australian petroleum industry has been useful in providing an independent and authoritative view of pricing issues and industry performance. We also, in partnership with the Australian Government, continued to expand the footprint of Opal (a low aromatic content fuel designed to combat petrol sniffing) across rural Australia with its introduction earlier this year to service stations in the Goldfields.
Within our Alternative Energy operations, a BP Solar-led consortium was successful in obtaining government funding to develop the Moree Solar Farm as part of the Federal Governments Solar Flagships programme. We believe the Moree Solar Farm will pave the way for more utility scale solar power production in Australia by demonstrating that this proven technology has an important role to play helping Australia transition to a low carbon emission future.
Throughout the year we continued to embed BP’s Operational Management System (OMS) This global risk management framework is being progressively implemented across all our Operations and is providing: Common ways of working for critical risk areas, an enhanced recognition of the importance of process safety, documented accountabilities, clear targets on the quality and timing of implementation and a significantly increased, independent “Safety & Operational Risk” function tasked with providing deep technical support to line management.
Compared to 2009-10, safety performance showed some improvement with no change in the number of Days Away From Work Cases (DAFWC) but a significant decrease in the number of recordable injuries. Unfortunately the number of oil spills over 159 litres has increased by 50 per cent year on year.
Sulphur and Nitrogen Oxides emissions were down, reflecting lower refinery throughput although discharges to water were slightly higher. Total greenhouse gas emissions rose slightly and while water consumption was significantly reduced, the proportion of potable water used increased.
We firmly believe that external scrutiny of our performance leads to better business decisions. So any feedback would be welcome.
Attestation note
