2008-07-29 14:45:00
BP p.l.c. Group Results Second Quarter and Half Year 2008(a)
LONDON, July 29 /EMWNews/ -- Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 % 7,376 7,451 9,465 Profit for the period(b) 16,916 12,040 Inventory holding (gains) losses, (888) (863) (2,612) net of tax(c) (3,475) (1,108) 6,488 6,588 6,853 Replacement cost profit(c) 13,441 10,932 23 17.01 17.63 18.56 - per ordinary share (pence) 36.19 28.77 33.75 34.90 36.40 - per ordinary share (cents) 71.30 56.68 26 2.03 2.09 2.18 - per ADS (dollars) 4.28 3.40 -- BP's second-quarter replacement cost profit was $6,853 million, compared with $6,488 million a year ago, an increase of 6%. For the half year, replacement cost profit was $13,441 million compared with $10,932 million a year ago, up 23%. -- Non-operating items and fair value accounting effects for the second quarter had a net $1,775 million unfavourable impact compared to a net $973 million favourable impact in the second quarter of 2007. For the half year, the respective amounts were $1,779 million unfavourable and $1,009 million favourable - see further details on page 3. The largest non-operating item for the second quarter and year-to-date was fair value losses on embedded derivatives which amounted to $2,081 million and $2,771 million respectively on a pre-tax basis. -- Net cash provided by operating activities for the quarter and half year was $6.7 billion and $17.6 billion compared with $6.1 billion and $14.1 billion respectively a year ago. -- The effective tax rate on replacement cost profit for the second quarter was 35% and for the half year was 36%; a year ago, the rates were 31% and 32% respectively. -- Net debt at the end of the quarter was $25.7 billion compared to $20.7 billion a year ago. The ratio of net debt to net debt plus equity was 19%, the same as a year ago. -- Capital expenditure, excluding acquisitions and asset exchanges, was $5.5 billion for the quarter and for the half year was $12.6 billion. Total capital expenditure and acquisitions was $5.8 billion for the quarter and $14.8 billion for the half year. Capital expenditure, excluding acquisitions and asset exchanges and excluding the accounting for our transaction with Husky (see pages 26 and 27), is expected to be around $21-22 billion for the year. Disposal proceeds were $59 million for the quarter and $335 million for the half year. -- The quarterly dividend, to be paid in September, is 14 cents per share ($0.84 per ADS) compared with 10.825 cents per share a year ago. For the half year, the dividend showed an increase of 30%. In sterling terms, the quarterly dividend is 7.039 pence per share, compared with 5.278 pence per share a year ago; for the half year, the increase was 33%. During the quarter, the company repurchased 85.9 million of its own shares for cancellation at a cost of $1 billion. For the first half, share repurchases were 176.9 million at a cost of $2 billion. (a) This results announcement also represents BP's half-yearly financial report for the purposes of the Disclosure and Transparency Rules (DTR) made by the UK Financial Services Authority (DTR 4.2 - Half-yearly financial reports). In this context: (i) the condensed set of financial statements can be found on pages 13 - 19 and 22 - 30; (ii) pages 1 - 11, 20 and 21 comprise the interim management report; (iii) information on material related party transactions that have taken place in the first six months of the year can be found in the condensed set of financial statements on pages 13 - 19 and 22 - 30; and (iv) the directors' responsibility statement and auditors' independent review report can be found on page 12. (b) Profit attributable to BP shareholders. (c) With effect from 1 January 2008, replacement cost profit excludes inventory holding gains and losses net of tax. Comparative amounts have been amended to the new basis. See page 2 for further details. The commentaries above and following are based on replacement cost profit and should be read in conjunction with the cautionary statement on page 11.
Analysis of replacement cost profit and reconciliation to profit for the period Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 7,119 10,072 10,771 Exploration and Production 20,843 13,425 2,742 1,249 539 Refining and Marketing 1,788 3,546 (173) (213) (314) Other businesses and corporate (527) (271) (98) (195) (39) Consolidation adjustment (234) (56) 9,590 10,913 10,957 RC profit before interest and tax(a) 21,870 16,644 Finance costs and net finance income relating to pensions and (155) (246) (221) other post-retirement benefits (467) (326) Taxation on a replacement (2,882) (3,947) (3,760) cost basis(b) (7,707) (5,239) (65) (132) (123) Minority interest (255) (147) Replacement cost profit attributable to 6,488 6,588 6,853 BP shareholders(b) 13,441 10,932 1,289 1,326 3,952 Inventory holding gains (losses) 5,278 1,592 Taxation (charge) credit on inventory holding (401) (463) (1,340) gains and losses (1,803) (484) Profit for the period attributable to 7,376 7,451 9,465 BP shareholders 16,916 12,040 (a) Replacement cost profit reflects the current cost of supplies. The replacement cost profit for the period is arrived at by excluding from profit inventory holding gains and losses. BP uses this measure to assist investors to assess BP's performance from period to period. Replacement cost profit is not a recognized GAAP measure. (b) Effective 1 January 2008, replacement cost profit excludes inventory holding gains and losses and their associated tax effect. Previously, replacement cost profit excluded inventory gains and losses while the tax charge remained unadjusted and included the tax effect on inventory holding gains and losses. Comparative amounts have been amended to the new basis and the impact of the change is shown in the table below. There is no impact on profit for the period.
First Second half quarter $ million 2007 2007 Replacement cost profit attributable to BP shareholders -as previously reported 10,448 6,087 -tax effect on inventory holding gains and losses 484 401 -as amended 10,932 6,488 Non-operating items and fair value accounting effects Non-operating items(a) Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 378 (376) (1,976) Exploration and Production (2,352) 1,135 767 609 (99) Refining and Marketing 510 538 (8) (81) (123) Other businesses and corporate (204) 26 1,137 152 (2,198) (2,046) 1,699 (347) (56) 770 Taxation(b) 714 (539) 790 96 (1,428) (1,332) 1,160 Fair value accounting effects(c) Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 Exploration and Production Unrecognized gains (losses) brought forward 124 107 366 from previous period 107 155 Unrecognized (gains) losses (198) (366) (739) carried forward (739) (198) Favourable (unfavourable) impact relative to management's (74) (259) (373) measure of performance (632) (43) Refining and Marketing Unrecognized gains (losses) brought forward 611 429 328 from previous period 429 72 Unrecognized (gains) losses (274) (328) (489) carried forward (489) (274) Favourable (unfavourable) impact relative to management's measure 337 101 (161) of performance (60) (202) 263 (158) (534) (692) (245) (80) 58 187 Taxation(b) 245 94 183 (100) (347) (447) (151) Total of non-operating items and fair value accounting effects Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 304 (635) (2,349) Exploration and Production (2,984) 1,092 1,104 710 (260) Refining and Marketing 450 336 (8) (81) (123) Other businesses and corporate (204) 26 1,400 (6) (2,732) (2,738) 1,454 (427) 2 957 Taxation(b) 959 (445) 973 (4) (1,775) (1,779) 1,009 (a) An analysis of non-operating items by type is provided on page 21 and a geographical analysis is shown on pages 7, 9 and 10. (b) Tax is calculated using the quarter's effective tax rate on replacement cost profit. Amounts for comparative periods have been amended to reflect a redefinition of the effective tax rate on replacement cost profit arising as a result of the exclusion of tax effects on inventory holding gains and losses as described on page 2.
(c) An explanation of fair value accounting effects is provided on page 11. Per share amounts Second First Second quarter quarter quarter First half 2007 2008 2008 2008 2007 Results for the period ($ million) 7,376 7,451 9,465 Profit(a) 16,916 12,040 Replacement 6,488 6,588 6,853 cost profit 13,441 10,932 Shares in issue at period end 19,133,973 18,877,537 18,805,089 (thousand)(b) 18,805,089 19,133,973 - ADS equivalent 3,188,996 3,146,256 3,134,182 (thousand)(b) 3,134,182 3,188,996 Average number of shares outstanding 19,186,461 18,875,611 18,823,515 (thousand)(b) 18,849,504 19,284,938 - ADS equivalent 3,197,744 3,145,935 3,137,253 (thousand)(b) 3,141,584 3,214,156 Shares repurchased in the period 175,806 90,996 85,900 (thousand) 176,896 413,722 Per ordinary share (cents) Profit for 38.37 39.47 50.27 the period 89.74 62.43 RC profit for 33.75 34.90 36.40 the period 71.30 56.68 Per ADS (cents) Profit for 230.22 236.82 301.62 the period 538.44 374.58 RC profit for 202.50 209.40 218.40 the period 427.80 340.08 (a) Profit attributable to BP shareholders. (b) Excludes treasury shares. Dividends Dividends payable BP today announced a dividend of 14 cents per ordinary share to be paid in September. Holders of ordinary shares will receive 7.039 pence per share and holders of American Depository Receipts (ADRs) $0.84 per ADS. The dividend is payable on 8 September to shareholders on the register on 15 August. Participants in the Dividend Reinvestment Plan (DRIP) or the DRIP facility in the US Direct Access Plan will receive the dividend in the form of shares, also on 8 September. Dividends paid Second First Second quarter quarter quarter First half 2007 2008 2008 2008 2007 Dividends paid per ordinary share 10.325 13.525 13.525 cents 27.050 20.650 5.151 6.813 6.830 pence 13.643 10.409 61.95 81.15 81.15 Dividends paid per ADS (cents) 162.30 123.90 Net debt ratio - net debt: net debt + equity Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 23,754 29,871 30,189 Gross debt 30,189 23,754 Less: fair value asset (liability) of hedges 379 1,234 900 related to finance debt 900 379 23,375 28,637 29,289 29,289 23,375 2,643 4,820 3,593 Cash and cash equivalents 3,593 2,643 20,732 23,817 25,696 Net debt 25,696 20,732 89,423 99,536 106,454 Equity 106,454 89,423 19% 19% 19% Net debt ratio 19% 19% Net debt and net debt ratio are non-GAAP measures. We believe that these measures provide useful information to investors. Net debt enables investors to see the economic effect of gross debt, related hedges and cash and cash equivalents in total. The net debt ratio enables investors to see how significant net debt is relative to equity from shareholders. Net debt has been redefined to include the fair value of associated derivative financial instruments that are used to hedge foreign exchange and interest rate risks relating to finance debt, for which hedge accounting is claimed. The derivatives are reported on the balance sheet within the headings 'Derivative financial instruments'. Amounts for comparative periods are presented on a consistent basis. See note 2(c) on page 25 for further information.
Exploration and Production Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 7,165 10,054 10,819 Profit before interest and tax(a) 20,873 13,482 (46) 18 (48) Inventory holding (gains) losses (30) (57) Replacement cost profit before 7,119 10,072 10,771 interest and tax 20,843 13,425 By region: 1,105 923 (124) UK 799 2,227 182 276 350 Rest of Europe 626 909 2,183 3,085 3,601 US 6,686 3,914 3,649 5,788 6,944 Rest of World 12,732 6,375 7,119 10,072 10,771 20,843 13,425 (a) Includes profit after interest and tax of equity-accounted entities. The replacement cost profit before interest and tax for the second quarter and half year was $10,771 million and $20,843 million respectively, increases of 51% and 55% over the same periods of 2007. The increases in both periods were primarily due to higher oil and gas realizations. Partly offsetting these were higher charges for non-operating items (see below) and higher costs, primarily reflecting the impacts of sector-specific inflation, higher depreciation and higher production taxes. The results also included higher earnings from equity-accounted entities, primarily from TNK-BP due to higher prices and the effect of lagged tax reference prices. The non-operating charge of $1,976 million in the second quarter primarily comprised fair value losses on embedded derivatives partly offset by the reversal of a previous impairment charge. In the first half, the net non- operating charge was $2,352 million with the most significant item being fair value losses on embedded derivatives partly offset by the reversal of certain provisions and the reversal of a previous impairment charge. The corresponding periods in 2007 contained net non-operating gains of $378 million and $1,135 million respectively. Additionally, in the second quarter, fair value accounting effects had an unfavourable impact of $373 million compared with an unfavourable impact of $74 million a year ago. For the first half, the unfavourable effect was $632 million compared with an unfavourable effect of $43 million a year ago. Reported production for the quarter was 3,830mboe/d, broadly flat with the second quarter of 2007. After adjusting for the impact of lower entitlement in our production-sharing agreements (PSAs), production was around 6% higher than the second quarter of 2007 reflecting the continued ramp-up of production following the start-up of major projects in late 2007 and the first half of 2008. We expect the quarterly phasing of underlying production during the year to reflect the normal seasonal effects associated with turnaround activity. Reported production for the half year was 3,871mboe/d, broadly flat with the same period of the previous year. After adjusting for the effect of entitlement changes in our PSAs, production for the half year was around 6% higher than the same period of 2007. During the second quarter, we had first production from the Taurt (BP 50% and operator) and Saqqara fields in Egypt. Saqqara is operated by the Gulf of Suez Petroleum Company, an equal joint venture between Egyptian General Petroleum Corporation and BP. In the Gulf of Mexico, we progressed the commissioning of Thunder Horse (BP 75% and operator) with production from the first well and on 3 July, first injection of water occurred at the Ursa waterflood project (BP 22.69%). Also during the quarter, we had exploration success in the North Sea with the Kinnoull discovery (BP 77% and operator) and we acquired three exploration licences in the Canadian Beaufort Sea. On 28 July, we announced that BP and its co-venturers have received authorization to develop a series of deepwater oil discoveries in offshore Angola's Block 31 (BP 26.67% and operator) where we have made 15 discoveries to date. On 17 July, we announced that we have agreed to acquire Chesapeake Energy Corporation's interests in approximately 90,000 net acres of leasehold and producing natural gas properties in the Arkoma Basin Woodford Shale play for $1.75 billion in cash. In order to comply with the requirements of the Disclosure and Transparency Rules (DTR) made by the UK Financial Services Authority, we include here a summary of the principal disclosures made in our first-quarter results announcement. At the start of the second quarter, production commenced at Deep Water Gunashli (BP 34.1% and operator), we announced the Kodiak discovery in the deepwater Gulf of Mexico and, jointly with ConocoPhillips, announced that we have combined resources to start Denali - The Alaska Gas Pipeline. During the first quarter, we had first production from the Mondo field within the Kizomba C development in Angola. We also had exploration success in Angola, Egypt and the North Sea. We completed the deal with Husky Energy Inc. to create an integrated North American oil sands business by means of two separate joint ventures.
Exploration and Production Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 Non-operating items 164 (694) (2,082) UK (2,776) 316 (2) - - Rest of Europe - 531 178 (8) (8) US (16) 171 38 326 114 Rest of World 440 117 378 (376) (1,976) (2,352) 1,135 Fair value accounting effects(a) (4) 17 (147) UK (130) 34 - - - Rest of Europe - - (71) (142) (236) US (378) (77) 1 (134) 10 Rest of World (124) - (74) (259) (373) (632) (43) Exploration expense 7 92 8 UK 100 27 - - - Rest of Europe - - 54 72 47 US 119 131 94 129 63 Rest of World 192 153 155 293 118 411 311 Production (net of royalties)(b) Liquids (mb/d) (net of royalties)(c) 218 191 186 UK 188 227 43 44 40 Rest of Europe 42 52 532 554 534 US 544 529 1,656 1,664 1,648 Rest of World 1,657 1,640 2,449 2,453 2,408 2,431 2,448 Natural gas (mmcf/d) (net of royalties) 731 971 723 UK 847 818 22 25 21 Rest of Europe 23 32 2,165 2,149 2,140 US 2,144 2,164 4,941 5,319 5,364 Rest of World 5,342 5,165 7,859 8,464 8,248 8,356 8,179 Total hydrocarbons (mboe/d)(d) 344 358 311 UK 335 368 47 48 43 Rest of Europe 46 57 905 925 903 US 914 902 2,508 2,582 2,573 Rest of World 2,576 2,530 3,804 3,913 3,830 3,871 3,857 Average realizations(e) 62.58 90.92 109.95 Total liquids ($/bbl) 100.66 57.96 4.45 5.88 6.63 Natural gas ($/mcf) 6.25 4.66 44.97 62.27 75.39 Total hydrocarbons ($/boe) 68.85 42.97 (a) These effects represent the favourable (unfavourable) impact relative to management's measure of performance. Further information on fair value accounting effects is provided on pages 3 and 11. (b) Includes BP's share of production of equity-accounted entities. (c) Crude oil and natural gas liquids. (d) Natural gas is converted to oil equivalent at 5.8 billion cubic feet = 1 million barrels. (e) Based on sales of consolidated subsidiaries only - this excludes equity-accounted entities. Because of rounding, some totals may not agree exactly with the sum of their component parts.
Refining and Marketing Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 3,983 2,573 4,430 Profit before interest and tax(a) 7,003 5,078 (1,241) (1,324) (3,891) Inventory holding (gains) losses (5,215) (1,532) Replacement cost profit (loss) 2,742 1,249 539 before interest and tax 1,788 3,546 By region: 937 107 118 UK 225 895 584 629 429 Rest of Europe 1,058 882 966 154 (401) US (247) 1,095 255 359 393 Rest of World 752 674 2,742 1,249 539 1,788 3,546 (a) Includes profit after interest and tax of equity-accounted entities. The replacement cost profit before interest and tax for the second quarter and half year was $539 million and $1,788 million respectively. The results in the equivalent periods of 2007 were $2,742 million and $3,546 million respectively. The current-year results included a net non-operating charge primarily relating to restructuring of $99 million in the second quarter and a net non-operating gain of $510 million in the half year. A year ago, the results included net non-operating gains of $767 million and $538 million respectively. Fair value accounting effects had unfavourable impacts of $161 million for the current quarter and $60 million for the half year. A year ago, the impact was $337 million favourable for the quarter and $202 million unfavourable for the half year. Compared with 2007, both the second quarter and half-year results reflected the adverse impacts of significantly lower refining margins, particularly in the US. This more than offset the benefits of the underlying performance improvement of our US refining operations. The Fuels Value Chains (FVCs) were impacted by lower refining margins and continued to experience lower sales volumes and generally flat or reduced retail margins as a result of high fuel prices and lower demand. The average refining Global Indicator Margin (GIM) and BP's actual refining margin for the second quarter and half year both remained significantly lower than in 2007. Refining throughputs for the quarter and half year were 2,239mb/d and 2,202mb/d respectively, compared with 2,128mb/d and 2,180mb/d for the same periods last year. The higher throughputs were mainly from the recoveries at the Texas City and Whiting refineries, partially offset by the loss of throughput from the disposal of the Coryton refinery and a reduced interest in the Toledo refinery due to the Husky joint venture deal. Excluding portfolio impacts, the underlying improvement in throughputs in the second quarter was 13% year-on-year. Solomon refining availability continued to improve, reaching 88.3% in the second quarter. Following the restoration of Whiting to its full clean fuel capacity of 360mb/d on 21 March, the Texas City refinery has successfully restored its full crude capacity and the majority of its economic capability. The residue hydrotreater at Texas City is being commissioned with the first train having started up in mid-July. We have also taken the final investment decision on the significant upgrading of the Whiting refinery, repositioning it to run more than 80% Canadian heavy crude oil. We are making good progress with our focus on simplification and cost efficiency. The lubricants and aviation businesses are on track to reduce their geographical footprint, and the franchise model for our retail sites in the US is also progressing well. Through these changes, together with the implementation of the FVCs and the simplification of internal interfaces and processes, we are on track to deliver the anticipated reduction in headcount. The International Businesses, in particular lubricants, continue to perform strongly in a challenging environment. Refining margins in the third quarter to date remain lower than the second quarter and substantially below the 2007 level. Higher energy costs continue to impact refining earnings, more so in the US, offsetting the benefits from the continuing recovery of our US refining operations and availability. Refinery turnaround activities will be higher in the third quarter than in the second. Our marketing businesses continue to be impacted by the slowing of the OECD economies and the effects of high and rising wholesale prices. The current volatile pricing environment is also proving challenging for our supply optimization activities. In order to comply with the DTR requirements, we include here a summary of the principal disclosures made in our first-quarter results announcement. Our new 900ktepa Zhuhai purified terephthalic acid (PTA) plant was successfully commissioned in early 2008. On 17 March 2008, BP and Irving Oil entered into a memorandum of understanding to work together on the next phase of the proposed Eider Rock refinery in Saint John, New Brunswick, Canada.
Refining and Marketing Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 Non-operating items 844 (49) (10) UK (59) 681 (44) (85) (32) Rest of Europe (117) (56) 170 774 (16) US 758 112 (203) (31) (41) Rest of World (72) (199) 767 609 (99) 510 538 Fair value accounting effects(a) 83 (4) (177) UK (181) (98) 48 36 (59) Rest of Europe (23) (117) 174 95 53 US 148 9 32 (26) 22 Rest of World (4) 4 337 101 (161) (60) (202) Refinery throughputs (mb/d) 123 - - UK - 136 700 775 753 Rest of Europe 764 670 996 1,076 1,189 US 1,133 1,074 309 315 297 Rest of World 305 300 2,128 2,166 2,239 Total throughput 2,202 2,180 82.7 88.0 88.3 Refining availability (%)(b) 88.1 82.2 Oil sales volumes (mb/d) Refined products 343 321 315 UK 318 339 1,271 1,244 1,236 Rest of Europe 1,240 1,258 1,579 1,455 1,498 US 1,477 1,571 615 692 716 Rest of World 704 620 3,808 3,712 3,765 Total marketing sales 3,739 3,788 1,867 2,047 2,017 Trading/supply sales 2,032 1,947 5,675 5,759 5,782 Total refined product sales 5,771 5,735 2,161 1,860 1,848 Crude oil 1,854 2,089 7,836 7,619 7,630 Total oil sales 7,625 7,824 Global Indicator Refining Margin ($/bbl)(c) 7.12 4.79 7.46 NWE 6.12 5.65 24.46 6.21 8.59 USGC 7.40 17.34 26.05 1.11 6.53 Midwest 3.82 16.89 22.71 5.91 9.94 USWC 7.92 22.46 6.01 4.76 9.41 Singapore 7.09 5.43 16.66 4.57 8.19 Average 6.38 13.07 Chemicals production (kte) 246 261 164 UK 425 502 655 708 657 Rest of Europe 1,365 1,403 1,047 1,036 1,022 US 2,058 2,123 1,497 1,531 1,598 Rest of World 3,129 3,017 3,445 3,536 3,441 Total production 6,977 7,045 (a) These effects represent the favourable (unfavourable) impact relative to management's measure of performance. Further information on fair value accounting effects is provided on pages 3 and 11. (b) Refining availability is defined as the ratio of units which are available for processing, regardless of whether they are actually being used, to total capacity. Where there is planned maintenance, such capacity is not regarded as being available. (c) The Global Indicator Refining Margin (GIM) is the average of regional indicator margins weighted for BP's crude refining capacity in each region. Each regional indicator margin is based on a single representative crude with product yields characteristic of the typical level of upgrading complexity. The regional indicator margins may not be representative of the actual margins achieved by BP in any period because of BP's particular refinery configurations and crude and product slate.
Other businesses and corporate Second First Second quarter quarter quarter First half 2007 2008 2008 $ million 2008 2007 Profit (loss) before interest (171) (193) (301) and tax(a) (494) (268) (2) (20) (13) Inventory holding (gains) losses (33) (3) Replacement cost profit (loss) (173) (213) (314) before interest and tax (527) (271) By region: (29) (119) (119) UK (238) (55) (9) - (29) Rest of Europe (29) 12 (128) (152) (185) US (337) (261) (7) 58 19 Rest of World 77 33 (173) (213) (314) (527) (271) Results include: Non-operating items (15) (6) (41) UK (47) (15) - (13) (47) Rest of Europe (60) 28 7 (49) (33) US (82) 13 - (13) (2) Rest of World (15) - (8) (81) (123) (204) 26 (a) Includes profit after interest and tax of equity-accounted entities. Other businesses and corporate comprises the Alternative Energy business, Shipping, the group's aluminium asset, Treasury (which includes interest income on the group's cash and cash equivalents) and corporate activities worldwide. The replacement cost profit before interest and tax for the second quarter was a loss of $314 million, compared with a loss of $173 million a year ago. For the half year, the replacement cost profit before interest and tax was a loss of $527 million, compared with a loss of $271 million a year ago. The net non-operating charge for the second quarter and half year was $123 million and $204 million, respectively. The second-quarter loss included a $75 million restructuring charge and a net charge of $48 million for impairment and other provisions. The prior year included a net non-operating charge of $8 million in the second quarter and a net gain of $26 million in the half year. Following the first-quarter announcement that Alternative Energy and Dominion had entered into a joint venture to develop a wind farm in Indiana, construction of the Fowler Ridge installation commenced in May. As previously announced, we formed a joint venture with NRG Energy, Inc. for the development and operation of the Sherbino Mesa wind farm in Texas. In June, we initiated a further wind project, Flat Ridge in Kansas, a partnership with Westar Energy, Inc. and on 30 June, we acquired the Whiting Clean Energy facility, a 525MW natural-gas fired combined-cycle cogeneration power plant, from NiSource, Inc. In order to comply with the DTR requirements, we include here a summary of the principal additional disclosures made in our first-quarter results announcement. During the first quarter, Alternative Energy announced its intention to pursue development options for a hydrogen power plant in Abu Dhabi with Abu Dhabi Future Energy Company (Masdar). In the first quarter, Alternative Energy announced its intention to take a 50% stake in Tropical BioEnergia SA, an ethanol refining joint venture in Brazil established by Brazilian companies Santelisa Vale and Maeda Group and, on 10 June, we completed this acquisition.
Second First Second quarter quarter quarter 2008 2008 2007 Wind - net rated capacity as at period end (megawatts)(a) 172 172 32 Solar - cell production capacity as at period end (megawatts)(b) 255 228 201 (a) Net wind capacity is the sum of the rated capacities of the assets/turbines that have entered into commercial operation, including BP's share of equity-accounted entities. The equivalent capacities on a gross-JV basis (which includes 100% of the capacity of equity-accounted entities where BP has partial ownership) are 373MW as at the second quarter of 2008, 373MW as at the first quarter of 2008 and 32MW as at the second quarter last year. (b) Solar capacity is the theoretical cell production capacity per annum of in-house manufacturing facilities. Information on fair value accounting effects BP uses derivative instruments to manage the economic exposure relating to inventories above normal operating requirements of crude oil, natural gas and petroleum products as well as certain contracts to supply physical volumes at future dates. Under IFRS, these inventories and contracts are recorded at historic cost and on an accruals basis, respectively. The related derivative instruments, however, are required to be recorded at fair value with gains and losses recognized in income because hedge accounting is either not permitted or not followed, principally due to the impracticality of effectiveness testing requirements. Therefore, measurement differences in relation to recognition of gains and losses occur. Gains and losses on these inventories and contracts are not recognized until the commodity is sold in a subsequent accounting period. Gains and losses on the related derivative commodity contracts are recognized in the income statement from the time the derivative commodity contract is entered into on a fair value basis using forward prices consistent with the contract maturity. IFRS requires that inventory held for trading be recorded at its fair value using period end spot prices whereas any related derivative commodity instruments are required to be recorded at values based on forward prices consistent with the contract maturity. Depending on market conditions, these forward prices can be either higher or lower than spot prices resulting in measurement differences. BP enters into contracts for pipelines and storage capacity which, under IFRS, are recorded on an accruals basis. These contracts are risk managed using a variety of derivative instruments which are fair valued under IFRS. This results in measurement differences in relation to recognition of gains and losses. The way that BP manages the economic exposures described above, and measures performance internally, differs from the way these activities are measured under IFRS. BP calculates this difference by comparing the IFRS result with management's internal measure of performance, under which the inventory and the supply and capacity contracts in question are valued based on fair value using relevant forward prices prevailing at the end of the period. We believe that disclosing management's estimate of this difference provides useful information for investors because it enables investors to see the economic effect of these activities as a whole. The impacts of fair value accounting effects, relative to management's internal measure of performance, are shown in the table on page 3. Information for all quarters of 2006 and 2007 can be found at http://www.bp.com/FVAE. Principal risks and uncertainties The principal risks and uncertainties for the remaining six months of the year are described in the Risk Factors section on pages 9 and 10 of BP Annual Report and Accounts 2007. Information in relation to our investment in TNK-BP is included in Note 9 on page 30 of this second quarter and half year result announcement. Cautionary Statement: The foregoing discussion contains forward-looking statements particularly those regarding capital expenditure, expected phasing of underlying production, results of simplification and cost efficiency measures, refinery turnaround activities, the continuing impact of higher energy costs on refining earnings, of slowing OECD economies and high and rising wholesale prices on the marketing businesses as well as the impact of a volatile pricing environment on supply optimization activities. By their nature, forward-looking statements involve risk and uncertainty and actual results may differ from those expressed in such statements depending on a variety of factors including the following: the timing of bringing new fields onstream; industry product supply; demand and pricing; operational problems; general economic conditions (including inflation); political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations and quotas; exchange rate fluctuations; development and use of new technology; the success or otherwise of partnering; the actions of competitors; natural disasters and adverse weather conditions; changes in public expectations and other changes to business conditions; wars and acts of terrorism or sabotage; and other factors discussed in this announcement. For more information you should refer to our Annual Report and Accounts 2007 and our 2007 Annual Report on Form 20-F filed with the US Securities and Exchange Commission.
Statement of directors' responsibilities The directors confirm that, to the best of their knowledge, the condensed set of financial statements on pages 13 - 19 and 22 - 30 has been prepared in accordance with IAS 34 'Interim Financial Reporting', and that the interim management report on pages 1 - 11, 20 - 21 includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8. The directors of BP p.l.c. are listed in BP Annual Report and Accounts 2007, with the exception of Dr D C Allen who retired from the board on 31 March 2008 and Dr W E Massey who retired from the board on 17 April 2008.
By order of the board Tony Hayward Byron Grote Group Chief Executive Chief Financial Officer 28 July 2008 28 July 2008 Independent review report to BP p.l.c. We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the group income statement, group balance sheet, group statement of recognized income and expense, movement in shareholders' equity, group cash flow statement, the related tables on pages 18, 19 and 22, and notes 1 to 11. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom (ISRE 2410). To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in Note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and IFRS as adopted by the European Union (EU). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as issued by the IASB and as adopted by the EU. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of review We conducted our review in accordance with ISRE 2410. A review of interim financial information consists of making enquiries primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as issued by the IASB and as adopted by the EU and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
Ernst & Young LLP London 28 July 2008 Group income statement Second First Second quarter quarter quarter First half 2007 2008 2008 2008 2007 $ million $ million Sales and other 71,872 87,745 108,747 operating revenues 196,492 133,179 Earnings from jointly controlled entities - after 910 975 1,752 interest and tax 2,727 1,243 Earnings from associates - after 173 225 251 interest and tax 476 336 128 278 153 Interest and other revenues 431 361 73,083 89,223 110,903 Total revenues (Note 4) 200,126 135,119 Gains on sale of businesses 1,309 925 79 and fixed assets 1,004 1,989 74,392 90,148 110,982 Total revenues and other income 201,130 137,108 49,983 61,800 77,317 Purchases 139,117 92,643 Production and manufacturing 6,276 6,799 7,408 expenses 14,207 12,028 Production and similar taxes 827 1,609 2,299 (Note 5) 3,908 1,574 Depreciation, depletion and 2,535 2,782 2,850 amortization 5,632 5,054 Impairment and losses on sale of 455 40 23 businesses and fixed assets 63 678 155 293 118 Exploration expense 411 311 Distribution and administration 3,565 3,896 3,977 expenses 7,873 7,022 Fair value (gain) loss on (283) 690 2,081 embedded derivatives 2,771 (438) Profit before interest and 10,879 12,239 14,909 taxation 27,148 18,236 317 406 381 Finance costs (Note 6) 787 648 Net finance income relating to pensions and other post- (162) (160) (160) retirement benefits (Note 7) (320) (322) 10,724 11,993 14,688 Profit before taxation 26,681 17,910 3,283 4,410 5,100 Taxation 9,510 5,723 7,441 7,583 9,588 Profit for the period 17,171 12,187 Attributable to: 7,376 7,451 9,465 BP shareholders 16,916 12,040 65 132 123 Minority interest 255 147 7,441 7,583 9,588 17,171 12,187 Earnings per share - cents Profit for the period attributable to BP shareholders 38.37 39.47 50.27 Basic 89.74 62.43 38.18 39.12 49.80 Diluted 88.92 62.12 Group balance sheet 30 June 31 December 2008 2007 $ million Non-current assets Property, plant and equipment 101,787 97,989 Goodwill 11,016 11,006 Intangible assets 7,386 6,652 Investments in jointly controlled entities 24,883 18,113 Investments in associates 4,601 4,579 Other investments 1,981 1,830 Fixed assets 151,654 140,169 Loans 1,057 999 Other receivables 958 968 Derivative financial instruments 12,077 3,741 Prepayments 1,128 1,083 Defined benefit pension plan surplus 9,086 8,914 175,960 155,874 Current assets Loans 173 165 Inventories 35,182 26,554 Trade and other receivables 48,482 38,020 Derivative financial instruments 16,075 6,321 Prepayments 4,153 3,589 Current tax receivable 195 705 Cash and cash equivalents 3,593 3,562 107,853 78,916 Assets classified as held for sale - 1,286 107,853 80,202 Total assets 283,813 236,076 Current liabilities Trade and other payables 54,029 43,152 Derivative financial instruments 15,593 6,405 Accruals and deferred income 7,019 6,640 Finance debt 16,638 15,394 Current tax payable 5,681 3,282 Provisions 2,080 2,195 101,040 77,068 Liabilities directly associated with the assets classified as held for sale - 163 101,040 77,231 Non-current liabilities Other payables 2,821 1,251 Derivative financial instruments 15,116 5,002 Accruals and deferred income 882 959 Finance debt 13,551 15,651 Deferred tax liabilities 20,935 19,215 Provisions 13,447 12,900 Defined benefit pension plan and other post-retirement benefit plan deficits 9,567 9,215 76,319 64,193 Total liabilities 177,359 141,424 Net assets 106,454 94,652 Equity BP shareholders' equity 105,356 93,690 Minority interest 1,098 962 106,454 94,652 Group statement of recognized income and expense Second First Second quarter quarter quarter First half 2007 2008 2008 2008 2007 $ million $ million 621 778 255 Currency translation differences 1,033 795 Exchange gain on translation of foreign operations transferred to gain on sale of (128) - - businesses and fixed assets - (147) Available-for-sale investments 6 (191) 322 marked to market 131 (103) Available-for-sale investments - recycled to the - (5) - income statement (5) - 13 74 49 Cash flow hedges marked to market 123 41 Cash flow hedges - recycled to the (21) (2) 1 income statement (1) (81) Cash flow hedges - recycled to the - (23) (18) balance sheet (41) (7) 105 (118) 107 Taxation (11) 28 Net income (expense) recognized 596 513 716 directly in equity 1,229 526 7,441 7,583 9,588 Profit for the period 17,171 12,187 Total recognized income and 8,037 8,096 10,304 expense for the period 18,400 12,713 Attributable to: 7,967 7,960 10,182 BP shareholders 18,142 12,545 70 136 122 Minority interest 258 168 8,037 8,096 10,304 18,400 12,713 Movement in shareholders' equity BP shareholders' Minority Total equity interest equity $ million At 31 December 2007 93,690 962 94,652 Currency translation differences (net of tax) 1,093 3 1,096 Available-for-sale investments (net of tax) 161 - 161 Cash flow hedges (net of tax) 76 - 76 Tax on share-based payments (104) - (104) Profit for the period 16,916 255 17,171 Total recognized income and expense for the period 18,142 258 18,400 Dividends (5,099) (122) (5,221) Repurchase of ordinary share capital (1,796) - (1,796) Share-based payments 419 - 419 At 30 June 2008 105,356 1,098 106,454 Group cash flow statement Second First Second quarter quarter quarter First half 2007 2008 2008 2008 2007 $ million $ million Operating activities 10,724 11,993 14,688 Profit before taxation 26,681 17,910 Adjustments to reconcile profits before tax to net cash provided by operating activities Exploration expenditure 60 184 44 written off 228 115 Depreciation, depletion and 2,535 2,782 2,850 amortization 5,632 5,054 Impairment and (gain) loss on sale of businesses (854) (885) (56) and fixed assets (941) (1,311) Earnings from jointly controlled (1,083) (1,200) (2,003) entities and associates (3,203) (1,579) Dividends received from jointly controlled entities 813 1,387 512 and associates 1,899 1,042 Working capital and other (6,109) (3,367) (9,317) movements (12,684) (7,167) Net cash provided by operating 6,086 10,894 6,718 activities 17,612 14,064 Investing activities (4,334) (4,435) (4,713) Capital expenditure (9,148) (7,979) (111) - (209) Acquisitions, net of cash acquired (209) (1,198) Investment in jointly controlled (12) (366) (247) entities (613) (21) (65) (4) (3) Investment in associates (7) (109) Proceeds from disposal of fixed 836 276 59 assets 335 1,146 Proceeds from disposal of 1,905 - - businesses, net of cash disposed - 2,513 33 122 212 Proceeds from loan repayments 334 78 374 - - Other - 374 Net cash (used in) provided by (1,374) (4,407) (4,901) investing activities (9,308) (5,196) Financing activities (1,918) (889) (928) Net repurchase of shares (1,817) (4,320) 1,513 2,177 655 Proceeds from long-term financing 2,832 2,871 (93) (537) (1,654) Repayments of long-term financing (2,191) (1,227) Net increase (decrease) in (1,499) (3,424) 1,516 short-term debt (1,908) (2,057) Dividends paid (1,983) (2,554) (2,545) - BP shareholders (5,099) (3,984) (71) (36) (86) - Minority interest (122) (135) Net cash (used in) provided by (4,051) (5,263) (3,042) financing activities (8,305) (8,852) Currency translation differences relating to cash 26 34 (2) and cash equivalents 32 37 Increase (decrease) in cash and 687 1,258 (1,227) cash equivalents 31 53 Cash and cash equivalents at 1,956 3,562 4,820 beginning of period 3,562 2,590 Cash and cash equivalents at 2,643 4,820 3,593 end of period 3,593 2,643 Group cash flow statement Second First Second quarter quarter quarter First half 2007 2008 2008 2008 2007 $ million $ million Working capital and other movements (93) (97) (118) Interest receivable (215) (188) 103 99 110 Interest received 209 188 317 406 381 Finance costs 787 648 (335) (366) (396) Interest paid (762) (668) Net finance income relating to pensions and other (162) (160) (160) post-retirement benefits (320) (322) 107 65 173 Share-based payments 238 182
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