Business context and reporting period
BP p.l.c.’s annual report on Form 20-F covers the fiscal year ended 31 December 2017; it is not a standalone fourth-quarter filing. BP is a global integrated energy company, with Upstream, Downstream, Rosneft and other businesses. Financial statements are prepared under IFRS as issued by the IASB.
Financial and operating performance
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Sales and other operating revenues | $240.2bn | $183.0bn |
| Profit attributable to BP shareholders | $3.389bn | $115m |
| Replacement-cost profit (loss) | $2.761bn | $(999)m |
| Underlying replacement-cost profit | $6.166bn | $2.585bn |
| Operating cash flow | $18.931bn | $10.691bn |
| Cash capital expenditure | $17.840bn | $17.452bn |
| Cash and cash equivalents at year-end | $25.586bn | $23.484bn |
| Gross debt / net debt | $63.230bn / $37.819bn | $58.300bn / $35.513bn |
| Net debt ratio | 27.4% | 26.8% |
| ROACE | 5.8% | 2.8% |
Underlying replacement-cost profit is a non-GAAP measure. BP reported production of 3.595 million barrels of oil equivalent per day, up 10% from 2016, and a group proved-reserves replacement ratio of 143%. Downstream recorded a record $7.221bn replacement-cost profit before interest and tax; Upstream reported $5.221bn.
Material changes versus the prior period
- Higher oil and gas prices, increased production and stronger refining performance lifted underlying replacement-cost profit to more than twice its 2016 level.
- Operating cash flow increased by $8.2bn. BP cited improved business results and lower Gulf of Mexico spill cash outflows, partly offset by working-capital movements and higher income taxes paid.
- Profit attributable to shareholders rose to $3.389bn from $115m. The 2016 result was also affected by substantial non-operating items, so the underlying profit measure offers a different comparison.
- Net debt increased by $2.3bn and gross debt by $4.9bn. Cash dividends distributed, including scrip, were $7.9bn, versus $7.5bn in 2016.
Outlook, commentary, risks and unusual items
- Guidance: BP expected 2018 organic capital expenditure of $15–16bn, divestment proceeds of $2–3bn, and six major project start-ups. It expected underlying production above 2017, while reported production would depend on project timing, acquisitions and disposals, OPEC quotas and production-sharing entitlements.
- Financial framework: BP targeted a 20–30% net debt ratio and aimed to improve ROACE to above 10% by 2021 at real oil prices around $55 per barrel. The company said operating cash flow excluding Gulf spill payments should cover 2018 organic capital expenditure and the full dividend at about $50 per barrel.
- Spill liabilities: BP recorded a $2.7bn pre-tax 2017 charge for Gulf of Mexico oil spill costs, principally business economic loss and other claims. A $1.7bn post-tax charge was recognized in the fourth quarter for these claims. The cumulative pre-tax income-statement charge since the 2010 incident was $65.8bn. Appeals and remaining claims leave uncertainty over final amounts and timing.
- Other unusual items: Non-operating charges included a $0.9bn deferred tax charge following the US corporate tax-rate reduction, plus upstream impairments. The reported 2017 effective tax rate was 52%; BP expected its adjusted effective tax rate in 2018 to exceed 40%.
- Principal risks: Commodity-price and refining-margin volatility; project delivery and reserves progression; geopolitical exposure and sanctions, particularly relating to Russia; safety, environmental and oil-spill liabilities; climate policy and energy-transition risks; cyber threats; liquidity and credit exposure; and legal, regulatory and tax contingencies.
- Operations and assurance: BP reported 18 tier 1 process-safety events, compared with 16 in 2016, and one workforce fatality. Ernst & Young issued unqualified opinions on the IFRS financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Reconcile the $6.166bn underlying replacement-cost profit with IFRS profit attributable to shareholders of $3.389bn, including non-operating items, fair-value effects and tax adjustments.
- Review the assumptions, appeals and cash-payment schedule for Gulf of Mexico claims, and the related provisions and payables.
- Assess debt growth, liquidity facilities and the capacity to fund capital spending, dividends and spill payments while staying within BP’s gearing target.
- Track 2018 project start-ups, production guidance, disposal proceeds and progress toward the 2021 production and ROACE targets.
- Consider exposure to oil and gas prices, climate-related policy changes, Russia-related sanctions, operational safety and cyber risk.