BP Amoco PLC: 1999 Annual Report (Form 20-F) Summary
Business Context and Reporting Period
This filing covers the fiscal year ended December 31, 1999, for BP Amoco PLC, formed by the merger of The British Petroleum Company p.l.c. and Amoco Corporation on December 31, 1998. The company operates globally with three primary segments: Exploration and Production (upstream), Refining and Marketing (downstream), and Chemicals. The 1999 reporting period focused on the integration of the merged entities, achieving targeted cost savings of $2 billion, and executing a strategic asset divestment program to focus on core competitive strengths.
Key Financial Metrics
| Metric | 1999 ($ million) | 1998 ($ million) | 1997 ($ million) |
|---|---|---|---|
| Group Turnover | 83,566 | 68,304 | 91,760 |
| Total Replacement Cost Operating Profit | 8,894 | 6,521 | 10,683 |
| Profit for the Year (Historical Cost) | 5,008 | 3,220 | 5,673 |
| Profit per Ordinary Share (Diluted) | 25.68 cents | 16.70 cents | 29.41 cents |
| Net Cash Inflow from Operating Activities | 10,290 | 9,586 | 15,558 |
| Capital Expenditure and Acquisitions | 7,345 | 10,362 | 11,420 |
| Total Assets | 89,561 | 84,915 | 86,279 |
| Net Debt | 12,993 | 12,880 | 11,455 |
| Debt to Net Debt + Equity Ratio | 23% | 23% | 22% |
Material Changes vs. Prior Period
- Profitability Improvement: Replacement cost profit before exceptional items rose 35% to $5.33 billion in 1999 compared to 1998, driven by higher oil prices and successful cost integration. Historical cost profit increased to $5.01 billion, aided by inventory holding gains of $1.73 billion.
- Restructuring Costs: The company incurred net exceptional losses of $2.28 billion in 1999, primarily due to restructuring costs of $1.94 billion (including $1.21 billion in employee severance) following the merger. This contrasts with net exceptional profits of $850 million in 1998.
- Production Growth: Total hydrocarbon production increased 1.9% to 3.11 million barrels of oil equivalent per day (boe/d). Oil production rose slightly, while natural gas production increased 4.5% to 6.07 billion cubic feet per day.
- Reserves: Proved reserves decreased to 12.36 billion barrels of oil equivalent (mmboe) due to production and sales, though additions of 1.17 billion mmboe exceeded production volumes for the sixth consecutive year.
- Divestments: Significant asset sales included Canadian oil properties, Venezuelan assets, and the Altura Energy joint venture (announced March 2000 for ~$3.6 billion).
Guidance, Outlook, and Risks
- Strategic Targets: Management aims to improve returns by 5-6 percentage points by 2001 compared to 1998 baselines. The financial framework targets a net debt to net debt plus equity ratio of 25-30% and a dividend payout of approximately 50% of replacement cost profit.
- Capital Program: Capital expenditure for 2000 is projected at approximately $10 billion, excluding significant acquisitions. A divestment program targeting $10 billion in asset sales by end-2001 is underway.
- Proposed ARCO Combination: A major pending transaction involves the combination with Atlantic Richfield Company (ARCO). As of March 2000, the deal faces regulatory scrutiny from the FTC and Western States. To address antitrust concerns, BP Amoco agreed to sell ARCO's Alaskan business to Phillips Petroleum for ~$7 billion.
- Other Acquisitions: BP Amoco announced a recommended cash offer to acquire Burmah Castrol plc for approximately $4.7 billion and a joint venture with PetroChina for natural gas marketing in eastern China.
- Risks: Key risks include volatility in oil and gas prices, regulatory approvals for the ARCO merger, environmental liabilities (including the Exxon Valdez spill legacy), and the impact of the introduction of the Euro on European operations.
Investor Verification Checklist
- ARCO Merger Status: Verify the final regulatory outcome of the ARCO combination and the specific terms of the Alaskan asset sale to Phillips Petroleum.
- Restructuring Execution: Confirm the realization of the targeted $2 billion annual cost savings and the timeline for the remaining 4,000 employee terminations expected in 2000.
- Asset Divestment Proceeds: Monitor the closing of the Altura Energy sale and other divestments to ensure they meet the $10 billion target and support debt reduction.
- Environmental Provisions: Review the adequacy of provisions for environmental remediation and decommissioning, particularly given the adoption of FRS 12 which requires discounted provisions.
- Oil Price Sensitivity: Assess the company's exposure to oil price fluctuations, noting that 1999 results benefited significantly from higher realizations compared to 1998.