BP

Business Context and Reporting Period

This Form 20-F is the annual report for BP Amoco p.l.c. (now BP p.l.c.) for the fiscal year ended December 31, 2000. The reporting period reflects a year of significant transformation, marked by the completion of major acquisitions including Atlantic Richfield Company (ARCO) in April 2000 and Burmah Castrol plc in July 2000. These transactions, along with the dissolution of the BP/Mobil European joint venture, substantially expanded the Group's global footprint in exploration, refining, and marketing.

Key Financial Metrics

Note: Replacement cost profit is a non-GAAP measure used by management to exclude inventory holding gains/losses and exceptional items to reflect underlying trading performance.

Material Changes vs. Prior Period

• Acquisition Impact: The dramatic increase in turnover and profit is primarily driven by the inclusion of ARCO (from April 14) and Burmah Castrol (from July 7). ARCO contributed approximately $12.2 billion to turnover and $569 million to replacement cost operating profit.
• Trading Environment: The Group benefited from a strong trading environment in 2000, characterized by significantly higher oil and natural gas prices and improved refining margins compared to 1999.
• Production Growth: Total hydrocarbon production increased by 4.3% to 3,240 thousand barrels of oil equivalent per day (mboe/d), driven by acquisitions and new start-ups which offset natural declines in mature fields.
• Reserves: Proved reserves increased to 13,594 million barrels of oil equivalent (mmboe), with a reserve replacement ratio of 163%.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Financial Targets: BP aims to maintain a net debt to net debt plus equity ratio of 20-30% (adjusted for acquisition goodwill) and a dividend payout of approximately 50% of replacement cost profit before exceptional items.
• Investment: Annual investment is targeted at $12-13 billion for the 2001-2003 period to support production growth of at least 5.5% annually.
• Cost Synergies: The Group achieved $2 billion in year-on-year cost reductions in 2000, with a revised target of $5.8 billion in total savings by the end of 2001.

Risks and Contingencies

• Commodity Price Volatility: Results are highly sensitive to fluctuations in oil and natural gas prices. A prolonged period of low prices could trigger impairment charges on oil and gas properties.
• Environmental Liabilities: The Group faces significant potential costs for environmental remediation and decommissioning. While provisions are made for known requirements, future costs could be material.
• Regulatory and Political: Operations are subject to government intervention, nationalization risks, and changing tax regimes, particularly in the Middle East and other key producing regions.
• Legal Proceedings: The Group is involved in litigation regarding the Exxon Valdez oil spill (via its interest in Alyeska) and various environmental claims, though management does not expect a material adverse effect on financial position.

Investor Verification Checklist

• Acquisition Integration: Verify the realization of projected cost synergies ($5.8 billion target) and the successful integration of ARCO and Burmah Castrol assets.
• Debt Levels: Monitor the net debt ratio (currently 21% unadjusted, 27% adjusted) against the 20-30% target range, especially given the $19.4 billion net debt position.
• Oil Price Sensitivity: Assess the impact of potential oil price declines on the Group's replacement cost operating profit and potential asset impairments.
• Environmental Provisions: Review the adequacy of the $2.1 billion provision for environmental liabilities and the $3.0 billion decommissioning provision against future regulatory changes.
• Dividend Sustainability: Confirm that the 50% payout policy remains sustainable given the volatility of replacement cost profits and the high level of capital expenditure required for growth.