15 Nov Assume that you are working for one of the companies you have analysed for the group coursework, and that you are required to assess the viability of a new product and service line. Briefly i
Assume that you are working for one of the companies you have analysed for the group coursework, and that you are required to assess the viability of a new product and service line. Briefly illustrate the scenario, i.e., new product / service line and rationale for launching it using market intelligence.
Referring to your chosen product / service line, estimate the underlying costs and initial investment alongside estimation of revenue followed by breakeven analysis. Derive the cash flows from the above estimation. Critically evaluate your results.
*The chosen company is BP.
The new service launch a new service of Auto Insurance service center compiling major auto insurance sellers’plans.
Referring to your chosen company and product / service line, choose the appropriate discount rate considering the company’s risk appetite and support your argument with internal or external data. Complete investment appraisal of the new product / service line using NPV, IRR, Payback Period and Accounting Rate or Return and help the company to make a decision on the new product / service line.
Rationale: huge market and the growing technology of intelligence make insurance selling possible in quick time. Many BP gas stations have charging points for EV cars owners, who spent long time in sites. Promoters have more time to gain potential clients.
Cost and Initial investment.
bp A nnual R
eport and Form 20
-F 2021 Performing
bp Annual Report and Form 20-F 2021
Convenience and mobility
Low carbon energy
By delivering the energy the world needs today…
Performing while transforming
As we transform bp, we remain committed to delivering for our customers, partners, suppliers, employees, society and investors. And the cities and countries we work with.
We are focused on performing while transforming to:
• Grow value and returns. • Deliver compelling distributions. • Invest in the energy transition and
drive down emissions.
In 2021 we made strong strategic progress in our transformation to an integrated energy company:
• Focusing and high-grading our hydrocarbons business.
• Growing our convenience and mobility businesses. • Building with discipline a low carbon
… and executing our strategy to become an integrated energy company.
More information Progress against our strategy, page 16 Sustainability, page 51 Integration, page 14
bp Annual Report and Form 20-F 2021
We deliver energy products and services to our customers around the world, and we plan to do so increasingly in ways that we believe will help drive the transition to a lower carbon future.
We have operations in Europe, North and South America, Australasia, Asia and Africa.
Strategic report 2021 at a glance 2
Chair’s letter 4
Chief executive officer’s letter 6
Global context 8
Energy outlook 10
Our strategy and business model 12
Progress against our strategy: our strategic focus areas 16
Our financial frame and investor proposition 20
Key performance indicators 24
Consistency with the Paris goals 30
Our investment process 32
Group performance 37
Gas & low carbon energy 41
Oil production & operations 44
Customers & products 46
Other businesses & corporate 50
Sustainability 51 Climate-related financial disclosures (TCFD) 55
How we manage risk 73
Risk factors 76
Compliance information 80
Section 172 statement 80
Corporate governance Introduction from the chair 82
Board of directors 84
Leadership team 88
Board activities and governance framework 90
How the board has engaged with shareholders, the workforce and other stakeholders 93
Decision-making by the board 97
Learning, development and induction 100
Board evaluation 102
People and governance committee 104
Audit committee 107
Safety and sustainability committee 114
Directors’ remuneration report 116
Remuneration committee 116
Directors’ statements 142
Financial statements Consolidated financial statements of the bp group 145
Notes on the financial statements 178
Supplementary information on oil and natural gas (unaudited) 254
Parent company financial statements of BP p.l.c. 282
Additional disclosures 337 Shareholder information 367 Glossary 377 Non-GAAP measures reconciliations 386 Signatures 389 Cross-reference to Form 20-F 390 Information about this report 391 Exhibits 391
Our quick read provides a concise summary of the annual report, highlighting strategy, performance and sustainability information.
Our reporting centre brings together our key reports, including our sustainability report, Net zero ambition report and the bp energy outlook.
Glossary Words and terms marked with are defined in the glossary.
See page 377
Task Force on Climate-Related Financial Disclosures (TCFD) Information that supports TCFD Recommendations and Recommended Disclosures in relation to Metrics & Targets is indicated with T .
2 bp Annual Report and Form 20-F 2021
2021 at a glance
In numbers As at 31 December 2021
Our scale Our performanceOur strategy
Safety and sustainability
65,900 employees (2020 63,600)
20,500 retail sites (2020 20,300)
>65 countries of operation (2020 >70)
13,100 electric vehicle charge points (2020 10,100)
2•2 million barrels of oil equivalent per day – upstream production excluding Rosneft (2020 2.4mmboe/d)
$7•6bn profit for the year attributable to bp shareholders (2020 loss $(20.3)bn)
94•8% bp-operated refining availability (2020 96.0%)
$12•8bn underlying replacement cost (RC) profit (2020 loss $(5.7)bn)
94.0% bp-operated hydrocarbon plant availability (2020 94.0%)
2,150 strategic convenience sites (2020 1,900)
62 tier 1 and 2 process safety events (2020 70)
4•4GW developed renewables to FID (2020 3.3GW)
$6•82/boe upstream unit cost production (2020 $6.39/boe)
1•6 million tonnes of CO2 equivalent – sustainable greenhouse gas emissions reductions (2020 1.0/MtCO2e)
Strategic metric, see page 16
Key performance indicator, see page 24
Group performance, page 37
bp Annual Report and Form 20-F 2021
Financial reporting segments Our new financial reporting model came into place on 1 January 2021. This is our first year reporting under this segmental structurea.
Gas & low carbon energyb
Comprises our gas and low carbon businesses. Our gas business includes regions with upstream activities that predominantly produce natural gas, integrated gas and power, and gas and power trading. Our low carbon business includes solar, offshore and onshore wind, hydrogen and CCS and our share in bp Bunge Bioenergia.
Rosneft Includes equity-accounted earnings from our investment in Rosneft.
As a result of bp’s nominated directors stepping down from the Rosneft board, bp has determined that as of 27 February 2022, the group no longer has significant influence over Rosneft taking into account the criteria set out in IAS 28 Investments in associates and joint ventures, bp will therefore no longer equity account for its interest in Rosneft as of that date, treating the investment prospectively as a financial asset measured at fair value within ‘other investments’ until the shareholding is derecognized.
The discontinuation of equity accounting combined with the market impact on Russian assets that has arisen following the military action in Ukraine will have a material effect on the group’s first quarter 2022 interim financial statements including on the carrying amount of bp’s investment in Rosneft, which at 31 December 2021 stood at approximately $14 billion. In addition, foreign exchange losses and other cumulative charges to other comprehensive income will be taken to the income statement. At 31 December 2021, these amounts stood at approximately $11 billion.
Oil production & operationsb
Comprises regions with upstream activities that predominantly produce crude oil, including bpx energy.
Other businesses & corporate Comprises innovation & engineering, bp ventures, Launchpad, regions, cities & solutions; and our corporate activities and functions.
Customers & products Comprises customer-focused businesses, spanning convenience and mobility, which includes convenience and retail fuels, EV charging, as well as Castrol, aviation and B2B and midstream. It also includes our oil products businesses, refining & trading.
$2•1bn RC profit before interest and tax (2020 loss $(7.1)bn)
$7•5bn Underlying RC profit before interest and tax (2020 $0.7bn)
$2•4bn RC profit before interest and tax (2020 loss $(0.1)bn)
$2•7bn Underlying RC profit before interest and tax (2020 $0.1bn)
$10•5bn RC profit before interest and tax (2020 loss $(14.6)bn)
$10•3bn Underlying RC profit before interest and tax (2020 loss $(5.9)bn)
$(2•8)bn RC loss before interest and tax (2020 loss $(0.6)bn)
$(1•4)bn Underlying RC loss before interest and tax (2020 loss $(0.9)bn)
$2•2bn RC profit before interest and tax (2020 $3.4bn)
$3•3bn Underlying RC profit before interest and tax (2020 $3.1bn)
See page 41
See page 48
See page 44
See page 50
See page 46
For a description of our organizational model see page 12
a At 31 December 2020, the group’s reportable segments were Upstream, Downstream and Rosneft. From the first quarter of 2021, the group’s reportable segments were gas & low carbon energy, oil production & operations, customers & products and Rosneft. Comparative information for 2020 has been restated to reflect the changes in reportable segments.
b The AGT and Middle East regions have been further subdivided by asset to allow reporting in either gas & low carbon energy or oil production & operations as appropriate.
See glossary on page 377
The change in accounting treatment also means that bp will no longer recognize a share in Rosneft’s net income, production and reserves from 27 February 2022. For the period from 1 January 2022 to 27 February 2022, any net income from Rosneft will be classified as an adjusting item. The group will cease to report Rosneft as a separate segment in the group’s financial reporting for 2022.
4 bp Annual Report and Form 20-F 2021
Throughout the transition, our goal will be to maintain the high performance and steady progress we have shown since our transformation journey began in 2020.
Helge Lund Chair
Dear fellow shareholders,
In uncertain times, one of bp’s primary roles is to maintain the safe, secure supply of the energy on which societies depend. The importance of that role has rarely been clearer than in recent weeks – a period marked by worldwide energy shortages, record prices and volatility. The causes are complex, but they include the disruptive legacy of the pandemic and Russia’s act of aggression against Ukraine.
At the same time as maintaining secure supplies, bp must pursue its emissions targets and aims, while continuing to increase its supply of energy from low carbon sources.
I believe bp’s strategy gets the balance right. But recent events have demonstrated why, alongside pursuing its strategy, bp must have the agility necessary to make adjustments. Following Russia’s attack on Ukraine, the bp board undertook a thorough review of bp’s involvement with Rosneft in Russia. After careful consideration, the board concluded that bp’s continuing involvement would be inconsistent with our business and strategy. As we said at the time, the board believes that these decisions are in the best long- term interests of all our shareholders.
Importantly, our decision to end bp’s involvement with Rosneft in Russia did not mean that any changes to our strategy, financial frame or shareholder distributions guidance were required. We remain confident that the impact of this decision can be accommodated within the plans we have laid out and refined over the past two years.
Meanwhile, global action on climate remains vitally important. Despite progress at last year’s COP26 in Glasgow, the world remains on an unsustainable path and has yet to move decisively towards a net zero society. Doing so will require building a global energy system capable of delivering affordable, secure and increasingly clean energy, and with energy demand and supply moving in tandem. Building such a system will require collaboration, within the right policy framework, between business, government, academia and civil society.
Achieving all of that will be complex. But that complexity is precisely why purposeful companies need to get involved. Climate change can be addressed more forcefully if the world is able to draw upon high-performing businesses’ capacity to innovate, allocate capital, scale technology and drive efficiency.
4.8% annual dividend yield ordinary share (2020 7.9%)
$4•15bn buybacks announced from 2021 surplus cash flow
$4•3bn total dividends distributed to bp shareholders (2020 $6.4bn)
Progressing with purpose
See glossary on page 377 bp Annual Report and Form 20-F 2021
Strategic progress – performing while transforming As we have said before, the energy transition will be a multi-decade process. It is unlikely always to proceed smoothly and may involve periods of turbulence for reasons that are outside of bp’s control. But throughout the transition, our goal will be to maintain the high performance and steady progress we have shown since our transformation journey began in 2020.
Indeed, in 2021 that progress allowed the company to further reduce debt, increase its dividend, and begin share buybacks – all in accordance with a considered financial frame. Most important of all is that safety performance improves, and bp’s safety record is showing improvements. We continue the constant pursuit of our goal of no accidents, no harm to people, no damage to the environment.
Confidence in bp’s team Every one of bp’s people deserves credit for the achievements of 2021, especially given the disruption imposed by the pandemic. On behalf of the board, I offer them all my sincere thanks.
The confidence I have in bp’s people extends fully to its leadership. For what is still a relatively new team, it has achieved a lot – steadily leading bp through a period of volatility and change. I particularly thank Bernard for his commitment to bp and for his leadership.
Adjusted aims Confident in bp’s strategy, performance and people, the board concluded in February 2022 that bp should accelerate its net zero ambition. I hope that these changes – set out in detail on page 51 – demonstrate that in a fast-moving, complex environment, bp is evolving in a responsive, dynamic way. And I am pleased that bp intends to provide shareholders with the opportunity of an advisory vote on its net zero ambition at its 2022 AGM.
Purposeful engagement Even ahead of that opportunity, we are pleased that shareholders increasingly express their support for the transition that bp is making – recognizing that the company is able to meet both the risks and the opportunities that the energy transition presents.
In fact, the board’s engagement across all of bp’s stakeholders is deeper and more extensive than ever before, whether through drop-in sessions with bp teams, consultation with governments, or meetings with shareholders.
During these conversations, we often hear suggestions for how we can improve. I am always grateful for those suggestions; after all, bp began this transformation journey after listening to friends and critics who told us that bp needed to change. I am glad we listened. We will continue to do so as your constructive criticism makes bp better.
My thanks In our complex world, bp’s guiding light remains its purpose – reimagining energy for people and our planet. To succeed, we must continue to win and grow the trust of our stakeholders, including our shareholders.
I am deeply grateful to everyone who has stood by bp – and equally grateful to the many new shareholders who have joined us on the journey. The past two years have shown that it won’t always be easy, but I am confident that, with your support, bp will continue performing while transforming. The energy transition has already given bp a huge opportunity. Now, we are on our way. Thank you for your support.
Helge Lund Chair 18 March 2022
6 bp Annual Report and Form 20-F 2021
Chief executive officer’s letter
$7•6bn profit attributable to bp shareholders (2020 loss $(20.3)bn)
Performing while transforming bp’s finances are strong and resilient. We are making substantial progress on our strategy to pivot from an international oil company to an integrated energy company.
Bernard Looney Chief executive officer
Direction We set out a new direction: a new purpose, ambition, strategy, financial frame, sustainability frame, and a new leadership team.
Change This year was about change and the largest restructuring in our history – so that we are organized to deliver.
2022 and beyond:
Deliver And now it’s about delivery. The safe, efficient and disciplined delivery of the plans we have laid out.
Performing while transforming
bp Annual Report and Form 20-F 2021
The desperate situation in Ukraine is dominating our thoughts at bp as I write to you. Our hearts go out to everyone affected, especially the people of Ukraine and in the wider region.
As Helge sets out in his letter, we already announced we will exit our involvement with Rosneft in Russia. Our ongoing priority continues to be our employees and their families in Russia. Additionally we are supporting the humanitarian efforts in the region – for example, leveraging our businesses in neighbouring countries, leveraging our global employees’ desire to help, as well as donations to charities.
Like Helge, I am absolutely convinced that the decisions we have taken are in the best long-term interests of shareholders – and consistent with who we are as a company.
Strengthening and improving Against that backdrop – bp’s finances are strong and resilient. We are making substantial progress on our strategy to pivot from an international oil company to an integrated energy company. To repeat words that you may have heard me use before, we are performing while transforming – delivering for you today while preparing bp for tomorrow.
The bedrock, as always, has been safe and reliable operations, day-in, day-out. Overall, we saw improvements in safety during 2021 across several areas. Tragically though, we lost a colleague in a fatal accident at our Castellón refinery in Spain, and a cyclist in the UK died in an accident with one of our contractors’ road tankers. We will remain constantly focused on eliminating accidents, particularly those that take or change lives – nothing is more important.
With this foundation we are building a track record of delivery. We met our target of $2.5 billion of cash cost savings (compared with 2019), reduced our net debta by over $8 billion, and grew returns (ROACE)b to 13.3%. Our operating cash flow for the year was $23.6 billion and our underlying RC profit was $12.8 billion.
This performance enabled the board, in line with our disciplined financial frame, to make a number of decisions in relation to distributions. First, an increase of 4% to the dividend in the second quarter. Second, to return $4.15 billion to you through share buybacks from 2021 surplus cash flow. And third, an expectation that we can deliver buybacks of around $4 billion a year and will have the capacity to increase the dividend per ordinary share by 4% each year through to 2025
– based on our current forecasts at an oil price of around $60 and subject to the board’s discretion.
Progressing our strategy I want to pay tribute to the bp team, not just for the strong performance delivered in 2021, but also the strong progress they have achieved across each of the three pillars of our strategy: resilient hydrocarbons, convenience and mobility, and low carbon energy.
• Resilient hydrocarbons – we started up seven major projects in the year. These are part of a programme of 35 projects initiated in 2016, completed on schedule and, on average, around 15% under budget. We will continue to high-grade our portfolio with four more start-ups planned in 2022.
• Convenience and mobility – we have grown margin share from convenience and electrification from 25% to 29% since 2019c – demonstrating the strength of our customer offers; and we increased the number of EV charge points to over 13,000, installing 115 charging points a week at the end of 2021. We now aim to grow our EV charge points to more than 100,000 globally by 2030, up from our previous aim of 70,000.
• Low carbon energy – our renewables pipeline quadrupled to over 23GW since the start of 2020, and now includes three offshore wind projects in two of the world’s best regions. We have also built a portfolio of options in hydrogen.
You will find more information on our strategic progress throughout this report, including how our trading and shipping and regions, cities and solutions teams are helping to knit together integrated energy solutions for our customers.
Integration in action Nowhere better illustrates the potential of an integrated energy company than our home market of the UK, where in the next few years we anticipate spending £2 for every £1 of profit we make. We plan to continue to invest in the North Sea, to produce much-needed oil and gas while lowering emissions through efficiencies, working to eliminate routine flaring and electrification of our operations. We’re building a new renewables business with large-scale offshore wind projects in the Irish Sea and off the coast of Scotland. As these businesses grow, they can not only power millions of homes but also our growing network of electric vehicle chargers – an increasingly important part of our retail network, where customers come to fuel their vehicles as well as enjoy the growing number of M&S convenience stores on our forecourts.
And looking further ahead, we are leading the industrial regeneration of the north-east of England. Here we have plans for a gas-fired power station connected with a carbon capture and storage system, which will safely lock away the vast majority of the CO2 emissions. And at the same time – we are laying the foundations for a world-class hydrogen sector for the UK.
Opportunity and resilience Given the inherent uncertainties in a decades- long energy transition, we developed bp’s strategy for both responsiveness and resilience – responsiveness to opportunities and resilience to volatility.
In terms of opportunity – we see great potential for our company in five transition growth engines – bioenergy, convenience, electric vehicle charging, renewables and hydrogen. In each of these areas, our skills, networks, assets and brand give us real competitive advantage. There are all in growth sectors where the potential for returns is strong.
In terms of uncertainty, our strategy is designed to accommodate a range of scenarios for the energy transition. This also gives us confidence that it is resilient to the heightened volatility in energy markets arising from the conflict in Ukraine. Exiting from bp’s shareholding in Rosneft will result in some material non-cash charges in our financial results for the first quarter of 2022. Importantly, this does not mean any changes to our strategy or our financial frame, as detailed elsewhere in this report.
In 2020 we set a new direction for the company, with our new purpose, ambition and strategy. That is now done. In 2021 we reorganized the company from top to bottom through the most wide-ranging restructuring in bp’s history. That is also done. We are now focused on one thing and one thing only – the safe delivery of our strategy. Delivering for you, our shareholders, today. Delivering the energy the world needs, today. All while transforming bp for tomorrow.
Thank you for your continued support for and belief in bp – especially through these unprecedented times of challenge and change.
Bernard Looney Chief executive officer 18 March 2022
a Nearest equivalent GAAP measure is finance debt. See Financial statement – Note 26 for more information. b Nearest equivalent GAAP measures of the numerator and denominator are profit or loss for the year attributable to bp shareholders ($7.6 billion) and total equity ($90.4 billion) respectively. c Nearest equivalent GAAP measures of the numerator and denominator are replacement cost profit before interest and tax for the customers & products segment. A reconciliation to GAAP information
is provided on page 354.
See glossary on page 377
8 bp Annual Report and Form 20-F 2021
Energy markets are fundamentally shifting towards low carbon. This is creating challenges and opportunities for our industry and influencing the way we operate. We monitor global trends closely, exploring and tracking the changes shaping our future.
Macroeconomic outlook March 2022
The energy markets are being impacted by the military action in Ukraine, which is adding significant upside pressure to prices. There remains, at this point in time, uncertainty, but price volatility is likely. On the macroeconomic side this is likely to have significant economic and financial consequences for the region and potentially globally.
After a contraction of 3.5% in 2020, global real GDP has rebounded and reached its pre-pandemic peak (of the fourth quarter of 2019) in the second quarter of 2021.
The global economy grew by an estimated 5.9% in 2021, its strongest post-recession pace in 80 years. However, the recovery was uneven amid unequal COVID-19 vaccine access and differences in policy support across the globe.
Growth in developed economies was 5.0% in 2021, driven by a strong recovery in the US, and GDP in emerging markets grew by 6.5%, driven by China.b
Oil The oil market continued its rebalancing process in 2021. Oil demand rebounded with global oil consumptionc increasing by 5.5mmb/d to 96.4mmb/d for the year (+6.0%) on the back of the economic recovery, supported by the increasing vaccination roll-out and gradual lifting of public health measures.
On the supply side, continued active supply management by OPEC+ countries also helped accelerate the rebalancing process, with global oil productiond increasing by 1.5mmb/d to 95.3mmb/d.
Dated Brent prices averaged $70.91/bbl in 2021 – a 69% increase from 2020 levelsd.
Prices rose consistently during 2021, reaching a peak of $86/bbl in late October on the back of a positive macroeconomic outlook, which supported a strong rebound in oil demand. Other factors such as supply disruptions and OPEC+ supply restraint added further upside pressure on prices.
Urals prices in north-west Europe (Rotterdam) averaged $68.65/bbl in 2021, up from $41.71/bbl in 2020e.
Natural gas The global economic recovery supported natural gas demand in 2021, and prices in all three key gas regions rebounded strongly. A series of compounding factors helped to push prices up, with record, unprecedented pricing levels seen in many regions.
Henry Hub prices increased to $3.9/ mmBtu in 2021 from $2/mmBtu in 2020f.
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