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BP Annual Report Accounts 2008

BP Annual Report Accounts 2008

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BP Annual Report and Accounts 2008
Information about this report
This document constitutes the Annual Report and Accounts of BP p.l.c. for the year ended 31 December 2008 in accordance with UK requirementsand is dated 24 February 2009. This document also contains information that will be included in the company’s
Annual Report on Form 20-F2008 
inaccordance with the requirements of the US Securities and Exchange Commission (SEC). Such information will be supplemented and may be updatedat the time of filing that document with the SEC, or later amended, if necessary.The Annual Report and Accounts for the year ended 31 December 2008 contains the Directors’ Report, including the Business ReviewandManagement Report, on pages 2-76and89-100,102and191. The Directors’ Remuneration Report is on pages77-87. The consolidated financialstatements are on pages101-190. The report of the auditor is on page103for the group and page192for the company.
BP Annual Report and Accounts 2008 
BP Annual Review 2008 
may be downloaded from
. No material on theBP website, other than the items identified as
BP Annual Report and Accounts 2008 
BP Annual Review 2008 
, forms any part of those documents.
Reconciliation of profit for the year to replacement cost profit
For the year ended 31 December $ million
2007 2006
Profit before interest and taxation from continuing operations
32,352 35,158Finance costs and net finance income relating to pensions and other post-retirement benefits
(741) (516)Taxation
(10,442) (12,331)Minority interest
(324) (286)Profit for the year from continuing operations attributable to BP shareholders
20,845 22,025Profit (loss) for the year from Innovene operations
– (25)Inventory holding (gains) losses, net of tax
(2,475) 222Replacement cost profit
a b
18,370 22,222Replacement cost profit from continuing operations attributable to BP shareholders
18,370 22,247Replacement cost profit (loss) from Innovene operations
– (25)Replacement cost profit
18,370 22,222Exploration and Production
27,602 31,026Refining and Marketing
2,621 5,161Other businesses and corporate
(1,209) (841)Consolidation adjustments – Unrealized profit in inventory
(220) 65Replacement cost profit before interest and taxation
28,794 35,411Finance costs and net finance income relating to pensions and other post-retirement benefits
(741) (516)Taxation on a replacement cost basis
(9,359) (12,362)Minority interest
(324) (286)Replacement cost profit from continuing operations attributable to BP shareholders
18,370 22,247Per ordinary share – centsProfit for the year attributable to BP shareholders
108.76 109.84Replacement cost profit
95.85 110.95Dividends paid per ordinary share – cents
42.30 38.40– pence
20.995 21.104Dividends paid per American depositary share (ADS) – dollars
2.538 2.304
Replacement cost profit reflects the replacement cost of supplies.The replacement cost profit for theyearis arrived at by excluding from profit inventory holding gains and losses and theirassociated tax effect. Inventory holding gains and losses, for this purpose, are calculated for all inventories except for those that are held as part of a trading position and certain other temporaryinventory positions. BP uses this measure to assist investors in assessing BP’s performance from period to period. Replacement cost profit is not a recognized GAAP measure.Effective 1 January 2008, replacement cost profit for the year is determined by excluding from profit inventory holding gains and losses as well as their associated tax effect.Previously,replacement cost profit excluded inventory holding gains and losses while the tax charge remained unadjusted and included the tax effect on inventory holding gains and losses. Comparativeamounts 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 year.For the year ended 31 December $ million2007 2006Replacement cost profitas previously reported17,287 22,253tax effect on inventory holding gains and losses1,083 (31)as amended18,370 22,222Comparative information presented in the’Reconciliation of profit for the year to replacement cost profit’table above has been restated, where appropriate, to reflect the resegmentation, followingtransfers of businesses between segments, that was effective from 1 January 2008. See page 16 for more details.On pages 2-7, references within
BP Annual Report and Accounts 2008 
to ‘profits’, ‘results’ and ‘return on average capital employed’ are to those measures on a replacement cost basis unlessotherwise indicated.BP p.l.c. is the parent company of the BP group of companies. Unless otherwise stated, the text does not distinguish between the activities and operations of the parent company and thoseof its subsidiaries.The term ‘shareholder’ inthisAnnual Report and Accounts means, unless the context otherwise requires, investors in the equity capital of BPp.l.c., both direct and/or indirect.As BP shares,in the form of ADSs, are listed on the New York Stock Exchange (NYSE), an Annual Report on Form 20-F will be filed with the SEC in accordance with the US Securities Exchange Act of 1934. Whenfiled, copies may be obtained, free of charge (
see page98 
Cautionary statement
BP Annual Report and Accounts 2008 
contains certain forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the financial condition,results of operations and businesses of BP and certain of the plans and objectives of BP with respect to these items. For more details, please see forward-looking statements on page14.The registered office of BP p.l.c. is 1 St James’s Square,London SW1Y 4PD, UK. Tel+44 (0)20 7496 4000.Registered in England and Wales No.102498.Stock exchange symbol ‘BP’.1
BP Annual Report and Accounts 2008
Chairman’s letter
2008 was a year we will all remember. There arefew precedents in history for such a rapid and dramaticchange in the business environment. In the space of afew months we went from a record oil price of morethan $140 per barrel, and BP reporting two consecutivequarters of record profits for the group, to a recessionin most of our major markets. Despite this changingenvironment, I am glad to say that BP is in an enviablystrong position in terms of its balance sheet, its assetsand its people.That strength is in no small part due to the periodof critical self-examination the group has undergonesince 2005. The resulting strategy, devised by TonyHayward and his team and endorsed by the board,is already bearing fruit and has put us in a much betterposition to weather the savage economic storms wenow face.The price of oil ended the year at its lowest levelfor more than four years. That has obviously affectedour financial performance. The board understands theimportance of the dividend to investors in these difficulttimes and, despite the weaker environment, we haveheld the quarterly dividend to be paid in March at14 cents per share, compared with 13.525 cents pershare for the same quarter of 2007. In sterling terms,the quarterly dividend is 9.818 pence per share,compared with 6.813 pence per share for the samequarter of 2007. During the year $2.9 billion of shareswere repurchased for cancellation, compared with$7.5 billion in 2007. In response to feedback frominvestors we are now weighting shareholder returnstowards dividends, as opposed to buybacks.The search for my successor has unfortunatelytaken longer than originally expected, in part due tothe turbulent business environment. It is important thatwe find the right person and we envisage making anannouncement in the coming months. In the meantimeI have agreed, at the board’s request, to stay on aschairman and will seek re-election.So, this will be my last annual general meeting.It has truly been an honour for me to serve 12 years aschairman – and before that as a director – of what is oneof the world’s great enterprises. During that time I haveseen BP constantly evolve and, by most measures,nearly double in size. But the underlying principles ofthe international oil company’s business model continueto endure. BP and its peers make the energy marketswork, by forming partnerships with resource-holdinggovernments and applying our technology to bringingsupplies of energy to millions of customers, every day.2008 has been a reminder that the world economydepends on our efforts.
Peter Sutherland
Chairman24 February 2009
Dramatic change in business environment.BP in strong position.

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